March 17, 2022

The Dollar's "Market Share?"

For many years I was an institutional salesman. Selling our service to banks, thrifts, broker-dealers, and other financial institutions. And as you'd guess in this role I was responsible for bringing in new business to our firm.

But, perhaps surprising to many, my other duty was to retain the clients that we already had. In fact, when times were tough, retention was my primary responsibility.

As an old boss used to say, it's three times harder to bring in new business, than it is to keep the business you already have. It's a principle that every business person understands. Client retention is always the first priority.

It's the reason you get those numerous emails when you've made an online purchase, or registered a product online. They want to make you happy. They want to keep you coming back.

Now, I'll tell you from an old salesman's perspective, the US Dollar is in serious trouble right now. Not only is the dollar losing business, but as those clients walk out the door, they're bad-mouthing us.

Let's begin with the basics.

First of all the US Dollar is an extremely valuable franchise. Not only does it represent the world's largest economy. It is backed up by the full faith and credit of the US Government. And it has the largest most secure central banking system globally.

Therefore the dollar is something that should be preserved and defended. I know this sounds so elemental, as to be almost ludicrous.

But, we have a group in Washington right now, that treats the dollar as if it's an old hat. No big deal. They don't seem to care if it prospers or fails.

Now in addition to the Dollar's other attributes, of creditworthiness and stability. Since the end of World War II, the dollar has also been the world's reserve currency.

Meaning that most major cross-border financial transactions have been priced in Dollars. And each major international bank must hold US Dollars in reserve.

Put all that together, and you can see why international financial institutions, governments, and others look to the Dollar as their “go-to” currency of choice.

So, how is the Biden Administration managing our dollar? Promoting it to the rest of the world?

The answer is: not well. Disastrously would be the closest description.

Since the moment Joe Bidden stepped into the White House, it is almost as if he choose to denigrate the Dollar.

First, he has spent money like no one else in history. In just his first year in office, Joe Biden has increased the nation's debt from 27.8 trillion to 29.9 trillion. A Jump of $2 trillion dollars in just the first year. The largest first-year increase for any President.

It goes without saying, that debt like this is not positive for a currency that must defend itself as the world's reserve.

Second Biden is the first President to politicize the SWIFT System. That international settlement system, that being the principal way the Dollar has maintained its reserve status.

As noted, transactions on the Swift system are denominated in dollars. But Biden has chosen to punish (quote-unquote) Russia for their Ukraine incursion, by taking them off Swift.

The danger, of course, is that Russia may find a non-Swift world to be not so bad after all. And that appears to be exactly what's happening. As Russia has sided up with China, and their CIPS system, and seem to be doing just fine without the Dollar and Swift.

Finally, this gets back to my days as a salesman. Biden and his administration seem not to be playing defense at all. There is absolutely no effort exerted in retaining international clients on the US Dollar system.

Just this week, India has been exploring moving much more of its oil imports to Russia. India imports about 80% of its oil and gas.

But up to now, Russia has only sold India about 2%. Moving India over to Russia as a supplier, and pricing it all outside of the US would be a big blow to the so-called petro-Dollar. But have you heard a peep about Biden sending a delegation to India?

Biden is simply not a deal maker, as the former President was. But it's more than that, apparently, he simply doesn't even see the need to defend the SWIFT system, or for that matter the US Dollar.

There are three more years left in the Biden Presidency.

Of all the things that are likely to change during that time. I believe that one of the most significant will be the changes that are coming for the US Dollar.