🟢 Tech supremacy, yuan, gold, and scaling trust
This is a bit of an odd edition of the newsletter as it addresses geopolitical events that I usually don't discuss. But, like most of yo,u probably, I was trying to give a cogent answer to the question: will there be an AI bubble explosion soon (spoiler: the answer is no).
The dollar monotheism
For nearly eighty years, the world has lived under a simple monetary truth: global trade meant trading in dollars. Every transaction, every reserve, every crisis has revolved around the gravitational pull of the US currency. And the core reason for such dollar supremacy is simple. Trust.
Trust that the US debt was rock solid, trust that the US would always have the largest GDP, trust that the American economy would constantly and steadily grow, and trust that no matter what, the US would always be the most powerful economic bloc on the planet.
But trust is fragile.
Trump 1.0 and now 2.0 unbundling the US from the global economy, imposing trade tariffs that make sense to no one but a few radical zealots, and antagonizing historical trade partners like Mexico and Canada, has already changed how the world trusts the US – as in, much, much less. And among other things, when in 2022, the United States froze $300 billion of Russia’s foreign reserves to retaliate against Ukraine's invasion, it reminded the world that dollar reserves are only safe until Washington decides otherwise.
In parallel, China has steadily pushed to offer the Yuan as an alternative to the dollar to countries in the region that would rather align with it than just depend on the US. But this is not an easy or simple sale. The Yuan is as dependent on Xi's whims as the US is on Trump. And until now, to say it mildly, the yuan didn't offer any extra guarantee over the dollar.
But something fundamental might be shifting, and China seems to be offering a new way to secure international trust in the yuan. And while you might think we're going to discuss digital disruption or crypto experiments, China might actually be betting on something far older: gold.
