U.S. Weaponization of Financial System Hurting Us, Not Them, As Forecast

If Russia achieves a substantial victory in Ukraine, it could mark a watershed moment signaling not only a military defeat for the U.S., but a more comprehensive financial system carnage.

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In March of 2022, we forecast that the U.S. was hastening the demise of the dollar as a world reserve currency by trying to weaponize the financial system against its enemies:

“The unprecedented use of the existing modern international financial order crosses a line from which there is no going back…

“…But from this point forward, many countries will be looking for alternatives to West-controlled international finance. China, of course, wants the digital Yuan to eclipse the dollar as its economy attempts to ascend to world leading status.

“But cryptos are the wildcard offering an alternative to both China and the weaponized petro dollar.”

(See “THE NEW NEUTRAL,” 29 Mar 2022.)

Also:

“Russia is already working with China and other countries on alternatives to U.S. sanctions. And some have noted that Russia promoting an international BRICS system that would offer an alternative to SWIFT international payment settlements and even the pettro-dollar, are a big factor behind America’s animus toward Vladimir Putin.”

(See “BIDEN WILL SIGN EXECUTIVE ORDER REGARDING CRYPTOS,” 8 Mar 2022.)

That misguided weaponization was presaged by draconian measures employed by the U.S. and Canada to crush funding to the Truckers Convoy protest against vaccine mandates in early 2022. (See “CANADA AND U.S. CRACKDOWNS DRAWING CRYPTO RESPONSE,” 22 Feb 2022.)

We also pointed out the move to gold by Russia well before the trend was picked up by MSM. (See “WHILE U.S. AND OTHERS HARP ABOUT CRYPTOS, RUSSIA REMAKING INTERNATIONAL MONETARY SYSTEM WITH GOLD,” 5 Apr 2022.)

The whole world now knows that Russia and China bought up huge amounts of gold in 2022, to bolster their currencies.

So what’s the current state of world de-dollarization?

It’s happening faster and faster.

https://twitter.com/geraldcelente/status/1646545629630566400

A few weeks ago, Brazil announced it would forgo using dollars in transactions with China, its largest trading partner. From now on, the countries will use a clearing house mechanism to directly exchange Chinese Yuan and Brazilian Real currencies, according to Breitbart.

Meanwhile, central banks are signaling moves to “diversify” away from the dollar.

“Central banks are beginning to ask questions,” Gal Luft of the Institute for the Analysis of Global Security told CNBC in a recent interview. (“Washington’s ‘trigger-happy’ sanctions may push countries away from the dollar, says think tank,” 21 Mar 2023.)

“The United States has extended itself, has been extremely trigger-happy when it comes to the use of sanctions and other economic punishments,” Luft said, noting that central banks re-thinking reliance on the dollar and whether “putting all their eggs in one basket” remained a smart idea.

Luft also pointed out in the CNBC interview that 1 in 10 countries are currently under some form of U.S. financial sanctions.

“On the one hand, you are sanctioning right and left. On the other hand, you want countries to buy your Treasuries and finance your debt. That’s not a sustainable scenario,” Luft told CNBC.

There’s news, reported in mid-March by The Wall Street Journal, that Saudi Arabia is in talks with China to accept Yuan as payment for oil.

Also, Saudi Aramco announced this past week a joint venture with the Chinese to build a major oil refinery in Northwest China, according to the Associated Press.

Saudi Arabia will be shipping more oil there, and it’s likely by the time the refinery is completed in two or three years, transactions won’t be happening in dollars.

That move would torpedo the petrodollar, in place since then-president Nixon negotiated the petrodollar standard with Middle East oil producers as part of his move off the fractional Gold standard in the early 1970’s. 

Meanwhile, India is reportedly using the United Arab Emirates’ dirham to purchase Russian oil. They are so far avoiding utilizing the Yuan, due to rivalry and historic tensions with China.

As NakedCapitalism.com and others are reporting, not only Russia, but a host of Eurasian countries represented by the EAEU (Eurasian Economic Union) have been strengthened by U.S. sanctions:

“An EAEU Intergovernmental Council meeting held in early February this year showed that the economic situation in all EAEU member states is stable, and mutual trade is growing. Anti-Russian sanctions actually significantly contribute to this growth, meaning that for EAEU members especially, as well as countries such as China and India, the attractiveness of Russia as an economic partner has grown.

“India, Turkey, and Egypt are among the countries discussing free trade agreements with the EAEU. And Iran signed one in January.  The primary driver for the Iran-EAEU integration is to upgrade Iran’s transport and logistics infrastructure, i.e., the INSTC.”

(“Eurasian Integration Including Iran Proceeds Despite US “Maximum Pressure” Campaign,” 22 Mar 2023.)

How Imminent Is the Collapse of the Dollar?

Despite the mounting warning signs, some believe that the world has a long way to go in replacing the dollar as the world’s preferred means of transacting business.

Marc Chandler, chief market strategist for Bannockburn Global Forex, a division of First Financial Bank, recently opined in Barron’s that the dollar remains the overwhelming go-to choice. (“The Dollar Rules the Financial Universe. China Can’t Change That,” 31 Mar 2023.)

Chandler argues that it comes down to the relative lack of transparency of Chinese capital markets compared to the U.S.

“The Chinese yuan is simply not convertible. It isn’t a question of technology but policy,” Chandler said. “China’s foreign-exchange rate is closely managed and purposefully opaque. Its capital markets are developing but aren’t sufficiently transparent.”

Chandler admitted that while U.S. sanctions have created “niche inroads” for moving some transactions away from dollars, the world still substantially relies on the dollar nearly as much as it did in 1989:

“Global trade for all of last year was about $32 trillion. The dollar is on one side of 88% of currency trades, little changed from 1989 (when the dollar was one part of 90% of currency trades).”

A Growing Bloc of Countries Destined to Present A Growing Challenge

Any vaunted “transparency” of Amercan capital markets is currently becoming more of a question, as the recent banking crisis has exposed.

There isn’t exactly a whole lot of transparency with regard to the mechanisms, laws and regulations by which the Federal Reserve and banking system are keeping a very fragile banking system liquid at the moment.

To plenty of observers, it looks like desperate QE smoke and mirrors.

Failed interest rate hikes to crush consumers, followed by liquidity injections out of thin air, will only further spur growing challenges to the dollar.

China, Russia, Iran and North Korea are strengthening their alliance, and actively enticing other nations to consider ways of de-dollarizing. 

Not only that. Europe is rethinking whether continued support for Biden policies are a good long term bet, as opposed to making accommodation with China (and yes, its energy trade partner Russia).

A 31 March Reuters article covering a trip by French President Emanuel Macron and EU President Ursula von der Leyen to Beijing, had this analysis regarding Europe putting distance between itself and the U.S.:

Amid worsening relations between Washington and Beijing, which reached fever pitch last month after the U.S. shot down a Chinese balloon flying over its territory, Europe is trying to carve its own path.

European Commission President Ursula von der Leyen, who will be accompanying Macron in Beijing, said the bloc was looking to “de-risk” diplomatically and economically at a time China was exerting greater control over companies, without “decoupling”.

(“Embattled Macron heads to China, leaving burning Paris behind,” 31 Mar 2023.)

Reuters noted that according to analysts, the growing rift between China and the U.S., has incentivized both Europe and China to seek closer economic ties.

If Russia achieves a substantial victory in Ukraine, it could mark a watershed moment signaling not only a military defeat for the U.S. in its proxy war, but a more comprehensive financial system carnage.