Daily Brief – Dollarisation

Dollarisation

A chart in this week’s Economist was both not surprising and at the same time quite remarkable. The not so surprising part was that it showed that USD share of all international payments has risen steadily over the past 12 years since 2012, from 30% to just under 50%. Equally expected is that GBP has remained steady at just under 10%. It is the EUR which is the stand out since it has fallen from 45% in 2012 to just over 20% today. The European Central Bank has reported that of all EUR transactions, 57% take place within the Euro Area which means that the EUR behaves more like a domestic currency and only 43% of transactions are outside the Euro Area and therefore international. If one takes 43% of the 22% of all EUR transactions reported by Swift, the international payments system, EUR commands a mere 9.4% of international transactions. The key to this is in part due to the start point of the observation period: 2012. That was the year that the EUR nearly fell apart and the level of transactions was abnormally high. However even stripping that out EUR has declined by more than 15% in the past 3 years and that is down to: lower GDP growth, inflation and the Ukraine invasion.

EUR/USD 1.0510.

US Government Debt Ownership

Interesting to understand the breakdown of the holders of the colossal USD 34 Trillion US Government Debt mountain. China, often thought to hold a lot, is a comparatively small holder at 2% or $820 billion which is ahead of the UK with $680 billion but behind Japan with $1.1 Trillion. Other countries own $5.3 Trillion which means foreign holders total 22%. That leaves 78% held domestically or $26 Trillion of which almost half or $12 Trillion is either held by the Federal Reserve or by Intra Governmental Agencies i.e. by the US Government itself. All of that $34 Trillion debt and more given that the US shows no sign of reducing its debt plus the accruing interest will need to be refinanced which means that buyers of US Debt need to continue to be willing to do so within the current pricing structure.

USD/JPY 152.04.

Mercosur

At the end of last week the EU signed a deal with Mercosur – Argentina, Brazil, Paraguay, Uruguay and Bolivia -that will remove tariffs and encourage trade between Latin America and the EU. France had already voted overwhelmingly and fruitlessly against the trade deal since it will be against the interests of its farming community. The story going the rounds is that the reason EU President Ursula von der Leyen was not among the top level international guests for the unveiling of the restored Notre Dame Cathedral in Paris over the weekend was that President Macron “uninvited” her because he was so cross about the Mercosur deal. 

EUR/GBP 0.8241.

Tokyo

The global city with the highest number of Michelin starred restaurants is of course Tokyo – 194 as of at February this year – and Tokyo is therefore the world’s number one when it comes to top places to eat. In second place is Paris which hosts 130 Michelin starred restaurants. Tokyo of course has a population of 37 million versus Paris with 11 million so on the basis of a Michelin star for the size of population Paris has over twice the proportion of starred Michelin establishments to Tokyo.

GBP/USD 1.2755.

Top of The World

It all seems a long time ago, mainly because it was, but 51 years ago today in 1973, wholesome saccharine sweet pop duo, the toothsome Carpenter brother and sister combo released this number which shot up the charts in both the USA and the UK.

Such a feelin’s comin’ over me

There is wonder in most every thing I see
Not a cloud in the sky, got the sun in my eyes
And I won’t be surprised if it’s a dream

Everything I want the world to be
Is now comin’ true especially for me
And the reason is clear, it’s because you are here
You’re the nearest thing to heaven that I’ve seen

I’m on the top of the world lookin’ down on creation
And the only explanation I can find
Is the love that I’ve found, ever since you’ve been around
Your love’s put me at the top of the world

Something in the wind has learned my name
And it’s tellin’ me that things are not the same
In the leaves on the trees, and the touch of the breeze
There’s a pleasing sense of happiness for me

There is only one wish on my mind
When this day is through I hope that I will find
That tomorrow will be, just the same for you and me
All I need will be mine if you are here

I’m on the top of the world lookin’ down on creation
And the only explanation I can find
Is the love that I’ve found, ever since you’ve been around
Your love’s put me at the top of the world.

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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