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Confiscation, Weaponization, and De-Dollarization

“The dollar’s role as the world’s primary reserve currency is a boon for the United States but a bane for the rest of the world.”

~ Barry Eichengreen

The U.S. Senate has predictably voted to give $95 billion to Ukraine, Israel, and Taiwan, just three days after the House of Representatives green-lit the assistance in a rare Saturday session.

But beyond the big spending, there was a little something tucked into the Ukrainian aid bill that’ll have major implications for you as an American: the confiscation of Russian dollar assets.

The passage of the Rebuilding Economic Prosperity and Opportunity (REPO) Act, as it’s called, adds a whole new dimension to the story that Matt Smith brought to your attention on Monday.

The Dollar Weapon

Once President Biden signs it into law, he’ll gain the authority to seize more than $6 billion in Russian assets held by U.S. institutions.

Now, in case you’re wondering why Russia held these billions of dollars outside of Russia, it’s because that’s what countries do when they have surplus dollars; they put them to work in the safe and trustworthy nation of America.

The joke’s on you, Russia…

But the $6 billion is just the tip of the iceberg.

You see, it’s not about the amount; it’s about how the U.S. sets a precedent for other Western countries to confiscate the nearly $300 billion in Russian state assets currently frozen under their jurisdiction.

To be fair, it’s not the first instance of the U.S. government’s “weaponization” of the dollar… far from it.

But it has become especially pronounced in recent years, targeting adversaries such as Iran, Cuba, Venezuela, Afghanistan, North Korea, China, and, of course, Russia.

But it never affects just these countries alone…

…click on the above link to read the rest of the article…

IMF Prepares Financial Revolution – Say GOODBYE to the Dollar

April 11, 2024

IMF Prepares Financial Revolution – Say GOODBYE to the Dollar

Global reserve currency status allows for amazing latitude in terms of monetary policy.

The Treasury Department understands that there is constant demand for dollars overseas as a means to more easily import and export goods. The petrodollar monopoly made the U.S. dollar essential for trading oil globally for decades.

This means that the central bank of the U.S. has been able to create fiat currency from thin air to a far higher degree than any other central bank on the planet while avoiding the immediate effects of hyperinflation.

Much of that cash as well as dollar-denominated debt ends up in the coffers of foreign central banks, international banks and investment firms. Sometimes it is held as a hedge, or bought and sold to adjust the exchange rates of local currencies. As much as 60% of all U.S. currency (and 25% of U.S. government debt) is owned outside the U.S.

Global reserve currency status is what allowed the U.S. government and the Fed to create tens of trillions of dollars in new currency after the 2008 credit crash, all while keeping inflation more or less under control.

The problem is that this system of stowing dollars overseas only lasts so long and eventually the effects of overprinting come home to roost.

The Bretton-Woods Agreement of 1944 established the framework for the rise of the U.S. dollar. While the benefits are obvious, especially for the U.S., there are numerous costs involved. Think of world reserve status as a “deal with the devil.” You get the fame, you get the fortune, you get trophy dates and a sweet car – for a while. Then one day the devil comes to collect, and when he does he’s going to take everything, including your soul.

Unfortunately, I suspect collection time is coming soon for the U.S.

…click on the above link to read the rest of the article…

Only the US Can Destroy the US Dollar

March 12, 2024

ONLY THE US CAN DESTROY THE US DOLLAR

US Dollar as a reserve asset was the first “flywheel” – and only the US can destroy its own ecosystem.

Being the reserve currency has enormous benefits. And in the entirety of financial history, the US is the first and only fiat reserve currency. Sterling, and any other reserve currencies derived their value from the ability to maintain their value to gold. With the two World Wars, the US came to be seen as the government most able to honour its commitments, and saw huge inflows of gold, but in the 1960s, gold started to flow back to Europe and elsewhere, and in essence, Nixon decided that higher interest rates needed to maintain the link to gold price was not worth the effort, and cut the link to gold price.

Moving from a gold based currency to a fiat currency has had enormous benefits for the US. First of all is that it no longer needs to ever run a current account surplus. That is it never needs to reduce consumption or imports, which is a huge political benefit. The norm since 1980 is for the US to have a current account deficit.

The US also does not need to balance the budget. The budget was balanced in 2000, but this was probably now seen as a tactical error on the part of the Democrats.

What I find most interesting about the transition from gold to US treasury backed financial system is how Asian nations, despite a long history of using gold, accepted this system. China and Japan have some of the largest foreign reserves in the world, but their holdings of gold are limited. Even India holds a relatively small amount of gold as foreign reserves.

…click on the above link to read the rest…

How De-Dollarization is Likely to Play Out

February 13, 2024

How De-Dollarization is Likely to Play Out

Much has been written in recent years about “De-dollarization” — the shift from the use of the US dollar as the “international reserve currency” in favour of more diverse bi-lateral and multi-lateral currency agreements and transactions.

The current system has a long and complicated history, but its most essential features are as follows:

In 1944, with the war grinding on and currencies in crisis, most countries signed on to the Bretton Woods Agreement, which “required countries to guarantee convertibility of their currencies into U.S. dollars to within 1% of fixed parity rates, with the dollar convertible to gold bullion for foreign governments and central banks at US$35 per troy ounce”. The US dollar hence replaced the “gold standard” with US dollar reserves, rather than amounts of gold, being what each country was required to maintain to support the fixed rates of exchange. The IMF was simultaneously established to enforce the Agreement.
This replacement of gold with the US dollar created for the US what is called exorbitant privilege. It means that basically they can create (print into existence) additional US dollars without limit and without any requirement that they be supported by assets, and other countries are required to honour them as ‘real’ money. As a result, the US can run up unlimited deficits (eg through reckless military and ‘security’ spending), deficits that would render any other country bankrupt and lead to a crippling devaluation of their currency and severe IMF-imposed restrictions on future spending (as has happened to many ‘developing’ countries in the Global South).

…click on the above link to read the rest…

Global Economic War Is Coming And The Threat To The US Dollar Is Real

February 11, 2024

Global Economic War Is Coming And The Threat To The US Dollar Is Real

In a recent statement posted to social media, Tucker Carlson explained succinctly his many reasons for traveling to Russia to interview President Vladimir Putin. His decision, mired in an avalanche of outrage from leftist media talking heads and a multitude of western politicians, was inspired by Carlson’s concern that Americans have been misdirected by corporate propaganda leaving the public completely uneducated on the war in Ukraine and what tensions with the East might lead to.

I agree. In fact, I don’t think the majority of Americans have a clue what the real consequences of a global war with Russia and its allies would look like. Even if the conflict never resulted in shots fired and stayed confined to the realm of economic warfare, the US and most of Europe would be devastated by the effects.

Carlson specifically mentioned dangers to the status of the US dollar, and I suspect this comment probably mystified a great number of people. Most of the population cannot fathom the idea of a US dollar implosion set in motion by a foreign dump of the greenback as the world reserve currency. They really do believe the dollar is invincible.

The most delusional people are, unfortunately, those within mainstream economic circles. They just can’t seem to grasp that the west is in the midst of financial collapse already, and war would accelerate the effects to levels not seen since the Great Depression.

I have been warning about this outcome for many years. I think I have made my position clear in the past; I suspect the conflict between east and west has been carefully engineered over the course of a decade or more, and Russia is not innocent in this affair.

…click on the above link to read the rest…

Iraqi parliament calling to ditch US dollar for oil trade

February 4, 2024

Iraqi parliament calling to ditch US dollar for oil trade

Washington has exercised strict control over Iraqi oil revenues for the past two decades

(Photo credit: INA)

The Finance Committee in the Iraqi parliament made a statement on 31 January calling for the sale of oil in currencies other than the US dollar, aiming to counter US sanctions on the Iraqi banking system.

“The US Treasury still uses the pretext of money laundering to impose sanctions on Iraqi banks. This requires a national stance to put an end to these arbitrary decisions,” the statement said.

“Imposing sanctions on Iraqi banks undermines and obstructs Central Bank efforts to stabilize the dollar exchange rate and reduce the selling gap between official and parallel rates,” it added.

The Finance Committee affirmed its “rejection of these practices, due to their repercussions on the livelihoods of citizens,” and reiterated its “call on the government and the Central Bank of Iraq to take quick measures against the dominance of the dollar, by diversifying cash reserves from foreign currencies.”

Washington imposed sanctions on Iraqi Al-Huda Bank this week, under claims of laundering money for Iran. Several other banks have been hit with similar sanctions over the past year.

The statement came the same day a senior US Treasury official said Washington expects Baghdad to help identify and disrupt the funds of Iran-backed resistance factions in Iraq.

“These are, as a whole, groups that are actively using and abusing Iraq and its financial systems and structure in order to perpetuate these acts and we have to address that directly. Frankly, I think it is clearly our expectation from Treasury perspective that there is more we can do together to share information and identify exactly how these militias groups are operating here in Iraq,” the official stated.

…click on the above link to read the rest…

‘Playground of choice’: Iran mobilises to drive US troops out of Iraq

January 23, 2024

‘Playground of choice’: Iran mobilises to drive US troops out of Iraq

The US has the cudgel of the American dollar to prevent its expulsion from Iraq, but will the Biden administration use it?

When Iraqi Prime Minister Mohammed al-Sudani arrived in New York City in September for the UN General Assembly, a delicate truce was in balance between the two foreign powers that loom over Baghdad.

Iraqi paramilitaries, backed by Iran, had frozen their attacks on US troops in the country. Iraq’s new leader arrived in New York City amid the lull. He was feted on a circuit of swanky receptions with western businessmen and diplomats on the sidelines of the General Assembly, as he pitched Iraq’s oil-rich but corruption-riddled economy as an investment destination.

Four months later, the Iraqi leader is condemning Iran and the US for launching deadly strikes in his country and his investment pitch to the global elite at Davos Switzerland is overshadowed by his call for the US military and its coalition partners to leave Iraq.

Since the Hamas-led attacks on 7 October and the war in Gaza, Iranian-backed militias have launched at least 70 attacks on US forces in Iraq.

In early January, the US hit back with its most powerful response yet, launching a drone strike in Baghdad that killed Mushtaq Taleb al-Saidi, also known as Abu Taqwa, a senior commander in the Popular Mobilisation Units, an umbrella organisation of Iraqi state-funded and Iran-aligned, Shia militias.

Baghdad hit out at the strike as “a violation of Iraq’s sovereignty”. But no sooner was Iraq chastising the US for the strike, when Iran launched a barrage of ballistic missiles into the Iraqi city of Erbil, killing four people, including a prominent Kurdish real estate developer and his one-year-old daughter.

…click on the above link to read the rest…

Central Banks Will Keep Gobbling Gold in 2024

January 19, 2024

Central Banks Will Keep Gobbling Gold in 2024

The first half of 2023 was a record-breaking moment for central bank gold buying, led by none other than China and Russia. Organizations like the World Gold Council reported a staggering increase compared to 2022:

“On a year-to-date basis, central banks have bought an astonishing net 800t, 14% higher than the same period last year.”

Whether or not The January Effect will apply to the gold price as we finish the first month of 2024, there are plenty of indicators that the central bank buying spree will continue for at least the first half of the new year. Accelerating de-dollarization is just one factor, as powerhouses like China and Russia continue strategically moving further and further from the grips of USD hegemony.

Of course, actions by the Biden administration to isolate Russia with sanctions in the wake of the Ukraine conflict only provide further impetus for the Russians to continue divesting in any way they can from the US dollar. Combined with a volatile ruble and a wave of new American spending to feed its proxy wars in Ukraine and Israel, it only makes sense that Russia’s gold coffers will continue to grow.

You can also bet on China and Russia buying significantly more gold than what gets reported publicly, so the real numbers are always higher than they seem. As Jim Richards has pointed out many times, such as in this tweet from Q1 last year, countries like Russia and China hold gold acquired through off-the-books buying programs that far exceed what they officially claim:

“Central Bank of Russia reported a gain of 30 metric tonnes in its gold reserves. That’s after a year of flatlining more likely due to non-reporting than non-acquisition. Nice to see Russia back in the game.”

…click on the above link to read the rest…

More Golden (and Black-Gold) Proof: The Dollar is Totally Screwed

January 9, 2024

More Golden (and Black-Gold) Proof: The Dollar is Totally Screwed

Ever since day-one of the predictably disastrous and politically myopic insanity of weaponizing the world reserve currency against a major power like Russia, we warned that the USD had reached an historical turning point of slow demise and increasing de-dollarization.

We also warned that this would be a gradual process rather than over-night headline, much like the slow but steady death of the USD’s purchasing power since Nixon left the gold standard in 1971:

But as we’ll discover below, this gyrating process is happening even faster than we could have imagined, and all of this bodes profoundly well for physical gold, yet not so well for the USD.

Bad Actors, Bad Policies & Predictable Patterns

Regardless of what the media-mislead world thinks of Putin, weaponizing the USD was a foreseeable disaster which, naturally, none of DC’s worst-and-dimmest, could fully grasp.

This is because chest-puffing but math-illiterate neocons pushing policy from the Pentagon were pulling the increasingly visible strings of a Biden puppet at the White House.

In short, the dark state of which Mike Lofgren warned is not only dark, but dangerously dumb.

These political opportunists have forgotten that military power is not as wise as financial strength, which is why broke (and increasingly centralized nations) inevitably lead their country toward a state of permanent ruin preceded by cycles of war and currency-destroying inflation.

Sound familiar?

Despite no training in economics, Ernest Hemingway, who witnessed two world wars, saw this pattern clearly:

We also found “Biden’s” sanctions particularly comical, given that his former boss clearly understood the dangers of such a policy for the USD as far back as 2015:

…click on the above link to read the rest…

Confetti Dollar End of Ponzi Scheme – Bill Holter

November 30, 2023

Confetti Dollar End of Ponzi Scheme – Bill Holter

Precious metals expert and financial writer Bill Holter says the recent underreported announcement by the UBS CEO Sergio Ermotti in Switzerland that his bank might need a “rescue” is yet another sign on the short road to the end of the global Ponzi scheme backed by the US dollar reserve currency. Holter points out, “You’ve got a sick bank (Credit Suisse) that is being bailed out by another bank (UBS) that may turn out to be sick. My question is who is going to bail out these central banks? You have got the Fed with a $9 trillion balance sheet. The last time, the Fed went from $900 billion to $9 trillion. Can the Fed now go from $9 trillion to $90 trillion? Who is going to bail out the Fed? Who is going to bail out the US Treasury? Who is going to bail out the Bank of England, the ECB or the Bank of Japan? These central banks have completely blown up their balance sheet and have no ability to save anything. My question is who is going to save them?”

Can’t they cut interest rates again like they did in 2009? Holter says, “If they cut interest rates from here, you would see the dollar absolutely crash. The only reason the dollar has not crashed is interest rates have basically gone from 0% to 5%. They have done that in a year and a half which is the fastest increase in interest rates in all of history.”

So, rate cuts will devalue the dollar. Can you pay trillions of dollars borrowed in Treasury Bond back in confetti dollars? Holter says, “Yes, you absolutely can pay back your debt in confetti. It’s been done many, many times before as currencies get lost…

…click on the above link to read the rest…

De-Dollarization? China Completes First Digital Yuan Purchase For Cross-Border Oil Transaction

October 21, 2023

De-Dollarization? China Completes First Digital Yuan Purchase For Cross-Border Oil Transaction

De-dollarization continues accelerating with news of the Shanghai Petroleum and Natural Gas Exchange (SHPGX), a Chinese-backed exchange for trading energy-related products, settling its first cross-border transaction in digital yuan.

Chinese-based financial news outlet “Yicai” first reported PetroChina International bought one million barrels of crude oil using digital yuan on Thursday. It was the exchange’s first overseas oil settlement in digital yuan. However, the name of the seller was not disclosed.

SHPGX has made several transactions in yuan earlier this year: In March, PetroChina and TotalEnergies completed a yuan-denominated liquefied natural gas transaction on the exchange. According to the exchange, four such LNG transactions have occurred this year.

China’s central bank began the digital yuan project in 2014 and has piloted the electronic currency in numerous regions across China. The world’s second-largest economy has been preparing to use the yuan and its digital version in international trade and finance as an alternative to the dollar.

In August, Brazil’s President Luiz Inacio Lula da Silva called for BRICS nations to create a common currency as the world furiously searches for ways to circumvent the dollar-based financial system.

Brazil’s president said a BRICS currency “increases our payment options and reduces our vulnerabilities.”

The US shutting Russia out of the SWIFT messaging system that underpins most global payments in response to its invasion of Ukraine has supercharged the de-dollarization trend.

It remains to be seen who exactly PetroChina paid digital yuan for the crude oil, but it might not be out of the question that it was Russia, considering it’s been shut out of the SWIFT system, plus oil exports to China have hit a record high.

The Myth of the Invincible Dollar

October 15, 2023

The Myth of the Invincible Dollar

I write a lot about the national debt.

And most people don’t care.

That’s because there’s a widespread belief that the dollar is invincible.

It isn’t.

The prevailing attitude is that the US government can borrow and spend indefinitely. After all, it hasn’t caused a problem so far. But a long fuse can burn for a long time before it finally reaches the powder keg.

I don’t know how long we have before the debt bomb explodes, but I do know we get closer and closer every day. And sadly, very few people care enough to address the problem.

The recent government shutdown drama is a case in point.

A stopgap spending deal swept the shutdown threat out of the headlines, but it’s still there lurking in the shadows of the halls of Congress. If lawmakers don’t figure something out by Nov. 17, the government will be forced to shut down.

There isn’t much talk about a shutdown right now, but when people do discuss the possibility, they almost always focus on the mythical crisis that shuttering the federal government might cause. That sidesteps the real problem — out of control government spending.

Conventional wisdom is that Congress needs to do whatever it takes to avoid a shutdown. If that means maintaining spending at current levels or even increasing spending, so be it. The handful of intransigent members of Congress who want to hold out for spending cuts are always cast as the bad guys in this kabuki theater. As economist Daniel Lacalle put it in a recent article published by Mises Wire, “The narrative seems to be that governments and the public sector should never have to implement responsible budget decisions, and spending must continue indefinitely.”

…click on the above link to read the rest…

Hedging the End of Fiat

August 28, 2023

Hedging the End of Fiat

It is slowly coming clear that the fiat dollar’s hegemony is drawing to a close. That’s what the BRICS summit in Johannesburg is all about — rats, if you like, deserting the dollar’s ship. With the dollar’s backing being no more than a precarious faith in it, it is bound to be sold down by foreign holders. Being only fiat, it could even become valueless, threatening to take down the other western alliance fiat currencies as well.

How do you protect your paper wealth from this outcome? Some swear by bitcoin and others by gold.

This article looks at what is likely to emerge as a replacement currency system, and concludes that from practical and legal aspects, bitcoin and the entire cryptocurrency industry will fail with fiat, while mankind will return to gold, as it has always done in the past when state control over currency fails

Introduction

It is gradually dawning on market participants that the era of fiat currencies is drawing to a close. Monetarists, who first warned us of the inflationary consequences of the expansion of money and credit were also the first to warn us that the slowdown in monetary expansion would lead to recession, and since then we have seen broad money statistics flatline, with bank lending beginning to contract. This is interpreted by macroeconomists as the end of inflation, and the return to lower interest rates to stave off recession.

Unfortunately, this black-and-white interpretation of either inflation or recession but never both has been challenged by bond yields around the world which are rising to new highs. And the charts tell us that they are likely to go considerably higher. Consequently, conviction that inflation of producer and consumer prices will prove to be a temporary phenomenon is infected with doubt.

…click on the above link to read the rest…

What Are the BRICS Planning With the August 22nd Durban Accords?

August 14, 2023

What Are the BRICS Planning With the August 22nd Durban Accords?

What are BRICS planning with the Durban Accords?

Photo by Khashayar Kouchpeydeh

In my first explainer about the BRICS nations, you met the players and you know why their decisions affect the global economy. But why do their decisions affect us?

You need to understand that first – before the August 22nd Durban Accords will make any sense. (But once you do understand, you’ll be astonished…)

Professor Reagan’s class is now in session!

Global trade runs on U.S. dollars

Since World War II, the U.S. dollar has enjoyed the role of global reserve currency. You may have heard those words before – here’s what they mean…

Worldwide, when companies or nations transacting with one another don’t share a common currency, they use U.S. dollars. When a Chilean copper mine sells tons of raw ore to a Canadian refiner, they invoice (and get paid) in U.S. dollars.

Obviously, most nations don’t have a common currency (the exception is the Euro zone). So the use of dollars for international trade is simply huge, approximately 85% of the global total.

So the world relies on dollars to do business. That’s a great deal for us! That means, for example, that deficit spending and newly-printed money always have a home somewhere in the world. Simply because the world has to have dollars.

Like I said, that’s a great deal for the nation that exports dollars. It’s not such a great deal for everyone else…

“It’s our currency, but it’s your problem”

In 1971, President Nixon ended the convertibility of dollars to gold.

The rest of the world, to put it mildly, went nuts. The gold standard was supposed to prevent inflation – but it hadn’t (primarily because American citizens weren’t allowed to swap dollars for gold since 1933).

…click on the above link to read the rest…

Why the dollar is finished

July 23, 2023

Why the dollar is finished

Last week in my Goldmoney Insight, I analysed the rationale for a new gold backed trade settlement currency on the agenda of the BRICS summit in Johannesburg on 22—24 August. This article is about the consequences for the dollar-based fiat currency regime.

There is strong evidence that planning for this new trade settlement currency has been in the works for some time and has been properly considered. That being so, we are witnessing the initial step away from fiat to gold backed currencies. Without the burden of expensive welfare commitments, all the attendees in Johannesburg can back or tie their currency values to gold with less difficulty than our welfare-dependent nations. And it is now in their commercial interests to do so.

We have been brainwashed with Keynesian misconceptions and the state theory of money for so long that our statist establishments and market participants fail to see the logic of sound money, and the threat it presents to our own currencies and economies. But there is a precedent for this foolishness from John Law, the proto-Keynesian who bankrupted France in 1720. I explain the similarities. That experience, and why it led to the destruction of Law’s livre currency illustrates our own dilemma and its likely outcome.

It’s not just a comparison between fiat currency and gold. America’s financial position is dire, more so than is generally realised. The euro is additionally threatened with extinction because of flaws in the euro system, and the UK is already in a deeper credit crisis than most commentators understand.

Introduction

On 7 July, news leaked out and was then confirmed by Russian state media that the BRICS meeting in Johannesburg would have a proposal on the agenda for a new gold-backed currency to be used exclusively for trade settlement and commodity pricing…

…click on the above link to read the rest…

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