Submitted by Taps Coogan on the 18th of December 2019 to The Sounding Line.

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CNBC’s Rick Santelli recently spoke with Bannockburn Global Forex’s Marc Chandler about the rise in foreign central bank gold holdings and whether the increasing ‘weaponization’ of the US Dollar is pushing foreign governments to search for an alternative reserve system.

Some excerpts:

Rick Santelli: “The notion of the dollar being the reserve currency always seems to be challenged, but it never seems to be successful with regards to a challenge. But now with economic sanctions and tariffs and the US using its might and its balance sheet to try to control behavior, whether it’s Iran or China, doesn’t this add to the fuel of this de-dollarization issue we hear cropping up with countries like Russia and China?”

Marc Chandler: “…I agree with you. I think this weaponization of the dollar and the access to the dollar, which Treasury Secretary Mnuchin is denying, but many people in the world, many people in the market particularly, think this is what’s happening and this will undermine the dollar in the long run. But in the short term, there doesn’t seem to be a compelling alternative.”

Rick Santelli: “…But then again, other things crop up. As I was reading articles about de-dollarization, I was reading how central banks have been buying up a lot of gold. They like gold more than dollars these days…”

“Now granted that the dollar index isn’t really a great way to value the dollar, but it’s what the market uses and it’s what most traders pay close attention to, …we are only one cent higher on the year now on the dollar index…”

Marc Chandler: “…I am in a camp that sort of says the dollar’s long term bull market is coming to an end and it’s going to take some time cause news from Europe, as you saw from this weak’s PMI flash…, is not good. The Japanese economy looks like it’s contracting… In the short run I think this (recent weakness in the dollar) is just noise around a longer term dollar uptrend, but I do think that uptrend is coming to an end.”

As Rick Santelli alludes to, over 83% of the US Dollar Index is determined by relative value of the US Dollar to the Euro, Japanese Yen, and British Pound. In fact, the Euro alone represents over 57% of the index. Given the simultaneous rise of emerging markets and the atrophying of Europe and Japan over the last couple decades, the US Dollar Index has become an increasingly flawed way to perceive the strength of the US Dollar.

There is much more to the discussion, so enjoy it above.

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