A Shift in Global Finance

As mentioned in Retrospective Perspectives 2022/2023, Gold has set a new record last year. Its global reserves have been accumulating at Central banks with a furious pace last seen 55 years ago when the U.S. dollar was still backed by gold.

• Why is that and what else is happening in global finance?

• How can you prepare for the financial disruptions coming our way?

• What are meaningful ways to preserve family wealth and personal assets?

I wrote this article to help my family and friends understand the current geopolitical chaos and how it affects major shifts in global finance and hope it also helps you in navigating certain risks and opportunities which are now unfolding:

1. De-Dollarisation

2. Rise of the Middle East

3. Fortification of BRICS

4. The Revival of Gold

5. Crypto and CBDC

6. Inflation, Cash and Liquidity

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De-Dollarisation

When countries receive dollars for the oil they sell, it benefits the US as they recycle those dollars back into US investments — providing liquidity to financial markets and keeping rates low in the US. The Kingdom of Saudi Arabia (KSA) is still the world’s largest oil exporter and has been using the petrodollar system since the 1970s.

Since signaling the end of the petro dollar status earlier in the year and announcing that they’re officially open to settling trade for oil and natural gas in currencies other than the US Dollar and the Euro, this is a big deal.

If other countries along with the KSA begin to transition away from the dollar and look for alternatives, it reduces the overall demand for USD and increases borrowing costs for consumers and businesses in USD among other effects.

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The Rise of the Middle East

When I attended the inaugural Future Investment Initiative (FII) in the KSA in 2017, it was clear that this “Davos of the Desert” wasn’t just a one time event.

The big announcement was the launch of NEOM — an architect’s dream in the form of a $500 billion dollar city starting with a blank canvas. It was initially received with quite some skepticism, but look at what has transpired since:

After speaking to several friends who now live in NEOM and work for materializing this venture, I can all but confirm how real it’s becoming.

Also take a look at the 10 biggest sovereign wealth funds in the Middle East by assets*:

1. Abu Dhabi Investment Authority (ADIA) — $708.75 billion

2. Kuwait Investment Authority — $708 billion

3. KSA’s Public Investment Fund (PIF) — $607 billion

4. KSA’s SAMA Foreign Holdings — $490 billion

5. Qatar Investment Authority — $461 billion

6. Investment Corporation of Dubai — $299 billion

7. Abu Dhabi Mubadala Investment Company — $284 billion

8. Abu Dhabi Developmental Holding Company PJSC — $159 billion

9. Emirates Investment Authority — $87 billion

10. Oman Investment Authority — $17 billion
    *Numbers from the Sovereign Wealth Fund Institute (SWFI)

Note that these are not banks, they are actual sovereign wealth funds representing over $3.8 trillion in assets. Compare this to JP Asset Management which has $2.5 trillion AUM but it was founded 50+ years before any of these.

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Fortification of BRICS

Russia and China are actively courting the Middle East. None of the Gulf nations sanctioned Russia after the Ukraine war started and it’s unlikely they’d break with China if it invaded Taiwan. It’s clear that the world is changing dramatically.

But it’s not only Russia and China. Take a look at the dynamics of India’s transformation and see some mind boggling statistics unfold:

Indian oil refiners have also started to pay for Russian oil in Emirati dirhams and the State Bank of India has started to make payments in UAE local currency.

Meanwhile Russia's finance ministry will reduce the euro's share in its national wealth fund to zero later this year. The fund will only hold gold, Chinese yuan and rubles which will likely internationalize the yuan to higher levels and could also lead to further de-dollarization.

In fact, Saudi Arabia, China, Russia, India and others have been strengthening relations and trade at a dramatic pace over the past year. The KSA is open to joining BRICS along with Turkey and Egypt.

Along with members of the Shanghai Cooperation Organisation (SCO) these countries have stated intentions for a “roadmap for the gradual increase in the share of national currencies in mutual settlements" and agreements to “ramp up coordination on energy (oil, natural gas, nuclear) exploration and policy” among other things, which sets the stage for a potential commodity backed reserve currency to rival the U.S. dollar.