Much like the cruel joke Charles de Gaulle reportedly cracked about Brazil – that it’s “the country of the future and always will be” – predictions of an end to the dollar-based international monetary system seem to belong to a future that will never arrive.
Yet that future is coming, faster than all the prior failed forecasts of the end of dollar hegemony would have you think. In contributing to that shift, Brazil may have the last laugh.
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The catalyst can be found in central bank digital currencies (CBDCs), a model for digital fiat money that was, ironically, spurred by governments’ reaction to the 2008 invention of the decidedly anti-fiat Bitcoin protocol. Bitcoin fanatics tend to pooh-pooh CBDCs as centralized tools for government manipulation that local populations will recoil from. In dismissing them, they overlook the massive cross-border shifts these new tools will foster at the macro level.
As key export economies such as Brazil embrace CBDC-based direct settlement with their trading partners, it will spur a trend of de-dollarization over the next decade. The ramifications for U.S. capital markets, for the global economy, and for geopolitical power dynamics are profound.
Brazil’s central bank is among more than a hundred experimenting with CBDCs. Others that matter for this discussion include the United Arab Emirates, Russia, Singapore and China, which is streets ahead in rolling out its electronic currency, the e-CNY. China, of course, has made no secret of its desire to reduce its dependency on dollars.
Those five economies account for around 25% of global output, but it’s their outsized roles in world trade – as exporters of oil (UAE’s Abu Dhabi), foodstuffs (Brazil), natural gas (Russia) and consumer goods (China) and as a finance and shipping entrepot (Singapore) – that amplifies the international impact of their respective currency strategies.
Things will get really interesting once such countries’ central banks use digital currencies in direct settlement arrangements with each other rather than going through…
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