End Of Dollar
Hegemony 'may happen soon', as China-Russia bloc bypass SWIFT payment system;
Iran, Turkey, Zimbabwe, Cuba et al may join
Newsletter published on August 30, 2018
(1) Anti-Dollar bloc
growing: Russia-China axis reaches out to Iran, Turkey & countries on which
US has imposed sanctions, to Trade without Dollars
(2) End Of Dollar
Hegemony May Happen Soon and Badly Impact Indebted America
(3) Dollar Dominance
In Global Finance Is Fading Fast, as China-Russia bloc bypass SWIFT payment
system
(1) Anti-Dollar bloc
growing: Russia-China axis reaches out to Iran, Turkey & countries on which
US has imposed sanctions, to Trade without Dollars
From Iskandar Masih<iskandar38@hotmail.com>
Thwarting the anti-dollar coalition should be Washington's
top national priority
The United States is currently waging economic warfare
against one tenth of the world's countries with cumulative population of nearly
2 billion people and combined gross domestic product (GDP) of more than $15
trillion.
These include Russia,
Iran, Venezuela, Cuba, Sudan, Zimbabwe, Myanmar, the Democratic Republic of
Congo, North Korea and others on which Washington has imposed sanctions over
the years, but also countries like China, Pakistan and Turkey which are
not under full sanctions but rather targets of other punitive economic
measures.
Nicolas Asfouri | AFP |
In addition, thousands of individuals from scores of
countries are included in the Treasury Department's list of Specially Designated
Nationals who are effectively blocked from the U.S.-dominated global financial
system. Many of those designated are either part of or closely linked to their
countries' leadership.
From a U.S. perspective, each one of the economic entities is
targeted for a good reason be it human
rights violations, terrorism, crime, nuclear trade, corruption or in the
case of China, unfair trade practices and intellectual property theft.
But in recent months it seems that America's unwavering commitment to fight
all of the world's scourges has brought all those governments and the
wealthy individuals who support them to a critical mass, joining forces to create a parallel
financial system which would be out of reach of America's long arm. Should
they succeed, the impact on America's global posture would be
transformational.
America's global supremacy has been made possible not only
thanks to its military power and its alliance system but also due to its control
over the plumbing of global finance and particularly the broad acceptance of the
dollar as the world's reserve
currency. The unique status of the U.S. currency has anchored the global
financial system since World War II.
Any transaction done
in U.S. dollars or using a U.S. bank automatically brings the trading parties
under American legal jurisdiction. When the U.S. decides to impose unilateral sanctions, as in the case of
Iran, it essentially tells the world's governments, corporations and
individuals they must choose between halting business with the sanctioned
country or be shut off from the world's number one economy. This is a
powerful stick.
Not many companies or banks can afford to give up on the U.S.
market or be denied access to U.S. financial institutions.
Revisionist countries that wish to challenge the U.S.-led
system see this as an affront to their economic sovereignty. Which is why both
Russia and China have developed their
own versions of the Society for Worldwide Interbank Financial
Telecommunication (SWIFT), the
global network that allows cross-border
financial transactions among thousands of banks. Both countries are also
urging their trading partners to ditch the dollar in their bilateral trade in
favor of indigenous currencies.
This month Russia was
quick to recruit Turkey into the anti-dollar bloc, announcing it would back non-dollar trade with it, after a
financial feud between Ankara and Washington broke out. China for its part is using its
trillion-dollar Belt and Road Initiative as a tool to compel countries to
transact in yuan terms instead of dollars. Pakistan, the number one recipient of
Belt and Road money, and Iran have
already announced their intention to do just that. Last month's BRICS
(Brazil, Russia, India, China, South Africa) summit in Johannesburg was a call
to arms against the dollar hegemony with countries like Turkey, Jamaica, Indonesia, Argentina and
Egypt invited to join in what is known as "BRICS plus" with the goal of
creating a de-dollarized economy.
The main front where the future of the dollar will be decided
is the global commodity market, especially the $1.7 trillion oil market. Ever since
1973, when President Richard Nixon unilaterally severed the U.S. dollar from the
gold standard and convinced the Saudis
and the rest of the OPEC countries
to sell their oil only in dollars, the global oil trade has been linked to
the American currency. This paved the way for the rest of the commodities to be traded in
dollars as well. The arrangement served America well. It created an ever growing demand for the
greenback, which in turn enabled consecutive U.S. governments to freely run their growing deficits.
Not anymore. Because so many of the members of the
anti-dollar alliance are exporters of commodities they no longer feel that their
products should be either priced by a dollar-denominated benchmark like WTI and
Brent or be traded in a currency they no longer crave.
For example, when China buys oil from Angola, gas from
Russia, coal from Mongolia or soybeans from Brazil it prefers to do so in its
own currency and thereby avoid unwanted
exchange rate fees on both sides of the transaction. This is already
beginning to happen.
Russia and China have agreed to transact some of their traded
energy in yuan. China is pushing its
main oil suppliers Saudi Arabia, Angola and Iran to receive yuans for their
oil. And last year China introduced
gold-backed futures contracts, dubbed "petro-yuan" in the Shanghai
International Energy Exchange - the first non-dollar crude benchmark in
Asia.
The gradual acceptance of digital currencies, backed by
blockchain technology offers another way for the revisionists to ditch the
dollar in their trading. The Russian central bank indicated that it was
considering launching a national cryptocurrency called "cryptoruble" and in the
interim it helped Venezuela's launch of
its own cryptocurrency, the "petro," which is backed by the country's vast oil
reserves. Now BRICS members are discussing a BRICS-backed
cryptocurrency.
All of those actions and others point to one direction: In
the coming years the dollar will be facing a barrage of attacks with the goal of
eroding its hegemony and the energy
trading market will be one of the main battlefields where the future of
America's economic dominance will be decided. Any successful attempt to delink
commodity trading from the dollar will have a cascading impact not only on the
global economic system as we know it but also on America's posture abroad.
With the overall positive state of the U.S. economy and the
remarkable strength of the dollar compared to the currencies of the
dollar-busters including the Russian ruble, the yuan, the Turkish lira and the
Iranian rial it may be easy to sink into complacency and dismiss the actions of
the revisionists as mere pinpricks.
But ignoring the growing anti-dollar coalition would be to
America's detriment. Bull markets eventually come to an end and with a national debt of $21 trillion and growing at a rate of a trillion dollars a
year, the awakening could be ruder and sooner than most economists
predict.
In the midst of America's economic euphoria it is worth
remembering that one of every four
people on the planet lives today in a country whose government is committed to
end the dollar hegemony. Thwarting their effort should be Washington's top
national priority.
Gal Luft is co-director of the Institute for the Analysis of
Global Security and senior advisor to the United States Energy Security
Council.
(2) End Of Dollar
Hegemony May Happen Soon and Badly Impact Indebted America
- Published: Tuesday, 28 August 2018 | Print | Comment - New!
– Trump’s America waging economic warfare against most of the
world and 2 billion people with a combined GDP of more than $15 trillion
– Targeted nations include China, Russia, Iran, Venezuela,
Pakistan, Turkey, Cuba, Sudan, Zimbabwe, Myanmar, the Democratic Republic of
Congo, North Korea and others…
– “Bull markets eventually come to an end and with a national
debt of $21 trillion and growing at a rate of a trillion dollars a year, the
awakening could be ruder and sooner than most economists predict”
{this story then repeats the CNBC story above; with the
addition of an interesting graphic; click on the above link to see it}
(3) Dollar Dominance
In Global Finance Is Fading Fast, as China-Russia bloc bypass SWIFT payment
system
Dollar Dominance In Global Finance Is Fading Fast
By Zero Hedge - Aug 29, 2018, 10:00 AM CDT
The U.S. has been highly successful at pursuing financial
warfare, including sanctions. But for every action, there is an equal and
opposite reaction.
As the U.S. wields the dollar weapon more frequently, the
rest of the world works harder to shun the dollar completely.
I’ve been warning for years about efforts of nations like Russia and China to escape what they call
“dollar hegemony” and create a new financial system that does not depend on
the dollar and helps them get out from under dollar-based economic
sanctions.
These efforts are only increasing.
In the past four months, Russia has reduced its ownership of U.S.
Treasury securities by 84 percent and has acquired enough gold to surpass China
on the list of major holders of gold as official reserves.
Russia has almost 2,000 tonnes of gold, having more than
tripled its gold reserves in the past 10 years. This combination of fewer Treasuries and more gold puts Russia
on a path to full insulation from U.S. financial sanctions.
Russia can settle its balance of payments obligations with
gold shipments or gold sales and avoid
U.S. asset freezes by not holding assets the U.S. can reach.
Of course, Russia is not the only country engaged in
financial warfare with the United States. China and Iran are leading examples, but we
can also add Turkey to the list after its latest currency crisis.
Russia is providing these and other nations a model to
achieve similar distance from U.S. efforts to use the dollar to enforce its
foreign policy priorities.
Take China and Iran. China is the second-largest economy in
the world and the fastest-growing major emerging market. China has a voracious
appetite for energy but has little oil of its own. Iran is a major oil producer,
and China is Iran’s biggest customer.
But oil is priced in dollars and dollars flow through the
U.S. banking system. Trump’s Iran sanctions make it impossible for China to pay
Iran in dollars. If U.S. sanctions
prohibit dollar payments for Iranian oil, then Iran and China may have no choice
but to transact in yuan (see below for the implications).
Meanwhile, Europe has remained a faithful partner to the U.S.
and has gone along with sanctions against Iran, for example.
That’s because European companies and countries that violate
U.S. sanctions can be punished with denied access to U.S. dollar payment
channels.
But now, Europe is
also showing signs it wants to escape dollar hegemony. German Foreign
Minister Heiko Maas recently called for a new EU-based payments system independent of
the U.S. and SWIFT (Society for Worldwide Interbank Financial
Telecommunication) that would not
involve dollar payments.
SWIFT in the nerve center of the global financial network.
All major banks transfer all major currencies using the SWIFT message system.
Cutting a nation off from SWIFT is like taking away its oxygen.
The U.S. had previously banned Iran from the dollar payments
system (FedWire), which it controls, but Iran turned to SWIFT to transfer euros
and yen in order to maintain its receipt of hard currency for oil exports.
In 2013, the U.S. successfully kicked Iran out of SWIFT. This
was a crushing blow to Iran because it could not receive payment in hard
currencies for its oil.
This pushed Iran to the bargaining table, which resulted in
the Iran nuclear deal with the U.S. and its allies in 2015. Now Trump has
negated that U.S.-Iran deal and is putting pressure on its allies to once again
refuse to do business with Iran.
And Congress is again pushing to exclude Iran from SWIFT as
part of a sanctions program.
The difficulty this time is that our European allies are not
on board and are seeking ways to keep the nuclear deal alive and work around
U.S. sanctions.
Europe’s solution is to therefore create new nondollar
payment channels.
In the short run, the
U.S. is likely to enforce its sanctions rigorously. European businesses will
probably go along with the U.S. because they don’t want to lose business in the
U.S. itself or be banned from the U.S. dollar payments system.
But in the longer run, this is just one more development pushing
the world at large away from dollars and toward alternatives of all kinds,
including new payment systems and cryptocurrencies.
It’s also one more sign that dollar dominance in global
finance may end sooner than most expect. We are getting dangerously close to
that point right now.
By Zerohedge
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