A less ugly house on Fiat Avenue.

According to the IMF via Deutsche Bank, USD is currently gaining ground as a global reserve currency as it approaches reserve levels not seen since the early 2000’s. While other sources tend to vary a bit in this calculation, USD is now at least 62% of global reserves according to most estimates. This is a function of capital fleeing even riskier homes on the block due to unsustainable debt deleveraging risks incurred during the QE era, as well as a lack of viable alternatives. The euro has been problematic for reserve managers since the periphery debt crisis escalated in 2011/12. The ECB’s “whatever it takes” backstop pledge bought some time but the periphery debt problem has most recently recast its shadow over Italy as the new populist coalition government balances domestic campaign promises with fiscal realities. China’s yuan is even less attractive than the euro given the People’s Party’s reluctance to let go of capital controls and to meaningfully restrain it’s own aggregate debt. Now it seems to be the biggest loser amongst trade negotiation/war losers. Unless there is an eventual forced political coordination between the central planner masters of the universe, a la a Plaza Accord, USD remains one of the least ugly houses on the ugly block of Fiat Avenue.

062218 global reserves