What is Dollar Dilemma in geoeconomics?

In the recent past there are several opinions expressed as regards to de-dollarization and the need for a new reserve currency. But saner counsel must prevail. Can the world get rid of the USD overnight? The point is there is no alternative for it. Here are some of my musings:

First and foremost, I must give credit to Ms. Janet Yellen who served as US Fed Chair during 2014-2018 and later US Treasury Secretary during 2021-2025, who steered both central banking and treasury operations the two vital faces of US geoeconomics power structure for several decades. Hence she has the expertise in the palm of her hand. Ostensibly, her comments are still relevant:

1. “We should expect over a time a gradually increased share of other assets in reserve holdings of countries, a natural desire to diversify. But the Dollar is far and away the dominant reserve asset”

2. “Virtually no meaningful workaround for most countries for using Dollar as a reserve currency” implying that it will not be easy for any country to devise a replacement for US Dollar

3 “Americans should anticipate a decline in the USD as the world's reserve currency over a period of time as countries seek to diversify away from the Dollar”.

Now let us assess the present situ.  Despite the fact there is a decline in using USD as reserve currency, still dollar stands tall at 57.80 % Euro at 10.83% whereas Yuan is a meagre 2.18%. As regards to trading currency nearly 54% of the global trade is invoiced in USD. Euro is in second place at 30%. Chinese Yuan accounts for just 4.60% only.

For an alternative reserve & trading currency to appear in the global scene there are few qualifying requirements:

a) The size of the domestic economy

b) Importance of the domestic economy vis-à-vis the global economy

c) Quantity & quality of the financial markets within domestic economy

d) The distinctive relation between “Wall Street & Main Street” put it the other way stock market and goods market

e) Convertibility of the local currency to the rest in the global market place

f) Use of local currency as a peg to rest of the global currencies

g) The degree of addiction to Dollar amongst the domestic population.

The foregoing illustrate that the Dollar Dilemma is here to stay. There are two riveting points:

One, China is reluctant to make Yuan as a Reserve Currency; she is okay with yuan being a trading & transaction currency

Two, nobody in the right sense of mind would allow US Dollar to fall in its value. Neither have they wished to see America go bankrupt.

The crux of the matter in geoeconomics is until such time BRICS common currency is unveiled the globe would continue to toil with this Dollar Dilemma!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

 

 

 

Can peace break out in Ukraine, via negotiation?

It is a pipe dream to assume breaking any type of peace be it temporary or time-barred or permanent in the Ukraine theatre via negotiation between the co-belligerents directly or using an intermediary. So why America and Russia are in parley on this issue. My thoughts based on business strategy & geoeconomics:

At the outset, it must be made clear that negotiation is useful as a means to delay outbreak of hostilities. Once hostilities begin the chance of pulling back is almost zero. The natural war to end a war occurs where co-belligerents were totally annihilated and there is no purpose, continuing the fighting.

In most cases peace can break out when a co-belligerent is defeated convincingly and the victorious one sets the surrender terms for the fallen one to save face, secure some concessions and then continue as a vassal state to the winning nation. Let me emphasize that a weak belligerent has no chance absolutely to begin negotiation for peace. If the co-belligerent does not want to surrender then it is the Latin dictum “vae victis meaning woe to the conquered” comes into play and he be damned forever!

Russia, which is so far winning the battle has to take into cognition the following:

1.  How she is going to live with fellow Slavs of Ukraine. Living with an enemy is easy but not with a Frenemy in the form of defeated Slavs of Ukraine.

2. Russia gets somewhat of a “White Man’s Burden” in the sense that Ukraine was once part of the Soviet Union and the Ukrainians have immensely contributed the success of USSR during the cold War. Put it on the other way, Russia is forced to play the role of custodian.

3. The Russo-Ukro war has brought to Russia big boon in the form of geoeconomics power. Once dismissed as “gas station” she emerged as a geoeconomics power to be not only in energy sector, but food & agriculture, military hardware, rare earth and critical minerals not to forget the thriving trade of enriched uranium.

4. Re-building Ukraine would be a shared responsibility between Russia and the West headed by America which instigated the war that ravaged Ukraine and brought her to this tragic situation.

5. If the past is any guide, Russia would find herself in the same situation as she was at the end of WWII: up building both Russia & Ukraine as sister nations. By no means can she allow Ukraine to remain in limbo.

6. A combined business strategy, is therefore, entails a win –win situation for both erstwhile belligerents. How this would proceed is a Billion Dollar question. To my mind it is Trump who can be the godfather. The series of meeting taking place between Putin and Steve Witkoff indicate that Trumps is on board for this combined business strategy.

7. Finally it is the lasting peace that can break out between Russia and America that settles the Ukraine issue once and for all. 

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist

 

 

 

Tariff War, Trump restrained by weak negotiation hand

Initial brouhaha followed by adamantine talk sometimes bordering on un-parliamentary language, evidencing unbecoming as a statesman, Trump got it all wrong. His abrasive style apart he did not see what is coming when he played his negotiation hand.

Soon after he moved up in the escalation ladder of imposing tariff mainly on China that began with 34% jacked up to 84% boosted with 125% fleshing more by 145% and finally rocketing to 245% he made a fool of himself. Xi Jinping kept his cool opting for a flank attack instead of a direct counter-attack.

China used the tariff war to hit America where it really hurts. Export control of the critical minerals and rare earths, upon which USA depends lot more than what custom details would indicate. These elements cannot be bought from elsewhere immediately. Russia could supply quite some of these but right now there is no way this can be expedited as trade relationship between America and Russia has still not recovered from enormous sanctions placed on the latter.

From the laymen’s point of view America got crewed. But from navigating business strategy amid geoeconomics point of view it is not too bad. Trump needs his team to look at the flowing pointers as regards to his negotiation leverage and respond in a fitting manner after adjusting US business strategy vis-à-vis China in particular and the entire globe in general:

1. China exports less than 15% of the total volume of her export trade to USA. She over the period of time could and would find alternate buyers

2. Chinese exports are getting more diversified than American exports. Although consumer items is a main stay in China, techno is slowly becoming huge

3. Chinese products are relatively cheaper than American ones

4. China uses investment and debt finance as diplomatic tools

5. Almost all the members of UNO have some sort of trading relationship with China

6. China has monopoly in the critical minerals and rare earths export

7. The World Factory was once in America now is in China.

8. As an authoritarian state, China has an edge in decision making and adjusting the negotiation leverage quickly to respond to any critical threats to her geoeconomics sway!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist