'While seizing Afghan or Russian reserves may feel righteous and just, the immediate effect of such actions is to completely undermine the credibility of dollar debt as an international savings device.' Opinion by nic__carter
CoinDesk columnist Nic Carter is partner at Castle Island Ventures, a public blockchain-focused venture fund based in Cambridge, Mass. He is also the co-founder of Coin Metrics, a blockchain analytics startup.
The tether was tenuous, however. The entire system depended on the beneficence of the U.S. government and its willingness to not overspend, increasing the ratio of dollars to underlying gold. Things came to a head when the U.S. spent extravagantly on President Lyndon Johnson’s Great Society and the Vietnam War, and sovereigns began to doubt the veracity of America’s promise to redeem currency for gold on demand.
The Mount Washington Hotel in New Hampshire's White Mountains where the Bretton Woods conference took place. ) In short, foreigners, who had long supported America’s largesse by eagerly buying its debt, were buying less and less of our new debt issuance. Foreign ownership of U.S. debt declined from 34% in 2015 to 24% at the end of 2021. China’s ownership declined from $1.25 trillion in 2015 to under $1.1 trillion in 2021. To compensate for this diminishing outside interest, the U.S. looked inward for new creditors. The Federal Reserve held around 4% of U.S.
Previously, sanctions had been reserved for small, economically unimportant nations. At the time, the U.S. threatened to exclude Russia from the SWIFT international transfer system entirely but backed down due to the severity of the measure. Russia took the threat to heart, and its central bank divested most of its U.S. Treasury exposure and set up a SWIFT alternative called SPFS.
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