Now Reading
One more step toward COMPLETE de-dollarization

One more step toward COMPLETE de-dollarization

I have opined and written about the trend towards de-dollarization before, but with the latest US –Turkish spat it has hit the wallets, mattresses and markets of a number of countries, be they aligned with Washington or not. One thing they all have in common was that in this recent era of low cost available money, many happily fed at the US dollar trough.

Support The Duran – Browse our Shop >>

This serves as a further albeit loud example to many nations for the need to diversify to an extent away from the greenback, or risk being caught up in its volatile, sudden and unpredictably risky increasingly politicized directions.

The Dollar and the geopolitical winds from Washington are today as never before openly being used as policy, which can be called the “carrot and stick”, a distinctly Pavlovian approach. Sadly, few if any can make out where or what the carrot is in this recent US worldview branding.

Tariffs, sanctions, pressured exchange rates, the Federal Reserve loosening or tightening, trade agreements and laws ignored or simply trashed… there is a lot going on which seems to democratically affect America’s allies as well as those on Washington’s politically popular and dramatic “poo-poo” list.

Just now from a press conference in Turkey, I watched Russia’s foreign minister Lavrov say that through the actions shown by the US, the role of the US dollar as a secure global reserve currency for free trade will diminish as more countries switch to national currencies for international trade.

He clearly spoke for many nations when he said; “It will make more and more countries that are not even affected by US sanctions go away from the dollar and rely on more reliable, contractual partners in terms of currency use.” Putting the situation in a nutshell he went on to say “I have already said this about sanctions: they are illegal, they undermine all principles of global trade and principles approved by UN decisions, under which unilateral measures of economic duress are unlawful.”

Turkey, a long-standing NATO ally and a key line of western defense during the long cold war years fully agreed with his Russian counterpart. The Turkish foreign minister Mr. Cavosoglu openly warned that US sanctions or trade embargoes can and are being unilaterally imposed against any country at any time if they do not toe DC’s political line.

He said at the same press conference; “Today, sanctions are imposed on Turkey, and tomorrow they can be used against any other European state. If the United States wants to maintain respect in the international arena, then it is necessary for it to be respectful of the interests of other countries.”

What is happening in Turkey is symptomatic of the developed and emerging markets globally. When trillions of dollars of newly issued lucre was up for grabs, thanks to several developed country central banks, it was comparatively easy for governments and companies just like Turkey’s to borrow funds denominated in dollars and not their national currencies.

Turkey has relied on foreign-currency debt more than most EM’s. Corporate, financial and other debt denominated mostly in dollars, approximates close to 70% of it’s economy. Therefore as the Turkish lira plunges, it is very costly for those companies to repay their dollar-denominated loans, and even now it is patently clear many will not.

The concern rattling around the underbelly of the global markets is what can be reasonably expected for assets and economies that were inflated by cheap debt, the United States included. All this points not so much to a banking crisis as has happened eight years ago, but a systemic financial market crisis.

This is a new one, and I doubt if any QE, QT, NIRPs, or ZIRPs will make much of a difference, despite the rocket-high equity markets the US has been displaying.

One financial trader I spoke to, whom I have known since the early 1980’s (and I thought him ancient then) muttered to me “we’re gettin’ into the ecstasy stage, nothing but the high matters, everything else including the VIX is seen as boring denial, and not the warning tool it is. Better start loading up on gold.”

Meanwhile, de-dollarization is ongoing in Russia and is carefully studied by a host of countries, especially as the Russian government has not yet finished selling off US debt; it still has just a few billion to go. The Russian Finance Minister A. Siluanov said this past Sunday that Russia would continue decreasing holdings of Treasuries in response to sanctions.

See Also

The finance minister went on to say that, Russia is also considering distancing itself from using the US dollar for international trade, calling it an unreliable, conditional and hence risky tool for payments.

Between March and May this year, Russia’s US debt holdings were sold down by $81 billion, which is 84% of its total US debt holdings, and while I don’t know the current figure it is certain to be even less.

The latest round of tightening sanctions screws against Russia were imposed by the State Department under a chemical and biological warfare law and should be going into effect on August 22. This in spite of the fact that no proof was ever shown, not under any established national or international law, or with any of several global biochemical conventions, not even in the ever entertaining court of public opinion.

Whatever Russia may continue to do in its relationship with US debt or the dollar, the fact of the matter is that Russia is not a heavyweight in this particular financial arena, and the direct effects of Russia’s responses are negligible. However, the indirect effects are huge as they reflect what many countries (allied or unallied with the US) see as Washington’s overbearing and more than slightly unipolar trade and geopolitical advantage quests, be they Mexico, Canada, the EU, or anyone else on any hemisphere of this globe.

Some of the potential indirect effects over time may be a similar sell-off or even gradual reduction of US debt exposure from China or any one of several dozens of countries deciding to reduce their exposure to US debt by reducing their purchases and waiting for existing Treasuries to mature. In either case, the trend is there and is not going away anytime soon.

When Russia clears its books of US dollarized debt, then who will be next in actively diversifying their US debt risk? Then what might be the fate of the US Dollar, and what value then will be the international infusions to finance America’s continually growing debt, or fuel the funds needed for further market growth? Value and the energy of money has no politics, it ultimately trends towards areas where there is a secure business dynamic. That being said, looks like we are now and will be living through the most interesting of disruptive times.

Liked it? Take a second to support The Duran on Patreon!

7
Leave a Reply

avatar
7 Comment threads
0 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
6 Comment authors
cstahnkeNicole TempleColinNZJohn BarrySewraj Awmee Recent comment authors
  Subscribe  
newest oldest most voted
Notify of
cstahnke
Guest
cstahnke

The international financial arrangements are based on the dollar and the financial structures controlled by the Washington and its vassals–so no matter how badly the Russians, Iran or the Turks complain the Empire (which includes most of the world) still calls the shots in international relations through its doctrine of “full-spectrum dominance” around the world. So far, I see no threat to this dominance because the international oligarchs love the Empire because it back up its worship of money, power and as we could say the “dark side of the Force” therefore the Empire assures them of power as far… Read more »

Nicole Temple
Guest
Nicole Temple

As shown in this article, both Russia and China are putting a mechanism in place that will allow them to work around future trade problems with the United States:

https://viableopposition.blogspot.com/2018/06/russia-and-china-growing-alliance-under.html

The sanctions and tariffs imposed by the Trump Administration against Russia and China will become increasingly ineffective as the old order fades away.

ColinNZ
Guest
ColinNZ

Excellent summary Paul, covering the reasons behind the emerging/accelerating inevitability of the US dollar’s downfall. What do you think the critical symptoms of it’s collapse will be for the populations at large, and when (roughly) do you think these will start to appear?

John Barry
Guest
John Barry

Perhaps Russia should not have interfered in US elections, used poison on people on UK territory or annexed the Crimea. Perhaps also Turkey should not have kept interest rates so low, causing its economy to overheat and borrowed so much money for big infrastructure projects. Perhaps Turkey should release the US pastor it is holding in custody. For any of these things to happen, the leaders of Russia and Turkey will need to back down. Neither will happen.

Sewraj Awmee
Guest
Sewraj Awmee

When USA will see that the world just does not care about its sanctions it will go to war and the whole world will unite to overthrow Modern Babylon.This is prophecy,

William Reston
Guest
William Reston

One day, but not just now, an inflection point will be reached. Then we’ll see what disruption can be.

William Reston
Guest
William Reston

This game of chicken that the grownups inside the beltway are playing has just gotten seriously stupid. They have seized Russian owned US Dollar assets (commercial and governmental) inside the USA. Seems like some of us free thinking liberty loving “patriots” like to freely help themselves liberate large helpings of other peoples money – where I come from its called stealing, and that used to be a crime once upon a time. Not only do we steal Russian currency assets, but convict them with no due process, ignore their answers to our accusations, and convict them without a shred of… Read more »

Copyright DRN Media PLC 2019. RSS: http://theduran.com/feed

Scroll To Top