Status Quo Changing

"The status quo has changed, son."
--Patrick Gates (National Treasure)

Interesting piece by Louis Gave on the possible impact of the Ukraine conflict and associated sanctions on the USD's reserve currency status. He suggests that, in an age of fiat currencies, military superiority strengthens a nation's currency and has gone a long way toward solidifying the dollar's reserve currency status.

However, cheap military technologies such as the drones that have been deployed en force in Ukraine are changing the game of warfare--to the extent that they might substantially reduce the impact of conventional weaponry that the US holds a lock on. Should this come to pass, then Big Defense loses value alongside the US dollar's status.

In addition to the impact of the war on the ground, Gave suggests that the weaponization of finance as reflected by the blitzkrieg of war-related sanctions is tutoring the world about the risks of depending on the USD. Developed country bonds have been getting pounded while developing country bonds have been strong--quite the turn from the lessons of the Asian Contagion in the late 1990s. Lesson: Why hold US/EU bonds in this environment?

Moreover, sanctions have demonstrated that the US and its allies can run roughshod over property rights at their discretion. If the wealth of Russian oligarchs can be confiscated so abruptly, then why not the assets of any entity deemed to be an adversary of the US? Lesson: Why depend so highly on a financial system controlled by the US?

The status quo may indeed be changing.