Why discuss the dollar tide? To successfully navigate the cryptocurrency market and macro cycles in US stocks, one must understand the rules of the dollar tide. These factors directly affect how money flows and the trajectory of financial cycles.

In 1944, the US established the 'Bretton Woods system,' creating the dollar's gold standard, and thereafter the dollar was referred to as 'USD.'

However, after the failure of the Vietnam War, the US's gold reserves rapidly diminished, making it difficult for the dollar to be exchanged for the originally stipulated amount of gold, leading to the announcement of the collapse of the Bretton Woods system after 1971.


So, why is the collapse of the Bretton Woods system considered the starting point of dollar hegemony? Because prior to that, the amount of gold reserves was the basis for a country's central bank to issue currency; paper currency was not supported by national credit but rather underpinned by gold. In other words, at that time, the dollar was merely a 'voucher for gold.' However, after the collapse of the Bretton Woods system, the dollar chose to be linked to oil, which does not possess the scarcity of gold, allowing the US to rely on its national credit to issue currency almost without restriction (this was also the foundation for the US's later unscrupulous behavior).


Thus, the collapse of the Bretton Woods system marks the starting point of dollar hegemony. If the Bretton Woods system had not collapsed, the US would have to issue currency according to its gold reserves. However, with the collapse of the Bretton Woods system, the only support for the dollar was an extremely high reserve of oil and the US's credit (which unfortunately, the US lacks).


For the global market, due to the dollar's extremely high liquidity (accounting for about 85% of global foreign exchange transactions), the US can harvest globally through a series of monetary measures like raising and lowering interest rates.


1️⃣ The specific harvesting logic of the dollar tide is divided into three steps:

The dollar tide ebbs and flows like ocean waves in the international market. For other countries, the arrival of the dollar feels like a 'rising tide,' while its departure feels like a 'falling tide.' The continuous outflow and inflow of dollars from the US complete a cycle of monetary tides.


The specific harvesting logic is divided into three steps.

🟨 Interest rate cut cycle

Firstly, the Federal Reserve devalued the dollar through interest rate cuts and monetary easing policies, such as printing more money and lowering interest rates. When interest rates fell, American businesses and residents withdrew their money from banks for consumption or investment. At the same time, capitalists took these excess dollars to buy cheap assets globally, such as commodities, real estate, stocks, and bonds, causing global economic and asset prices to soar.


When the dollar is excessively issued, in an environment where the supply of goods remains relatively constant (production has not caught up), those who obtain the newly issued dollars earliest can purchase more goods first. As more and more dollars flood into the market, the purchasing power of the dollar continuously decreases, and the quantity of goods that can be purchased with a unit of dollar begins to gradually diminish. Those at the end of the exchange chain find it increasingly difficult to purchase goods, ultimately being forced to accept price increases and scarcity of supplies. Therefore, after a period of interest rate cuts, the dollar will depreciate (as shown by the rise in exchange rates of other currencies against the dollar), and the prices of goods priced in dollars will gradually increase.


In this process, the wealthy class in the US first benefited from the cheap currency, resulting in a surge in wealth; however, the ordinary working class faced pressure due to currency depreciation and rising prices, thus widening the wealth gap in America. For non-American investors, they could invest their assets in the stock markets of those countries that received a surge of dollars during the early stages of interest rate cuts.


🟨 Interest rate hike cycle

After the dollar bubble burst, the Federal Reserve began raising interest rates, causing dollars abroad to want to return home for higher interest rates. Americans started depositing money in banks or buying newly issued Treasury bonds. As interest rates rose, the global dollars flowed back to US banks, resulting in a decrease in the dollars available in the market, which naturally led to an appreciation of the dollar, with prices following suit; thus, interest rate hikes served to combat inflation.


As the US dollar flows out, American funds need to exchange the local currency of the host country for dollars, which means selling the local currency to buy dollars, leading to a decline in the exchange rates of various currencies against the dollar and causing depreciation of national currencies. After the depreciation, theoretically, it benefits exports in these countries, but it is detrimental to imports, as the purchasing cost of goods priced in dollars has increased due to the depreciation of their local currencies against the dollar, impacting foreign trade enterprises.


When dollars flow out of a country, the asset prices in that country lack financial support, leading to a significant drop in asset prices, and the asset bubble is burst. Thus, quality assets at low prices emerge.


🟨 A new round of interest rate cut cycle

When asset bubbles burst in various countries, the US government lowers interest rates and relaxes monetary policy, resulting in a depreciation of the dollar's exchange rate and a relative appreciation of other currencies. Domestic funds in the US, seeking higher yields (as the domestic interest rate falls, there are no high-yield assets), begin a new round of 'territorial acquisition' with the returning abundant dollar funds, purchasing cheap assets and goods, thus allowing the US to earn significant profit margins. Buying into core quality assets at the bottom. The returning dollars suddenly make a comeback, buying up the most core quality assets, turning low prices into their own possessions.


Where prosperity once existed, only remnants remain.


2️⃣ Core mechanism of the dollar tide


🟨 The global reserve currency status

The dollar is the world's primary reserve currency, with central banks around the world holding large amounts of dollar reserves to cope with international trade payments, foreign exchange market interventions, and financial crises. Therefore, the demand for dollars exists long-term on a global scale. Through the dollar-dominated financial system, the US can control the global money supply.


🟨 The dominant position of US monetary policy

The Federal Reserve's monetary policy, especially its interest rate policy, has far-reaching effects on global capital markets. When the US implements loose monetary policies (such as lowering interest rates or quantitative easing), a large amount of cheap dollars flows into the global market, pushing up asset prices in other countries, boosting investments and economic growth. However, when the Federal Reserve tightens monetary policy (such as raising interest rates or shrinking its balance sheet), global capital flows back to the US, draining liquidity and causing turmoil in the financial markets of other economies.


🟨 Dollar dependence in global financial markets

Most transactions and financing activities in the global financial system are denominated in dollars, especially companies and governments in emerging markets and developing countries that heavily rely on dollar debt. When dollar liquidity is ample, these economies can easily obtain low-interest loans. However, when dollars flow back to the US, interest rates rise, debt repayment pressures increase, leading to financial crises and heightened risks of debt defaults.


3️⃣ The history of the establishment of the dollar system

The US economy surpassed that of the UK in 1898 (before World War I), becoming the world's largest economy; however, the dollar only slowly confirmed its status as the international currency after the end of World War II.


🟨 Step 1: Before World War I, countries around the world primarily used gold as the international reserve currency, a monetary system known as the gold standard. Under the gold standard, gold fulfilled all functions of an international currency. Although the economic strength of the US had surpassed that of the UK before World War I, the US was still a debtor nation to the UK at that time.

At the start of World War I, while the Allies and the Central Powers were locked in a fierce struggle, the US began exporting materials and weapons to all warring countries, making a significant profit from the war. Therefore, by the end of World War I, the US had become a creditor nation to the UK. During this time, gold, as a world currency, continuously flowed into the US.

At the same time, with the help of the British government, the US secretly sent dollars to other Commonwealth member countries such as Canada, South Africa, and India. These dollars were mainly used to pay for war materials and weapons, promoting the use of dollars in these countries and laying an important foundation for the internationalization of the dollar.


🟨 Step 2: In 1944, towards the end of World War II, to ensure the stability of international currency post-war, the US and UK aimed to control the discourse on international currency. The UK proposed the 'Keynes Plan,' while the US proposed the 'White Plan':

Keynes Plan: Also known as the International Clearing Union Plan, the main content was for the International Clearing Union to publish a uniform world currency, with the distribution of currency shares calculated based on the average values of imports and exports over the three years before the war. Under this calculation method, the UK could occupy 16% of the world's currency share, and if including colonies and the Commonwealth, it could rise to 35%. Clearly, this plan was very beneficial for the UK to maintain the international status of the pound under conditions of depleting gold reserves, while also weakening the influence of the dollar and US gold reserves.


White Plan: Also known as the International Stabilization Fund Plan, its core content was to establish an international monetary stabilization fund organization based on the principle of deposits, with tasks including:

Issuing international currency Unitas (the predecessor of SDR), which could be exchanged for gold and transferred among member countries;

Maintaining fixed proportional relationships between national currencies and Unitas, with any changes in parity requiring the agreement of the fund organization;

If member countries experience difficulties in international payments, they can exchange their local currency for foreign exchange from the fund organization, but the amount cannot exceed their subscribed quota;

The basic voting rights of member countries depend on the size of their quotas, with the fund's operational body located in the country with the largest quota;

Eliminating discriminatory measures such as foreign exchange controls, bilateral settlements, and dual exchange rate systems.


However, at this time, the British Empire was already on the decline, with over 59% of the world's gold having flowed into the US Federal Reserve. According to the principle of 'whoever has the biggest fist gets to decide,' the UK was ultimately forced to abandon the Keynes Plan and accept the US proposal.


In July 1944, representatives from 44 nations, including the US, Soviet Union, China, and France, held the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, and approved the (Bretton Woods system). The Bretton Woods system was actually established based on the White Plan. The 'Unitas' currency mentioned in the White Plan was essentially a nickname for the dollar, with 1 Unitas equaling 10 dollars. Thus, it was equivalent to directly linking the dollar with gold, while the currencies of other member countries were linked to the dollar, allowing for free exchange of various national currencies, with the exchange rates determined with reference to the dollar's exchange rate.


At that time, the US was the world's largest creditor nation, and this plan was essentially to cement the hegemony of the dollar. The US manipulated the fund organizations to gain dominance in the international financial sector. Therefore, if the Keynes Plan was the UK playing a clever game, the US's White Plan was essentially bringing the game back home.


🟨 Step 3: After World War II, European countries were left in tatters, with their economies plummeting. In 1948, the United States proposed the 'Marshall Plan': to provide aid to Western European countries, allowing Europe to quickly recover from economic stagnation. Of course, the Marshall Plan was not simply an act of goodwill by the United States but part of a grand strategy: on one hand, it aimed to cultivate capitalist adversaries against the Soviet Union; on the other hand, it sought to deepen Western European countries' dependence on the US, thus controlling their economic lifeblood.

Western European countries borrowed money from American banks and then purchased various grains and goods from the US, thus the dollars circulated back into the hands of Americans. At the same time, American goods could smoothly occupy the European market.


🟨 Step 4: According to the Bretton Woods system, the dollar was pegged to gold, with the dollar acting as the world currency. During trade, countries used dollars for settlement, and they could also exchange dollars for gold, leading to a significant loss of gold reserves in the US. Excessive outflow of gold resulted in the depreciation of the dollar, thereby affecting its credibility as a world currency. Additionally, the US was mired in the Korean and Vietnam wars, leading to large-scale fiscal deficits. The US had to print a large amount of currency, causing the issuance of dollars to exceed significantly, and the Federal Reserve's gold reserves could no longer support the amount of dollars in circulation.


Therefore, on August 15, 1971, the US government announced the decoupling of the dollar from gold, marking the end of the Bretton Woods system.

In the 1970s, the Organization of Petroleum Exporting Countries (OPEC) announced a significant increase in oil prices in retaliation against countries that supported Israel during the Middle East wars, plunging the economies of the US, Japan, and European countries into stagnation, which is known as the first oil crisis in history. At this point, the US began to realize that in the industrial era, oil is the hard currency, and oil is real gold. If the dollar could be linked to oil, the US's control over the world currency system would become even more secure.


Thus, in 1974, the US secretly signed an (irrevocable agreement) with Saudi Arabia, conditioning it on the US no longer favoring Israel, selling advanced military weapons to Saudi Arabia, and promising to guarantee Saudi Arabia's territorial security against Israeli infringement. Saudi Arabia agreed to price its oil exports solely in dollars. As Saudi Arabia is the largest oil producer in OPEC, other member countries quickly adopted the dollar for oil transactions under its lead. From then on, the dollar became closely tied to oil, establishing an invisible equation between the two; any country wishing to engage in oil trade must possess enough dollar reserves, leading to the famous 'petrodollar system.'


'Petrodollar' refers not only to oil-producing countries earning dollars through oil exports, but also represents a complex system under international trade and international finance. In short, there are two core points:

International oil trade is priced and settled in dollars;

The income from oil exports, after deducting import expenses, is primarily used to purchase US Treasury bonds.


Due to the US's super strong economic strength and developed capital markets, a large portion of the 'petrodollars' earned by oil-exporting countries flows back to the US in the form of bank deposits, stocks, Treasury bonds, etc., replenishing the US's trade and fiscal deficits and supporting its economic development.


Thus, through the efforts of several generations, the status of the dollar as the international settlement currency appears currently unshakeable.


🟨 However, looking back at history, monetary hegemony is not unassailable—after the first industrial revolution, the UK became the world's most powerful nation, known as the 'empire on which the sun never sets,' with the UK controlling over 20% of the global population and over 25% of the land, accounting for over 70% of the global economy and holding over 80% of the world's gold reserves.


However, after World War II, with the decline of British national power and the rise of the US, the dollar replaced the pound as the main global settlement currency.


In the past, the dollar, as a world currency, dominated global economic cycles, with dollar tides sweeping across the globe time and again.


Today, countries around the world are no longer willing to be vassals of the dollar, and more and more nations are exploring paths of de-dollarization. In fact, the global economy has gone through several major currency cycles in the past 60 years, during which dollar hegemony has gradually been established.


Now, more and more countries are beginning to challenge the dollar's hegemonic position, trying to break free from the passive reliance on Federal Reserve monetary policy.


If these challengers ultimately succeed, the rules of the global economy may be completely rewritten in the future. This time, the world is truly about to change, and the tide of the dollar may soon become history.


From the current situation, major countries around the globe are starting to reduce their holdings of dollars. Countries are beginning to legislate for cryptocurrencies, treating #BTC as a strategic reserve, and the development of cryptocurrencies could also pose a challenge to the existing international monetary system, potentially leading to a more diversified and decentralized global economic structure.


This reflects that 'de-dollarization' has gradually become a consensus in the international market.


However, in the next decade, it is possible that a new core currency system will emerge centered around 'the dollar, yuan, euro, yen, and cryptocurrency.'


Currently, the US government undoubtedly has an advantage in the field of cryptocurrencies. In the future, even if excessive dollar issuance leads to a global sell-off, the US can still transition from 'dollar hegemony' to 'cryptocurrency hegemony' through cryptocurrencies.


Finally, as participants of this era, the only thing we can do is embrace the era of cryptocurrencies!


Let's encourage each other!