| | | [ Do you think or know if Asian Central Banks will continue to accumulate gold reserve at any cost? ]
Here's how I look at it. Others will see it much differently.
If I'm a country (Kiisu-no-kuni ¹) with businesses selling products to entities in the US, those transactions will be priced in US$ and my businesses will receive US$ as payment.
After receiving payment, my businesses will exchange the US$ they've received for local currency to pay their employees and to satisfy their other normal expenses in order to continue operation.
The US$ will (via one or more steps) accumulate in the Kiisu-no-kuni central bank.
In the past the Kiisu-no-kuni central bank exchanged a largish fraction of its accumulated US$ for Uncle's debt -- in the form of US Treasuries -- and as a consequence received a positive return on investment.
However, given Uncle's actions over the past few decades ², that no longer appears to be as wise a choice as it once was.
Thus in order to protect my citizens, businesses, and central bank will sell most, perhaps all, of the US Treasuries I hold and will instead buy an asset far more difficult for Uncle to freeze or confiscate -- physical gold held within my borders.
As long as my businesses continue to sell to entities in the US, they will continue to accumulate US$. However, 'cause the US$ has gradually transmogrified into a semi-toxic wasting asset ³, will no longer exchange 'em for Uncle's Treasuries, but instead will exchange 'em for gold and (on occasion) other hard assets 4.
From my perspective as Kiisu-no-kuni the return ON my investment -- achieved by buying Uncle's Treasuries was nice. However, the return OF my investment -- achieved by buying hard assets that Uncle cannot easily freeze or confiscate has become far more important.
Best wishes,
Kiisu
1. In Japanese, literally "Kiisu's country".
2. Among other reasons, Uncle's:
(a) massively ballooning debt[A].
(b) expansion of money supply.
(c) current fondness for both primary and secondary sanctions.
(d) zeal for freezing the dollar denominated assets of those with whom he disagrees that are within his reach. Looking ahead, it seems reasonable he might eventually confiscate those assets.
3. [ ... wasting assets are assets that have a limited lifespan and tend to decrease or lose value over time. Because wasting assets have $0 or even negative value at the end of their useful life, traditional valuation methods are often unsuitable... ] ht tps://www.foster.com/newsroom-publications-wasting-assets-publication-kinnon-williams
4. [ Central banks have crossed a symbolic line: their combined gold reserves now exceed their U.S. Treasury holdings for the first time in nearly three decades.
The crossover underscores a gradual diversification away from dollar-denominated securities and toward hard assets.
. . .
Crossing above Treasuries signals that reserve managers are prioritizing durability, portability, and neutrality over yield. ] ht tps://www.visualcapitalist.com/central-banks-now-hold-more-gold-than-u-s-treasuries/
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A. ht tps://fred.stlouisfed.org/series/GFDEBTN
B. Valéry Giscard d’Estaing called Uncle's ability to expand the supply of US$ an exorbitant privilege -- a privilege Uncle has seriously abused over the past 50+ years -- if the abuse continues, which I believe likely, Uncle will fritter-away that privilege.
Valéry Giscard d’Estaing [ gained prominence in the mid-1960s as President Charles de Gaulle’s youthfully imperious finance minister. He supported return to a world monetary system based on the ‘eternal’ role of gold, eliminating the reserve currency status of the dollar and sterling. In that period, mixing disdain with envy, he coined the phrase ‘exorbitant privilege’ describing the benefits accruing to the world’s prime reserve currency. The expression, which some experts attribute originally to legendary economist and Banque de France eminence Jacques Rueff, was taken up by de Gaulle to criticise America’s prosperity to issue depreciating dollars and fund massive profitable foreign investment. ... ] ht tps://www.omfif.org/2020/12/giscard-destaing-architect-of-euro-and-sdr/
See also:
. ht tps://fred.stlouisfed.org/series/M2SL
. ht tps://en.wikipedia.org/wiki/Exorbitant_privilege |
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