Tag Archives: Reserve Currency

Collapse Is Happening Before Our Eyes, James Rickards

The dollar as the reserve currency is slowly falling apart. From James Rickards at dailyreckoning.com:

Analysts and authors, myself included, have been warning about the collapse of the dollar as the global reserve currency for years. I described this prospect in my first book, Currency Wars (2011), and in several other books in the years since.

This process can take many years. For example, the decline of sterling as the leading global reserve currency played out over 30 years from 1914 (the beginning of World War I) to 1944 (the Bretton Woods conference).

Still, events today are playing out so quickly that the collapse is happening in front of our eyes.

It’s no longer a matter of a major event on the horizon; it’s occurring in real-time. Russia has just linked the ruble to gold at a rate of 5,000 rubles to one gram of gold. China is discussing with Saudi Arabia the prospect of paying for oil in yuan.

Israel is likewise considering taking yuan in exchange for its high-tech exports. China and Russia are creating new payments systems to avoid U.S. sanctions. You get the point.

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Basic Solutions To Our Economic Problems That Establishment Elites Won’t Allow, by Brandon Smith

The basic solution to our economic problems would be if establishment elites would get the hell out of the way. From Brandon Smith at alt-market.us:

I think one of the great misconceptions about economic crisis is that solutions are always dependent on centralized government action. In truth, most financial disasters are actually caused by too much government action and involvement. Central banks like the Federal Reserve are also primary culprits; as I outlined in last week’s article their machinations, which are independent of government oversight, fall into the category of deliberate sabotage. The Fed bankrolls corruption through fiat money creation while government officials and corporations utilize that money to wreak havoc on our living standards.

Ending the Fed would solve the fiat money problem, but there’s still a host of agenda driven politicians and bureaucrats to deal with before our nation can right the ship.

One clear way to fix our system would be to first force government to interfere less. As a point of reference, consider the common media narratives surrounding the covid pandemic. Along with the White House the media has been the premier driver of irrational fear over the spread of covid, which ended up being a minor threat compared to the hype as the average Infection Fatality Rate was no more that 0.27%. Yet, in response to a virus that was a mortal danger to less than one-thrid of 1% of the population, bureaucrats declared a national emergency requiring insane and unconstitutional lockdowns.

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“Nice Narrative” But No: Why One Strategist Thinks Zoltan Pozsar’s “Bretton Woods 3” Is Never Going To Happen, by Michael Every

Breaking with a consensus that has formed very quickly, one analyst doesn’t think a Bretton Woods 3 currency regime (commodity-based) is just around the corner. From Michael Every via zerohedge.com:

Nice narrative: but it’s just ‘mercantilism’

Summary

  • Sanctions on Russia are seen as accelerating a dramatic shift towards a new global commodity-focused ‘Bretton Woods 3’ architecture
  • However, this is actually a very old economic argument: mercantilism
  • History, logic, trade data, and economic geography all show the US can do well in that kind of realpolitik environment
  • By contrast, the opportunity to shift global trade flows away from USD to others is limited: fundamentally, neither CNY nor commodity currencies are set up to rival USD globally
  • The USD will therefore retain its global role despite the ‘Bretton Woods 3’ hype

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The Party’s Over, by The Zman

Having the world’s reserve currency was fun while it lasted. From The Zman at takimag.com:

The Party’s Over

Money, as most people understand it, is the bits of metal and paper issued by the country where you live. For Europeans, it is the colorful stuff issued by the European Union, rather than your home government. Even so, no one thinks much about money beyond what it can do for you. It is the cool stuff you can buy, how much you earn, and how much you have to spend for the things you need to live.

The West is suffering from inflation at the moment, so people are noticing that their money buys less than it did in the recent past. In most Western countries, fuel prices are 50 percent higher than a year ago. Food prices have doubled for some items, and the price hikes have only just started to bite. Britain is warning that they are facing the biggest drop in the standard of living ever recorded.

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Update on US Dollar as Global Reserve Currency and the Impact of USD Exchange Rates & Inflation, by Wolf Richter

The dollar has been losing market share of international trade for years and that may continue. However, keep telling the world that dollar reserves  are no longer safe and the decline may be dramatic and sudden. From Wolf Richter at wolfstreet.com:

Dollar drops to lowest share in 26 years. Slowly but surely?

With inflation raging in the US following the Fed’s $5-trillion money-printing orgy and interest-rate repression, the question constantly arises: When will the rest of the world throw in the towel on the dollar as the dominant global reserve currency? If this were to happen all of a sudden, it would spell chaos. But it is happening little by little.

The global share of US-dollar-denominated foreign exchange reserves fell by 40 basis points from Q3 to 58.8% in Q4, setting a new 26-year low, edging out the low in Q4 2020, according to the IMF’s COFER data released at the end of March. Dollar-denominated foreign exchange reserves consist of Treasury securities, US corporate bonds, US mortgage-backed securities, and other USD-denominated assets that are held by foreign central banks and other foreign official institutions.

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Cancel the Funeral for the US Dollar: The “Patient” Just Leaped Out of the Coffin, by Charles Hugh Smith

Before the dollar is laid to rest, a new global reserve currency will have to found, and that’s not that easy. From Charles Hugh Smith at oftwominds.com:

Sealing the USD’s coffin requires conjuring up a replacement reserve currency, and that turns out to be a lot more challenging than many understand.

You know the scene in movies where the body-bag is being zipped up or the coffin lid slid into place when the recently deceased startles everyone by suddenly sitting upright? That’s an analogy for the funeral currently being planned for the US dollar–a funeral that has been cancelled.

OK, I get it: there are plenty of reasons why so many expect the dollar to die: it’s a fiat currency, for goodness sakes, and those always die sooner than expected; US debt is soaring like an Elon Musk rocket; its purchasing power is in freefall; America’s unipolar moment is history in a multi-polar world, and let’s face it, it’s simply not as pretty as other currencies.

Die, dollar, die!

But sealing the USD’s coffin requires conjuring up a replacement reserve currency, and that turns out to be a lot more challenging than many understand.

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All That Glitters Is Not Necessarily Russian Gold, by Pepe Escobar

Is the unipolar world already a thing of the past? From Pepe Escobar at thesaker.is:

The “rules-based international order” – as in “our way or the highway” – is unraveling much faster than anyone could have predicted.

The Eurasia Economic Union (EAEU) and China are starting to design a new monetary and financial system bypassing the U.S. dollar, supervised by Sergei Glazyev and intended to compete with the Bretton Woods system.

Saudi Arabia – perpetrator of bombing, famine and genocide in Yemen, weaponized by U.S., UK and EU – is advancing the coming of the petroyuan.

India – third largest importer of oil in the world – is about to sign a mega-contract to buy oil from Russia with a huge discount and using a ruble-rupee mechanism.

Riyadh’s oil exports amount to roughly $170 billion a year. China buys 17% of it, compared to 21% for Japan, 15% for the U.S., 12% for India and roughly 10% for the EU. The U.S. and its vassals – Japan, South Korea, EU – will remain within the petrodollar sphere. India, just like China, may not.

Sanction blowback is on the offense. Even a market/casino capitalism darling such as uber-nerd Credit Suisse strategist Zoltan Poznar, formerly with the NY Fed, IMF and Treasury Dept., has been forced to admit, in an analytical note: “If you think that the West can develop sanctions that will maximize the pain for Russia by minimizing the risks of financial stability and price stability for the West, then you can also trust unicorns.”

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The Dominance Of The U.S. Dollar Is Fading Right Before Our Eyes, by QTR Fringe Finance

The U.S. dollar’s days as the reserve currency are numbered. From QTR Fringe Finance at zerohedge.com:

It was just a couple of weeks ago that I wrote an article arguing that the economic sanctions we have cast upon in Russia, due to its invasion of Ukraine, likely mark the beginning of a period where China and Russia would bifurcate the global monetary system, leading them to eventually challenge the U.S. dollar’s reserve status.

Now, Saudi Arabia is joining the fray, further threatening to tip the balance of the global monetary scales that have kept the U.S. dollar afloat for decades.

The fact that predictions of a “new economy” and “new monetary system” only exist on fringe blogs like mine and haven’t gone mainstream given the current economic situation with Russia (even amidst our abuses of printing the dollar over the last several decades) is baffling to me.

As I noted to Andy Schectman in a recent podcast, our quality of life in the United States and our nation’s entire economy is an elephant balancing, on one leg, on the toothpick of the U.S. dollar’s reserve status.

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Say Hello to Russian Gold and Chinese Petroyuan, by Pepe Escobar

The U.S. government is pushing Russia and China away from using the dollar and undermining its reserve currency status. From Pepe Escobar at unz.com:

Russia says half its gold assets were frozen – is this for real or a slick play by Moscow?

It was a long time coming, but finally some key lineaments of the multipolar world’s new foundations are being revealed.

On Friday, after a videoconference meeting, the Eurasian Economic Union (EAEU) and China agreed to design the mechanism for an independent international monetary and financial system. The EAEU consists of Russia, Kazakhstan, Kyrgyzstan, Belarus and Armenia, is establishing free trade deals with other Eurasian nations, and is progressively interconnecting with the Chinese Belt and Road Initiative (BRI).

For all practical purposes, the idea comes from Sergei Glazyev, Russia’s foremost independent economist, a former adviser to President Vladimir Putin and the Minister for Integration and Macroeconomics of the Eurasia Economic Commission, the regulatory body of the EAEU.

Glazyev’s central role in devising the new Russian and Eurasian economic/financial strategy has been examined here. He saw the western financial squeeze on Moscow coming light-years before others.

Quite diplomatically, Glazyev attributed the fruition of the idea to “the common challenges and risks associated with the global economic slowdown and restrictive measures against the EAEU states and China.”

Translation: as China is as much a Eurasian power as Russia, they need to coordinate their strategies to bypass the US unipolar system.

The Eurasian system will be based on “a new international currency,” most probably with the yuan as reference, calculated as an index of the national currencies of the participating countries, as well as commodity prices. The first draft will be already discussed by the end of the month.

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Bonfire of the Governments, Part One, by Robert Gore

bonfire-wallpaper-hq

Expect chaos to continue making new highs.

When Machiavelli wrote The Prince he had Vladimir Putin in mind. The president of Russia has adroitly sought, maintained, and used power, the theme of Machiavelli’s masterpiece (see “The Black Belt Strategist,” Robert Gore. SLL, July 19, 2018). That he is an amoral snake is both true and laughable as a criticism coming from the amoral snakes who populate Western power structures. Nobody who slithers to the top of those pits is anything other than an amoral snake. Western snakes hate Putin because he’s repeatedly outsnaked them.

Call Putin a rattlesnake for he clearly rattled before Russia’s invasion of Ukraine. That he was ignored is a worrisome indication of the epistemological breakdown that grips the West. Its leaders are unable to grasp that Putin meant what he said because they rarely mean what they say. Facts are not facts and the truth is whatever narrative they’re promoting at the moment. It’s become axiomatic that power flows from control of the narrative.

Until it doesn’t. Power flows from understanding reality and making use of what it can offer. If narratives were power, Ukraine’s army would be in Moscow by now. We haven’t seen this kind of excessive excrement from governments and their media minions since . . . Covid. Narratives are for simple-minded sheep and the wolves who devour them.The propaganda is devoid of any mention of: the 2014 U.S.-sponsored coup against a democratically elected government; rampant corruption within the Ukrainian oligarchy; Ukranian payola to American political figures (e.g., the Bidens and Clintons); widespread neo-Nazi infestation of Ukraine’s military and government; their eight-year war on its Russian-heritage citizens in eastern Ukraine; the government’s willful failure to adhere to the Minsk accords that were meant to resolve that conflict, or the latest—U.S. supported bioresearch labs in Ukraine.

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