A Failing Empire, Part 2: De-Dollarisation - China and Russia's Plan From Petroyuan To Gold

Tyler Durden's picture

Authored by Federico Pieraccini via The Strategic Culture Foundation,

As seen in my previous article, US military power is on the decline, and the effects are palpable. In a world full of conflicts brought on by Washington, the economic and financial shifts that are occurring are for many countries a long-awaited and welcome development.

If we were to identify what uniquely fuels American imperialism and its aspirations for global hegemony, the role of the US dollar would figure prominently.

An exploration of the depth of the dollar’s effects on the world economy is therefore necessary in order to understand the consequential geopolitical developments that have occurred over the last few decades.

The reason the dollar plays such an important role in the world economy is due to the following three major factors: the petrodollar; the dollar as world reserve currency; and Nixon's decision in 1971 to no longer make the dollar convertible into gold. As is easy to guess, the petrodollar strongly influenced the composition of the SDR basket, making the dollar the world reserve currency, spelling grave implications for the global economy due to Nixon's decision to eliminate the dollar’s convertibility into gold. Most of the problems for the rest of the world began from a combination of these three factors.

Dollar-Petrodollar-Gold

The largest geo-economic change in the last fifty years was arguably implemented in 1973 with the agreement between OPEC, Saudi Arabia and the United States to sell oil exclusively in dollars.

Specifically, Nixon arranged with Saudi King Faisal for Saudis to only accept dollars as a payment for oil and related investments, recycling billions of excess dollars into US treasury bills and other dollar-based financial resources. In exchange, Saudi Arabia and other OPEC countries came under American military protection. It reminds one of a mafia-style arrangement: the Saudis are obliged to conduct business in US dollars according to terms and conditions set by the US with little argument, and in exchange they receive generous protection.

The second factor, perhaps even more consequential for the global economy, is the dollar becoming the world reserve currency and maintaining a predominant role in the basket of international foreign-exchange reserves of the IMF ever since 1981. The role of the dollar, linked obviously to the petrodollar trade, has almost always maintained a share of more than 40% of the Special Drawing Right (SDR) basket, while the euro has maintained a stable share of 29-37% since 2001. In order to understand the economic change in progress, it is sufficient to observe that the yuan is now finally included in the SDR, with an initial 10% share that is immediately higher than the yen (8.3%) and sterling (8.09%) but significantly less than the dollar (41%) and euro (31%). Slowly but significantly Yuan currency is becoming more and more used in global trade.

The reason why the United States has been able to fuel this global demand for dollars is linked to the need for other countries to own dollars in order to be able to buy oil and other goods. For example, if a Bolivian company exports bananas to Norway, the payment method requires the use of dollars. Norway must therefore own US currency to pay and receive the goods purchased. Similarly, the dollars Bolivia receives will be used to buy other necessities like oil from Venezuela. It may seem unbelievable, but practically all countries until a few years ago used US dollars to trade amongst each other, even countries that were anti-American and against US imperialist policies.

This continued use of the dollar has had some devastating effects on the globe. First of all, the intense use of the American currency, coupled with Nixon’s decisions, created an economic standard based on the dollar that soon replaced precious metals like gold, which had been the standard for the global economy for years. This has led to major instability and to economic systems that have in the proceeding years created disastrous financial policies, as seen in 2000 and 2008, for example. The main source of economic reliability transferred from gold to dollars, specifically to US treasury bills. This major shift allowed the Federal Reserve to print dollars practically without limit (as seen in recent years with interests rates for borrowing money from the FED at around 0%), well aware that the demand for dollars would never cease, this also keeping alive huge sectors of private and public enterprises (such as the fracking industry). This set a course for a global economic system based on financial instruments like derivatives and other securities instead of real, tangible goods like gold. In doing this for its own benefit, the US has created the conditions for a new financial bubble that could even bring down the entire world economy when it bursts.

The United States found itself in the enviable position of being able to print pieces of paper (simply IOU’s) without any gold backing and then exchange them for real goods. This economic arrangement has allowed Washington to achieve an unparalleled strategic advantage over its geopolitical opponents (initially the USSR, now Russia and China), namely, a practically unlimited dollar-spending capacity even as it accumulates an astronomical public debt (about 21 trillion dollars). The destabilizing factor for the global economy has been Washington's ability to accumulate enormous amounts of public debt without having to worry about the consequences or even of any possible mistrust international markets may have for the dollar. Countries simply needed dollars for trade and bought US treasures to diversify their financial assets.

The continued use of the dollar as a means of payment for almost everything, coupled with the nearly infinite capacity of the of FED to print money and the Treasury to issue bonds, has led the dollar to become the primary safe refuge for organizations, countries and individuals, legitimizing this perverse financial system that has affected global peace for decades.

Dollars and War: The End?

The problems for the United States began in the late 1990s, at a time of expansion for the US empire following the demise of the Soviet Union. The stated geopolitical goal was the achievement of global hegemony. With unlimited spending capacity and an ideology based on American exceptionalism, this attempt seemed to be within reach for the policymakers at the Pentagon and Wall Street. A key element for achieving global hegemony consisted of stopping China, Russia and Iran from creating a Eurasian area of integration. For many years, and for various reasons, these three countries continued to conduct large-scale trade in US dollars, bowing to the economic dictates of a fraudulent financial system created for the benefit of the United States. China needed to continue in its role of becoming the world's factory, always having accepted dollar payments and buying hundreds of billions of US treasury bills. With Putin, Russia began almost immediately to de-dollarize, repaying foreign debts in dollars, trying to offload this economic pressure. Russia is today one of the countries in the world with the least amount of public and private debt denominated in dollars, and the recent prohibition on the use of US dollars in Russian seaports is the latest example. For Iran, the problem has always been represented by sanctions, creating great incentives to bypass the dollar and find alternative means of payment.

The decisive factor that changed the perception of countries like China and Russia was the 2008 financial crisis, as well as growing US aggression ever since the events in Yugoslavia in 1999. The Iraq war, along with other factors, prevented Saddam from starting an oil trade in euro, which threatened the dollar's financial hegemony in the Middle East. War and the America’s continued presence in Afghanistan stressed Washington’s intentions to continue encircling China, Russia and Iran in order to prevent any Eurasian integration. Naturally, the more the dollar was used in the world, the more Washington had the power to spend on the military. For the US, paying a bill of 6 trillion dollars (this is the cost of the wars in Iraq and Afghanistan) has been effortless, and this constitutes an unparalleled advantage over countries like China and Russia whose military spending in comparison is a fifth and a tenth respectively.

The repeated failed attempts to conquer, subvert and control countries like Afghanistan, Georgia, Iraq, Libya, Syria, Donbass, North Korea, Egypt, Tunisia, Yemen and Venezuela, have had significant effects on the perception of US military power. In military terms, Washington faced numerous tactical and strategic defeats, with the Crimean peninsula returning to Russia without a shot fired and with the West unable to react. In Donbass, the resistance inflicted huge losses on the NATO-supported Ukrainian army. In North Africa, Egypt is now under the control of the army, following an attempt to turn the country into a state under the control of the Muslim Brotherhood. Libya, after being destroyed, is now divided into three entities, and like Egypt seems to be looking with favorable regard towards Moscow and Beijing. In the Middle East, Syria, Turkey, Iran and Iraq are increasingly cooperating in stabilizing regional conflicts, where needed they are backed by Russian military power and Chinese economic strength. And of course the DPRK continues to ignore US military threats and has fully developed its conventional and nuclear deterrent, effectively making those US threats null and void.

Color revolutions, hybrid warfare, economic terrorism, and proxy attempts to destabilize these countries have had devastating effects on Washington's military credibility and effectiveness. The United States finds itself being considered by many countries to be a massive war apparatus that struggles to get what it wants, struggles to achieve coherent common goals, and even lacks the capability to control countries like Iraq and Afghanistan in spite of its overwhelming military superiority.

No One Fears You!

Until a few decades ago, any idea of straying away from the petrodollar was seen as a direct threat to American global hegemony, requiring of a military response. In 2017, given the decline in US credibility as a result of triggering wars against smaller countries (leaving aside countries like Russia, China, and Iran that have military capabilities the likes of which the US has not faced for more than seventy years), a general recession from the dollar-based system is taking place in many countries.

In recent years, it has become clear to many nations opposing Washington that the only way to adequately contain the fallout from the collapsing US empire is to progressively abandon the dollar. This serves to limit Washington’s capacity for military spending by creating the necessary alternative tools in the financial and economic realms that will eliminate Washington's dominance. This is essential in the Russo-Sino-Iranian strategy to unite Eurasia and thereby render the US irrelevant.

De-dollarization for Beijing, Moscow and Tehran has become a strategic priority. Eliminating the unlimited spending capacity of the Fed and the American economy means limiting US imperialist expansion and diminishing global destabilization. Without the usual US military power to strengthen and impose the use of US dollars, China, Russia and Iran have paved the way for important shifts in the global order.

The US shot itself in the foot by accelerating this process through their removal of Iran from the SWIFT system (paving the way for the Chinese alternative, known as CIPS) and imposing sanctions on countries like Russia, Iran and Venezuela. This also accelerated China and Russia’s mining and acquisition of physical gold, which is in direct contrast to the situation in the US, with rumors of the FED no longer possessing any more gold. It is no secret that Beijing and Moscow are aiming for a gold-backed currency if and when the dollar should collapse. This has pushed unyielding countries to start operating in a non-dollar environment and through alternative financial systems.

A perfect example of how this is being achieved can be seen with Saudi Arabia, which has represented the crux of the petrodollar.

De-dollarize

Beijing has started putting strong pressure on Riyadh to start accepting yuan payments for oil instead of dollars, as are other countries such as the Russian Federation. For Riyadh, this is an almost existential issue. Riyadh is in a delicate situation, dedicated as it is to keeping the US dollar tied to oil, even though its main ally, the US, has pursued in the Middle East a contradictory strategy, as seen with the JCPOA agreement. Iran, the main regional enemy of Saudi Arabia, was able to have sanctions lifted (especially from Europeans countries) thanks to the JCPOA. In addition, Iran was able to pursue a historic victory with its allies in Syria, gaining a preeminent role in the region and aspiring to become a regional powerhouse. Riyadh is obliged to obey the US, an ally that does not care about its fate in the region (Iran is increasingly influential in Iraq, Syria and Lebanon) and is even competing in the oil market. To make matters worse for Washington, China is Riyadh’s largest customer; and considering the agreements with Nigeria and Russia, Beijing can safely stop buying oil from Saudi Arabia should Riyadh continue to insist on receiving payment only in dollars. This would badly hurt the petrodollar, a perverse system that damages China and Russia most of all.

For China, Iran and Russia, as well as other countries, de-dollarization has become a pressing issue.

The number of countries that are beginning to see the benefits of a decentralized system, as opposed to the US dollar system, is increasing.

 Iran and India, but also Iran and Russia, have often traded hydrocarbons in exchange for primary goods, thereby bypassing American sanctions.

 

Likewise, China's economic power has allowed it to open a 10-billion-euro line of credit to Iran to circumvent recent sanctions.

 

Even the DPRK seems to use cryptocurrencies like bitcoin to buy oil from China and bypass US sanctions. 

 

Venezuela (with the largest oil reserves in the world) has just started a historic move to completely renounce selling oil in dollars, and has announced that it will start receiving money in a basket of currencies without US dollars. (This is not to mention the biggest change to have occurred in the last 40 years).

 

Beijing will buy gas and oil from Russia by paying in yuan, with Moscow being able to convert yuan into gold immediately thanks to the Shanghai International Energy Exchange.

This gas-yuan-gold mechanism signals a revolutionary economic change through the progressive abandonment of the dollar in trade.

In the next and last article, we will concentrate on how successful Russia, Iran and China have been in forging a multipolar world order with the goal of peacefully containing the fallout from the collapsing American empire, and how this alternative world order is opening up a new geopolitical landscape for America’s allies and other countries.

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Seasmoke's picture

How do you say what's taking so long ?? Both in Mandarin and Russian.

HRClinton's picture

MSM: We're gonna need a bigger dog with a bigger tail to wag.

Get me Spielberg and Cameron. 

El Oregonian's picture

Some days you eat the bear; some days the bear eats you.

If you know who runs the rat lines, you know the cheese is not far behind...

yomutti2's picture

Ha ha ha... what a joke. No empire in the world is a bigger failure than the Russian Empire. They have a negligible economy, and nobody cares much what they do anymore.

When the Chinese want to do serious trade, they call the USA or Europe.

 

07564111's picture

We hang them with their rope. ;)

Dame Ednas Possum's picture

Yomutti... ZH's very own village idiot. 

 

philipat's picture

LOL. Indeed! The Russian economy doesn't need to be enormous, more importantly Rusiia is now almost entirely self-sufficent and has only about 17% Debt/GDP with large and rapidly growing Gold reserves, so is in a very strong position.

The Saudi/Washington oil gambit, aimed at Russia (And with usual US duplicity, also aimed at Saudi by Washington because they incorrectly believed that US shale was sustainable long-term), has failed so Saudi is now facing very difficult economic decisions and internal unrest, both politically and socially. China is the world's largest market for oil and also growing faster than others. Saudi share of this critical strategic market has already declines by around 5 percentage points and the Chinese will, deliberately, continue to shrink that share until Saudi agrees to accept CNY for oil. Now, if you were the Saudi's with an economy dominated by oil, what would YOU do?

giovanni_f's picture

"They have a negligible economy".
Yes. But like a SU-25, it will continue to function reasonably well under very adverse conditions, long after the hypercomplex, hyperconnected, hyperfinancialized "Western" economies with their enormous debt burden will have broken down, struggling with social unrest, mass-unemployment, a decaying public infrastructure and an Orwellian surveillance state. Nobody will compare GDP numbers from that day forth as they will have turned out to be what they are: Inflated rubbish.

Russia is the place to go for the next 80 years if social stability is your thing.

Bavarian's picture

You'd be advised to read the comments of reason following your ignorant statements.  You truly have no idea what you are talking about and most likely a result of narrow media following.  You are consistently one of the laughing stocks on this site.  The downturn votes are not accidental I assure you.  To claim that Russia is a failure shows complete incompetence and ignorance to a very high degree.  They are a sovereign nation that negotiates and makes peace with everyone.  If that's a surprise to you, this means you are ill-informed.  They are brokering partnerships with nearly every ME country vice trying to oppress them with sanctions and threats to overturn their leaders.  Get out and read something other than your MSNBC or other lying media.  Pay attention to this site and discover other alternate points of view and try to learn something.  It's not too late.

Tarjan's picture

Thank you for the link. That is a very good article.

 ~ 

asstrix's picture

".... and nobody cares much what they do anymore..." 

Yep. That is why they care a lot about what they didn't do. Like election meddling.

lasvegaspersona's picture

The author should know that it is not the Fed that owns gold. It is the Treasury.

Also, if not for central banks soaking up the effusion of dollars, by buying bonds, it would have been over long ago. Watch foreign bond holdings to see the real score.

Gold as THE reserve is not the same as 'gold backed currency' as in the gold standard. If CBs elect to make gold a reserve and are willing to redeem their currency for gold (by providing a market place) it will be a a very much higher price of gold...very much higher. China wants gold and has enought reserves now to buy....all of it! Bet on a much higher price of gold when dedollarizations occurs.

fbazzrea's picture

The author should know that it is not the Fed that owns gold. It is the Treasury.

yeah... the gold belongs to the people. unfortunately, it's mortgaged.

ConnectingTheDots's picture

Not only has the gold been mortgaged, it has also been "hypothecated".

Got to love the language these financial and govenment types come up with.

 

new game's picture

as this gold/oil trade unfolds, with SA as the kingpin, the MIC will ramp up efforts in an act of desparation to prevent dollas from being liquidated, which in turn is inflation. So the fed has a tall order, soak this shit up. but how? with the issuance of what? That my friends is the beginning of the end of the fed/mafia/MIC arrangement. and at that point in tyme, the 1789 redux event should cause some major panic of swampites, and hopefully focus the plebs on the REAL culprits of this mayhiem...

nowhere to hide

points of interest include marthas vineyard, (battlegrounds) and many other exclusive gated communities around the world. there is hell to pay for the trillions of stolen labor dollas which tallies into trillions of man and woman hours of sacrifice for phoney mafia dollas that will become worth(much) less. the fuking scam is coming to an end...

not so simple shit maynard...

finametrics's picture

@Seasmoke "How do you say what's taking so long ?? Both in Mandarin and Russian."

 

in Russian: Pochemu tak dolga zanemayet

qomolangma's picture

@Seasmoke: "How do you say what's taking so long ?? Both in Mandarin and Russian."

 

In Chinese (Mandarin): Zen me hua zhè me cháng shí jian?

 

And if you indeed meant:

WHY's taking so long? -- Wèi shén me yào hua zhè me cháng shí jian?

 

At each sentence above I provide the hyperlink to the Baidu online translator, furnished with the proper pronunciation and the Pinyin (or Latin character approximation of the Chinese characters), just explore it :)  ZH cannot even display correctly all the extended characters here :-) lol

CC Lemon's picture

If Suadi stops taking dollars the gov will suddenly find a shitton of connections between terrorists and the house of Saud, including ISIS. Everybody is paying for this deal with the devil. WWIII in 5...4...3...

el buitre's picture

That's why their King (read thug-in-chief) is visiting Putin this week.  What happens when you stop paying the mob protection money?  Nice little oil patch you have here.  Would be a shame if something happened to it.  Looks like the King might need protection from his former protection.  Jim Willie pointed out that the ESF has refused to cash out a couple of trillion dollars in treasuries, they had been "holding" over the last 40 odd years for the Saudi's.  That is why they are in desparate financial straits.  Also stole most of their gold stored for them in Switzerland by UBS and Credit Swisse.  They always throw theri "freinds" under the bus in the end.  In this case it couldn't happen to nicer guys.

Top part-time CIA sleazebag, Jim Rickerts, stated on Greg Hunter's video blog interview today, that in 1973, Kissinger, as Nixon's National Security Advisor, was making contingency plans to invade Saudi if they didn't go along with the petrodollar scheme.

Yukon Cornholius's picture

Long story short...if you don't hold it, you don't own it.

Why in fuck would I put my gold in Switzerland? That's the surest way to have it taken.

philipat's picture

That Rickards interview was pure propoganda. Rickards stated that Assad used chemical weapons on his own people; a story which has been thoroyghly discredited by mant credible sources, including the UN oe prehaps"and" the UN?

He also staed that the Gold is still in Ft Knox but it may have bben leased. Um, if it has been leased it ISN'T in Fort Knox except as a piece of paper.

Rickards KNOWS all this so if he lies about this, what else does he lie about? I have never trusted the Guy.

A. Boaty's picture

Yes, but don't we have fun reading the Doom Porn Master?

Jack Oliver's picture

I agree - Rickards is a Zio shill - An economic FUCKING - lying - NOBODY !!!

breaktwister's picture

What is this about ESF refusing to cash out treasuries? I googled but found nothing.

tion's picture

How many thousands of tonnes of shadow gold does China have these days?

Implied Violins's picture

I dunno, but I bet it's enough to cover their rise to be the next reserve currency, as we were told would happen in 2018 in the Rothschild rag, the Economist:

http://redefininggod.com/2014/09/mainstream-globalist-propaganda-reveals...

Just another step in the globalist dialectic. Things are going very much AS PLANNED.

peddling-fiction's picture

Yes, they will probably "bust a move" very soon.

Even the planets lined up back on Sept. 23.

These folks believe even when most do not.

Heads up.

GoldHermit's picture

There’s no telling. I think they are literally buying tonnes through front companies. I’d be willing to bet a few ounces that it’s more than they officially report !

lasvegaspersona's picture

The Chinese have LOTS of gold. Whether it is government held or not the people (ie the currency zone) has tons, they have been encouraged to buy it.

If the government needs gold it merely has to offer a high Yuan price and many of those tons will come rolling into the Chinese treasury.

The USA could do the same. There are many who will want to sell gold for a much higher price (obviouly not if it is hyperinflation induced). Governments will not need to steal it, they can just buy it with easily printed medium of exchange.

el buitre's picture

The USA could do the same.

This assumes that gold sellers would want USD.  The USA covers its $600B annual trade deficit with sales of electrons.  How many tons of gold at USD 1300 a troy ounce is $600B?  The Chinese do not intend to use their own gold to cover their new gold back oil futures contract.  They intend to purchase it from western sources until that well runs dry.  Very clever.

agNau's picture

+++++
And TY for explaining the strategy.
The US did not offer gold convertability.
They knew it would devalue the dollar.
The Chinese offer convertability through western exchanges.
Elimination of devaluation/draining of gold reserves.

ebworthen's picture

We sold our manufacturing out to Japan and Taiwan, then to China.

Seriously, China and the People's Liberation Army? If not a plot to establish Marxism in the U.S. what is?

The 2008 bailouts of banks/corporations/insurers, the end of sound money, rule-of-law.  Intentional on the part of U.S. powers.

If you are a U.S. Citizen and you think that your government cares about you or your "freedoms" or I.R.A. account you are a damn fool.

MaxThrust's picture

It is easy to comprehend that countries like China, Iran and Russia would be keen on finding and alternative to using the USD.

I am now trying to decide when to add to my stack. Wait a few days after the US stockmarket crash or buy now?

I feel that if a crash happens, people will still have that knee-jerk reaction to buy USD as a historical safe haven.

el buitre's picture

I think that when the stock market crashes, the price of gold will drop hugely for a couple of weeks.  This is simply because it is the only thing that hedge funds can sell, that is that others would wish to buy,  to try to meet their margin calls.  So phyz will be up for sale.  After a couple of weeks its off to the moon, particularly in terms of dollars.

WTFUD's picture

There's not enough phyz out there bud as it is to satisfy Demand. I'm fielding requests by the day for large quantities from Dubai, Turkey, even Switzerland, Austria and Germany. Fat chance, it will need to be dug up and that means finding new deposits.

So my advice is to not expect the price to significantly fall and buy what you can afford now. Don't forget Silver, Gold's little sister!

breaktwister's picture

That happened in 2008 but not this time. 

tyberious's picture

Yo! That bitch is crazy, get out while you can!

besnook's picture

gee, what a dilemma. do i want a currency backed by an army or a currency backed by gold.

Laughing.Man's picture

It's been said that the Saudis are running out of oil.  If that is the case, then why does China-Iran-Russia need the Saudis to abandon the USD?

el buitre's picture

Because Kissinger set up OPEC as his agents for the petrodollar, and Saudi was the top internal enforcer for the OPEC group.  If Saudi drops the petrodollar accord with Exceptionalstan, every other OPEC member would feel free to do likewise.  Venezuela, an OPEC country, did so last month.  The last pillars of the American Empire are financial.  It's military no longer has "full spectrun dominance," and its soft power propaganda has become a joke.  With the petrodollar dead and a viable alternative to SWIFT (CIPS), the Empire has a wooden stake through its heart.  Prepare for the scheiße dollar.  Only question is how many months.  This is the heart of the attempt to start a war with North Korea.  Ukraine was a flop.

WTFUD's picture

Running out could be 50 years, however, perhaps, a gradual decline in production. The young pretender to the throne ( if he's not bumped off by the CIA/Mossad ) is looking to diversify their Energy Programme. They see the way the wind's blowing, China anyway are currently the largest customer for their heavy sour crude and with events in Syria ( with a geopolitically less influential US ) it makes a lot of sense for them to have both Russia & China build their Nuclear Power Stations, Solar etc etc Also by joining the CLUB their fear of Iran will dissipate.

GoldHermit's picture

This is coming so fast even Bitcoin’s head will be spinning. Bye bye petrodollar.

Gobble D. Goop's picture

This article could have been titled "Why I'm Stackin!"

BBB

FBaggins's picture

With the US anti-Russian policy it has just shot itself in the foot and will now hobble into the future on crutches, while China will grow in leaps and bounds and Russia becomes its lap dog. 

MuffDiver69's picture

Too bad Russia and a china are broken dictatorships..Iran is a internal powder keg ready to go off..Whos gonna pay for all this. Who has the money..These countries just magically grow a consumer economy as Fake as ours..

WTFUD's picture

Ever been within arm's length of a pussy?

Iran's 3000+ years old and will be intact long after you've fallen through the earth's crust.

Iwanttoknow's picture

Democracies in USAA and Israel.

cantscratchfever's picture

The Chinese currenciy is more debased than our own besides war is coming very soon