Global View The Big, Big Question The Future of The US Dollar System - May 2020
The Big, Big Question: The Future of The US Dollar SystemColdWar2 has started based on Chinese economic power, not Soviet military power. America's policy approach toward both threats is regional containment. The US has just formed the economic equivalent of NATO, with a select group of 'allies' trusted with US dollar swaps (S15 countries). China's economy, like the USSR military, is being locked-down. Will China respond with an equivalent Warsaw Pact deal that elevates the Yuan to lead a new currency bloc, a ChinaCOM, in return for sharing her vast USD pool and investing in the member economies? These moves could have big implications for World capital flows, markets and currencies. The battle lines are already being drawn. The US dollar faces an existential challenge that it will overcome for now. But this does not mean that a strong US is either likely, or that the internationalisation of the Chinese Yuan will stop.
CrossBorder Capital Ltd (CrossBorder) is a London based, FCA registered, independent investment firm founded in 1996. It is owned by its partners and has no affiliations with banks, stockbrokers or other financial institutions.
CrossBorder's core competence is the measurement and analysis of global liquidity flows. Liquidity is a source of funds, in contrast to money which is a use of funds. It is defined as the flow of cash plus credit, or more explicitly as savings plus the change in base money plus the change in bank credit. Liquidity is therefore a more comprehensive measurement of fund flows than the monetary aggregates used traditionally. Liquidity research is applied to determining the outlook for a range of asset classes including equities, fixed income, currencies and hedge fund styles over varying time horizons.
Central to this analysis is the monthly collection and analysis of balance sheet data from over seventy of the world's central banks to quantify the level and direction of liquidity in each country. This data is publicly available, aggregate as opposed to sample, and rarely significantly revised. It is also little used by investors, and CrossBorder's prime utility is bringing this set of data to investors in a timely and user-friendly way.
CrossBorder's insights rest on two philosophical assertions: first, there is a regular cycle of liquidity, and asset class price movements tend to move sequentially over the cycle. By measuring where we are on it, we can significantly reduce 'fat tail' outcomes in our predictions for asset price movements. Secondly, weightings of asset classes held by investors in aggregate tend to revert to the long term mean. By measuring the variance from this mean, we can understand whether a particular trade is 'crowded' or the reverse.
CrossBorder offers these insights both as the Liquidity Research research service, and in the form of systematically allocated in-house funds. Clients of the Liquidity Research service include leading banks, fund managers (both traditional and hedge) and insurance companies located worldwide. CrossBorder additionally manages and advises on tactical asset allocation products for third parties.
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