This statement might surprise people but when you look at the money that is spread throughout the world, you will see this is the case.
If the USD isn't the world's reserve currency, then what is?
Here is where things get very complicated. Once again, we have to stress how the world is not how people make it out to be. When it comes to money, very few have an idea of how things operate.
It requires looking beyond currency. That is what most people believe is money. Unfortunately, this is not correct.
In this article we will delve into some of the different markets and how this reveals a different story.
In my discussions about HBD and stablecoins, I cannot tell you how many times people mention about getting HBD accepted for payments. That is all people look at.
The reality is that is just a smidgeon of the monetary transactions globally. This is why those who believe in the Petrodollar are also equally as wrong. The USD's strength does not come from that.
What make the USD so powerful, along with the confusion, is the USD is the unit of account used globally. The challenge is that, in most instances, there are no dollars involved.
This is what dwarfs the medium of exchange. While the USD is the dominant force there also, it is small potatoes.
It is estimated that 90% of all international transactions are financed through the Repo market. The question is how many people reading this are even aware of what this is? You would think of something with such huge volume would be known by everything.
In fact, you would also believe the mainstream media would be all over this. Of course, when was the last time CNBC or Bloomberg has a trader from the Repo market on?
This little understood market is enormous. The official numbers are $3T-$4T daily in swaps are done. We state official since that is only what the custodian and primary dealers report to the Federal Reserve Bank of NY. What takes place with bilateral agreements is likely orders of magnitude higher.
Notice the numbers again: $3T-$4T daily. That appears to be a lot of money. Here is the challenge: there is virtually no USD in this market. It is all done in other form of "money" the banks utilize. This can be Treasuries, MBS, Interest Rate Swaps, or anything they can think of.
We are dealing with true balance sheet banking.
One of the most overlooked, yet vital aspects, to the financial puzzle is the Eurodollar system. This is sometimes called the wholesale or shadow banking system. Whatever term you give it, this is what fuels the global economy. Once again, few are aware of it.
Instead everyone watches the Fed like they matter. It is the Eurodollar system which makes the "printer go brr" total nonesense. The Fed doesn't print USD, they create reserves. The problem is the are worthless in the Eurodollar system since they have zero value as collateral.
When a system depends on collateral, anything that is not in there is worthless. That is why bankers ignored reserves as far back as 1937. They have no impact upon anything in the real economy. Paul Volcker admitted this back in the 1970s.
Often, I alluded to the Alan Greenspan statement in the FOMC meeting in 2000 regarding money. He cited the proliferation of products as the reason why it was "increasingly difficult" for the Fed to even find money.
What were those products? Certainly he wasn't referring to Amazon. It was the money created by the international banking conglomerate. This is what changed the entire system.
Starting in the 1950s, the bankers started to use USD in foreign banks as the basis for a system of lending, borrowing, remittance, cross-border payment, and collateralization. This grew to the point where USD no longer was the basis of this other than that was the unit of account. When we look at the entire spectrum, we have tens of trillions in assets with no USD whatsoever.
This is why Greenspan, and certainly Powell, cannot find the money. They are looking at it through economists eyes. The bankers truly understand.
So when you tear it down, it is really the Eurodollar that is the reserve currency. This is what most cross border payments utilize. It is the basis for tens of trillions in overnight and short term lending. It is the basis for the quadrillion derivative market.
Essentially, this is what runs the show.
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