Explainer: The US Dollar will be replaced by this currency & Impact on India

in 1760 UK or Great Britain became the first country in the world to adopt Industrial Revolution at scale as a result it witnessed a lot of economic progress in fact it also did a lot of loot Mar all across the world including in India and became filthy rich but have you ever paused and thought about the fact that why do we consider the US dollar as the Apex currency or the reserve currency in the world right now and not the British pound in fact the British pound over the last 40 years has fallen quite aggressively if you take a look at this chart you will quickly see that back in 1971 you could buy approximately $2.5 us with one British pound and right now you can buy only $1.5 with one British pound so what has been the reason for this fall and why am I telling you this story in 2022 the reason is fairly simple that something similar is happening to US dollar right now a lot of political commentator and macroeconomists are saying that US dollar is going to get replaced by Chinese currency which is MMB and China is going to take the control of the world's economic engine so is that really going to happen we are going to discuss three critical points in this video One what led to the rise of US dollar in the world number two is Chinese currency going to overtake the US currency now third and most importantly what will be India's role and the impact on your portfolio in fact can you use this situation to make more money in the market so we are going to have this detailed analysis and discussion I had to study a a lot to prepare for this video it is going to be a complex macroeconomics video but a very very important video so please make notes and also press the like button it will help these type of videos reach out to more people so let us first and foremost understand what led to the rise of the US dollar in the world because if we can understand that framework we can apply it to the current situation in 2022 and do a thorough analysis if Chinese rnmb is going to replace the US dollar as the Apex currency while there are many factors that led to the growth of the US economy there are three critical factors so let me try to demonstrate this in an anecdotal format so before 1850 there were a lot of internal conflicts in the US and there was lot of internal unrest as a result what happened in the US was that it was not a very powerful economy there were other countries for example UK was there several other European nations were there that were much more powerful than the us but within the period 1850 and 1950 something dramatically changed in the US and that part can be triggered from a word called as Innovation so we all understand that us is a very Innovative economy and there are four bearers of this Innovation for example there was a person called as Vanderbilt under his name there is a university that exists and he developed railroad systems in the US there was another person called as rockafeller and under his name you can find a lot of Charity institutions foundations even now and he was the oil Baron and oil Mogul so he Consolidated the oil Market in the US similarly you would have heard of Henry Ford who developed the assembly line model and he he started manufacturing a lot of cars at scale so he led to industrialization but if you aggregate all these three people and I'm discounting a lot of other architects of the US economy but if you just consider these three people they had aggregation of oil they had aggregation of assembly line and they had aggregation of Transportation so they could transport a lot of material in bulk due to Railways this 100-year period and a series of Innovations took us from literally a no-name economy to one of the most prominent economies by 1950 this was not the only Standalone factor that was there the second biggest factor that contributed to the rise of the US especially the US dollar was the 1914 World War I in 1914 all the major economies be it European economies be it Russians they all jumped into World War I in fact UK which was one of the most prominent economies in 1914 it was one of the earliest Nations to jump into World War I and when did World War I end it ended towards the start of 199 19 and UK or Great Britain jumped into the war in 1914 and war is very very costly so UK lost a large chunk of their economy just fighting the war on the flip side us was one of the last prominent economic Nations to jump into World War I they jumped into World War I somewhere in 1917 and they only had to fight for one one and a half years so This World War I scenario crushed literally all the economies in the world including the us but US economy got crushed less compared to some of the other prominent Nations and as a result in relative terms it became a very big economy now third and finally once the World War I got over in 1919 there were miscellaneous factors at play us already had a very big economy that was shaping up in relative terms it had already gained a lot of ground and there were miscellaneous factors at play for example if you look at the migration data you can categorically see from this chart that us migration has always been very high it is a country that has has been built on immigrants a lot of Indians go there become CEOs of top tech companies this is not a recent phenomena in fact any type of business that has been kickstarted in the US and it has grown in scale you will always find immigrants building those businesses in fact if I recall the statistic correctly the average income of an American is roughly 55 57,000 but an immigrants especially an Indian immigrants average income in the US is more than $100,000 correct me if I'm wrong by commenting in the comment box I'm just quoting this from memory so the point is that us as a nation has been built on the back of immigrants and this migration even till today is helping the US economy massively and on top of this that us became the Cradle of innovation and capitalism that it fostered capitalism a lot of other countries in the world they did not adopt capitalism to the extent the US did and as a result what happened it gave us the ability to Pivot for example if you consider Henry Ford assembly line model in early 1900s it pivoted and by the end of 1900s the tech industry took over why the tech industry originate in the US to begin with because there was wealth of capital that was already available and because of this fostering of capitalism this pivoting became easy so as a result the US economy kept going up up and up in real terms so this story beautifully played out up until the 2008 crisis when the US debt giving model was working wonderfully well and the US economy was was getting richer by the day but anything that goes up including the US economy needs to come down at some stage and now the pundits or the economists are claiming that you know what with the rise of China with the internal conflicts that are picking up in the US with the excess money printing that the feds are undertaking they just turn on money printer for fun so they keep on pushing more and more and more money so all these series of different negative things is putting the us down and 2020 has acted as a catalyst with very similar to the way the 1914 World War I acted as a catalyst where this change of power is going to take place between the US and China so you can clearly see from this graph that the percentage share of China in the World Trade has been going up and for the US it has been coming down over the years so this brings us to the second question of the video that is China going to take over the us if yes why it will take over second is when it will take over okay so let us try to do a very quick analysis I can create a a separate video on this topic all together let me know in the comment box if you would want me to do that but here is the quick story so I'll make you see three graphics and then I will do a quick commentary on it so the first graphic we already covered that the share of China in the world trade is going up and for the US it has been coming now so this is graph number one second key thing if you analyze the manufacturing prowess so the word of the day today is prowess let me know what does that mean so the manufacturing press of China is again picking up and for the US it is going down so this is the second key graph and third and final graphic is very very worrying this difference shows the amount of debt that the US owes to China now all these three graphs interrelate and I will explain you the macroeconomics behind it so here is the quick macroeconomic story behind these three graphs and there are three critical points that you need to remember so first and foremost that as the share of China in the World Trade goes up and as its manufacturing press increases it will be able to control more money in the world so that is fact number one now in the last decade or rather in the last three decades China's manufacturing power has been going up up and up so as a result China has been able to control a lot of debt from the US now if you require a very quick input as to how this debt game is played out let me quickly explain that also this is a highly complex macroeconomic Viewpoint so please press the like button if you like the explanation so what happens is this that us and China trade with each other and trade with other countries and at what currency do they trade so they trade right now in US dollar mostly speaking why is that because US dollar is the primary or Apex currency it finds more usage for example India might also want to use US dollar China might also want to use US dollar US itself would want to use US dollar so this entire US dollar that you see printed so let's say that there are $10,001 us note that is out there in the world so what does this indicate this indicates the amount of total debt on the US because every time the US government prints any amount of money that becomes a debt on them debt simply means that the US government has taken a loan or an obligation for example if you zoom the note in India what does it say it says that I promis to pay the bearer the sum of 100 rupees so this is an obligation on the Indian government similarly whenever the US government prints currency it becomes an obligation for them so right now if you check that how much debt the US has taken from China you will be surprised to learn that they have taken $1.06 trillion of debt as of January 2022 you will say that okay how big is $1 trillion is it large enough is it small enough okay so let us look at the external debt of different countries and here if you check the debt of India you will see that India's external debt is roughly 65 billion so India's total external debt is roughly 35% less than the debt that us has taken from China so that is how large that $1 trillion debt is so now comes the natural question that will China kill the US because they are holding $1.01 trillion of debt of course it would want to kill the US the very next day they are not friends they are not hugging each other and we don't see Joe Biden or Donald Trump kissing Z Jinping and all that stuff so that is not happening so what is exactly going on so here is a very quick simplified summary so number one if the Chinese decide to flood the market with US dollar because they are holding a lot of US dollar so to say and they can decide to sell those US Dollars whenever they feel like so it is like selling stocks so that will devalue the dollar at a very very brisk pace is that something that China would do the answer seems like no because if they crash the US dollar even their own trade will suffer it will crush their own economy also it is like pressing a self-destruct button yes fine you will kill the US economy but in that game plan even you yourself will get evaporated so what is it that China is likely to do so they will maybe wait and watch so what exactly will they wait and watch on okay so basically two things there are multiple other things I'm simpli in this so please take it in that spirit so first and foremost the Chinese government will not derail the US till the time and international collaboration systems are built up from their end so you might have seen that China is building a lot of international Partnerships via the belt and Road initiative what are they trying to do they are trying to put their foothold across different parts of the world they are building a railway line to Europe they are building a lot of physical infrastructure in Africa in Sri Lanka bunch of other Asian countries they are also trying to capture Taiwan whatnot what are they trying to do they are trying to do both hard and soft diplomacy hard diplomacy means that go and literally acquire a country for example they are planning to invade thawan soft diplomacy means that you know what give people debt for example the Pakistan government had taken a lot of debt from China they went to China again to get their debt restructured and Z Jinping said to Imran Khan that okay you know what time for you to dance no he did not literally say it but that is what he literally meant that he gave Chinese really bad terms in terms of debt restu in so this is slightly more softer diplomacy why are they doing it because you might have observed that post World War II the international systems for example take a look at un wh World Bank you name it IMF who controls all these International agencies it is controlled by the us because if us as a normal Nation would go to a country like India and say that you know what I have come up with brilliant US dollars do you want it no one is going to use it they are going to put soft diplomacy pressure on you for example if you watch one of my earlier videos I spoke about the fact how is India's Forex Reserve made of it is made of SDR or special drawing rights which are related to IMF so please go and watch that video it will give you more clarity but to cut the long story short these International systems need to be built first in order for a country to exert its influence on other International parties second key point the alternate money system also needs to be built so after 1914 as I discussed on several of my previous videos that us aggressively promot promoted the kenian economics so they became like a money printing agency so to say and that was the monetary system that they adopted and made the other parts of the world also adopt so China also needs to come up with their own system they are working on their own digital Yuan so let's see how that currency plays out but to cut the long story short that in the short term it doesn't seem like that China will derail the US intently unless they have these two key pillars sorted out one is around International coordination that countries want to go with China for some reason or China is able to exert enough influence over them be it through hard diplomacy or soft diplomacy and second is that it needs to create a new monetary system which is not US dollar driven so if both these things are sorted out then yes that would be the time to transition from a US driven economy to a Chinese driven economy now you would say that akat you know what this is like very depressing because China you know they spread some virus which I cannot name because otherwise this video will get banned so they ate some wild animal and spread that virus and whatnot so I don't want to go with China can India stand up to China okay so let me show you facts please don't stir up nationalistic feeling here please look at data I'm just presenting data to you so let me present three facts here so fact number one is that Chinese GDP is roughly $16.7 trillion India's nominal GDP is roughly $3 trillion so we are 1/5 the size of China in terms of the moot now people give really weird arguments here for example we will say that you you know what compare the GDP in PPP terms okay what are you going to do you trying to compete against China and the us so that PPP comparison is not correct you have to do an absolute comparison here so this is fact number one fact number two lot of people say that you know what in China there will be internal unrest that will be caused because Chinese government really crushes people and income inequality in China is very very high again this number is not correct if you compare the income inequality in India it is 24% higher than in China third key fact we say that okay the consumer spending or India has a very big consumer base so many people are young they will buy a lot of stuff what not and Chinese population is aging so they will buy less but right now in consumer spending Chinese consumers spent roughly $15.7 trillion Indian consumers spent roughly $1 and5 trillion dollar so there is a huge difference in terms of the income set which we are comparing does this mean that we are doomed the answer is no it does not mean that you should shift your Indian portfolio to Chinese portfolio you need to listen to C of more points one is that our demography dividend is high and the hope is that going forward lot more people will be placed they will be given better jobs a large part of our Workforce will migrate from agriculture driven economy to service or manufacturing driven economy if that happens that will improve our GDP per capita from roughly $2,000 to $4,000 and at that stage India becomes a high value market second key point is that India is one of the best in fact let me revise the statement that India is probably the best emerging economy out there and it will continue to see a large influx of foreign investors it is happening for a wide variety of reasons one of the primary things being that we have an English educated Workforce that can create services that can be exported out of India and the cost of production of those services in India will remain low so that is a winning mode for India if India can figure out a way to use its Workforce productively and in high-end jobs India will become a massive economy in the next few decades so this brings me to the investment section of the video that what are some of the key things that you should be doing so I have two pieces of advice for you that number one if you're looking to invest in India from a long-term perspective then you must take positions in industries that support Capital formation for example Banks because if Indian economy has to grow banks have to grow if more capital is coming to India it will be deployed one way or the other by the Banks they will be the one giving loans their loan books will become better and better and stronger and stronger as more customers Avail credit so this entire flow of credit will be managed by Banks and therefore I'm super bullish about Banks I have said it multiple times but this is one of the key insights that I can give you if you are trying to build a position for the next 10 15 20 years in India this is most likely going to happen second key thing you must diversify between us and China also so far we have been doing us oriented investing only I have already started to take position in Chinese stocks I've already spoken about it Alibaba seems to be giving decent returns now so I'll make a separate video of investing in Chinese economy in case some of you are interested and as a final section since this was a very complicated video let me summarize three key facts that I see playing out number one the US economy is going down and it will continue to go down almost everyone unanimously agrees on this fact but this decline will take some time it's not as if that it will happen in the next 5 years or 10 years no one knows how long it will take but these type of changes take a lot of time second key thing that the Chinese economy is going to rise we must as investors as International investors if we keep the nationalistic pride aside from an investment diversification Viewpoint we must learn about the Chinese economy also third and final point that Indian market is huge it is one of the best emerging economies in the world it will continue to grow please be bullish about India India will become a great bridge and it will play a pivotal role in this transition from us to China if that ever happens so let me know what did you think about this video when do you think China is going to overtake the US will it ever overtake the US I will also post my answer in the pinned comments thank you so much and I will see you soon

Channel: Akshat Shrivastava

Views: 812,983

Keywords: akshat shrivastava, cases over coffee, macroeconomics, usd, renminbi, chinese currency, uk pound, china world super power, usa workd super power, industrial revolution, new world currency, changing world order, world number 1 currency, china world leader, xi jinping, joe biden, next super power, india economic growth, stock market in india, indian investors, how to invest

Id: DTDUqTMGixY

Length: 19min 29sec (1169 seconds)

Published: Sat Jun 04 2022