Global Shadow Banking System Rises To $67 Trillion, Just Shy Of 100% Of Global GDP

Earlier today, the Financial Stability Board (FSB), one of the few transnational financial “supervisors” which is about as relevant in the grand scheme of things as the BIS, whose Basel III capitalization requirements will never be adopted for the simple reason that banks can not afford, now or ever, to delever and dispose of assets to the degree required for them to regain “stability” (nearly $4 trillion in Europe alone as we explained months ago), issued a report on Shadow Banking. The report is about 3 years late (Zero Hedge has been following this topic since 2010), and is largely meaningless, coming to the same conclusion as all other historical regulatory observations into shadow banking have done in the recent past, namely that it is too big, too unwieldy, and too risky, but that little if anything can be done about it.

Specifically, the FSB finds that the size of the US shadow banking system is estimated to amount to $23 trillion (higher than our internal estimate of about $15 trillion due to the inclusion of various equity-linked products such as ETFs, which hardly fit the narrow definition of a “bank” with its three compulsory transformation vectors), is the largest in the world, followed by the Euro area with a $22 trillion shadow bank system (or 111% of total Euro GDP in 2011, down from 128% at its peak in 2007), and the UK in third, with $9 trillion. Combined total shadow banking, not to be confused with derivatives, which at least from a theoretical level can be said to offset each other (good luck with that when there is even one counterparty failure), is now $67 trillion, $6 trillion higher than previously thought, and virtually the same as global GDP of $70 trillion at the end of 2011.

Of note is that while the US shadow banking system has been shrinking (something our readers are aware of, and a fact which in our opinion implies there is nearly $4 trillion more in Fed monetization still to come, as Bernanke has no choice but to offset the credit destruction within shadow conduits, which in turn are deleveraging to the tune of nearly $150 billion per quarter), that of Europe has been increasing.

The result:

Aggregating Flow of Funds data from 20 jurisdictions (Argentina, Australia, Brazil, Canada, Chile, China, Hong Kong, India, Indonesia, Japan, Korea, Mexico, Russia, Saudi Arabia, Singapore, South Africa, Switzerland, Turkey, UK and the US) and the euro area data from the European Central Bank (ECB), assets in the shadow banking system in a broad sense (or NBFIs, as conservatively proxied by financial assets of OFIs15) grew rapidly before the crisis, rising from $26 trillion in 2002 to $62 trillion in 2007. The total declined slightly to $59 trillion in 2008 but increased subsequently to reach $67 trillion in 2011.

And while the the bulk of the shadow activity is contained within the 3 well-known jurisdictions (US, Europe, UK) whose credit creation capacity in the traditional banking system appears to have ground to a halt, especially in Europe where unencumbered collateral is virtually nil (thus forcing credit creation in the deposit-free, unregulated shadow space), the FSB also found previously unexplored shadow banks in some brand news venus including Switzerland, China and Hong Kong:

Expanding the coverage of the monitoring exercise has increased the global estimate for the size of the shadow banking system by some $5 to 6 trillion in aggregate, bringing the 2011 estimate from $60 trillion with last year’s narrow coverage to $67 trillion with this year’s broader coverage. The newly included jurisdictions contributing most to this increase were Switzerland ($1.3 trillion), Hong Kong ($1.3 trillion), Brazil ($1.0 trillion) and China ($0.4 trillion).

Not unexpectedly, the FSB focuses mostly on Europe, and provides the following color:

The size of the shadow banking system (or NBFIs), as conservatively proxied by assets of OFIs, was equivalent to 111% of GDP in aggregate for 20 jurisdictions and the euro area at end-2011 (Exhibit 2-3), after having peaked at 128% of GDP in 2007.

The summary is by now well-known to most who realize that the primary driver of marginal credit money creation (in Europe) and destruction (in the US) is none other than the world’s shadow banking system. As per Bloomberg:

The size of the shadow banking system, which includes the activities of money market funds, monoline insurers and off- balance sheet investment vehicles, “can create systemic risks” and “amplify market reactions when market liquidity is scarce,” the Financial Stability Board said in a report, which utilized more data than last year’s probe into the sector.


“Appropriate monitoring and regulatory frameworks for the shadow banking system needs to be in place to mitigate the build-up of risks,” the FSB said in the report published on its website.

Sadly, shadow banking, like every other unsustainable aspect of the foundering “modern” financial system, will not be fixed, resolved, or in way improved or made sustainable until the entire system crashes.

What is notable, is that for the first time, the issue that is the lynchpin of virtually infinite shadow banking asset “creation” courtesy of rehypothecation, a topic that came to prominence with the MF Global collapse, and which allows infinite ownership chains on the same asset to be created as long as the counterparties are solvent, to fall under the spotlight, especially the legal loophole to create infinite rehypothecation chains with zero haircuts in the UK (hence geographic arbitrage as noted below). To wit:

Requirement on re-hypothecation


“Re-hypothecation” and “re-use” of securities are terms that are often used interchangeably; they do not have distinct legal interpretations. WS5 finds it useful to define “re-use” as any use of securities delivered in one transaction in order to collateralise another transaction; and “re-hypothecation” more narrowly as re-use of client assets.


Re-use of securities can be used to facilitate leverage. WS5 notes that if re-used assets are used as collateral for financing transactions, they would be subject to the proposals on minimum haircuts in section 3.1 intended to limit the build-up of excessive leverage, subject to decisions taken on the counterparty scope and collateral type (sections 3.1.4 (ii) and 3.1.4 (iii), respectively).


WS5 believes more safeguards are needed on re-hypothecation of client assets:

  • Financial intermediaries should provide sufficient disclosure to clients in relation to re-hypothecation of assets so that clients can understand their exposures in the event of a failure of the intermediary. This could include, daily, the cash value of: the maximum amount of assets that can be re-hypothecated, assets that have been re-hypothecated and assets that cannot be re-hypothecated, i.e. they are held in safe custody accounts.
  • Client assets may be re-hypothecated by an intermediary for the purpose of financing client long positions and covering short positions, but they should not be re-hypothecated for the purpose of financing the intermediary’s own-account activities.
  • Only entities subject to adequate regulation of liquidity risk should be allowed to engage in the re-hypothecation of client assets.

Harmonisation of client asset rules with respect to re-hypothecation is, in principle, desirable from a financial stability perspective in order to limit the potential for regulatory arbitrage across jurisdictions [ZH: ahem UK]. Such harmonised rules could set a limit on re-hypothecation in relation to client indebtedness. WS5 thinks that it was not in a position to agree on more detailed standards on re-hypothecation from the perspective of client asset protection. Client asset regimes are technically and legally complex and further work in this area will need to be taken forward by expert groups.

That the FSB has no idea how to regulate infinite rehypothecation should come as no surprise to anyone. After all, enforcing limits on creating “assets” out of thin are would limit the amount of millions Wall Street CEO can pay themselves in exchange for creating soon to be vaporized ledger entries, which they “do not recall” how those got there upon Congressional cross examination.

Finally, perhaps the most important section of all deal with what the FSB terms “Facilitation of credit creation.”

Facilitation of credit creation


The provision of credit enhancements (e.g. guarantees) helps to facilitate bank and/or non-bank credit creation, may be an integral part of credit intermediation chains, and may create a risk of imperfect credit risk transfer. Non-bank financial entities that conduct these activities may aid in the creation of excessive leverage in the system. These entities may potentially aid in the creation of boom-bust cycles and systemic instability, through facilitating credit creation which may not be commensurate with the actual risk profile of the borrowers, as well as the build-up of excessive leverage. Credit rating agencies also facilitate credit creation but are outside the scope as they are not financial entities.


Examples may include:

  • Financial guarantee insurers that write insurance on financial products (e.g. structured finance products) and consequently facilitate potentially excessive risk taking or may lead to inappropriate risk pricing while lowering the cost of funding of the issuer relative to its risk profile. – For example, financial guarantee insurers may write insurance of structured securities issued by banks and other entities, including asset-backed securitisations, and often in the form of credit default swaps. Prior to the crisis, US financial guarantee insurers originated more than half of their new business by writing such insurance. While not all structured products issued in the years leading up to the financial crisis were insured, the insurance of structured products helped to create excessive leverage in the financial system. In this regard, the insurance contributed to the creation of large amounts of structured finance products by lowering the cost of issuance and providing capital relief for bank counterparties through a smaller capital charge for insured structures than for non-insured structures. Because of large losses on structured finance business, financial guarantee insurers have in some cases entered into settlement agreements with their counterparties under which, for the cancellation of the insurance policies, the counterparties accepted some compensation from the insurer in lieu of full recovery of losses. In other cases, financial guarantee insurers have been unable to pay losses on insured structured obligations when due. These events exacerbated the crisis in the market.
  • Financial guarantee companies whose funding is heavily dependent on wholesale funding markets or short-term commitment lines from banks – Financial guarantee companies may provide credit enhancements to loans (e.g. credit card loans, corporate loans) provided by banks as well as non-bank financial entities. Such financial guarantee companies may be prone to “runs” if their funding is heavily dependent on wholesale funding such as ABCPs, CPs, and repos or short-term bank commitment lines. Such run risk can be exacerbated if they are leveraged or involved in complex financial transactions.
  • Mortgage insurers that provide credit enhancements to mortgages and consequently facilitate potentially excessive risk taking or inappropriate pricing while lowering the cost of funding of the borrowers relative to their risk profiles – Mortgage insurance is a first loss insurance coverage for lenders and investors on the credit risk of borrower default on residential mortgages. Mortgage insurers can play an important role in providing an additional layer of scrutiny on bank and mortgage company lending decisions. However, such credit enhancements may aid in creating systemic disruption if risks taken are excessive and/or inappropriately reflected in the funding costs of the banks and mortgage companies.

Why is this section so imporant? Because recall that in a Keynesian system, credit creation = money creation = growth. Without “facile” credit creation, there is no growth period. The problem, however, is that the world is approaching its peak credit capacity across the various verticals: sovereign, financial, corporate non-financial, shadow, and of course, household. The reality is that unless some existing debt is not eliminated to make space for future “credit creation”, there simply can not be growth, and the problem is that wiping out credit, means the equity tranches below it are worthless. And that is the Catch 22, because wiping out equity somewhere in the world, would have dramatic implications not only on the wealth of the 0.0001% but on credit and faith in a system, which only operates due to the inherent “credit” (hence the name) and “faith” in it. Without those, ultra-modern finance crumbles like a house of cards.

In other words, while the FSB, like any other prudent regulator, is diligently warning about the dangers associated with unprecedented leverage across shadow, and all other systems, in reality what it is saying is that the only way to resolve a record debt problem is… with more debt.

And so we are back to square zero, only this time we are a few trillions dollars closer to complete systemic debt saturation.

* * *

For more on the topic of Shadow Banking, we suggest the following reading material:

Investor Sentiment: Be on Alert for the Same Old Same Old

The SP500 is down 3.5% in November, a month where we are told the bulls always do well, and the index is down 7.2% since the announcement of QE3 to infinity, which was another can’t miss proposition for market participants. Yes, investors continue to hope and hope and hope that the next market intervention will be coming soon. The Federal Reserve is on the sidelines for now, and our law makers are diligently working on a “solution” that in all likelihood will kick the can down the road even more. What would you expect them to do? So once again, the market will rise on the expectation that a deal will be done in Washington. After all in this singular issue world of ours, the only thing holding the market back is the fiscal cliff and Washington’s inability to deal with it. Isn’t that the story you hear? I am sure it is way more complicated than that, but how else can the media explain a drop in the markets? Of course, no one is asking why QE3 has failed to lift the markets or why November, normally a bullish month, is so punk. We can always hope that the next can kicking exercise will be the one, but I always like to think that a market that doesn’t do what you expect should put you on high alert.

Continue reading Investor Sentiment: Be on Alert for the Same Old Same Old

Guest Post: The Unadulterated Gold Standard Part 2

Authored by Keith Weiner; originally posted at The Daily Capitalist,

In Part I, we looked at the period prior to and during the time of what we now call the Classical Gold Standard.  It should be underscored that it worked pretty darned well.  Under this standard, the United States produced more wealth at a faster pace than any other country before, or since.  There were problems; such as laws to fix prices, and regulations to force banks to buy government bonds, but they were not an essential property of the gold standard.

The essential was that people had a right to own and trade gold coins.  They had the right to deposit them in a bank, if the bank offered attractive terms (especially the payment of interest).  Banks had a right to take deposits, to buy assets, and to pay interest.  Banks had a right to issue paper notes that were claims against gold.  Banks had a right to lend their deposits (fractional reserves).

Despite some government interference, the Classical Gold Standard enabled a Golden Age of prosperity and full employment that is totally out of reach today (not to be confused with the rapid development of technology).  This is not to say there were not business failures, bank failures and panics – what were later called depressions and now recessions.  A free market does not attempt to guarantee that no one can ever lose money.  It is merely an environment in which no one is forced to subsidize someone else’s risks or losses.

Unfortunately, by the early 20th Century, the tide had shifted.  Europe was inexorably moving towards war.  The US was abandoning the principles on which it had been founded, and exploring a different kind of government: an unlimited government that could centrally plan and manage the economy and the lives of the people.

In 1913, the US government created the Federal Reserve.  Much has been written about this now-hated organization.  At the time, the Fed was supposed to be the re-discounter of Real Bills.  Real Bills arose spontaneously in the market centuries before banks or central banks.  They are credit used for clearing.  When a wholesaler delivers goods to a retailer, the retailer accepts the goods and signs the bill.  Commercial terms were commonly Net 90.  It turned out that in the free market, these bills would circulate as a form of currency, with a value that was based on the discount rate and the time until maturity.  Real Bills were the highest quality earning asset, and the highest quality asset except only gold itself.

For many reasons, politicians felt that a quasi-government agency could make better credit decisions than the market.  To “discount” a Real Bill was to pay gold and take the Bill into one’s portfolio.  The Fed, as re-discounter, would offer the banks unlimited liquidity in exchange for their bills.  Almost immediately, the Fed also began to buy US government bonds.  What better way to expand credit than to push down the rate of interest?  The Fed could use much more leverage than if they were restricted to buying bills (which would all mature into gold in 90 days or less!)  This time, they thought, there was no limit to how far down they could push interest, nor for how long.

The Fed almost certainly enabled the government to borrow at lower rates than would otherwise have prevailed, but even so the rate of interest rose during World War I.  This is because the government was borrowing unprecedented amounts of money.  The interest rate peaked in 1919.  Then it began to fall, not bottoming until after World War II.

The net effect of the Fed was to totally destabilize the rate of interest.  In looking at this graph of the 10-year US Treasury bond from 1790 to 2009, one thing is obvious.  There were spikes due to wars and other threats to the stability of the government.  But for long periods of time, the rate of interest moved in a narrow range.  For example, from 1879 until 1913 (i.e. the period of the Classical Gold Standard), the rate of interest was bound to a range of 3% to 3.5%.  During World War I, the rate spiked up to 5.5% and then began to fall to well under 2% after World War II.  Then the rate began its ascent to over 17% in 1981.  After 1981, the rate has been falling and is currently under 1.7%.  It will continue to fall, but that is a discussion for another paper.

The US, unlike Europe, did not suspend redeemability of the currency into gold coin.  In Europe, the toll of the war in terms of money, property, and of course lives, was much higher.  The governments felt it necessary to force their citizens to deal in paper money only.  After the war, they had problems returning to gold.  For example, Germany was prohibited from freely trading with anyone.  One consequence of this was that the Real Bills market never reemerged.

In 1925, Britain initiated a short-lived experiment: the Gold Bullion Standard.  The idea was that paper money would be backed by gold, but the gold would be kept in the banking system in the form of 400-ounce bars.  Technically, the paper was redeemable, but the bars were so large that, for all practical purposes, the money may as well have been irredeemable to ordinary people.  Britain abandoned this regime in 1931, in part due to gold flows to the US.

In 1933, the President Roosevelt told American citizens that they must turn in their gold for approximately $20 per ounce.  Once the government got all the gold they could, Roosevelt revalued gold at $35 per ounce.  The dollar was never again to be redeemable to Americans.

After World War II, Europe was physically and financially devastated.  European gold had largely moved to the US either because of the coming war, or to pay for munitions.  The Allied powers knew by 1944 that they would be victorious, and so met at Bretton Woods to agree on the next monetary system.  They agreed to what could be called the Gold Exchange Standard.

In this new standard, the US dollar would be the reserve asset of the central banks and commercial banks of the world.  They would end up with dollars on both sides of their balance sheets, and pyramid credit in their local currencies on top of this reserve.  The dollar would continue to be redeemable to foreign central banks (but not to US citizens).

This regime was unstable, as economists such as Jacques Rueff and Robert Triffin realized.  Triffin proposed that there is a dilemma for the world and the US.  As the world demanded more money, this meant that the US had to run a trade deficit to provide the currency.  But a chronic trade deficit would cause the value of the dollar to fall, with wealth being transferred from foreign creditors to domestic (US) consumers.

Throughout the 1960’s, European central banks, and most visibly France, redeemed dollars.  By 1971, the gold was flowing out of the US at a rate of over 100 tons per day.  President Nixon had to do something.  What he did was end the Gold Exchange Standard and plunge us into the worldwide regime of irredeemable paper money.

Since then, it has become obvious that without the anchor of gold, the monetary system is un-tethered, unbounded, and unhinged.  Capital is being destroyed at an exponentially accelerating rate, and this can be seen by exponentially rising debt that can never be repaid, a falling interest rate, and numerous other phenomena.

In Part III, we will look at the key characteristics of the Unadulterated Gold Standard.

On America's Short-Termist And Fraud-Provoking Culture

Two months ago we posted an excellent introduction from Dan Ariely on the truth about dishonesty. The focus on our ease of rationalizing dishonest acts struck quite a chord and as a follow-up the behavioral economist discussed several real-life examples with Capital Account’s Lauren Lyster. Critically, firms are shifting their focus from long-term growth to maximizing ‘shareholder-value’ (since any short-term mis-step in a liquidity-fueled boom such as this is punished to the point of ‘going-concern’) and the increasingly short-term focused attitude not only hurts employees and taxpayers but serves to provoke a culture of dishonesty or fraud. Ariely also notes, rather interestingly, that new disclosure requirements for ‘academic-based’ reports merely creates a more exaggerated result – since report-preparers now know the result will be discounted further. Again, one could argue, that Bernanke’s ZIRP world (and an under-the-surface reality known to all that we are on a precipice) creates an ever-decreasing time-horizon for every ‘invisible-hand’-driven act we undertake: we have shifted from “Get Rich Quick” to “Get Rich Quicker…By Any Means.”

Guest Post: Understanding the "Exorbitant Privilege" of the U.S. Dollar

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The dollar rises for the same reason gold and grain rise: scarcity and demand.

Which is easier to export: manufactured goods that require shipping ore and oil halfway around the world, smelting the ore into steel and turning the oil into plastics, laboriously fabricating real products and then shipping the finished manufactured goods to the U.S. where fierce pricing competition strips away much of the premium/profit?
Or electronically printing money and exchanging it for real products, steel, oil, etc.?
I think we can safely say that creating money out of thin air and "exporting" that is much easier than actually mining, extracting or manufacturing real goods. This astonishing exchange of conjured money for real goods is the heart of the "exorbitant privilege" that accrues to the issuer of the global reserve currency (U.S. dollar).
To understand the reserve currency, we must understand Triffin's Paradox, a topic I discussed in What Will Benefit from Global Recession? The U.S. Dollar (October 9, 2012) and Is There Any Correlation Between the U.S. Dollar and Gold (Or Anything Else?)
(November 14, 2012).
It seems very few grasp the implications of the Paradox, and even fewer relate it to global trade. I recently discussed Triffin's Paradox and The Rule of Law in a video program with Gordon T. Long, who noted that the U.S. Council on Foreign Relations (CFR) described the conditions in which Triffin's Paradox becomes unsustainable:

"To supply the world's risk-free asset, the center country must run a current account deficit and in doing so become ever more indebted to foreigners,until the risk-free asset that it issues ceases to be risk-free. Precisely because the world is happy to have a dependable asset to hold as a store of value, it will buy so much of that asset that its issuer will become unsustainably burdened."

In other words, if the U.S. issues too many dollars, that could destabilize the dollar. But this is only one aspect of Triffin's Paradox: the basic idea is that when one nation's fiat currency is used as the world's reserve currency, the needs of the global trading community are different from the needs of domestic policy makers.
Trading nations need dollars to lubricate trading and as foreign exchange reserves that bolster the value of their own currency and provide the asset base for the expansion of credit within their own nation.
U.S. exporters want a weak dollar to spur foreign demand for their products, while foreign holders want a strong dollar that holds its value/purchasing power.
This is one aspect of Triffin's Paradox that is intuitive. But it is misleading in several important ways.
Consider Apple's iPhone. It is a U.S. product, right? And so it is counted as a U.S. export when it is shipped and sold in Europe. How much of the iPhone is manufactured in China? How is the "value-added" part of the product accounted for? What if Apple partially owns the foreign factories that make the parts that are in its "export"?
This example shows how complex and potentially misleading it is to simplistically assume an "export" manufactured with imported parts is somehow purely a U.S. export that would be severely impacted by a strengthening dollar.
If the dollar strengthens, wouldn't Apple be able to buy imported parts for lower costs? Wouldn't a stronger dollar actually lower production costs?
This also ignores the fact that most large U.S. global corporations already earn 60+% of their revenues overseas, in other currencies. If the iPhone parts are made in Asia and the completed phone is sold overseas in exchange for other currencies, then exactly where does the strong dollar come in to destroy this trade?
The only impact the dollar has is when overseas earnings are reported in dollars. I have often commented on this "trick": as the dollar weakened, global corporate profits skyrocketed as earnings in euros, yen, etc. rose when stated in dollars.
As the dollar strengthens, overseas profits will decline when stated in dollars. But since roughly two-thirds of global Corporate America is already overseas–its factories, labor forces, back-office, etc.–and two-thirds of its revenues are earned in other currencies that are used to pay local labor and materials, then the supposedly devastating effect of a stronger dollar on corporate sales is illusory.
This supposedly horrendous impact of the U.S. dollar rising also completely overlooks the premium of necessity. If you need grain and soybeans to feed your people, and the only available surplus available is American grain and soybeans that cost 25% more when priced in dollars, you will pay the premium without hesitation.
If the U.S. starts exporting natural gas, buyers will happily pay a premium due to a strong dollar: U.S. gas could double in price and still be less than half the current price Europe is paying.
Let's not forget that exports are 14% of the U.S. economy. The truly domestic-only part of that 14% is less than meets the eye, as so many U.S. exports (such as Boeing airliners) are assembled from globally manufactured components priced in local currencies.
If the dollar strengthens, the price of all imported goods and services declines significantly. That helps 90% of the economy, for recall that imported components used in the manufacture of exports (such as oil) also decline in price as the dollar strengthens.
Does it make sense to demand a policy that helps at best 10% of the economy (and even that "help" is marginal for all the reasons outlined above) while hurting 90% of the economy? No it does not. A stronger dollar will help the U.S. and foreign holders of dollars.
Lastly, we need to understand the flow of U.S. dollars. Foreign nations don't end up with dollars by magic–they end up with dollars because they sold the U.S. more goods and services than they bought from us.
The U.S. got the goods and the exporting nation got the dollars.
The exporting nation ran a trade surplus with the U.S. and now has dollars. It can hold them as reserves, either in cash or U.S. Treasuries, or it can "recycle" the dollars back into the U.S. economy by buying real estate, investing in companies, going to Las Vegas, and so on.
What happens in global recession? Trade declines along with everything else. And what happens when trade declines? Trade deficits also decline. In the case of the U.S., which exports large quantities of what the world needs (grain, soy beans, etc.) while buying mostly stuff that is falling in price in recession (oil), the trade deficit could decline significantly. (It is currently $41.5 billion a month.)
And what does a declining trade deficit mean? It means fewer dollars are being exported. Think about this: the global economy is about $60 trillion, of which about 25% is the U.S. economy. Into this vast sea of trade, the U.S. "exports" about $500 billion in U.S. dollars via the trade deficit. Put in perspective, it isn't that big compared to the machine it is lubricating. (That is $250 billion less than was "exported" in 2006.)
It is an astounding privilege to conjure up dollars out of thin air and exchange them for real goods.
So what happens when there are fewer dollars being exported? Demand for existing dollars goes up, pushing the "price" of dollars up–basic supply and demand.
It also means that there will be fewer dollars seeking a safe haven in U.S. Treasuries, which will slowly but surely exert pressure on Treasury yields to rise.
Higher yields on Treasuries will then feed back positively into the value of the dollar, pushing it higher.
We can now understand why global recession will actually boost the value of the U.S. dollar and push interest rates higher in the U.S., even as the stronger dollar lowers the cost of imported goods. Rather than be the catastrophe many believe, a stronger dollar will greatly benefit the U.S. and anyone holding dollars.
Triffin wrote in an era of rapidly expanding trade, and so we can understand why the possibility that the interests of domestic and international holders of dollars might align, i.e. an era of declining trade where dollars will actually become scarce, was not the focus of his analysis.
If we follow the above analysis carefully, we can understand why those worrying about a surplus of dollars got it wrong: the real problem going forward for exporting nations will be the scarcity of dollars.
This explains the dynamics that will continue pushing the dollar higher for years to come. This is not an intuitively easy set of forces to grasp, and so many will reject it out of habit. That could prove to be a costly error.

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