Suddenly, "De-Dollarization" Is A Thing

Authored by John Rubino via,

For what seems like decades, other countries have been tiptoeing away from their dependence on the US dollar.

China, Russia, and India have cut deals in which they agree to accept each others’ currencies for bi-lateral trade while Europe, obviously, designed the euro to be a reserve asset and international medium of exchange.

These were challenges to the dollar’s dominance, but they weren’t mortal threats.

What’s happening lately, however, is a lot more serious.

It even has an ominous-sounding name: de-dollarization. Here’s an excerpt from a much longer article by “strategic risk consultant” F. William Engdahl:

Gold, Oil and De-Dollarization? Russia and China’s Extensive Gold Reserves, China Yuan Oil Market

(Global Research) – China, increasingly backed by Russia—the two great Eurasian nations—are taking decisive steps to create a very viable alternative to the tyranny of the US dollar over world trade and finance. Wall Street and Washington are not amused, but they are powerless to stop it.


So long as Washington dirty tricks and Wall Street machinations were able to create a crisis such as they did in the Eurozone in 2010 through Greece, world trading surplus countries like China, Japan and then Russia, had no practical alternative but to buy more US Government debt—Treasury securities—with the bulk of their surplus trade dollars. Washington and Wall Street could print endless volumes of dollars backed by nothing more valuable than F-16s and Abrams tanks. China, Russia and other dollar bond holders in truth financed the US wars that were aimed at them, by buying US debt. Then they had few viable alternative options.


Viable Alternative Emerges


Now, ironically, two of the foreign economies that allowed the dollar an artificial life extension beyond 1989—Russia and China—are carefully unveiling that most feared alternative, a viable, gold-backed international currency and potentially, several similar currencies that can displace the unjust hegemonic role of the dollar today.


For several years both the Russian Federation and the Peoples’ Republic of China have been buying huge volumes of gold, largely to add to their central bank currency reserves which otherwise are typically in dollars or euro currencies. Until recently it was not clear quite why.


For several years it’s been known in gold markets that the largest buyers of physical gold were the central banks of China and of Russia. What was not so clear was how deep a strategy they had beyond simply creating trust in the currencies amid increasing economic sanctions and bellicose words of trade war out of Washington.


Now it’s clear why.


China and Russia, joined most likely by their major trading partner countries in the BRICS (Brazil, Russia, India, China, South Africa), as well as by their Eurasian partner countries of the Shanghai Cooperation Organization (SCO) are about to complete the working architecture of a new monetary alternative to a dollar world.


Currently, in addition to founding members China and Russia, the SCO full members include Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, and most recently India and Pakistan. This is a population of well over 3 billion people, some 42% of the entire world population, coming together in a coherent, planned, peaceful economic and political cooperation.


Gold-Backed Silk Road


It’s clear that the economic diplomacy of China, as of Russia and her Eurasian Economic Union group of countries, is very much about realization of advanced high-speed rail, ports, energy infrastructure weaving together a vast new market that, within less than a decade at present pace, will overshadow any economic potentials in the debt-bloated economically stagnant OECD countries of the EU and North America.


What until now was vitally needed, but not clear, was a strategy to get the nations of Eurasia free from the dollar and from their vulnerability to further US Treasury sanctions and financial warfare based on their dollar dependence. This is now about to happen.


At the September 5 annual BRICS Summit in Xiamen, China, Russian President Putin made a simple and very clear statement of the Russian view of the present economic world. He stated, “Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”


To my knowledge he has never been so explicit about currencies. Put this in context of the latest financial architecture unveiled by Beijing, and it becomes clear the world is about to enjoy new degrees of economic freedom.


China Yuan Oil Futures


According to a report in the Japan Nikkei Asian Review, China is about to launch a crude oil futures contract denominated in Chinese yuan that will be convertible into gold. This, when coupled with other moves over the past two years by China to become a viable alternative to London and New York to Shanghai, becomes really interesting.


China is the world’s largest importer of oil, the vast majority of it still paid in US dollars. If the new Yuan oil futures contract gains wide acceptance, it could become the most important Asia-based crude oil benchmark, given that China is the world’s biggest oil importer. That would challenge the two Wall Street-dominated oil benchmark contracts in North Sea Brent and West Texas Intermediate oil futures that until now has given Wall Street huge hidden advantages.


That would be one more huge manipulation lever eliminated by China and its oil partners, including very specially Russia. Introduction of an oil futures contract traded in Shanghai in Yuan, which recently gained membership in the select IMF SDR group of currencies, oil futures especially when convertible into gold, could change the geopolitical balance of power dramatically away from the Atlantic world to Eurasia.


In April 2016 China made a major move to become the new center for gold exchange and the world center of gold trade, physical gold. China today is the world’s largest gold producer, far ahead of fellow BRICS member South Africa, with Russia number two.


Now to add the new oil futures contract traded in China in Yuan with the gold backing will lead to a dramatic shift by key OPEC members, even in the Middle East, to prefer gold-backed Yuan for their oil over inflated US dollars that carry a geopolitical risk as Qatar experienced following the Trump visit to Riyadh some months ago. Notably, Russian state oil giant, Rosneft just announced that Chinese state oil company, CEFC China Energy Company Ltd. Just bought a 14% share of Rosneft from Qatar. It’s all beginning to fit together into a very coherent strategy.

Meanwhile, in Latin America:

De-Dollarization Spikes – Venezuela Stops Accepting Dollars For Oil Payments

(Zero Hedge) – Did the doomsday clock on the petrodollar (and implicitly US hegemony) just tick one more minute closer to midnight?


Apparently confirming what President Maduro had warned following the recent US sanctions, The Wall Street Journal reports that Venezuela has officially stopped accepting US Dollars as payment for its crude oil exports.


As we previously noted, Venezuelan President Nicolas Maduro said last Thursday that Venezuela will be looking to “free” itself from the U.S. dollar next week. According to Reuters, "Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar,” Maduro said in a multi-hour address to a new legislative “superbody.” He reportedly did not provide details of this new proposal.


Maduro hinted further that the South American country would look to using the yuan instead, among other currencies.


“If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro also said.


The state oil company Petróleos de Venezuela SA, known as PdVSA, has told its private joint venture partners to open accounts in euros and to convert existing cash holdings into Europe’s main currency, said one project partner.

This first step towards one or more gold-backed Eurasian currencies certainly looks like a viable and — for a lot of big players out there — welcome addition to the global money stock.

Venezuela, meanwhile illustrates the growing perception of US weakness. It used to be that a small country refusing to take dollars could expect regime change in short order. Now, maybe not so much.

Combine the above with the emergence of bitcoin and its kin as the preferred monetary asset of techies and libertarians, and the monetary world suddenly looks downright multi-polar.


Winston Churchill sickavme Sat, 09/16/2017 - 12:28 Permalink

Poor Mo'mar didn't have a plan and got an enema for his lack of foresight.The SCO was established in the early 90's and they've been working their plan ever since then.Piece by piece its been coming together, with one piece left:Completion of the Sino Russian energy pipelines.Our geni'arses never even saw it coming,and nothing short of WWIII is going to stop it now.Hubris is a terrible thing.

In reply to by sickavme

Took Red Pill Winston Churchill Sat, 09/16/2017 - 13:19 Permalink

This strategy has been in the works for many years, even as far back as the 70's when Nixon took us off the gold standard. Other countries resented our ability to print money out of thin air to pay them for goods. It's all coming together now. It may still be years away or maybe not. Either way, the petro dollar and the US$ as reserve currency is on the way out.  Imagine what this will do to the price of gold! Keep stackin"!

In reply to by Winston Churchill

post turtle saver post turtle saver Sun, 09/17/2017 - 12:38 Permalink

I love all the downvotes with no technical backing whatsoever... let's go clowns, come into the ring and go toe to toe with me on this, I dare you... I'm more than ready to back up my assertion... you fuckers know I'm right re: US refining tech and heavy crude, but you can't stand the reality of the situation so you're fucking cowards, plain fact

In reply to by post turtle saver

Mr 9x19 SteveK9 Sun, 09/17/2017 - 04:31 Permalink

nope, it is unusable, because the cost of extraction is above the selling price. sorry. you don't understand the  world economy cannot afford expensive oil. above 75 the world can't buy it, under 75  oil companies loose money because of extraction. the world at 50 usd barrel is reinforcing the collapsing economy.  why ? there is no demand ! economies are collapsing. so you won't see venezuela back on track selling oil, just like any other exporting country.oil era is over, you refuse to accept it america because it is your support, petro dollar, but you're done.  i am sorry.your monetary policies has led the world to its knees.  face your responsabilities.

In reply to by SteveK9

Falconsixone Took Red Pill Sat, 09/16/2017 - 13:29 Permalink

Buy everything worth anything with funny money the tell everyone it's funny money and keep everything bought with the funny (gee.. they didn't know). Then for your safety and that's what there is everyone goes to head chip onez and zeroz because it's for real this time and it will be sooo easy. Then with their new found zero mooneyez they buy anything else  they want while your account always seems to have a virus or must have been hacked so you'll beat up the taco vending machine and get a good beating. Obey!  

In reply to by Took Red Pill

Matteo S. Took Red Pill Sat, 09/16/2017 - 14:35 Permalink

Neither Johnson, nor Nixon, nor Kissinger killed the dollar.

It is the US as a whole, both its common people and its corporate elites, that doomed the dollar.

The downfall of the dollar began as early as the late 1950's when the US payments balance fell structurally and massively into deficit. And the reason of the structural and ever bigger deficits was that the US decided to live above the standards it could sustainably afford.

They did it because the dollar standard established at Bretton Woods made it possible. They could not resist doing it. Like some sportsman doping for the pleasure of winning prizes it should not have won.

The system could and should have ended in the early 1970´s : US gold reserves had massively decreased during the 1960´s. If Nixon had not pulled the plug of the gold dollar standard, then all remaining US gold would have been drained abroad ... and the US would anyway have been forced to massively devaluate the dollar in order to balance its account and to have the dollar at real market price. You are confounding consequences and causes. The end of the dollar's convertibility into gold was a consequence of US economic imbalances, not its cause.

The point is that both the US elites and people did not want the party to end. So they invented the petrodollar, then securitization, ... etc.

Which did just postpone the dollar's downfall but will make it much more painful when it happens.

In reply to by Took Red Pill

Matteo S. SteveK9 Sat, 09/16/2017 - 18:11 Permalink

No, not an ordinary currency.

It will become a currency that most people avoid because it will lastingly be a flawed money that most people will avoid.

The only way out for the dollar is either the US being owned by foreign creditors or Argentina-like bankruptcy that will turn the US into a world pariah.

In reply to by SteveK9

ThirteenthFloor Jimbeau Sun, 09/17/2017 - 09:33 Permalink

In 1990 about 16% of US Assets were foreign owned. By 2005 that was 27% of US Assets (land, structures, businesses, IP etc.) were foreign owned. It is estimated by 2020 > 50% of all US Assets will be foreign owned. The eviction began long ago as a buyout. Specific states CA, NY were already well pass 50 percentile mark.

In reply to by Jimbeau

post turtle saver Matteo S. Sat, 09/16/2017 - 23:08 Permalink

it was years of pumping USD into the world economy through post-WW2 programs such as the Marshall Plan et al that doomed the USD to decouple from gold... any scarcity in USD or gold threatened to cripple the world economy, convertibility had to be eliminated as a result... if they didn't do that, then Europe's new happy bunny land socialist utopias which sprang up from the rubble and could neglect defense spending in lieu of social welfare couldn't exist...people's history on how we got to where we are today is very poor on this forum, as usual... no surprise to me...

In reply to by Matteo S.

Matteo S. post turtle saver Sun, 09/17/2017 - 03:01 Permalink

Wrong. Just look at the charts and you will see your statement is wrong.

The US had excess gold in 1945 due to the way WW2 occurred.

But the US needed Europe to recover. No country can prosper if the rest of the planet remain a ruins field.

The US hugely benefitted from the European reconstruction it helped financing.

And the Marshall plan was over in 1952.

Then the US imported ever more and massively invested abroad to buy or create from scratch new assets in order to turn its corporations into fully global behemoths.

So called socialism in Europe has nothing due to US financing european recovery.

The real socialism you don't understand and they actually doomed the dollar is US monetary socialism in favour of the USA at the expense of the rest of the planet.

What do massive deficits mean in economic terms ?

It just means the US has been buying goods, services and assets it actually could not afford from the rest of the world.

In classic economic conditions, the rest of the world would have put a halt and demanded real collateral in exchange for their exports.

But most of them did not dare because :
- the US economy was too big and they feared retaliation so they gave the US elites and common people the "free" lunch they wanted to retain ;
- most of their elites have been bought by the US and behave like vassals of the US empire ;
- the US had been such a mix of military and economic power that it could inflict deadly retaliation to any vassal that refused to keep on paying the "free" lunch to the US.

The US has been living at the expense of the world for the past half century. Doing so was great for the US consumers but slowly wrecked the US economy.

Abusing the privileges of owning the world reserve currency has the same effects as leprosy : it destroys nerve endings. Which means in the beginning you can perform great things without feeling the pain. But you nonetheless inflict hardly curable damage to your body.

And the structure of the US society that has always been favouring the rich at the expense of the common people just worsened the wrecking of US production base.

The US has but itself to blame for its current economic situation.

When the dollar falls, it will be very costly for the other countries that paid the US free lunch for 50 years and have retained massive amounts of worthless dollars in their books too.

In reply to by post turtle saver