… From the US perspective, President Putin has declared himself to be an opponent to dollar special privilege when, at the BRICS summit in September 2017, he insisted on “the BRIC countries’ concerns over the unfairness of the global financial and economic architecture which does not give due regard to the growing weight of the emerging economies”. Putin further stressed the need to “overcome the excessive domination of a limited number of reserve currencies”. Russia consequently has duly earned American wrath for this stance. Saddam Hussein and Muamar Gaddafi both questioned the dollar hegemony, and look what happened to them.
Financial war, of course, is nothing new. … General Hayden, the former director of first the NSA and subsequently of the CIA, has characterised financial war as the primary means of warfare in the twenty-first century, and sanctions as its Precision Guided Munitions (PGMs). (In 2012) Washington blocked international clearing for every Iranian bank, froze $100 billion in Iranian assets overseas, and curtailed Tehran’s potential to export oil. The consequence was a severe bout of inflation in Iran that debilitated the currency.
Then, in 2014, Saudi Arabia engineered the oil price drop against US shale oil production, but also to punish Russia for its support for President Assad. And to rub salt into the wound, the US Treasury facilitated a ‘bear raid’ on the Rouble, which only was brought to a halt by China quietly intervening in the foreign exchange market, to prevent a collapse of the currency. It was clear at this point, that China, Russia and Iran shared a common strategic interest to establish a currency zone, with the depth of markets and infrastructure, to operate independently of the dollar sphere. These states have made it very clear that they are committed to a long-term strategy to stop using the US dollar, as their primary currency, in global trade. …
The key here is China: China’s economy is about nine times that of Russia. … Treasury Secretary Mnuchin, in September, warned China that the US could (cut) off access to the U.S. financial system (the Treasury’s ‘neutron bomb’ of blocking the SWIFT clearance system) – if China failed to impose sanctions against North Korea, sufficient to satisfy the US demand. …
China, too, it would appear, shares Mr Hayden’s view that today’s conflicts primordially are geo-financial. … China has more to lose in any financial war (because of its US Treasury holdings), and there is anyway, nothing that can substitute for the dollar, with its unique market depth. But … China and Russia and the BRICS have been thinking and preparing – as best they can – for an escalation of financial war … .
As Alasdair Macleod suggests, “look at this from China’s point of view. The People’s Liberation Army’s most influential strategist, Major-General Qiao Liang, laid out his overall strategic philosophy at a book-study forum of the Communist Party’s Central Committee in Autumn 2015. His view can be taken to be that of the Chinese leadership.” As Qiao puts it:
The U.S. (avoids domestic price) inflation by letting the dollar circulate globally. (Then in order) to avoid a dollar devaluation (due to running) out of dollars … the Americans came up with (the) financial economy (using money to make money, which) is much easier than the real (industry-based) economy. …
Since August 15, 1971, the U.S. has gradually stopped its real economy and moved into a virtual economy. It has become an “empty” economy state. Today’s U.S. Gross Domestic Product (GDP) has reached US$18 trillion, but only $5 trillion is from the real economy.
By issuing debt, the U.S. brings a large amount of dollars from overseas, back to the U.S.’s three big markets: the commodity market, the Treasury Bills market, and the stock market. The U.S. repeats this cycle to make money: printing money, exporting money overseas, and bringing money back. The U.S. has thus become a financial empire.
Macleod comments: “In other words, America’s wealth is sustained by a pump-and-dump operation facilitated by the dollar’s reserve status, replacing genuine industrial production. …”.
“The first cycle identified by Qiao was the expansion of dollars aimed at creating a boom in Latin America in the mid-seventies. The second cycle was aimed at South-East Asia, which expanded on the back of a dollar that weakened from 1986 onwards. From 1995, the dollar began to strengthen, culminating in a bear-raid on the Thai baht, which spread to Malaysia, Indonesia and other countries in the region. The Asian Tiger phenomenon was created and destroyed, not by the countries themselves, but by the flood and ebb of dollar ownership and investment. Qiao notes that China escaped being caught up in this US-inspired operation”.
“Qiao then turns his attention to the contemporary cycle (in 2015) of dollar management, claiming it was now aimed at China. In his words:
“… The U.S. dollar was strong for six years. Then, in 2002, it started getting weak. Following the same pattern, it stayed weak for ten years. In 2012, the Americans started to prepare to make it strong. They used the same approach: create a regional crisis for other people. …
If we acknowledge that there is a U.S. dollar index cycle and the Americans use this cycle to harvest from other countries, then we can conclude that it was time for the Americans to harvest China. Why? Because China had obtained the largest amount of investment from the world. …
And here lies the crux of China’s strategy. It will be some years before the Yuan assumes the status of a major reserve currency …, but China dominates world trade, and is in a position at any time henceforth to tie oil (and commodities) to gold – as they originally were. … And Russia’s central bank has opened an office in Beijing, specifically tasked with resolving the technical aspects of gold deliveries from Russia into China. …
And, in October 2015, China inaugurated its International Payments System (CIPS). CIPS has a cooperation agreement with the private, Belgium-based SWIFT international bank, clearing system, through which virtually every global transaction must transit, but in the event of China being excluded from SWIFT, as Mnuchin so hinted in September, China and Russia will be able to clear through CIPS.
So far, China’s policy has been to avoid instigating a disruption to the dollar sphere, preferring not to risk having global trade dislocated … . Venezuela has already set the ball rolling by refusing to accept oil payments in dollars … .
The operational launch of the Chinese Yuan denominated oil futures option … holds the prospect for displacing the petro-dollar system, especially if Saudi Arabia agrees to sell crude to China in Yuan (perhaps as part of China buying a stake in the Aramco offering).
China has other options … . It might simply switch to trading goods exclusively in Yuan, thus displacing the dollar completely as the medium for transactions. China and Russia would almost certainly be joined by … the BRICS (Brazil, Russia, India, China, South Africa), as well as by their Eurasian partner countries of the Shanghai Cooperation Organization (SCO) — comprising a population of well over 3 billion people, some 42% of the entire world population.
But because China still owns large quantities of US Treasuries and dollar reserves, for the moment she might prefer more time before executing such a coup de grace. So the bigger question … is what will be the effect on ‘risk free’ US Treasury values in the wake of a major segment of the global economy going its own way? And what too, will be the ability of the US government then to finance its debt … ? (This is largely rhetorical. Since they would no longer be needed to back-stop international trade, they would naturally tend to go down in price and their yield would go up. The author had already established – although I didn’t quote him on this – that sabor rattling, fear mongering, and destabilization is used by the U.S. to create the insecurity that drives investors to Treasuries as a safe-haven. If necessary, war could be a last resort.)