Demise Of Dollar: Is It Coming?
By Countercurrents
29 May, 2014
Countercurrents.org
There are increasing discussions about end of dollar-hegemony. Many experts assume: Demise of dollar is inevitable, and the dollar's downward trend is gradually becoming visible.
The collapse of the monetary system awaits the world in the near future, said financial expert James Rickards. The CEO of The Motley Fool Singapore David Kuo sai: There are many emerging markets, and particularly China and Russia , which do not really want to hold many US dollars. Consequently these markets will move away from it in trade deals. Former US assistant secretary of the treasury Paul Craig Roberts said: With the China-Russia deal conducted outside the dollar system we see the beginning of the de-dollarization and de-Americanization of the world.
It is now being told by many that Russia and China 's steps to get rid the US dollar of its global reserve currency status is an early sign of the “increasingly inevitable” crisis.
“ China has three trillion dollars, but they are buying gold as fast as they can. China worries that the US is going to devalue the dollar through inflation so they want to have a hedge if the dollar goes down, so the gold will go up,” James Rickards told RT.
In a report headlined “‘Death of money': Author Rickards predicts collapse of global monetary system”, RT said: “As one of the key events in support of his forecast, Rickards points to the words uttered by Russian President Vladimir Putin at the 18th International Economic Forum in St. Petersburg that took place earlier this month.”
The May 28, 2014 datelined report said:
“‘Putin said he envisions a Eurasian economic zone involving Eastern Europe , Central Asia , and Russia . The Russian ruble is nowhere near ready to be a global reserve currency, but it could be a regional reserve currency,' Rickards said, as quoted by ETF Daily News.
“Rickards' book about the demise of the dollar was released in April under quite an apocalyptic name The Death of Money. However, the author is surprised that the events are unfolding much faster than he predicted.
“Rickards said: ‘If anything, the tempo of events is faster than expected. Therefore, some of these catastrophic outcomes may come sooner than I wrote about.'
“China and Russia last week signed a historic US$400 billion gas deal which will provide the world's fastest growing economy with the natural gas it needs to keep pace for the next 30 years. Experts say this could be the catalyst that dethrones the greenback as the world's reserve currency.
“The best-selling author writes that the ‘linchpin' of the collapse is the approaching failure of the dollar since it is at the foundation of the system. Powerful countries such as Russia , China , Iran , and India do not rely on the US in their national security and would benefit from the US economy being weaker, thus desiring to break free from the dollar standard.
“He elaborates that the dual collapse ‘looks increasingly inevitable.'
“‘The mistakes have already been made. The instability is already in the system. We're just waiting for that catalyst that I call the snowflake that starts the avalanche,' he said, as quoted by ETF.”
The report said:
“There are three big international factors that are pressuring the dollar right now – Russia , China , and Saudi Arabia .
“Since the 1970s, Saudi Arabia [has been] the leader in what's called the petrodollar. It basically means that Saudi Arabia and, by extension, OPEC, price oil in dollars, so the world market is in dollars.
“ Russia is a major natural resource exporter; they price their exports in dollars as well. But Russia now is engaged in a financial war with the US around the issues in Crimea and Ukraine .
“The only way the US can pay off its $17 trillion debt is with inflation, which would drive other countries away from the dollar while the accumulation of gold by Russia and China presages the shift to a new reserve asset.”
“The next time we will have a liquidity crisis in the world it's going to be bigger than the ability of central banks to deal with it. The IMF will basically have to bail out the world by printing the SDRs (an international reserve asset created by the IMF in 1969 to supplement its member countries' official reserves). By that time, you will see the SDR emerge as the new global world currency,” Rickards told RT.
Dethroning dollar
The biggest energy deal between China and Russia could be the catalyst that dethrones the greenback as the world's reserve currency. Some economists, commenting on Russia and China 's natural gas accord, say that the dollar is becoming rather weak since many countries are likely to prefer trading in their national currencies.
In an interview with RT (“US needs to be aware of China , Russia trading in their own currencies”, May 28, 2014), the CEO of The Motley Fool Singapore David Kuo told:
“I think America needs to be very aware of what is going on, because China will be paying for gas probably in rubles, so consequently, what will happen between these two countries will be that they would be trading in their own respective currencies. So Russia will be holding a lot of Chinese yuan and China maybe will be holding lots of Russian rubles. Consequently, they will not be holding the US dollar as a result. Previously what they had to say was “Let's go and buy some US dollars and use it for paying for gas from Russia ”, and that may not happen in this particular case because both countries want to move away from holding too much in a way of US dollars.”
Answering to RT's question “In general, 60 per cent of global reserves are held in dollars, which is worth trillions... Surely America 's got nothing to be afraid of, really?” the expert said:
“If you add the euro as well it will be 90 per cent of reserves being either in dollars and the euro. But those countries should not be so complacent because many of the other emerging markets, and particularly China and Russia , do not really want to hold in a way much of US dollars. And one of the big issues is if you are holding US dollars, what are you going to do with it? You have to go out and buy US treasuries and that has really been the attraction of the US dollar because the US treasury market is so big, you can absorb as much as people want in terms of buying this US debt. But America needs to be very aware because this may not carry on forever. There was a time when sterling was a reserve currency in the world. Sterling was a currency reserve simply because Great Britain was one of the biggest trading partners around the world. And then they got usurped, they got overtaken by America . So never say never as far as reserve currencies are concerned. The euro is still playing second fiddle at the moment but as China grows and China starts to conduct its play around the world, it is quite feasible one day China can become one of the reserve currencies that people would want to hold.”
The next question of RT was “For the dollar to be dethroned there must be an alternative. Does that truly exist for the moment?”.
The expert said:
“An alternative does truly exist but in order for the yuan, renminbi, to be a reserve currency a number of things have to happen. They must have an open bond market, it is all over me holding a Chinese renminbi, yuan, but I need to do something with it and I need to be able to invest it somehow, and I cannot do this by simply sitting and doing nothing. So China must open up its bond market and it must relinquish some of its capital controls. In other words, it cannot control the currency through the government itself; it must allow the currency to be freely traded. The third issue is trust. We saw the 2008 financial crisis. When there was a crisis, what did the people do? Everybody ran to the US dollar, everybody sunk the money into the US dollar because they were safe. Some people have sunk them into the Swiss franc but of course when you look at Switzerland , the economy is not so big, it was not able to absorb all the money coming in. So China has got a potential, but what it really needs to do is to open up its bond market, get the trust of the investors around the world and to relinquish capital control in some way.”
De-dollarization
In another interview with RT (“World moving away from American financial hegemony”, May 22, 2014 ), Paul Craig Roberts told:
“With the China-Russia deal conducted outside the dollar system we see the beginning of the de-dollarization and de-Americanization of the world.”
Paul Craig Roberts said: “I do not think the firms in Germany want to harm the relationships with Russia , nor do they want it in France .”
He said: “Much more significant is the energy deal signed by Russia and China ”.
It is “an indication that the world will be moving away from American financial hegemony”, he said.
Referring to the Sino-Russian energy deal the former US assistant treasury secretary said:
“This large energy deal will be conducted outside the dollar system, so here is the beginning of the de-dollarization, the beginning of the de-Americanization. This is an indication that the two large countries, Russia and China , are forming a strategic alliance because they are tired of being harassed and cut out of the Western mechanisms, they are tired of the threats. So they are moving in a new direction, and they will take much of the world with them. I do not think the European countries that have strong economic relations with Russia will want to lose those.
“This is a beginning of a turn from Russia toward the East. Previously Russia was focused on being accepted by the West, being accepted by the Americans. It waited for years to be allowed to join the WTO. I think this was a mistake on Russia 's part because the West is not the rising part of the world. The rising part of the world is the East.”
He said:
“It has always been a mystery to me that economically stable countries continue to operate within the American financial system. They are dependent on American credit card companies, for example. They are dependent on American internet companies, which simply allow the NSA to spy on them better. Why do they accept such dependence on American economic institutions? I have never understood. I think in a sense these developments [the sanctions the US and its allies have imposed on Russia ] are good for Russia because it means it is now developing its own infrastructure and will not be dependent on Washington 's infrastructure for communications, for finance, for credit. So this development is good for Russia , it is not good for Washington .”
The former US assistant secretary said:
“I mean all countries need energy and all countries are getting tired of Western bullying. Western machinations, the air of superiority over the world that Washington has. It was not long ago that President Obama declared that the US was the exceptional country. That means we come first, you are second. Other people do not like thinking of themselves as second class, so I think that this is the beginning of transformation that has been long implicit in the organization known as BRICS. That is starting to form up and be a real thing.”
RT asked: “Do you think there's genuine concern from the West over growing ties between Russia and China ?”
Paul's answer was: Yes, there is very much concern. The American foreign policy doctrine calls Washington to prevent the rise of other global powers. So now it is confronted not just with two rising global powers, but these two powers have a mutual alliance and both understand that Washington is surrounding them with military bases. Washington has land bases in the Baltics, in the Eastern Europe ; possibly they are going to be in Azerbaijan , Georgia , Ukraine . And China is confronted with new American naval and air bases positioned to control the flow of ships through the South China Sea . So both countries see that Washington has in mind hemming them in, preventing their rise and they are forming a strategic alliance because the two are stronger together than independently. And this worries Washington very much.
“I think it has overreached, it should have accepted the Russian cooperation, it should not have seen the rise of China as some kind of the threat. But it made mistake in demonizing both countries and it is trying to operate in the ways that prevent or slow the rise of these two countries. So this is a very serious situation for the world because it has the implication of a serious war.”
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