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The US is on the brink of recession, and the RMB is expected to rebound
Recently, the market has focused on the issue of the US debt ceiling, but I believe it is a bipartisan political game. From a data perspective, since 1960, the US debt ceiling has been raised 78 times, which means it is raised every few years. Therefore, this increase of $31.4 trillion in debt ceiling is no exception. There is a great chance that Washington can ultimately successfully raise the debt ceiling before government funds run out, as the impact of bond defaults is unimaginable. The debt crisis in Washington has hit market confidence According to historical records, the US debt crisis once led to the downgrade of the US national sovereign credit rating from AAA to AA+in 2011, and the temporary partial suspension of the US federal government in 2013, but there was no US debt default. Therefore, once the national debt defaults, it will set off a new wave of financial market turbulence, and the sharp depreciation of the U.S. dollar, the decline of U.S. stocks, and the rise of U.S. debt interest rates are foreseeable. Against the backdrop of high inflation, an economic recession may be imminent. Therefore, the spread of one-year credit default swaps (CDS) in the United States is much higher than in other countries, such as the interest rate on US bonds maturing in June being raised to over 6% to compensate for potential default risks and the time cost of delaying principal recovery. The consequences of a US Treasury default are severe, so I believe the probability of occurrence is very low. As early as January 19 this year, the US federal government debt model had officially reached the debt ceiling. The Ministry of Finance immediately adopted the audit method known as "unconventional measures" to continue to repay government debt to avoid default. The debt ceiling date referred to by US Treasury Secretary Yellen recently is not a hard day, but an approximate period. The ceiling date will be uncertain with tax and expenditure. The market expects that the cash and special measures of the Ministry of Finance are unlikely to be exhausted before June, so the negotiation time of the US debt ceiling may be longer than expected. To gain all political chips, I believe that both parties will not easily compromise before the deadline. I believe that when the debt ceiling is resolved, the focus of peripheral markets will return to whether the United States will raise interest rates in June and the economic outlook issue. The arrival of the US economic recession and the tightening of credit by small and medium-sized banks have had an impact, and the probability of the US dollar recovering from a decline is very high. Many investors believe that the US debt ceiling crisis has a negative impact on the investment market. I believe that everything can be viewed from multiple perspectives: whether the debt ceiling turmoil leads to a default on US Treasury bonds or not, there is a high opportunity for the US dollar to decline afterwards. In China, the economy continues to improve, the recovery of the service industry is quite strong, and the pace of business environment recovery is steady. There are many opportunities for the RMB to rebound against the US dollar after the debt ceiling issue ends. (The author is senior business director and general manager of financial market department of ICBC Asia)Details+
Hang Seng Index's weak investment strategy should wait and see
Figure: Under the light market, new economy stocks performed best with NetEase, up as much as 7%. The exhausted Hong Kong stocks were unable to rebound with the help of news yesterday. After a slight struggle, the friend was defeated like a mountain, while the friend remained in control the day before the settlement of the futures index. The Hong Kong stock market once again proves that its weakness has not been eliminated, and investors are deeply disappointed by this, which is an understandable response. Fortunately, the market conditions of individual developments have not changed. The Hang Seng Index has fallen, but there are still stocks that have risen. For example, local consortia and real estate stocks showed strong performance yesterday, with Changshi (01113), Hengdi (00012), New World (00017), Taikoo A (00019), Henglong Real Estate (00101), Kerry Construction (00683), Changjian (01038) and others all bucking the trend and rising, quite hard and net. Huikong (00005) continues to repurchase, holding up half of the sky. In terms of Chinese stocks, the domestic silver sector remains the strongest. Bank of China (03988), Agricultural Bank of China (01288), China Construction Bank (00939), Industrial and Commercial Bank of China (01398), China Merchants Bank (03968), Bank of Communications (03328), Postal Savings Bank (01658), and others have all shown an increase. In the energy sector, oil and coal stocks diverged, with oil stocks rising and coal stocks falling. The sluggish coal stocks may be related to the recent decline in coal prices. Power stocks that are sensitive to coal prices also saw a significant increase yesterday, including China Power (02380), Datang Power (00991), Huaneng Guodian (00902), and China Resources Power (00836), all showing good trends. Among them, Huaneng and Datang have the most pleasing increases of 7% -8%. NetEase (09999) was the best new economy stock, with a rise of up to 7%. However, the leading stock Tencent (00700) is not doing well, closing at 313.2 yuan, down 2.8%, reaching a 3-month low. Meituan (03690) closed at 115.8 yuan, a significant drop of 8%. 18500 points in the big market are facing a test The poor performance of Hong Kong stocks yesterday was also due to being one of the few places in the global stock market to fall. Even the mainland A-share index has risen. In the Asia Pacific region, only Hong Kong stocks have fallen along with the Singapore stock market, while Hong Kong stocks have fallen even more compared to Singapore; So in terms of weakness, there is no doubt that the Hong Kong stock market is ranked first within the region. For investors holding Hong Kong stocks, of course, they are not happy with this information. This is related to the failure of the Hong Kong economy to produce a bright performance chart, and the limited influx of new funds into the market, which also limits the rebound of Hong Kong stocks. When the "weak stock" hat can be removed depends on the joint efforts of all parties. Everyone hopes that the foreshadowing made by the SAR government in the first half of the year can be implemented in the second half of the year and truly achieve results. The trend of Hong Kong stocks yesterday was to open low and move low. The low point in the morning was submerged by a round of selling in the afternoon, causing a new low to be seen again in the afternoon. The market closed at 18551 points, down 195 points (1.04%), while the low point was 18517 points, down 229 points. The total transaction volume for the entire day was 110.5 billion yuan, 5 billion yuan less than the previous trading day. At 18500 o'clock, the test is coming again. Continuing to wait and see, keeping the same and responding to changes, seems to be a better strategy.Details+
Former Federal Reserve Chairman Bernanke: Further efforts are needed to reduce inflation, and the impact of the labor market is now greater
Former Federal Reserve Chairman Bernanke, who led the Federal Reserve through the 2008 financial crisis, believes that Federal Reserve officials need to do more to curb high inflation. In an academic paper published on Tuesday, May 23, Eastern Time, Bernanke and former IMF Chief Economist Olivier Blanchard, who co authored the paper, pointed out that efforts to curb inflation need to slow down the consistently resilient US labor market. Bernanke and Blanchard did not suggest in the article to what extent the unemployment rate needs to rise in order to curb inflation, but hinted that the Federal Reserve may emerge from the predicament without seriously damaging the US economy. The article wrote that the estimation model used by the two people deconstructed the different sources of inflation during the COVID-19 epidemic, broken down into the impact of different shocks, and deconstructed the general equilibrium theory effect, hysteresis and connection between the inflation sources acting through inflation expectations and other channels. The two believe that the rise in inflation that began in 2021 was initially mainly driven by the energy market and the shortage of durable goods such as cars, but over time, the tight supply in the labor market began to have a greater impact on the upward trend of inflation. The conclusion of the two is: "In the early days, the tension in the labor market had a moderate impact on inflation, which could explain why inflation might rise significantly when the Phillips curve of wages was flat. Most of the early inflation came from the commodity market, including the price of bulk commodities and the price rise of industries with limited supply. As commodity prices stabilize and supply chains return to normal, the importance of commodity markets in inflation may decline, and the impact of the labor market becomes more prominent. Looking ahead, due to the relaxation of the labor market (i.e. the degree of oversupply weakness) still below sustainable levels, and the mild rise in inflation expectations, we conclude that the Federal Reserve cannot avoid slowing down the economy (growth) if it wants inflation to return to its target level. “ Bernanke and Blanchard believe that after reaching a four-year high last summer, the inflation situation in the United States has changed. Initially, the price increase was due to US consumers using fiscal and monetary stimulus during the government's pandemic to shift their spending on services towards spending on goods, and the supply deadlock exacerbated inflation. Now, inflation has entered a new stage, driven by wage increases that are catching up with price increases. Fortunately, the salary conflict is generally controllable. Bernanke and Blanchard believe that the Federal Reserve needs to address labor market issues. On the one hand, the unemployment rate is at a half century low of 3.4%, and on the other hand, the ratio of jobs to vacancies is still about 1:1.6. The article believes that the impact of the labor market on inflation may continue to increase and will not subside on its own. The inflationary boost caused by the overheating of the labor market can only be reversed through policy actions. Policies need to achieve a better balance between supply and demand of labor. The balance of the labor market should ultimately be the main focus of the central bank to maintain price stability At present, some economists and policymakers of the Federal Reserve believe that inflation may be approaching a steady decline, and high inflation only depends on the government stimulus to household and enterprise spending during the COVID-19 epidemic. For example, Chicago Fed Chairman Austan Goolsbee stated that salary increases have little impact on future price increases and largely reflect past price increases. Wall Street has noticed that during a central bank research seminar with Bernanke last Friday, the current Federal Reserve Chairman Powell's statement seems to be consistent with Bernanke's position in the aforementioned paper on Tuesday. Powell said last Friday that there is still a lot of work to be done in reducing inflation, with the unemployment rate in the labor market remaining low, there are still many vacant positions, and salary increases exceeding price increases. Powell believes that when inflation first surged in the spring of 2021, the relaxation of the labor market was not an important feature of inflation. As the inflation situation changes, the relaxation of the labor market may become an increasingly important factor for future inflation. Powell reiterated that the price increase in the service industry is the most stubborn, and labor costs in the service industry account for a high proportion of total costs. Risk Reminder and Disclaimer There are risks in the market, and investment needs to be cautious. This article does not constitute personal investment advice, nor does it take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are in line with their specific situation. Invest accordingly and take responsibility.Details+
The internal divisions within the Federal Reserve continue to escalate, and a temporary solution has arrived: no interest rate hike in June, and another one in July
The disagreement among Federal Reserve officials over whether to continue raising interest rates or suspend them at next month's FOMC meeting is growing. Some Fed officials have proposed a compromise: 'skip', which means the Fed will not raise interest rates at its June meeting, but will raise them again at its next meeting in July. On Thursday, Dallas Fed Chairman Lorie Logan stated that she is not prepared to call for a halt to the Fed's interest rate hikes. She proposed a plan to skip interest rate hikes in June. Logan said: The data in the coming weeks may still indicate that skipping interest rate hikes in June is appropriate. However, as of today, we have not fully controlled the rise in core inflation rate. She stated that inflation is still too high, and the reason for suspending interest rate hikes at the Federal Reserve's June meeting is not yet clear. Logan said she was open to the meeting held from June 13th to 14th, but expressed disappointment at the lack of progress on inflation. Logan pointed out that in each of the past ten meetings of the Federal Reserve, interest rates have been raised, and the United States has made some progress. As soon as Logan's statement is made, the market expects the possibility of the Federal Reserve raising interest rates to increase at the FOMC meeting held from June 13th to 14th, and the possibility of a rate hike at the July meeting will also increase. According to statistics from Chishang Exchange, the current market expects a nearly 40% probability of the Federal Reserve raising interest rates in June. The market expects that Federal Reserve Chairman Powell may provide investors with more information during his speech at the Federal Reserve meeting in Washington this Friday. Unlike Logan, Atlanta Fed Chairman Raphael Bostic publicly supports a wait-and-see attitude, stating that not raising interest rates in June does not necessarily mean that the Fed has ended its current rate hike cycle: A pause can be to skip this interest rate hike, or it can be a longer pause. There is a lot of uncertainty now, so we must see how things will develop and understand what is the real signal and what is the noise. This will be the information given by the data from week to week. The Federal Reserve has raised interest rates by 5 percentage points over the past year. Although inflation has declined significantly, the inflation rate is still far higher than the target of 2%. Recently, senior officials of the Federal Reserve have expressed their opinions on whether to raise interest rates in June. Unlike the almost unanimous statements before previous FOMC meetings, the current internal divisions within the Federal Reserve are becoming increasingly public. The renowned hawkish official of the Federal Reserve and Cleveland Fed Chairman, Messer, gave the most hawkish voice among senior Fed officials in recent days. She clearly believes that interest rates should continue to be raised: Based on the data I currently have, considering that inflation has always been so stubborn, for me, I do not believe that the probability of the next federal funds rate level rising and falling is equal. Richmond Fed Chairman Barkin emphasized that he is open to the Fed's actions in June. But at the same time, he pointed out that he still hopes to receive a clear signal that high inflation has been defeated. If necessary, he will also support further interest rate hikes. "I really want to know more about all these lagging effects. But I also want to reduce inflation. If it is necessary to raise interest rates more, I would be happy to do so." Regarding the Federal Reserve's signal of suspending interest rate hikes in May, Barkin stated that officials have not yet decided what they will do at next month's FOMC meeting. The information from the last statement is selective and highly uncertain. There are a lot of data to be released before the next meeting. The New York Fed Chairman William, who holds permanent voting rights on the FOMC and is the third largest figure at the Federal Reserve, stated that reducing inflation levels is crucial. The US economy still faces unacceptably high inflation, but has begun to move in the right direction. The US economy is returning to a normal pattern, beginning to see a rebalancing of demand and supply. Although Williams did not specify in detail what he hoped the Federal Reserve would do next month, the analysis pointed out that his speech gave the impression that he was willing to adopt a wait-and-see attitude. We know that it will take some time for our decisions to fully impact the economy. We must make a decision, then observe what will happen, receive feedback, and see how the economy is performing Risk Reminder and Disclaimer There are risks in the market, and investment needs to be cautious. This article does not constitute personal investment advice, nor does it take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are in line with their specific situation. Invest accordingly and take responsibility.Details+
Regulatory situation of cryptocurrencies in some countries
Figure: Regulatory situation of cryptocurrencies in some countries U.S.A If cryptocurrency is packaged as a derivative product or if the activity of cryptocurrency involves market manipulation or fraud, it is within the regulatory scope of the United States Commodity Futures Trading Commission (CFTC). If cryptocurrency has securities attributes, its related activities may be subject to regulation by the United States Securities and Exchange Commission (SEC) Singapore Cryptocurrency is regarded as a tool for exchanging goods, and the Payment Services Act was introduced in 2020. Subsequently, a revised bill was introduced in 2021 and a digital payment token service was introduced to reduce the likelihood of fraudulent payments Japan In 2017, the Payment Services Act (PSA) was introduced, officially recognizing virtual currency as a payment method, and the Financial Services Agency of Japan (FSA) was responsible for developing a regulatory framework and regulating all virtual currency exchanges the republic of korea In 2018, up to six bills were introduced to regulate the cryptocurrency industry, aiming to provide more protection for private investors and address the lack of regulation of virtual currency transactions under current lawsDetails+
With its hands full of wealthy West Coast customers, why hasn't a white knight arrived?
For years, First Harmony Bank had a reputation as one of the favorite banks for the wealthy on the West Coast. This week, the bank was again at the centre of the regional banking crisis after its deposit outflows in the first quarter were worse than markets had expected. Despite Thursday's sharp rebound, the stock is still down more than 50% so far this week and about 95% since the start of the year, with a market value of only about $1 billion. Behind this is the unwillingness of regulators, big banks and potential bidders to help it. One might think that a bank with wealthy clients such as First Harmony might be suitable for any bank looking to develop a wealth management business. Its assets, such as government securities and mortgages to wealthy customers, also seem mostly solid. But the reality is that selling the bank for $1 a share, or even giving it away, could mean tens of billions of dollars in losses for a new buyer. So the "white knight" of the first peace has still not appeared. While 1st Aggregate may wish to ride out the crisis over time, waiting for its bonds and loans to mature or be repaid in full, for the acquirer, under consolidated accounting rules, the buyer must immediately write down the assets it acquires to fair value. In its first-quarter results, the company did not update its fair value estimates for its assets. It had a paper loss of about $4.8 billion on securities it held to maturity at the end of last year, and the value of those assets should recover as yields on government bonds fell in the first quarter. In addition, the fair value of First Harmony's real estate mortgages is about $19 billion below its carrying value. Many of these mortgages paid fixed interest rates, much lower than today's rates. Based on these asset estimates, even after adjusting for lost tax benefits, the amount of writedowns required by potential buyers could wipe out all of the first sum's equity. The company had $18 billion in equity at the end of the first quarter. That means a potential buyer would have to spend a significant amount of extra money to bring its own capital ratios into line with regulatory minimum requirements. "Buying the bank for free could cost you as much as $30 billion," analysts were quoted as saying. In a typical bank deal, the acquirer can rely on intangible assets to offset the reduction in the value of bonds and loans. For example, the acquirer will often recognise some additional value in the acquired bank's deposits, which may be more valuable than the book value suggests because they are cheap or stable. However, it is hard to say how much this part of the bank, which faces deposit flight problems, is worth. Moreover, intangible assets like these do not count towards the regulatory capital required to run a bank. In fact, there are other ways. Banks that buy assets at fair value can then quickly sell them to repay expensive government borrowing or $30bn of unsecured deposits bailed out by big banks. This would reduce banks' size and capital needs. Over time, the value of the assets acquired will rise or be paid off, benefiting the acquirer. However, this method is extremely complicated for the acquirer to calculate. Another option, as reported in the media on Wednesday, is to have several banks buy assets from the first bank at above-market prices, effectively spreading the cost that would otherwise be borne by a single buyer. Yet the reason behind the banks' reluctance to act is that it may only get a good deal for one eventual buyer, rather than a "universal benefit". (Note to Wall Street: Getting several banks to buy assets from First Bank at above-market prices was possible because the banks' $30 billion in deposits with First Bank were not insured. If they think First Harmony is about to go bust, they risk losing the money altogether. Moreover, even if the federal government uses emergency powers to guarantee those deposits, large banks would need to replenish the Federal Deposit Insurance Corporation.) Hence the later modification plan. As part of the deal, several of the rescued banks could receive some form of equity in the form of warrants or preferred stock that could help them all benefit in the future, sources said yesterday. But that would dilute existing shareholders, which is why the bank's shares fell sharply on Wednesday. If none of these plans are resolved, it is possible that the government will arrange a sale, with the acquirer receiving federal support for its losses. But as a Wall Street Journal article noted last week, U.S. officials could call in the banks to try to hammer out a deal, but few believe they can force them to participate. Post-financial crisis rules have greatly limited regulators' ability to provide financial assistance to troubled companies before they fail, for example, by creating programs that benefit only one bank. Many believe the FDIC may ultimately be able to provide assistance only if it takes over banks, wipes out shareholders and changes management. However, the details and scope of the FDIC's support will depend on whether they use the same tool that allowed the FDIC to guarantee all depositors at two institutions that failed last month. Whatever the outcome, someone will have to pay for the failure of the first deal. Risk warning and disclaimer clause The market is risky and investment needs to be cautious. This article does not constitute personal investment advice and does not take into account the particular investment objectives, financial situation or needs of individual users. Users should consider whether any opinion, opinion or conclusion in this article fits their particular situation. Invest accordingly at your own risk.Details+
Jpmorgan: One more rate hike, first cut in September
Bob Michele, jpmorgan's chief investment officer, said on Bloomberg Television on Wednesday that the Fed will raise rates again in May, but will start cutting rates in September. The Fed began a rate-raising cycle in early 2022, raising its benchmark overnight lending rate from zero to 5% in response to the worst inflation in decades. Michele called it "the most aggressive and harmful pace of tightening in central bank history. Interest rate shocks are being passed through the economic and financial systems on a massive scale." Michele still expects another rate hike at the Fed's May policy meeting because the central bank focuses on lagging indicators even though inflation is falling sharply. He said: "The Fed is not done raising rates, and I think they will raise rates again." He added, "It's totally unnecessary." Michele said the rate-raising campaign will start to produce a severe moderate recession by the end of the year, and the central bank will start cutting rates in September because data coming in before then will show the U.S. economy is already halfway to contraction. He expects inflation to be below 3 percent when the Fed starts cutting rates. "Historically, it takes an average of 13 months from the last Fed rate hike to a recession. We said the last rate hike would be in May, and by November, December, it would be in recession." "Halfway through the recession, the Fed started cutting rates, and that's how it opened up in September." In an earlier interview with the media, Michele noted that the shock of the pace of rate hikes makes U.S. regional banks "part of the problem." The same pressures that hobbled Silicon Valley Bank and Signature Bank in March are now plaguing First Bank. He also said: "It would be a bit naive to say the problem is limited to First Bank and the bank." In Michele's view, the main reason for the outflow of bank deposits is that consumers need money to buy higher-priced goods at a time of record high inflation, rather than just chasing higher returns. Risk warning and disclaimer clause The market is risky and investment needs to be cautious. This article does not constitute personal investment advice and does not take into account the particular investment objectives, financial situation or needs of individual users. Users should consider whether any opinion, opinion or conclusion in this article fits their particular situation. Invest accordingly at your own risk.Details+
Bank of America: First weekly net inflows in a month! Last week, $2.3 billion went into U.S. stocks
Hedge funds and buybacks pushed $2.3 billion into stocks last week, the first weekly net inflow in a month, Bank of America data showed Tuesday. Over the past five trading days, $2.3 billion has flowed into U.S. stocks even as the S&P 500 was little changed and many investors remained on the sidelines ahead of earnings from tech giants, according to a report by Bank of America strategists Jill Carey Hall and Savita Subramanian. Hedge funds poured into the market for a second straight week, as did a surge in corporate share buybacks, which accelerated last week to their highest level since October. According to Bank of America data, the top stock category has been technology, which has seen the biggest inflows in three months over the past five trading days. Bofa believes these investors continue to see tech as the story line this year. In other equity classes, financials saw inflows for the first time in four weeks after a regional banking crisis, solid quarterly results from big U.S. banks and better-than-expected results from regional banks across the board. Still, money continued to pull out of consumer discretionary and industrial stocks. Bank of America analysts wrote in the report: Our research shows that long-only funds have liquidated all cyclical stocks except industrials. Bank of America also highlighted that clients last week started buying individual stocks as well as selling ETFs: Cumulative year-to-date flows suggest the gap between money flowing into equities and money flowing out of ETFs is at a record high. Earlier, data from DataTrek Research showed that international stocks generally outperformed U.S. stocks in the first quarter of this year, decoupling from U.S. stocks to an unusual degree. DataTrek co-founder Nicholas Colas said: Non-u.s. stocks decoupled from U.S. stocks to a statistically unusual degree in the first quarter. That, combined with outperformance in non-U.S. equities, could signal more money will flow from U.S. stocks to international equities going into the second quarter. Risk warning and disclaimer clause The market is risky and investment needs to be cautious. This article does not constitute personal investment advice and does not take into account the particular investment objectives, financial situation or needs of individual users. Users should consider whether any opinion, opinion or conclusion in this article fits their particular situation. Invest accordingly at your own risk.Details+
Us asking G7 to ban all exports to Russia? Allies oppose!
The European Union and Japan have opposed a US proposal for a total ban on exports to Russia from G7 countries as part of negotiations ahead of the summit of the world's most advanced economies. G7 leaders will hold a three-day summit in Hiroshima on May 19 to focus on the fallout from the Russia-Ukraine conflict, economic security, green investment and the Indo-Pacific region. G7 leaders are drafting a statement for their meeting in Hiroshima next month that includes a commitment to replace the current sector-by-sector sanctions regime against Russia with a blanket export ban with a few exemptions, according to the Financial Times. Exemptions include agricultural, medical and other products. Representatives of Japan and European Union countries said at a preparatory meeting last week that such a move would not be feasible. One of the officials, speaking on condition of anonymity, said: "From our perspective, that's simply not feasible." The G7 comprises the United States, Germany, the United Kingdom, France, Japan, Italy and Canada, while the European Union is an informal member. In the case of the EU, for sanctions to take effect, all 27 member states must agree. The EU has agreed a package of 10 sanctions against Russia since February 2022, but only after weeks of wrangling among member states, some of which secured exemptions for some of their industries by threatening to veto the measures. Risk warning and disclaimer clause The market is risky and investment needs to be cautious. This article does not constitute personal investment advice and does not take into account the particular investment objectives, financial situation or needs of individual users. Users should consider whether any opinion, opinion or conclusion in this article fits their particular situation. Invest accordingly at your own risk.Details+
Gold's Rally: Central Banks' Revolt 'Accelerates' De-dollarization'
The oldest, traditional asset of all -- gold -- is becoming an important tool for central banks against the dollar. Gold prices have risen more than 20 percent in the six months since last October. The main driver of this rally has come not from investors seeking to hedge their risks but from central banks looking for an alternative to the dollar. Gold purchases by central banks rose 152% year on year to 1,136 tonnes in 2022, according to the World Gold Council. By February, the world's central banks had recorded 11 consecutive months of net increases in gold reserves. Countries have bought 125 tonnes of gold so far this year, making 2023 the strongest start to the year for gold since 2010. Among the top 10 buyers of gold, Russia, India and China are also in talks with countries such as Brazil and South Africa to create a new way of trading away from the dollar. The trend points to an accelerating "de-dollarisation" of the world, particularly in developing countries, which need gold as a backstop to help keep their currencies away from the dollar. An annual survey of 83 central banks managing a total of $7 trillion in foreign exchange assets found that more than two-thirds of respondents believed they would increase their gold holdings by 2023. The consequences of the "weaponization" of the dollar: Countries push to de-dollarize Global trade has been based on the dollar since the end of the second world war, but why are more countries choosing to "blow up"? This is because the US and its Allies are increasingly using financial sanctions as a weapon, argues Ruchir Sharma, head of Rockefeller Capital Management's international practice, in his FT column. By some estimates, up to 30% of countries now face sanctions from the United States, the European Union and Japan, up from 10% three decades ago. But until the conflict between Russia and Ukraine, the targets of sanctions imposed by the United States and its Allies were usually small countries, until Russia was slapped with sweeping sanctions that cut Russian banks off from the dollar-based global payments system. Suddenly it dawned on everyone that any country could be targeted under this system. The number of countries considering issuing their own digital currencies has reportedly tripled since 2020 to more than 110, representing 95% of global GDP. Many countries have begun testing the use of these digital currencies for bilateral trade. Sharma said the "weaponization of the dollar" has severely undermined the trust that countries had built up in the past, while doubts about the ability of the United States to repay its debts are also undermining its status. As Brazilian President Luiz Inacio Lula da Silva said during a visit to the New Bank's headquarters in Shanghai this month: I wonder every night, why do all countries settle in dollars? Why can't the renminbi or some other currency be the international settlement currency? Why can't the BRICS bank lend in its own currencies? I know you're all used to dollars, but we can do things differently in the 21st century. In addition, Acorn Macro Consulting, a British economic research firm, notes that in 2022, for the first time in history, the share of GDP of the BRICS countries (Brazil, Russia, India, China, and South Africa) exceeded that of the G7 countries (Canada, France, Germany, Italy, Japan, the UK, and the US) on a purchase parity basis. While the G7 membership remains the same, the BRICS countries are growing, with Argentina and Iran having submitted applications and other major regional economic powers such as Saudi Arabia, Turkey and Egypt expressing interest in joining. As the prospect of continued global domination by the dollar fades, the G7 and BRICS are on opposite tracks: it may not be too long before the BRICS actually surpass the G7 in real GDP, not just purchasing power parity. Risk warning and disclaimer clause The market is risky and investment needs to be cautious. This article does not constitute personal investment advice and does not take into account the particular investment objectives, financial situation or needs of individual users. Users should consider whether any opinion, opinion or conclusion in this article fits their particular situation. Invest accordingly at your own risk.Details+
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