The Demise of Dollar Dominance?

That’s the title I gave for an essay published in the Nikkei today:

[Link to article]

Here’s the text in English:

 

Every decade, the debate over the dollar’s role as the world’s premier currency returns: will America’s currency be dethroned by another country’s? In the 1970’s, it was the Japanese yen or the Deutsche mark. Then with Economic and Monetary Union, the euro was viewed as a contender. In the last decade,  the renminbi took up the role as possible aspirant. Where do we stand in 2022?

Before answering that question, it’s important to remember that the one that thing has proven true over the past forty years is the durability of the dollar’s primacy, as shown in Figure 1 — through the global financial crisis, and through the covid pandemic. The dollar remains the primary currency in the holdings of central banks around the world. While there is some uncertainty regarding the exact shares held in each currency (since some central banks do not report the composition of their holdings), the dollar accounts for about 60% of total, far above the euro’s share in the low 20’s. Despite the much heralded rise of China’s currency, the renminbi, its share had only risen to 2.6% by the end of 2021.

Figure 1: Share of foreign exchange reserves in USD (blue), Deutsche mark (orange square), euro (orange line), British pound (red), Japanese yen (green), Chinese yuan (pink). Source: Chinn and Frankel (2008), and IMF COFER.

If we look at other dimensions of the a currency’s role – as a unit of account, a medium of exchange and a store of value – it’s not clear that dollar dominance is under serious threat. About 40% of world trade is invoiced in dollars, somewhat more than that in euros. In terms of foreign exchange trading, the dollar remains by far the dominant currency with 88% of 200% total turnover in dollars. In terms of international messaging for financial transactions (i.e., via SWIFT), the dollar remains a leader, accounting for over 40% of activity. The euro follows at about 35%. Why the handwringing, then?

Sanctions Blowback

Doubts over the dollar’s dominance have come as the sanctions regime imposed on Russia has seemingly struck a crippling blow against the economy. It is thought by some that this demonstration of vulnerability would spur other countries to move away from dollar dependence.

Part of the drama came from sanctioning a major power central bank, since the functioning of the monetary authorities were thought to be protected. In this case, the US, along with Western allies, threatened sanctions against financial institutions engaging in activities with Russian banks, including the Central Bank of Russia. But a substantial portion Russian foreign exchange reserves were held in Western central banks. Not only were financial transactions curtailed, the Russian central bank couldn’t access perhaps a $100 billion of its reserves.

This seeming success contrasts with conventional wisdom regarding the efficacy of financial sanctions. Over previous decades, the US had imposed economic sanctions as a means of trying to alter the behavior of other countries, from Cuba to Libya and to Iran. US attempts to induce Iran to come to an agreement on limiting nuclear proliferation included sanctions, some of them termed “smart sanctions” – targeting individuals and industries, rather than whole economies. While the view of sanctions efficacy was more effective in the wake of the short lived achievement of the Joint Comprehensive Plan of Action (JCPOA) involving Iran, there was still skepticism that sanctions could deter – or constrain – further Russian aggression in the Ukraine.

The wholesale damage wreaked upon the Russian economy has cast a new light on sanctions efficacy. The Russian economy is slated to shrink by 30% by the end of 2022. More importantly, the long term impact of cutting the economy from Western technology and imports is likely to set the Russian economy back decades. The ruble has recovered to its pre-war levels, but this seeming resilience is only a surface gloss; the recovery has been achieved by imposing stringent capital controls, restricting the purchase of foreign exchange, and forcing firms to surrender export proceeds earned in foreign currency.

What makes the effect of sanctions all the more surprising is that Russian policymakers had spent the years after 2014 invasion of Ukraine insulating the economy against economic sanctions. In particular, a hoard of foreign exchange was amassed. This all seemingly demonstrated the enormous power afforded the United States by the dollar’s privileged position as the world’s currency.

Will this dramatic demonstration inspire dedicated moves to diversify away from the dollar, in a way that has not occurred in the past? I think the answer is no.

A Farewell to the Dollar?

The first reason I think it unlikely is that it is extraordinarily difficult to move away from using the dollar, along many dimensions. Consider foreign exchange reserves: Central banks tend to accumulate foreign exchange reserves in the currency in which they are earned – either in exports, or in capital inflows. A large share of export earnings in world trade are invoiced in dollars. About 40% of cross border debt is issued in dollars. In order to change the currency shares of reserves away from the proportions in which they are earned, central banks would have to be determined in selling dollars and buying other currencies such as the euro, pound or yen. This would be an expensive proposition to the extent that markets for assets denominated in these other assets are less liquid, and hence harder to get in and out of. In other words, diversifying reserve holdings out of dollars would be an expensive proposition. Countries would have to incur costs over long periods (holding less secure assets) just to be less reliant on dealing in dollars in the event of a conflict

The second reason I think a concerted move from the dollar is not going to happen is because, in some ways, doing so would be taking the wrong lesson from the events of 2022. It is the multilateral nature of the sanctions that have made them so effective, rather than the fact that the US dollar is involved. Western central banks have frozen Russian foreign reserves held with them (only a portion of reserves are held with the Central Bank of Russia), so that only about $60 billion of the $160 billion was accessible at the end of February.

Case in point, China’s policymakers have apparently concluded that, at least in the short term, there is little way to insulate itself from the type of sanctions treatment meted out to Russia (something on their minds considering the elevated tension between China and Taiwan). In a high level meeting of regulators and bankers in April, leaders concluded that such treatment would devastate the Chinese economy, given the innumerable trade and financlal linkages between the West and China. Even now, Chinese firms have carefully refrained from dealing with sanctioned Russian banks, in order to prevent being sanctioned themselves. But it is not the dollar’s dominance, but rather the dominance of Western finance, and financial infrastructure, which drives Chinese restraint.

But What about the Renminbi?

Throughout the 2010’s, China’s ascent was made manifest by its overtaking of the US economy’s size (at least in purchasing power parity terms). It seemed obvious that an international dominant currency was only a matter of time; the inclusion of the renminbi into the IMF’s Speacial Drawing Right (SDR) seemed to signal the renminbi’s (RMB) time had come. Between 2015 and 2020, the CNY rose from nil to 2% of forex holdings.  Turnover in CNY rose from 0% in 2001 to 9% (out of 200%) by 2019.

But no currency can become a major international currency as long as strong restrictions on exist on the cross-border transactions. For some time, it looked as if China had opted for a more open international financial regime. However,  since the ascendance of Xi Jinping, it seems that greater financial openness – and the reduction in economic autonomy that would attend it – is no longer a priority. By default, then, a path for the RMB for dominance is now foreclosed. The RMB is already an important regional currency, and will become increasingly so, but its path to being the global currency is now blocked.

So What’s Going to Happen

The dollar is going to retain its dominance because network externalities associated with being a key currency are so strong. That dollar dominance is so strong that a rapid erosion is hard to conceive of. That doesn’t mean that other currencies might not rise in importance (e.g., Australian, Canadian dollar, etc.), other systems for clearing and messaging transactions might develop enough to rival the current incumbents. For the next decade, the international currency regime is likely to look much the same as it does now.

46 thoughts on “The Demise of Dollar Dominance?”

  1. ltr

    Really nice essay.

    However, the World Bank is currently estimating a 2022 shrinking of the Russian economy of less than 9%: “The Russian economy is slated to shrink by 30% by the end of 2022.” The difference in estimates may need an explanation.

    Also: “However, since the ascendance of Xi Jinping, it seems that greater financial openness – and the reduction in economic autonomy that would attend it – is no longer a priority.” Paul Krugman argues that for a developing economy autonomy is to be preferred and I would agree.

      1. ltr

        I am sorry – where does Paul Krugman argue that autonomy is to be preferred for a developing economy?

        [ In lecture, in response to a question * several years ago. Krugman also argued that there was no reason to be concerned as to whether the dollar remained dominant Krugman held, loss of dominance would be no problem.

        * Not my question. The term “autonomy” was used here by Menzie Chinn, and I assume autonomy means that China will not be limited in space exploration because any other country might wish a limit on China. China “needs” the technology advance of space exploration, beyond “financial openness.”

        The essay by Menzie Chinn is terrific and I only respectfully set down a couple of thoughts. I have no argument with the essay. ]

        1. Moses Herzog

          @ ltr
          Date/Time Title/Topic of your imaginary Krugman unicorn lecture??

          The answer to this should be as fun as watching a Dr. Rosser reply where he says he didn’t say what he said in a prior thread link located (because I put it there) 2 inches above the comment he’s saying he didn’t say it.

          1. ltr

            The answer to this should be as fun as watching a — —— reply…

            [ This poison-penned writer has repeatedly bullied and sought to intimidate readers of this blog. ]

          2. Moses Herzog

            NO answer. Exactly as I thought. It’s not enough for ltr to spout lies on this blog 365 days a year. He also has to misquote Krugman and the World Bank. Bravo. But try harder. Dr. Rosser misquotes his own self 2 inches away from links proving he said the near reverse. If you can do that you’ll really be flexing your muscles in creating alternative reality. Go all the way.

          3. Moses Herzog

            The funny thing about “ltr” (who BTW I still assume to be male) is he, I don’t know how to say it, “collaterally” (??) causes me to revisit certain things in my mind. And “funny” thing (“funny” meaning like “quirky” here) is as much as I have openly confessed to have strong “mixed” love/hate feelings to China are, If there was an actual mainland Chinese commenter on this blog they would probably be surprised the amount of courtesy I would extend to them. i.e I would NOT expect/ask them to insult or “bad mouth” the Chinese government. And I owe enough of a debt of gratitude and indebtedness to the circle of Chinese who were kind/gracious/considerate to me in my time there to extend the “Nth degree” of courtesy to any mainland Chinese who might happen upon this blog. But I list ONE proviso to that: You have to have a mild/passing interest in anything related to truth and reality.

            And again that doesn’t mean I expect them (or even want them) to be blunt about this current Chinese government. Just not working overtime in telling lies. That’s all I would ask. Then, maybe next to Menzie, I would be the nicest person to them in this blog’s confines.

          4. Barkley Rosser

            Thanks, ltr for pointing out Moses’s bad behavior.

            I shall use another comment to remark on the matter of Krugman’s views.

            Moses,

            You are simply lying here, not for the first time. I have never denied saying inaccurate things. I have readily admitted the one inaccurate thing you have repeatedly quoted here on Russia-Ukraine that I said for about three days back in mid-February about whether Russian troops exercising in Belarus would be used in a fill-scale invasion of Ukraine, often emboldening these repeated quotes for emphasis.. Somehow you have completely failed to note that after a few days of making that inaccurate forecast I retracted it and reverted to discussing the probability that they might be used for such an invasion.

            On other matters involving the entire Russia-Ukraine situation where you have attempted to claim that I either I lied or said something I should somehow be embarrasssed about, you have completely fallen on your face, and I have stood by all of these other things that you have also quoted, occasionally with your patented emboldening, You keep throwing some of these at people here even after it has been pointed out you are either misrepresenting something or just outright lying about it, which you have done repeatedly.

            OTOH, you have issued a string of erroneous statements here on this matter, some of them pathetically ridiculous, with it would seem barely a shred of embarrassment, with Menzie having to correct you on several occasions, something he has yet to do with me on this topic ever. I am not going to waste peoples’ time by again pointing out these examples now as I have done so several times previously.

          5. baffling

            [ This poison-penned writer has repeatedly bullied and sought to intimidate readers of this blog. ]
            just to be clear, ltr has tried to bully and silence me with slander and false accusations. ltr is no innocent victim here.

          6. Moses Herzog

            I rarely rarely misquote our fair-haired “Russian expert” on anything. But because he often asserts I do this all the time, I include copy/paste quotes, with the attached link to the quote:
            https://econbrowser.com/archives/2022/02/predictions-oil-prices-and-recoveries-and-recessions#comment-268846

            February 23 Barkley Rosser said: “According to a long story in today’s WaPo, people there [ Kharkiv ] are pretty calm, although according to you they should be running around freaking out. It may be that they are all a bunch of fools. But in fact I suspect another element of this is that because the city is dominated by ethnic Russians, they figure that life will go back to normal if they get conquered. But all accounts they do not support Putin or an invasion. But if it happens, they will move on.”

            I posted this video of Kharkiv only 5 days after Barkley Rosser said the above about Kharkiv:
            https://www.rferl.org/a/ukraine-russia-kharkiv-fighting/31726554.html

            For extra measure, so Dumbo in Harrisonburg gets the point (Barkley is always slow to the take when being shown to be an A$$-hat) Here’s more footage of “ethnic Russians” in Kharkiv from April:
            https://www.rferl.org/a/ukraine-kharkiv-damage/31781744.html

            Well, Dr. Rosser is right again, life has “gone back to normal” in Kharkiv, and “they will move on”. Dr. Rosser sure knows Russia well, aye folks?? He told us he’s “an expert on Russia” and one could hardly doubt it after his foresight in Kharkiv. Dr. Rosser knew Kharkiv residents would all be having belly-laughs after the invasion and I’ll be damned if Barkley didn’t work magic with his crystal ball again.

          7. Barkley Rosser

            Moses,

            There you go again, either failing to know know how to read or how to think. You keep reposting this particular quote of mine, which happens to be completely accurate and that I stand by. It reported on a WsPo article that noted both that residents of Kharkiiv were calm but also that they opposed Putin and an invasion by him.

            The part that seems to have you posting these completely irrelevant photos of bombed out sections of Kharkiv I am sure is the part where I speculated on what might happen there if Kharkiv were to be conquered by the Russians. But as I have to keep pointing out, that did not happen, so in fact we do not know what would have happened. I made no forecast regarding if they would br conquered. You just have nothing here with this constant reposting other than making yourself look like a total idiot yet again.

            I shall note, yet again, that looking at the city you stupidly confused with Kharkiv, Kherson, how we might see what would have happened in the case I speculated about, if Kharkiv had fallen. Kherson fell early on, reportedly partly due to the connivance of its mayor and some of his cronies with the Russians. There are reports of occasional scattered resistance and also of “disappearances,” as well as the city government not providing full public services, especially medical care. But in general there is not a mass uprising. It seems that the city is government is moving forward with Russifying the place, introducing use of the ruble and Russian TV and other things, and that mostly the place is operating in a relatively normal fashion. It is about as much of a Russian speaking city whose pro-Russian attitudes were probably fairly similar to those in Kharkiv prior to the invasion, not supporting the invasion. But now that they are conquered, they are not engaging in massive resistance, and I think that if Kharkiv had indeed fallen, which I am glad it has not, we very likely would have seen an outcome fairly similar to that in Kherson.

            When are you going to figure out that by repeatedly quoting completely correct things by me you are just making yourself look ever more foolish? Oh, and do you think maybe Kherson is actually in south east Romania along with Russian troops carrying out exercises in south Belarus?

          8. Moses Herzog

            Here’s some more good ones, here are a couple of quotes from February 22, literally two days before the war began, from Barkley Rosser:
            “There has been no ‘invasion on the norhern [Sic] border’ and they were exercises, assuming you are talking about the Russian troops in Belarus.”

            “But this was the result of an invitation. That is not an ‘invasion.’ “

            February 18th comment, when he thought Russian soldiers were in Belarus because it was the cigarette break area outside the office:
            “BTW, it may be that Russian troops will stay in Belarus after the exercises are over, and they are still going on and will end on Sunday, although earlier somewhere you declared that this was all nonsense based on nothing. Anyway, in WaPo today I saw that Lukashenka is talking about how he may ask Putin to leave some or all of the Russian troops in Belarus once the exercises are completed on Sunday, when they are supposed to return home, as was loudly advertised on Russian media about a week ago.

            Needless to say, Lukashenka may be facing a possible invasion from Ukraine, with Zelensky having written a manifesto some months ago about how Belarus should be united with Ukraine under the rule of the latter. So he may well need those Russian troops for self-defense, the poor thing.”
            https://econbrowser.com/archives/2022/02/wells-fargo-pressure-gauge-for-supply-chain-pressures#comment-268345

            Notice that Barkley thinks Zelensky will ask Russian troops to help defend Ukraine from Lukashenko, and refers to Zelensky as “the poor thing”. That’s how far gone Barkley is into dementia.

            Barkley Rosser’s dementia continues on, February 18th, 6 days before Russian invasion from south Belarus begins …….
            “Aside from this possible change in what might happen with the Russian troops in Belarus after the exercises end on Sunday, is there anything in what I posted above that you seem to be ridiculling [Sic] without a shred of specificity that is actually wrong or embarrassing?”

            Then we have the very best quote from Barkley Junior from February 16, eight days before Putin’s invasion of Ukraine, from Belarus:
            “Do keep in mind I am the one here with access to Russian media. That has now been blaring for several days that the troops will go home after the exercises are done, and exercises are exactly what they are doing now. This has more recently been reinforced by statements from Putin in press conferences, such as the one just held after the visit of German Chancellor Scholze.”

            “There is not going to be an invasion, even if some of the details of what Zelensky and Ukraine may agree to are not fully settled, and Victoria Nuland has been shooting her mouth off too much, somebody I wish was not part of this administration.”

            I keep wondering in my mind, why a man of just slightly below average intelligence like Barkley is (at this stage of his life anyway) can’t understand the reality right before this war started and even after (still insisting moving the USA embassy to Lviv was a “mistake” even after Kyiv was bombed excessively right after the move, I can look up that link also if it’s not in this comment). And I keep thinking to when I was in China to draw parallels to Junior’s connection to Russia. Has he bought from people he loves that the government and the people are “the same thing” and therefor he couldn’t “buy” that Russian soldiers” would invade Ukraine from Belarus?? If I thought this was the basis/source of Barkley’s errors I could forgive that. IF it’s just extreme arrogance leading to an inability to admit one has been wrong a significant amount of time on a topic one claims to be an “expert” on–then I cannot forgive the really…….. redfaced errors Barkley has made on this topic.

          9. Barkley Rosser

            At the risk of setting off Moses on more ranting and raving, I am going to comment further on the situation in Kherson, having just read a story on it in today’s WaPo since I posted the above, which does not alter my basic line much, but I think it is of more general interest to recall more fully what the situation has been and is there for other people here.

            For starters, rhe situation is not “normal.” Like Kharkiv, Kherson is in an ongoing war zone, despite being occupied by Russians who are trying to normalize the place as Russian territory. Ukrainian troops are nearby and reportedly making gains. They are going to try to retake Kherson, and reportedly the fighting is close enough that people in Kherson hear the war sounds from the front pretty much all the time. The difference between Kherson and Kharkiv is that the Ukrainians are not bombarding Kherson while the Russians are still bombarding Kharkiv, thus producing those photos Moses likes to reproduce here for no good reason other than to make himself look stupid. Fortunately the Ukrainians have managed to push the Russians back away from Kharkiv substantially, thus leading to a major rreduction in the bombardment, although they are still near enough by to continue to be attacking Kharkiv somewhat. Neither place is “normal” at all.

            The headline for the WsPo story is “A grim occupation for isolated Kherson,” which the story largely supports. I was correct that the worst thing is apparently a serious shortage of medical supplies, things like insulin. Food is readily available though. People are reported to be depressed and “hating” the Russian occupiers, who, as I reported, are indeed imposing the ruble and Russian TV. They are also pressuring people to get Russian passports. That is what one must do to get their “humanitarian assistance,” but many are not doing so.

            Something I had not heard is that people are forbidden to leave the city, but there is apparently a steady trickle of people doing so by back country roads. There is also, as I had said a flow of people “disappearing,” especially if they openly criticize the Russians. The former mayor is still around, the one who apparently collaborated with the invaders, although apparently he is now under some newly installed people who have been brought in from outside. There was a public concert on the main square on the recent Russia Day, but it had a low attendance.

            As I indeed reported, there does not seem to be much in the way of active resistance as opposed to this passive depression and grumbling. There has been one explosion at a cafe near where the Russian-installed government is. There was a much bigger explosion yesterday in Berdyansk, just on the previous border of control. So, there is a bit of resistance in Kherson, but if it is going to revert to Ukrainian control, it is going to have to take the Urkainian military successfully reconquering it, which will be hard to do, if not impossible. But, unlike the Russians, I do not expect them to be willing to bombard the place to do so, although the Russians might do that if they are forced to exit.

            Kherson is especially important for the Russians for a couple of reasons. It is a major port near the mouth of the Dnieper River, Ukraine’s most important. If Putin wants to invade other parts of Ukraine later one, it will be important for him to have it. Also, the water supply of Crimea comes from nearby, so this is very important for him. Apparently the Ukrainians are making a separate effort to move on that.

            I shall also note another oddity, not generally commented on. Most of the gains the Russians have made in this war were won within the first few days, and it was from a force none of us were talking about, Crimea. If the Ukrainians had realized ahead of time that such a major force would come out of Crimea, they could have piled up troops at the narrow land bridge that links it to Ukraine proper, but apparently they did not. This was by far the most successful invading force of the Russians, grabbing Melitopol and Kherrson in fairly short order, which remain the only semi-large citied they have conquered without utterly destroying them, which is what happened with Mariuopol, now apparently under a quarantine due to a cholera outbreak due to all the corpses polluting the water supply. All of the other invading Russian forces were either defeated outright, such as the one going for Kyiv, or have been kept to making only minor gains, such as those in the Donbas. Only this force out of Crimea succeeded in taking substantial territory that remains held, even as the Ukrainians are challenging their hold on Kherson.

            I shall note another important point that played a role in Putin’s miscalculations regarding his invasion. Prior to 2014 there was much more pro-Russian sentiment in places like Kherson and Kharkiv where the populations speak Russian. This could be seen in the considerable strength of openly pro-Russian political parties representing these areas in eastern and southern Ukraine. This was what was in Putin’s head about these place. But his seizure of Crimea and his setting up of the separatist republics in the Donbas with the subsequent war there, which has been goign on continuouslyi since, completely altered views in these places. Political support for the pro-Russian parties simply collapsed, and they have all but disappeared from the Ukrainian Rada, including who represents both Kharkiv and Kherson. People were seriousliy alienated by Putin’s invasion and seizure of territory and ongoing war. Heck, Kharkiv slmost became another separatist republic in 2014, with some “green men” briefly occupying the city hall as happened in Luhansk and Donetsk. But unlike in those places, the Kharkiv police managed to remove the occupiers, and Kharkiv remained under Ukrainian control, with the people more recently electing a mayor who openly opposed Putin, as was reported in the WaPo article I quoted that Moses has repeatedly requoted here. Somehow Putin failed to realize that his own actions turned people against him who previously had been much more favorable.

        2. pgl

          I think you are confusing Princeton Steve with Paul Krugman. Stevie writes a lot of stupid stuff like this but not Dr. Krugman. Moses had a reasonable reply – honor it or drop this silly like of discussion.

          1. Barkley Rosser

            pgl,

            I am not aware of Steven Kopits making such a claim anywhere, although i could be wrong.

            It kind of looks like whatever quote from Krugman ltr is thinking about, and a more precise location for it would be helpful from her, may have referred to more specific forms of autonomy than are being discussed by Menzie here, such as fiscal autonomy, conditions for the desirability of having Krugman has discussed, especially with Obstfeldt. It seems her concern on the matter involves access to technology for China’s space program.

            This reminds me of a time when Krugman did speculate on the possibility of the USD suddenly losing its dominance as a central bank reserve currency, which was followed by a period when it looked like that might happen. He did this in an essay in 1984 on “The International Role of the Dollar” that appeared in a book edited by Bilson and Marston, Exchange Rate Theory and Practice. He posed the possibility of nonlinear dynamics with multiple equilibria allowing for a possible sudden major change in its role, and noted that the pound lost its dominance in a fairly short period of time. As it is the mid-1980s saw the role of the USD declining, with an especially sharp decline appearing at the beginning of the 1990s, when the dollar’s share of central bank reserves actually dropped below 50% as one can see in the figure provided by Menzie here. Curiously, this rather sharp decline in share halted about the time Bill Clinton was elected president and reversed itself, with the share currently still near 60% despite some recent slight declines as can also be seen in Menzie’s figure above.

            I discussed this matter and Krugman’s model and argument about the possibility of such a sudden shift involving nonlinear dynamics and mutliple equilibria in Chapter 16 of my 1991 book, From Catastrophe to Chaos: A General Theory of Economic Discontinuities.

            BTW, Moses’s continuing insistence on the maleness of ltr looks to be more of his increasingly blatant misogyny as seen in his recent bizarre outburst regarding women and their supposed ability to impose the use of latex condoms on sexual partners.

        3. Barkley Rosser

          Moses,

          Oh, trying to get something out of some other quotes? Sorry, you got nothing yet again, although in one case you are quoting something I said AS A JOKE and taking it seriously.

          The first quote you post as supposedly ridiculous comes from Feb. 22 and as you note says “there has been no invasion on the northern border by the troops in Belarus.” That was completely correct, Moses. The invasion happened on Feb. 24. Also, the border being referred to was Ukraine’s northern border, which is where the invasion did come in from Belarus. Belarus is north of Ukraine. Or are you unaware of this fact? You have been quite messed up about geography before here. Just what on earth did you think was inaccurate in any of this? Just how dumb are you?

          As for the remark that “needless to say Lukachenka is facing a possible invasion from Ukraine…” was a total satire as there has never remotely been any chance of that. The further proof that this was a satire is the following remark about how Zelenskyy had written an essay about doing so. Of course he has not written such an essay. It is Putin who had written an essay last July about how Ukraine should not exist, AND I HAD POSTED ABOUT THAT ESSAY BY PUTIN, although I am not going digging around through previous posts here to prove it. So, this was clearly a total satire of what Putin di, and if you want to claim it is not, you are a completely effed up worthless piece of scum. But we know that.already.

          It actually occurred to me when I wrote that that somehow somebody might take it seriously, but I figured that especially with the claim that Zelenskyy had written such an essay nobody would be so foolish. Lukashenka did accuse Zelenskyy of plotting to invade, which was baseless and ridiculous, so you might have had grounds for saying that, gosh, I was believing him, although unlike with Putin’s earlier lie nobody was believing Lukashenka whereas lots of people at least briefly believed Putin. This nonsense out of Lukashenka was precisely what made it clear Putin had been lying because indeed the troops were going to be kept in Belarus after the end of the exercises for this trumped up excuse when Putin had previously said they were going home after the exercises. .

          But even the totally known-to-be-lying Lukashenka did not claim Zelensky had written any such essay. This was supposed to be the hilarious bit that really slammed this in as being total satire on this lie by Lukashenka about a possible invasion from Ukraine. It did for about a second occur to me that you might somehow use this to accuse me of somehow being out of it, but I figured that with this completely wild claim about an essay that absolutely nobody had ever suggested, and would have been completely insane on the part of Zelenskyy, even you would know better than to make such an off-the-wall claim.

          But here we are, with you attempting to take this seriously. I will simply say that if there is anybody out there besides totally degenerate and disgusting Moses who takes this seriously, I apologize and promise never to write anything satirical here again, because the nauseating Moses Herzog might indeed take it seriously, and maybe others who are completely brain dead.

          Really, Moses, you are just wasting yours and everybody else’s time with these increasingly floundering efforts to somehow find something else in all this where i supposedly got it wrong. Oh, and I realize that somebody as totally out of it as you who thinks that south east Romania is in south Belarus might actually think that somebody else might have borders mixed up and even think that the president of Ukraine had written an essay threatening to invade Belarus when absolutely nobody else on this planet has remotely suggested such an insane thing.

          Got this, everybody, even if Moses has not?

        3. Moses Herzog

          I never thought I’d see the day when a judge in China would take bribes. Are you as shocked as I am about this ltr??
          https://www.shine.cn/news/metro/2206126696/

          “Zhang failed to report important issues to the Party, and violated the eight-point rules on frugality by visiting private clubs and taking part in banquets. He illegally borrowed properties for a long time from those under his supervision. He intervened in judicial activities, sought profits for others using his authority and took a large number of bribes.”

          Wow, and even breaking the “eight-point rules on frugality”. Thank God these “discipline” slogans written for 3 year olds are finally proving useful. And nobody knew for the longest time Zhang was doing any of this. I mean….. Zhang parks his Audi crooked once and bam the authorities got him. I just assumed since Zhang was a Party member he ate his vitamins everyday and did his homework just like Hulk “The Hulkster” Hogan told him to.

      3. Moses herzog

        I’d also like to see ltr’s World Bank link for the 9%, because I saw a link (it may have been slightly old, maybe April (??) that said World Bank was estimating 45% hit for the year.

        1. Moses Herzog

          My apologies, the 45% decline number was the World Bank’s forecast for Ukraine, not Russia. The same report (given around April) said 11% drop for Russia. But I got that completely and utterly wrong. My apologies to the general reader and the blog hosts, for (however unintentional) spreading misinformation.

    2. baffling

      I think it may not longer be fair to label china a developing economy. that gives china a pass on some actions and behaviors they are no longer entitled to. you cannot be both a major world power and a developing country at the same time. some of the characteristics of the Chinese economy that are similar to developing countries are not because they are a developing country, but simply results of the economic and political model they have employed for the past few decades. it means their approach has not been as effective, across the board, as some of their propaganda sources would have you believe.

  2. Macroduck

    It was fun watching this come together. Good piece.

    Now, let’s watch as the Putin Patrol crowds into the comments, hoping many words can overcome true one.

  5. Moses Herzog

    Gita Gopinath has a new paper on dollar invoicing or currency invoicing. I haven’t gotten around to reading it yet, but it’s sure to be a stellar read. I think I got it off the journal she “submitted” it to (like any paper she writes isn’t going to be published, hahaha. That’s like Jack Nicholson, Marlon Brando, Joaquin Phoenix, or Philip Seymore Hoiffman trying out for an acting audition ). I’m only guessing, but, like Menzie, she is very generous sharing her hard work, and you can probably access it off her Harvard page.

    I’m sure there are other scholarly researchers in Menzie’s and Gita’s “same constellation” of respect in their field, but from a subjective standpoint Menzie and Gita are my favorite writers on currency.

  6. Macroduck

    Another Uh Oh:

    https://elpais.com/espana/2022-06-08/argelia-rompe-el-tratado-de-amistad-y-buena-vecindad-con-espana-suscrito-hace-20-anos.html

    Translation – Algeria suspended its natural gas agreement with Spain in response to Spain’s policy change regarding the Algeria-Morocco border dispute.

    As I recall, Italy is hoping to soak up some of Algeria’s gas exports. Don’t know how the infrastructure works for this, but there is likely to be at least a temporary reduction in gas imports to Europe.

  7. Moses Herzog

    A lot of this, I was already kind of subconsciously aware of, even if I couldn’t casually rattle it off like Menzie can, because I follow currencies and markets more than “the average Joe”. But the sentence that really hit hard for me in Menzie’s Nikkei Paper editorial was this sentence:
    “But it is not the dollar’s dominance, but rather the dominance of Western finance, and financial infrastructure, which drives Chinese restraint.”

    Nailed it.

    And at the risk of belaboring it, we also need to ask ourselves “Could donald trump have pulled off the multilateralism of the punishment on Russia, even if he had wanted to???” I think the very clear answer is NO, and it calls attention to the fact, again, that Leadership is important

  8. Macroduck

    Hey, Moses,

    You recently linked to Flow of Funds data showing a decline in household net worth due to a decline in the value of equity holdings. What the data don’t show is that some of that decline was due to selling equities. Retail investors (you and me) sold the heck out of equities in the first 4 months of the year. They bought “safer” assets, including debt. You can tell because debt holdings rose even though debt prices tanked. Lots of folks raised cash, too, but standard portfolio management practices moved investors into bonds, even though bond losses were a big part of what drove stock losses. Sad for mom and pop.

    Happened again today, as CPI data convinced money market folks that a Fed pause in September is unlikely.

    Big retail selling means the worst equity losses may be behind us soon, but clearly soon isn’t here yet.

    Apropos of Menzie’s subject, the dollar index has recovered from its recent pullback and responded strongly to today’s rise in bond yields.

    1. Moses Herzog

      With the re-opening in China, I am hopeful the inflation picture will look much better by say, late autumn. That’s not a forecast, but I think it’s conceivable it could happen. I gotta guard myself against wishful thinking.

        1. Moses Herzog

          @ Macroduck
          Knowing myself and my lazy bones, you’ll probably have this all read before I do. This is Managing Director Gopinath’s most recent paper. I looked on her Harvard site and the paper is not there yet. I’m putting this up mostly for Menzie ‘cuz he’s a currency guy but thought you might take passing interest also. The name of the paper is “Patterns of invoicing currency in global trade: New evidence”. It’s published under the creative commons license. She seems like such a generous person I think it must have been her doing to have it published in that manner, where everyone can read it. Or maybe it was the journal’s discretion. But it’s very cool anyone can access it however it came about:
          https://www.sciencedirect.com/science/article/pii/S0022199622000368

          1. Moses Herzog

            Menzie says above in words for laymen like me: “The first reason I think it unlikely is that it is extraordinarily difficult to move away from using the dollar, along many dimensions.”

            What Gita Gopinath calls~~vehicle currency

  9. ltr

    https://news.cgtn.com/news/2022-06-10/China-makes-major-breakthrough-to-advance-future-intelligent-robotics-1aKiREwZplK/index.html

    June 10, 2022

    China makes major breakthrough to advance future intelligent robotics
    By Liu Xun

    Chinese scientists developed a multimode-fused spiking neuron (MFSN) array, which can sense different shapes, temperatures and weights just like human beings’ multi-sensory perception, making a major breakthrough and contributing to future development of intelligent robotics, the Chinese Academy of Sciences (CAS) announced Thursday.

    The research, conducted by scientists from the Institute of Microelectronics (IME) of the CAS and Fudan University, was published * in the material science academic journal Advanced Materials.

    How will MFSN help improve robotics?

    According to the research, multimode-fused sensing in the somatosensory system helps people obtain comprehensive object properties and make accurate judgments, as the MFSN can achieve human-like multi-sensory perception which helps people ascertain the properties of objects and make accurate judgments.

    However, building such multi-sensory systems with conventional metal, oxide, semiconductor technology presents serious device integration and circuit complexity challenges. The new MFSN developed by the Chinese scientists, with a compact structure to achieve human-like multi-sensory perception, heterogeneously integrates a pressure sensor to process pressure and a NbOx(Niobium Oxide)-based memristor to sense temperature, said the researchers.

    Memristors can mimic the functions of biological synapse, where it can simultaneously store the weight and modulate the transmitted signal.

    https://news.cgtn.com/news/2022-06-10/China-makes-major-breakthrough-to-advance-future-intelligent-robotics-1aKiREwZplK/img/d9ab9bbae30d481f9e7fde86688adb84/d9ab9bbae30d481f9e7fde86688adb84.jpeg

    With this new MFSN, multi-sensory analog information can be fused into one spike train, showing excellent data compression and conversion capabilities. Both pressure and temperature information are distinguished from fused spikes by decoupling the output frequencies and amplitudes, supporting multimodal tactile perception, according to the research.

    In this case, a 3 × 3 MFSN array is fabricated and the fused frequency patterns are fed into a spiking neural network (SNN) for enhanced pattern recognition. A larger MFSN array is simulated for classifying objects with different shapes, temperatures, and weights, validating the feasibility of the MFSNs for practical applications, said the researchers….

    * https://onlinelibrary.wiley.com/doi/abs/10.1002/adma.202200481

    1. ltr

      https://onlinelibrary.wiley.com/doi/abs/10.1002/adma.202200481

      April 15, 2022

      A Heterogeneously Integrated Spiking Neuron Array for Multimode-Fused Perception and Object Classification
      By Jiaxue Zhu, Xumeng Zhang, Rui Wang, Ming Wang, Pei Chen, Lingli Cheng, Zuheng Wu, Yongzhou Wang, Qi Liu, Ming Liu

      Abstract

      Multimode-fused sensing in the somatosensory system helps people obtain comprehensive object properties and make accurate judgments. However, building such multisensory systems with conventional metal–oxide–semiconductor technology presents serious device integration and circuit complexity challenges. Here, a multimode-fused spiking neuron (MFSN) with a compact structure to achieve human-like multisensory perception is reported. The MFSN heterogeneously integrates a pressure sensor to process pressure and a NbOx-based memristor to sense temperature. Using this MFSN, multisensory analog information can be fused into one spike train, showing excellent data compression and conversion capabilities. Moreover, both pressure and temperature information are distinguished from fused spikes by decoupling the output frequencies and amplitudes, supporting multimodal tactile perception. Then, a 3 × 3 MFSN array is fabricated, and the fused frequency patterns are fed into a spiking neural network for enhanced tactile pattern recognition. Finally, a larger MFSN array is simulated for classifying objects with different shapes, temperatures, and weights, validating the feasibility of the MFSNs for practical applications. The proof-of-concept MFSNs enable the building of multimodal sensory systems and contribute to the development of highly intelligent robotics.

  10. Erik Poole

    Excellent piece Menzie.

    US policy makers concerned about US hegemony and the economy have lots of other much more pressing matters to worry about.

    The non-aligned movement may experience a revival but even in its hey day, it had zero impact on US hegemony and the international status of US currency.

    1. Moses Herzog

      You guys are still planning on gifting Taiwan to the USA, yes?? Did I read that right?? I don’t know, seems like a stunning shift in policy to me. Just remember, there’s no “take backs”.

  13. Moses Herzog

    I just watched this jack@$$ Summers on Bloomberg. I have one thing to say about Summers, and then I’m gonna TRY to let it go and not talk about this guy for awhile, because I know Menzie gets tired (although he’s always a great sport about it) of editing vulgarity in my comments. If this….. if Larry Summers is a “Democrat” then so is Joe Manchin. If you can be conned into thinking Joe Manchin is a “Democrat” then I guess you can be conned into thinking Larry Summers is also. And I’m gonna do my best to let it go at that until it directly comes up in a Menzie post or something. I think I’m gonna need some adult drinks tomorrow afternoon because he just makes my blood boil. He makes my blood boil.

  15. pgl

    Kevin Drum tracks inflation because we know our Usual Suspects do not know how to. But it is this take down of the inflation is high because Biden is old that made me laugh:

    https://econbrowser.com/archives/2022/06/the-demise-of-dollar-dominance#comments

    “Golly. If only we a had a lively, young, brilliant president in office. Just imagine what inflation would be like!

    Answer: the same as it is now. There is nothing Joe Biden or anyone else can do about short-term inflation. In the longer-term, we can get our supply chains back in order; we can work to get gasoline prices down; and the Fed can manipulate interest rates and asset purchases. This will eventually get inflation levels back to normal.

    Now, if you want to blame Biden for passing a big stimulus bill that probably caused some of the inflation we’re experiencing right now, fair enough. There’s a good case for that. But using high inflation as an excuse to call Biden senile is beneath us all. At a minimum, Biden’s mental acuity is better than Donald Trump’s and better than Ronald Reagan’s during his second term. What’s more, y’all could have voted for Hillary in 2016 if having a sharp, non-deranged mind in the Oval Office were really so important to you. But it wasn’t, was it?”

    BTW – what would the Usual Suspects have Biden to do differently? Nixon wage and price controls I guess. Yes – the Usual Suspects are all Communists!

  16. Barkley Rosser

    Menzie,

    There do seem to be competing estimates of how great a decline in the Russian economy we shall see by the end of 2022, assuming the war continues and sanctions remain in place. This is a very unusual situation, indeed unprecedented, with several important elements involved that are influencing the outcome. of course we have various people claiming that the Russian economy is actually doing better now, although that looks to be untrue. I would note that the other reason the ruble has risen so high is not just the strong capital controls imposed by Naibullina at the Russian central bank, but a massive decline in imports, which is definitely impacting the Russian economy.

    I would agree that when we have seen sanctions work it has been when they have involved many nations participating in them and thus arguably the larger financial system as a whole. This was the case with the sanctions on Iran before the JCPOA that involved Russia and China supporting them along with the EU. The sanctions on South Africa in the 1980s were also very effective and involved nearly all the nations of the world. That ones against Cuba and Libya have not been so effective has reflected that they lacked such widespread support by many nations. As it is, the sanctions against Russia have only partial support, although the fact that the major European economies are supporting them has the attention of China.

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