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Daily Insights

September 19, 2023

Navigating the Shift: JP Morgan's De-Dollarization Insights

JP Morgan’s De-Dollarization Insights offers a comprehensive exploration of the evolving global economic and financial landscape. It delves into the growing scrutiny and potential challenges facing the enduring supremacy of the U.S. dollar. Here, we present a detailed overview of the key findings and ramifications featured in the report:

**Rethinking Dollar Dominance:**
The U.S. dollar has long held sway as the world’s foremost reserve currency and the favored choice for international trade. Nevertheless, this hegemony faces renewed questioning, primarily stemming from geopolitical and geostrategic shifts, including the ongoing Russia-Ukraine crisis.

**Forces Behind De-Dollarization:**
Several factors are propelling de-dollarization:
– The imposition of U.S. sanctions on Russia has made some nations cautious about overreliance on the dollar, spurring them to explore alternative options.
– Escalating interest rates in the U.S. have rendered the dollar costlier for emerging economies, prompting them to investigate alternative currencies for trade.
– An example of this trend is Bolivia’s adoption of the Chinese renminbi for its imports and exports.

**Deciphering De-Dollarization:**
De-dollarization entails a significant reduction in the utilization of the U.S. dollar in global trade and financial transactions, thereby decreasing the demand for the greenback across national, institutional, and corporate levels.
Two scenarios could erode the dollar’s dominance: internal events within the U.S. that undermine its perceived safety and stability and positive external developments that bolster the credibility of alternative currencies.

**Consequences of De-Dollarization:**
The repercussions of de-dollarization could reshape global power dynamics, potentially transforming the global economy and financial markets. This shift could lead to a widespread depreciation of U.S. financial assets and decreased foreign investment. Additionally, a structurally weakened dollar could enhance U.S. competitiveness but also introduce inflationary pressures.

**De-Dollarization in Currency Markets:**
While early signs of de-dollarization are emerging in currency markets, the dollar’s dominance persists. It remains the most widely used currency for global trade and financial transactions. The dollar’s share of global foreign exchange volumes currently stands at 88%, with its share of trade invoicing, cross-border liabilities, and foreign currency debt issuance remaining stable.

**Potential Contenders to the Dollar:**
China has been diligently working towards internationalizing the renminbi, but this process is still in its nascent stages. The global reach of the renminbi remains relatively modest when compared to the dollar and euro.

**De-Dollarization in Oil Markets:**
Traditionally, a stronger dollar has led to lower oil prices, particularly impacting emerging markets. However, there is a growing trend of conducting more oil sales in non-dollar currencies. Russian oil sales, for instance, increasingly occur in local currencies or those of friendly nations, diminishing reliance on the dollar.

**Is De-Dollarization Imminent?**
While marginal de-dollarization is anticipated, swift de-dollarization appears unlikely. The U.S. enjoys the benefits of a globally recognized currency and extensive alliances. A more plausible scenario is partial de-dollarization, where the renminbi takes on some functions of the dollar among non-aligned countries and China’s trading partners. This could pave the way for regionalism and the ascent of distinct financial spheres of influence.

JP Morgan’s De-Dollarization Insights underscores the intricate dynamics surrounding the U.S. dollar’s role in the global economy. While challenges to its dominance are evident, a complete de-dollarization seems to be a gradual process influenced by a myriad of factors, including geopolitical events and the credibility of alternative currencies. This transformation holds the potential to reshape financial markets and the global economic landscape over the long term.

August 21, 2023

Mine The Gap: Breaking Down KPMG Analysis

The KPMG report titled “Mine the Gap: Repositioning Canada as a Global Leader in EV Production” sheds light on Canada’s significant potential to establish itself as a prominent participant in the worldwide electric vehicle (EV) sector. As nations globally commit to an electrified future, and with a projection indicating that by 2030, 60% of newly registered vehicles in Canada will be EVs, the mining industry has a pivotal opportunity to spearhead sustainable EV battery manufacturing and bolster the growth of EV production capabilities.

The report underscores Canada’s mining sector as crucial for realizing a carbon-neutral energy future and advancing the circular economy by reimagining the value chain for critical minerals. To harness these opportunities, focused investments, strategic collaborations, and innovative sustainable practices are essential.

Canada stands in an advantageous position to spearhead the transition towards an EV-centric future. The nation leads North America and ranks fourth globally in terms of raw material capacity within the battery supply chain. Additionally, a substantial 43% of the world’s mining companies are listed on Canadian stock exchanges, a testament to the country’s robust presence in the mining domain.

The report proposes several strategies to leverage Canada’s potential:

1. Investment and Expansion: Elevating production targets and diversifying sources of critical minerals, particularly lithium, are paramount. Canada should expedite exploration and mining endeavors for these minerals and cultivate a skilled workforce through governmental initiatives. Building a robust domestic value chain encompassing exploration to electrification is pivotal.

2. Infrastructure Development: Establishing domestic infrastructure to support operations is pivotal in facilitating the expansion of the EV sector. This encompasses creating the necessary infrastructure for mineral extraction, refinement, and battery production.

3. Localized EV Production: Canada’s skilled workforce and existing manufacturing sector can transition into EV production. By harnessing the existing automotive ecosystem, Canada can build a comprehensive framework spanning mineral extraction to EV assembly.

4. Battery Ecosystem: Cultivating a robust battery manufacturing supply chain holds utmost significance. The report underscores the importance of private sector investments and governmental backing in establishing battery production facilities. Given the logistical challenges of transporting batteries, proximity to manufacturing hubs provides a competitive edge, magnifying the significance of Canada’s efforts in this domain.

5. Transforming Raw Materials into Economic Opportunities: Canada boasts an abundance of critical minerals integral to EV production, such as nickel, lithium, cobalt, graphite, copper, and manganese. Developing these resources and upholding a responsible supply chain via ESG standards can drive sustainable economic growth and foster employment in remote and northern communities.

6. Government Support and Collaborative Endeavors: Facilitating the EV industry’s growth mandates coordination between federal, provincial, and territorial governments. Financial support, tax incentives, and effective environmental legislation can attract investments and propel the industry forward.

7. Job Creation: The expansion of the EV sector is poised to generate a considerable number of new jobs in clean energy within Canada. The industry could witness a nearly 50% employment growth, with numerous Canadians engaged in EV technology by 2030.

Canada’s resolve to assume a global leadership role in EV production necessitates a comprehensive approach spanning the entire EV value chain. By investing in critical minerals, manufacturing capabilities, and sustainable practices, Canada can not only contribute to an ecologically sound future but also stimulate economic expansion and job generation across diverse sectors. With its firm grounding in mining and manufacturing, Canada holds the potential to propel the shift towards a more sustainable transportation industry and solidify its stature as a worldwide leader in EV production.


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