Myth of Money: The Fall of the Dollar

Good morning and welcome back to this week’s edition of the Myth of Money.

The U.S. Dollar continued to slide this week to its lowest levels in two years, while the Euro rallied 10% on positive news of the European recovery fund. Lebanon became the first country in the Middle Eastern and North African region to enter hyperinflation after the Lebanese Lira inflation rate exceeded 50% for 30 days in a row.

American consumers increased their spending in June by 5.6%, a welcome reprieve from Thursday’s GDP report. The American economy shrunk a whopping 32.9% (annualized) in the second quarter, the worst quarterly plunge since 1947. On Wednesday, Federal Reserve Chair Jerome Powell warned that the viral epidemic was endangering any modest economic rebound — a key reason why the Fed plans to keep interest rates pinned near zero.

‘Flight to safety’ assets like gold, silver and bitcoin continue to surge, while Americans await a second relief bill, which will require an additional monetary infusion in the trillions, creating even more downward pressure on the greenback.

Goldman Sachs published a research report this week stating that “real concerns around the longevity of the US dollar as a reserve currency have started to emerge.” Goldman cited several system risks including long-term inflation, political uncertainty, spikes in virus infections and continued build-up of government debt. 

In a pre-pandemic world, we have become accustomed to the idea of American dominance. Zooming out, however, the last century is framed by World War I, followed by an era of European dominance, World War II, followed by an era of American dominance and now COVID-19, likely followed by a period of Chinese dominance.

The US dollar was established as the world’s reserve currency in 1944, in an effort to stabilize the global economy post the devastating economic effects of WWII. Originally backed by gold, the dollar’s continued dominance has been questioned since 1971, when Nixon abolished the gold standard. The dollar maintained its superior status due to lack of viable alternatives, particularly in the emerging markets. Now backed solely by the faith and credit of the American government, the greenback has come under pressure as the American economy continues to shrink and the government continues to come under criticism for mishandling the COVID-19 pandemic.

Meanwhile, China has entered the market with its own futuristic currency - the digital Renminbi. Backed by the soon-to-be largest global economy, the digital currency integrates seamlessly into popular applications such as WeChat and AliPay. For the first time in 75 years, the dollar has a real fiat competitor.

Fans of alternative currencies such as Bitcoin have been sounding the alarm against the dollar for a decade, and the narrative is finally landing to a wider audience. This week I sat down with a group of experts at Sir Anthony Ritossa’s 11th Global Family Office Investment Summit in Monaco to discuss the future of digital assets. TL;DR: Family offices worldwide are considering diversifying their holdings as they watch the U.S. continue to fumble. 

This Week By the Numbers 

US stocks finished a fourth straight month in the green, largely due to Big Tech’s continued rockstar performance. Since March, the Nasdaq 100 has added about $4 trillion in market value and beat the benchmark for a 10th straight month - the longest winning streak in 20 years.

All eyes were on Bitcoin this week, as the digital currency gained over 20% in just a few days, before making a sharp correction late into Saturday night due to a sudden $1B+ liquidation. Meanwhile, Gold continues to rise to all time-highs amid geopolitical uncertainty.

Top Stories

Trump Says He Will Ban TikTok

Trump said he could use emergency economic powers or an executive order to ban TikTok, rejecting a potential deal for Microsoft to buy the app from its Chinese-owned parent company. People working on the issue within the Trump administration expected the President to sign an order to force ByteDance, the Chinese company that owns the social media platform, to sell the US operations of TikTok, according to a person familiar with the matter. The move was aimed at resolving policymakers' concerns that the foreign-owned TikTok may be a national security risk. The US government is conducting a national security review of TikTok and is preparing to make a policy recommendation. Read Full Story. 

Putin Signs Russian Crypto Bill into Law

Russian President Vladimir Putin signed the first of two bills on digital assets into law on Friday. The bill says companies can issue digital securities on a blockchain if they are properly registered with the Bank of Russia as issuers and satisfy certain criteria. Decentralized cryptocurrencies are considered a type of property, which should be reported for tax purposes and cannot be used to pay for goods and services. Read Full Story.

Bill Ackman's SPAC Raises $4B for a Company Without a Company

Bill Ackman’s  special purpose acquisition company is set to break records for IPOs in its category, with plans to offer 200 million units at $20 each. The $4 billion fundraising goal was raised from $3 billion just last week. Each unit consists of one common share and one-ninth of a redeemable warrant. Full warrants allow holders to buy an additional share for $23. Though Ackman hasn't revealed which companies he's eyeing to take over, previous regulatory filings said he's looking for "high-quality, venture-backed businesses" and "mature unicorns." Read Full Story.

Chinese Central Bank Onboards Over 20 Firms to Test Digital Yuan

To accelerate the rollout of the digital yuan, the People’s Bank of China (PBoC) has partnered with over 20 companies in the country to test it in the real world. The central bank first inked partnerships with four state-owned banks – Industrial and Commercial Bank of China (ICBC), China Construction Bank, Agricultural Bank of China, and Bank of China – three telecom companies – China Telecom, China Mobile, and China Unicom – and tech giant Huawei. Read Full Story. 

Tech CEOs Face Lawmaker Questions About Market Dominance

The CEOs of Amazon, Apple, Facebook and Google took a rare turn in the congressional spotlight on Wednesday. The issue of their companies' market dominance comes at a delicate time — amid an economic catastrophe that has wiped out businesses large and small while adding billions to the coffers of an industry that critics have dubbed Big Tech.  In addition, the hearing culminates a year-long investigation by the House Judiciary Committee into the foursome, America's largest companies by market value even before the coronavirus pandemic reached U.S. shores in February and sent some of their stock prices skyrocketing. The four CEOs are testified virtually before the House Judiciary subcommittee on antitrust. Read Full Story.

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