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Is There Truth to "Project Sandman" and Coordinated Efforts to Crash the Dollar?

The US dollar has served as the world‘s dominant reserve currency for over 70 years, a status that has conferred enormous economic advantages to the United States. However, an intriguing theory, dubbed "Project Sandman", suggests that there may be coordinated plans underway to crash the dollar and replace it as the global reserve.

In this expert analysis, we‘ll analyze the evidence behind Project Sandman, implications if it came to fruition, what experts make of the theory, advice for dollar-based investors, and differing perspectives on the future of the dollar‘s status as global reserve.

The Far-Reaching Power of Dollar Dominance

To understand Project Sandman, it‘s important to first comprehend the immense power and privilege the US has enjoyed from the dollar‘s status as the primary global reserve currency.

Since the 1944 Bretton Woods agreement, the dollar has been the world‘s most used currency for international trade, investments, and central bank reserves. By some estimates, approximately 60% of global foreign exchange reserves are held in dollars. Out of the over $6 trillion traded daily in foreign exchange markets, nearly 90% involves dollars on one side of transactions.

This dominant position has provided the US with what former French Finance Minister Valéry Giscard d‘Estaing called an "exorbitant privilege". The US can run persistent trade deficits and borrow cheaply abroad to fund spending, as there will always be foreign demand for dollars and dollar-denominated assets like US Treasuries.

The dollar‘s reserve status also gives US financial sanctions more bite; banning access to dollar clearing often cripples targeted economies like Iran and Russia.

In short, the privileges the US derives from the dollar‘s dominance are far-reaching and profound. But how long can it last?

Introducing Project Sandman Theory

This is where Project Sandman theory enters the picture. The core premise is that a coordinated coalition of nations plans to crash the US dollar‘s value by moving away from it simultaneously in their foreign exchange reserves and trade settlements.

The name Project Sandman seems to hint that this would catch the US by surprise while asleep and economically defenseless, much like the mythical creature who sprinkles magic sand to put people into deep slumber.

The theory grew prominent in 2022 when Francis Muthaura, Head of Kenya‘s Central Bank, stated at a conference: "75% of central banks globally want to see change in the dollar dominance as a reserve currency, and this could happen quicker than expected, within 3-4 years."

With major economies like China, Russia, and EU nations incentivized to end dollar dominance, the question is whether backchannel coordination is accelerating?

What Could Actually Precipitate a Dollar Crash?

Just how vulnerable is the dollar‘s reserve status? Could coordinated efforts seriously threaten it? Let‘s analyze what factors and sequence could potentially crash the dollar:

The most likely vector would be if multiple major economies suddenly dumped hundreds of billions or trillions in US Treasuries and diversified foreign reserves into other currencies like Euros or yuan.

This flooding of dollars back into financial markets could set off a devastating cycle: plummeting Treasury prices > spiking yields > mass panic selling out of dollar assets > dollar crashing in FX markets > imported inflation and economic turbulence in the US.

The crash could happen quickly, as fx swaps facilitation keeping dollar funding liquid across the globe could shudder to a halt without warning. The global economy is addicted to debt priced in dollars, so a sudden dollar shortage and illiquidity could have cascading consequences and lead central banks to implement emergency measures.

So in theory at least, a coordinated mass exodus from US Treasuries could upend the dollar system and reserve status surprisingly quickly. But what‘s missing is a viable alternative currency that can immediately replace it as an accepted global medium of exchange, store of value, and haven asset. Neither yuan, yen, pounds, or euros are yet positioned to fulfill that role currently.

Signs of Coordinated Assaults Against Dollar Hegemony

While no perfect dollar alternative for reserves exists yet, are there seriously signs of coordination to undermine it regardless?

Here are some data points Project Sandman proponents often highlight:

  • In 2022, Russia‘s Gazprom signed a natural gas deal with China to price sales in yuan or euros instead of dollars.

  • Saudi Arabia is in talks with China to price some oil sales in yuan. The petrodollar system is the bedrock of dollar dominance.

  • 78 nations, including China, Russia and India, are piloting Central Bank Digital Currencies (CBDCs) to circumvent the need for dollars in cross-border payments.

  • Dollar de-dollarization pacts have formed between Russia-India-UAE and Russia-Iran-Turkey. Russia demands "unfriendly" nations pay for natural gas in rubles now.

  • Russia, China, and others have substantially cut allocations to dollars in their foreign reserves. China launched the digital yuan to challenge the dollar in international finance.

  • "Anti-dollar" rhetoric is growing among African, South American, and Southeast Asian heads of state, as is resentment at harsh US financial sanctions that weaponize the dollar.

These data points signify that dissatisfaction with dollar hegemony is broad, with technical and financial infrastructure being built to bypass it. But full replacement as the dominant reserve still seems a longer-term endeavor.

Analyzing the Repercussions if the Dollar Crashed

Let‘s game theorize the sequence of cascading consequences both globally and in American life if Project Sandman were executed successfully:

Globally:

  • Mass dumping of US Treasuries would likely force the Fed into emergency QE programs to absorb excess supply, crushing bond prices.

  • As the dollar crashes relative to basket of currencies, a global dollar shortage crisis would emerge until a new monetary equilibrium is found.

  • In the interim liquidity crash, global trade would seize up due to broken supply chains. Geopolitical tensions could worsen.

  • For Americans, purchasing power would substantially decline almost overnight. Imports would become vastly more expensive, fueling inflation.

  • Foreign travel would become much pricier for Americans during the dollar‘s devaluation, while suddenly cheaper for foreigners visiting America.

  • In financial markets, dollar-based assets like US stocks and real estate could dramatically sink at first as global capital flees the currency uncertainty.

In the US economy:

  • The crashing dollar would eventually serve to boost US manufacturing, exports and tourism as our goods become dirt cheap for other nations. An adjustment period would precede the boost.

  • If other countries are willing to accumulate devalued dollars, this still funds our deficits. But if no buyers for Treasuries emerge, debts could overwhelm the economy.

  • The Fed would likely implement currency controls to lock dollars within our banking system and economy, while strict austerity measures would aim to get America‘s house in fiscal order. Think higher taxes, less benefits, more domestic production.

In essence, a sudden loss of reserve currency status would amount to a profound turning point and rearrangement of the global monetary hierarchy. It would significantly lower American living standards and geopolitical influence.

Rather than coordinated plans happening in secret, some nations are transparently building systems to swap reserves out of dollars openly. However, the transition beyond dollar dominance will likely be gradual over years, not overnight.

Expert Analysis on Project Sandman Theory

What do monetary policy experts, economists, and funds managers make of coordinated crashing of the dollar theories? Here are some salient insights:

"Talk about replacing the dollar as global reserve has surfaced for decades without fruition. While its dominance has incrementally slipped—from 85% of reserves in 1999 to 59% now—the sheer scale of dollar-denominated trade and debt prevents a rapid overhaul. Unless a superior replacement representing broad multi-lateral interests emerges, pragmatic officials will remain reluctant to ‘shoot first and ask questions later‘. Any unduly swift transition risks financial chaos." – Mohamed El-Erian, Chief Economic Adviser at Allianz

El-Erian stresses that while the status quo is unsustainable, it‘s a tall order to rapidly unseat the incumbent. Coordination issues and scale advantages help the dollar remain sticky.

"There‘s no question that moves toward currency regime change are gaining momentum, from bilateral trade deals to CBDC pilots testing non-dollar rails. But as long as the greenback serves key international functions the yuan bloc can‘t yet provide, talk predicting the dollar‘s demise seems exaggerated—for now at least. Until a fully liquid, deep 2-way market exists in renminbi, coordinated efforts to crash the dollar will just spawn instability." – George Saravelos, Head of FX Strategy at Deutsche Bank

Saravelos contends the dollar is far from displaced as premier reserve asset. Yuan can‘t shoulder key currency burdens—and crashing the unswayed pole of global finance won‘t benefit China.

"The dollar‘s position seems secure largely due to incumbency advantages and network effects. But complacency risks ushering its downfall. With hostile regimes openly aspiring to end dollar dominance, Washington must urgently prioritize defending and bolstering the greenback‘s utility as reliable medium of exchange and storehold of value, lest inertia ceases to protect its status over time." – Professor Barry Eichengreen, University of California, Berkeley

Eichengreen suggests the dollar‘s uncommon resilience shouldn‘t be taken for granted by US policymakers. Proactive bolstering is required to uphold its future standing.

While debate continues around timeframes, most experts agree the current dollar-centric monetary order is fraying. This necessitates investors to prepare portfolios for currency regime change.

Investment Implications of a Future Dollar Crash

For dollar-based investors who may face wealth destruction in a greenback crash, how can one insulate savings and continue prospering across currency resets or collapses? Consider the following:

Hard Currency Exposure – Gradually allocate portfolio into other G10 currencies like Swiss francs, Singapore dollars, or Canadian dollars to mitigate fallout when the dollar stumbles. Australian dollars, Swedish krona, and Norwegian krone are also stable options. Consider currency diversification across both advanced and faster-growing emerging economies.

Security Selection – Focus equity investments into non-US multinationals with vast foreign revenue streams, as well as export-focused US firms and domestic necessities producers. These tend to outperform during dollar routs.

Alternatives – Diversify across real assets like global real estate, farmland, energy, precious metals, and digital assets tied to sovereign currencies and fintech. Be wary of crowded trades. Consider long volatility options trades to profit from a dollar crash.

Hedging Overlay – Implement currency derivatives hedging strategies that benefit as the dollar weakens substantially versus baskets of other G10 currencies over multi-year forward timeframes. Rebalance hedges actively based on evolving correlations and macro fundamentals.

Perspective is Crucial as Monetary Order Shifts

As signs point to genuine momentum against dollar dominance, how can investors wrap minds around this reality? As psychologist Molly Elmore counsels:

"We have been programmed since we were tiny tiny people to believe this money concept is a different thing than it actually is… Try to remain emotionally detached, almost like you‘re watching just a TV show or movie."

Constructive perspectives include:

Appreciating Macro Cycles – Currencies rise and fall, just as global economic leadership does. The end of singular dollar dominance was inevitable at some point as history shows incumbent decline is cyclical. Prepare rather than panic.

Embracing Versus Resisting Change – Change is nature‘s only constant, from the changing seasons to shifting societal systems and economic paradigms. Flow flexibly rather than ossifying as history dynamically morphs.

Focusing on True Wealth – Well-anchored values, purpose, strong relationships, self-mastery, and physical-mental health matter more than any currency. True wealth derives from how we choose to utilize the gift of time here rather than salted green paper.

Conclusion

In closing, while theories abound on coordinated plans to dethrone the dollar, its systemic dominance cannot be dismantled overnight without enormous instability and financial contagion. For these reasons, a gradual transition spread over years seems more likely.

Of course the future is unpredictable and precaution sensible, but investors shouldn‘t necessarily panic either. As changing monetary regimes bring fresh opportunities along with risks, retaining balanced perspective and constructive mindset is key. Wealth takes many forms beyond dollars or crypto tokens.

Focus on true intrinsic value. Build socially responsible enterprises. Master useful skills, foster communal ties and live meaningfully by orienting actions toward highest good. Value perpetuates itself beyond any currency regime‘s passing winds.