Vladimir Putin used his state visit to China to call on the world to stop using the dollar. And why not Bitcoin?
The greenback in the tsar’s crosshairs
In front of a large audience of journalists, the Russian president recalled that the dollar is at the center of geopolitical tensions.
Asked whether some Chinese banks had recently decided to stop doing business with Russia for fear of US sanctions, Mr Putin said “understand the motivations of financial institutions”warning nevertheless that they should also take into account “the risk of losses due to illegal actions of the United States.”
This was a thinly veiled allusion to the freezing of 260 billion euros belonging to the Russian central bank. For Mr. Putin, the West will not take them to paradise:
“What the American elites are doing is stupid. They are shooting themselves in the foot by undermining confidence in the dollar as the international reserve currency and global unit of account. And this even though the dollar offers them enormous privileges.
Since the end of the Bretton Woods agreements and the end of the Gold Standard, the value of the dollar has been based on printing money or, to put it more nobly, on the power of the American economy. Many countries accept their pieces of paper out of confidence in the American economy. »
Mr. Putin insisted that the dollar gives a “enormous and unfair advantage to the American economy and financial system”. According to Russian economists, this privilege represents “10,000 billion dollars fell from the sky simply because the dollar is the international reserve currency.”
They are terrified that you will realize that he is telling the truth and that they are lying. »
An exorbitant privilege of $10,000 billion
These 10,000 billion represent more or less the cumulative deficit of the American trade balance since the end of the Gold Standard. This deficit means that US imports are systematically higher than exports. Any country in this situation would see the value of its currency collapse, except the United States…
This little miracle is due to the fact that nations with trade surpluses place their dollar reserves in American debt. This so-called petrodollar system keeps the dollar afloat despite a chronically deficit trade balance.
Not for much longer if we are to believe the Russian president:
“By undermining confidence in the dollar for political reasons, the American authorities are weakening the main instrument of their power, which is the dollar. They saw the branch they are sitting on. It's thoughtless, but they can't seem to help it. »
“It is unacceptable for one side to use financial and economic instruments to impose its will on the rest of the world, including on the political stage. You only need to look at how quickly dollar-denominated reserves are declining to realize that all countries are aware of the risks. The world reacts. I believe that the [dédollarisation] is inevitable. The process of making payments in national currencies, or creating other settlement instruments, has begun and cannot be stopped. »
Latest example: China. The Middle Kingdom got rid of Treasury bills worth more than $50 billion during the first quarter. Saudi Arabia, which recently joined the BRICS, is also distancing itself.
Replace the dollar, but with what?
Trading in national currencies has its limits. For example, Russia recently refused the Indian rupee as payment for its oil. The reason being that the “normal” inflation rate in India is above 6% and the country does not produce much of anything that interests Russians.
BRICS needs a new standard that can satisfy the whole world. What are these “other settlement instruments” ? The mystery remains. However, it should be noted that the yuan is rapidly internationalizing:
The latest Chinese data shows that the yuan accounts for almost 30% of cross-border payments. These payments are made via the Chinese network CIPS and are therefore not taken into account in the Western data of the SWIFT network.
The question of the world standard, however, remains thorny. For example, it is unlikely that India will agree to replace the dollar with the yuan. So something else will be needed. CBDC, Stablecoins backed by gold, Frankenstein currency composed of a basket of currencies?
Everything is possible, but the West will have to accept this currency. The vice president of the IMF recently warned against “the fragmentation of the global payment system could depend on geopolitical alliances which will lead to the emergence of new payment systems with limited or non-existent interoperability”.
The West will not accept China enjoying exorbitant privilege. The only viable solution is a currency and an international payment system that would be in no one's hands.
The only currency ticking these two boxes is the stateless bitcoin whose decentralization is based on a Proof of Work of 600 exahash per second. A Bitcoin Standard would allow nations to trade on an equal footing.
It is better to embrace bitcoin than wage war for monetary hegemony.
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