The United States begins to panic to see the rest of the world diverging from the dollar. The proxy war in Ukraine and tensions with China are turning into a global sling against the greenback.
Petroyuan
The first big warning shot came from Riyadh late last year. The Chinese president had traveled to the Saudi capital for a summit with the 21 countries of the Arab League.
Xi Jinping has indeed invited OPEC to no longer sell its oil exclusively in dollars, but also in yuan. Request accepted. The Saudi energy minister will announce in Davos that his country will henceforth accept the yuan and the euro.
Even Kenya has just announced that it has obtained authorization to buy Saudi and Emirati oil in its own currency.
Sergei Lavrov is no stranger to this monetary revolt. The Russian Foreign Minister had indeed declared July 24, 2022 in Cairo before the Arab League:
“More and more countries are considering settling their trade in currencies other than the dollar. […] Trade between Russia and the countries of the Arab League has increased considerably, reaching more than 20 billion dollars. Maybe next time we’ll count in another currency, not dollars. »
Sergei Lavrov had said in essence exactly the same thing before the 55 States of the African Union four days later. These declarations have apparently obtained a favorable echo since the Heads of State of forty African countries traveled to Moscow last week.
More crucially, Xi Jinping was also there to lend his support to Vladimir. The Russian president gave him the lift, saying he was “in favor of exchanges paid in yuan between Russia, the countries of Asia, Africa and Latin America”.
The Tsar has added a diaper this Sunday, March 26:
” They [les États-Unis] are sawing off the branch they are sitting on – I repeat – by limiting the use of the dollar on the basis of momentary and political considerations. They harm themselves, and we might even add that they shoot themselves in the foot.
We would like to use the dollar, but they won’t let us. How can we make payments? In a currency acceptable to our partners. The yuan is one such currency, especially since it is used by the International Monetary Fund.
Do you know that Middle Eastern countries have announced that they want to sell their oil in yuan? We will gradually extend this practice and expand the use of trusted currencies. »
In January, the Chinese central bank reduced its holdings of US debt for the sixth consecutive month. China only has 859 billions of dollars. Lowest since May 2010.
China remains the second largest holder of Treasuries after Japan ($1.104 billion). But probably not for long. Bloomberg is also reporting that central banks are liquidating their holdings of Treasuries at the fastest rate in nine years.
This great riddance can be seen clearly in the figures of the IMF. Foreign exchange reserves in dollars have been steadily declining since the start of the war in Ukraine. They fell from 7,092 billion dollars to 6,441 billion at the end of the third quarter of 2022. That is a drop of 10%.
So Americans are really starting to worry. The tension is palpable on CNN.
“An unprecedented situation”
Translation :
“The most interesting outcome of the three-day meeting between Xi Jinping and Vladimir Putin received only limited media attention. But Mr Putin said: “We support the use of the Chinese yuan for settlements between Russia and countries in Asia, Africa and Latin America.”
Thus, the world’s second largest economy and the world’s largest energy exporter are actively trying to weaken the dominance of the dollar which is the mooring line of the international financial system. Will they make it?
The dollar is America’s latest superpower. It gives Washington unparalleled economic and political power. It allows sanctions to be imposed unilaterally against certain countries and excludes them from most of the world economy. Also, the United States can spend freely, certain that its debt will be bought up by the rest of the world.
The war in Ukraine, combined with Washington’s increasingly confrontational approach to China, has created a perfect storm in which Russia and China are accelerating their diversification away from the dollar. Their central banks keep a smaller share of their reserves in dollars and most trade between the two countries is settled in yuan. Both countries are also working to convince other countries to follow their example. […]
If Xi Jinping wanted to harm America, he would liberalize its financial sector and make the yuan a real competitor to the dollar, but that would force him to open up his markets, which is the opposite of his current national goals.
That said, Washington’s weaponization of the dollar over the past decade has led many major countries to look for ways to ensure they don’t suffer the same fate as Russia.
The figures are revealing. The dollar’s share of global central bank reserves has fallen from around 70% 20 years ago to less than 60% today. And it keeps decreasing.
The Europeans and Chinese are trying to set up international payment systems outside the dollar-dominated area. Saudi Arabia has considered pricing its oil in yuan. India pays most of its oil purchases from Russia in currencies other than the dollar.
CBDCs could be another solution, and the Chinese central bank has created one. The past few years should make us realize that more and more nations are willing to pay a price for their political goals to prevail. […]
Author and investor Ruchir Sharma points out that “for the first time in living memory, we are facing an international financial crisis in which the dollar has weakened rather than strengthened. I wonder if this is a warning sign”. […]
American politicians have become accustomed to spending without worrying about deficits. The American public debt has almost quintupled, going from approximately 6.5 trillion dollars twenty years ago to 31.5 trillion dollars today.
The Fed resolved a series of financial crises by massively expanding its balance sheet, which grew nearly 12 times from around $730 billion to $8.7 trillion today. All of this holds together thanks to the unique status of the dollar. If this status were to disappear, America would face an unprecedented situation. »
Hyperinflation in sight on Fox News
The tone is even more alarmist on Fox News, where monster inflation is predicted if emerging economies stop using the dollar:
Translation :
“Abandoning the US dollar as the world’s reserve currency would be catastrophic. The dollar has been a safe bet since the end of World War II. For several reasons. Originally, the dollar was backed by gold. But President Nixon took us off the gold standard, so the dollar hasn’t been covered for 50 years.
The dollar was then supported by the economic power of the United States and the fact that oil had always been sold in dollars. If this were to stop, it would mean the end of the dollar. Having the world’s reserve currency is a privilege that we have abused through reckless monetary and fiscal policies […].
We are at a pivotal moment. If Saudi Arabia stops selling its oil in dollars, […] we will be faced with galloping inflation, like the Weimar Republic. If you think today’s inflation is serious, wait a bit. […] That would mean runaway inflation, far worse than anything we’ve seen.
They will then come to the rescue by introducing CBDCs. The United States already has a pilot program in place. If they launch it, it means the end of our individual economic freedom. The government will have full access and control over everything you buy and sell. He can deactivate you with the snap of a finger. »
Your servant couldn’t say it better. The end of the “exorbitant privilege” will force the United States to reduce its chronic trade deficit or risk a collapse of the dollar’s exchange rate. The fall in imports will result in inflation and a drastic reduction in the standard of living of Americans.
Regarding the CBDC, yes, this dystopian currency certainly has the ulterior intention of rationing the population in order to keep inflation under control.
Let’s end with Xi Jinping’s last words addressed to Vladimir Putin: “The change that is coming has not happened for more than 100 years and we are the drivers of this change”.
From now on, the big question concerns the currency in which Chinese and Americans will end up trading? The United States will never accept the yuan. A new reserve currency will have to emerge. Gold? No, Bitcoin.
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