BRUSSELS — After years of reducing its reliance on Russian gas, the European Union is moving to turn off the taps completely within the next two years.
The European Commission (EC) on May 6 presented a detailed roadmap to fully sever the European Union’s energy dependence on Russia by 2027.
It is part of a strategy to unload their dollar holdings. Basically buy natural gas from the US.
The value of a dollar is about to be beaten into the ground
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There is a theory that the USD as global currency is at risk of being replaced due to BRICS. Often the RMB is posited as the successor to the dollar, but I don’t think it is possible to use a currency that is not openly traded, nor for which we have insight into how its value is set (not derived by the market, but set by the country itself) as a vehicle for secure, stable exchange of value.
Of course, the current administration is doing a good job of running the USD down, but even with that I don’t see how any other currency can replace it for the foreseeable future…
Full disclosure, I am not an economist
Economies change slowly. To eliminate the demand for Russian Natural gas on that time scale means that they are going to have to import it from somewhere else.
Economically speaking the only move that justifies that price premium is if one wanted to unload their Dollar position and the time frame needed to do so would align with their fossil fuel reduction timetables.
It is not about them moving to a new reserve currency but unwinding the current position in a way that aligns economically and politically for their own countries.
Ya gotta have the currency in order to spend it. If a Nation runs out of USD while they still need NG (or anything else traded in USD) then they’re going to have a bad time.
Possibly but the U.S. Federal Reserve has the ability to blackhole a LOT of dollars and if the inflows exceed their ability then the price of NG will climb until it balances.
If you doubt me then line up this chart of US NG Exports with this chart of USD DXY. The effect predicted by the strategy isn’t visible.
Frankly I’m not sure there’s enough NG demand in the world to tank the USD via purchases.
The goal is not to tank the dollar but unload it in a way that is most politically and economically beneficial to the EU.
That’s a pretty fancy way of saying “We are going to use our money to buy things we need.” I mean that’s sorta to be expected.
It’s also not a comment on “value of the dollar is about to beaten into the ground”. There doesn’t seem to be a basis to support the theory that purchasing too much NG will cause the US Dollar to decline in value.
The USD will likely decrease in value but it will happen because of Republican stupidity, not due to mass purchases of goods from US companies.
Completely agree that the purchasing alone would not drive the value of the dollar down but the change in policy reflects a global loss of trust in the dollar.
Being a reserve currency, means most of its value is in the global trust in it being a “stable” store of value.
Trust is quick to destroy and very slow to build. No country unloading their position wants the value to crash but they all are actively starting to unwind their dollar positions.