The last few weeks have seen a couple of interesting developments on the USD front.
1. Japan's Government Public Investment Fund (GPIF), one of the largest pension funds in the world with with over $1.6 trillion in assets, announced it had cut its US treasury allocation significantly. More specifically, they cut it from 47% of the total portfolio to 32%. That is tens of billions of dollars in treasuries.
2. Russia reported that it has continued shifting from the USD to the Euro to settle much of its trade with China. You'll see in the chart below that it has happened pretty quickly.
This all got me thinking, which is always dangerous. Is the US in a more precarious position than we might understand given so much hinges on its status as one of the two global reserve currencies (I would argue gold is the other)? Think about how reactive they have had to be of late:
1) Getting pulled off the CBDC sidelines as virtually every other central bank in the world threw its hat in the ring. Cross border digital settlements could become a LOT easier relative to the archaic dollar based system that now exists.
2) This strange new thing called Defi where a parallel savings system, seemingly coming from out of nowhere is starting to emerge. See below for a graph from Defi Pulse that shows how quickly it has grown over the last year. This has largely been made possible by the growing trust in stable coins.
If I'm the government and 1) am already struggling to sell new treasuries at the prevailing rates 2) Have a congress that for decades has been completely out of control in terms of spending, no matter which party is in office and 3) have other countries around the world are dumping my debt, I'm probably not that crazy about the prospect of Defi getting too big too fast.
Given many people view the USD as the best house in a bad neighborhood, it doesn't seem there are really any good alternatives.
Pass the BTC please.
PS- This is not financial advice.