Tuesday, May 7, 2019

981 End Of Dollar Hegemony 'may happen soon', as China-Russia bloc bypass SWIFT payment system; Iran, Turkey, Zimbabwe, Cuba et al may join

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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