Sridhar Vembu on why dollar-denominated debt is a bad idea

Zoho CEO Sridhar Vembu was commenting on a Twitter thread posted by Alex Gladstein, the Chief Strategy Officer at Human Rights Foundation.

Zoho CEO Sridhar Vembu on Sunday agreed with the Human Rights Foundation that dollar-denominated debt is a bad idea, especially for developing countries like India.

"Dollar-denominated debt, increasingly common among Indian corporates, are a bad idea. They leave companies and the country exposed to the Fed's mood swings," Vembu tweeted.

The entire thread is gold and this nugget about the fiat/petrodollar system is particularly relevant for India.

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Dollar-denominated debt, increasingly common among Indian corporates, are a bad idea. They leave companies and the country exposed to the Fed's mood swings. https://t.co/eFNRcbUL1p

— Sridhar Vembu (@svembu) March 13, 2022

The petrodollar system is an exchange of oil for US dollars between countries that buy oil and those that produce it. The petrodollar was the result of the oil crisis in the mid-1970s when prices spiked to record levels. It helped increase the stability of oil prices denominated in US dollars.

The Zoho CEO was commenting on a Twitter thread posted by Alex Gladstein, the Chief Strategy Officer at Human Rights Foundation (HRF) where the latter was sharing inputs on the nature and politics of money by investment strategist Lyn Alden.

"'The fiat/petrodollar system can be considered a form of neocolonialism; we push most of the costs of the system out into the developing countries in order to maximize the stability for the developed world.' I've explored this tragic reality in my writing as well," Gladstein said quoting Alden.

The fiat system based on a government's mandate that the paper currency it prints is legal tender for making financial transactions.

"Fiat currency," Alden pointed out, "Tends to incentivize running bigger deficits (since spending doesn’t necessarily need to be taxed for), and generally requires some degree of hard or soft coercion in order to get people to use it over harder monies... although that coercion is often rather invisible to most people most of the time, until things go wrong."

"Its ability to be diluted can allow for longer wars, selective bailouts for influential groups, and other forms of government spending aren’t always transparent to citizens," Alden added.

Sridhar Vembu, agreeing with her views, said, "The dollar system and therefore the global trading system are showing severe strains. We cannot rule out the possibility of a collapse, which would be worse than the GFC 2008-9." He then urged others to read Alden's thread "if you want to understand the dollar-based monetary system."