Dedollarization-- How Close Is It?

I am not remotely qualified to comment on these events. And yet, they are monumentally important. The Substack newsletter called Quoth the Raven offers some good commentary, so I include a link and some passages, because, even if I cannot really explain it all, many of you doubtless have a better grasp on the matter.

It’s all about the status of the American dollar as the world’s reserve currency. Most international trade takes place in dollar terms. Apparently, this gives our country massive leverage over such transactions. It also allows us to print as many dollars as we wish. And since, thanks to an aberration called Modern Monetary Theory, we have been doing just that, for decades now.

If the dollar ceases to be international legal tender and if we cannot print dollars to finance our national debt, we are in big trouble.

Now, to recall, the Biden administration chose to fight against the Russians in the Ukraine war by weaponizing the dollar. This meant, it confiscated Russian dollar assets. It has attempted to cut off trade with Russia.

Sad to say, this persuaded countries around that world that they did not want to keep their assets in dollars. And also that they no longer wanted to transact business using dollars. Why not use rubles and yuan?

It might be the case that the Biden administration effort to weaponize the dollar is the most consequential error it has made. And it has made its fair share.

To be fair, serious economists, people who know vastly more about these matters than does yours truly, do not consider replacing the dollar to be realistic. Nevertheless, the question is whether the leaders of the BRICS countries, whose recent meeting we have reported, believe the same. According to Quoth the Raven, they have been proceeding apace in their effort to dethrone the dollar.

It may not be realistic, but that does not mean that it will not happen:

Since the beginning of the year, I have been writing about the possibility of Russia and China challenging the US dollar’s global reserve status. Now, it’s happening.

It shouldn’t be any surprise to those paying attention that Russia and China are strengthening their economic ties amidst continued Western sanctions on Russia as a result of the country’s war in Ukraine.

What may surprise some people, however, is that Russia and the BRICS countries, including Brazil, Russia, India, China, and South Africa, are officially working on their own “new global reserve currency,” RT reported in late June. Nobody even seemed to notice.

And, of course, we emphasize the simple fact that no one is paying any attention to any of this. The nation is embroiled in the January 6th investigation and the Biden administration is fighting a war against the weather.

In the meantime, we are fighting Russia to the last Ukrainian, and we believe, as that unfortunate country is being destroyed, that the Ukrainians can still win.

Quoth the Raven continues:

It shouldn’t be any surprise to those paying attention that Russia and China are strengthening their economic ties amidst continued Western sanctions on Russia as a result of the country’s war in Ukraine.

What may surprise some people, however, is that Russia and the BRICS countries, including Brazil, Russia, India, China, and South Africa, are officially working on their own “new global reserve currency,” RT reported in late June. Nobody even seemed to notice.

In effect, one only needed to pay attention to what world leaders have been saying, assuming that you want to take them at their word.

“The issue of creating an international reserve currency based on a basket of currencies of our countries is being worked out,” Vladimir Putin said at the BRICS business forum last month.

And of course, as Russia has been cut off from the SWIFT system, it is also pairing with China and the BRIC nations to develop “reliable alternative mechanisms for international payments” in order to “cut reliance on the Western financial system.”

So, the BRICS countries are setting up an alternative trading system, one that does not rely on the dollar and that is impervious to American sanctions. Apparently, we are not very good at building much of anything or even at fighting wars, but we are great at sanctions.

But, this also means that more Russian energy, for instance, is being sold to India and China. In short, those countries now have first shot at Russian energy. Of course, as of now there are not enough pipelines to expand the flow, but those pipelines are either being built or are being planned.

In the meantime, Russia is also taking other steps to strengthen the alliance between BRIC nations, including re-routing trade to China and India, according to CNN:

President Vladimir Putin said Wednesday that Russia is rerouting trade to "reliable international partners" such as Brazil, India, China and South Africa as the West attempts to sever economic ties.

"We are actively engaged in reorienting our trade flows and foreign economic contacts towards reliable international partners, primarily the BRICS countries," Putin said in his opening video address to the participants of the virtual BRICS Summit.

By the numbers,

In fact, “trade between Russia and the BRICS countries increased by 38% and reached $45 billion in the first three months of the year” this year, the report says. Meanwhile, Russian crude sales to China have hit record numbers during Spring of this year, edging out Saudi Arabia as China’s primary oil supplier.

"Together with BRICS partners, we are developing reliable alternative mechanisms for international settlements," Putin said.

Putin continued, stating last month: "Contacts between Russian business circles and the business community of the BRICS countries have intensified. For example, negotiations are underway to open Indian chain stores in Russia [and to] increase the share of Chinese cars, equipment and hardware on our market."

In June, Putin also accused the West of ignoring"the basic principles of [the] market economy" such as free trade. "It undermines business interests on a global scale, negatively affecting the wellbeing of people, in effect, of all countries," he said.

So, Western companies exited Russia in the wake of the Ukraine invasion. And Russia is going around them, to enhance trading with other BRICS countries. Add to those countries Iran, Turkey, Indonesia and Saudi Arabia-- and the situation is not looking so good. 

I’m also stunned that nobody seems to care that arguably the largest shift on the global macroeconomic playing field over the last half century may be taking place.

Sure, under the context of the conflict in Ukraine, the news may seem “par for the course” of sorts, which may result in the media and the financial world downplaying it. But put this piece of information out there on its own, without context - that there is a coordinated global challenge taking place to the U.S. dollar - and it would be the biggest news story in decades. Imagine if China and Russia just dropped this out of nowhere? Now, remember that both countries have been working on, and preparing for, this situation for years.

Quoth the Raven continues:

Ergo, it seems to me that the BRIC nations understand exactly how precarious of a financial situation the U.S. - and our dollar - is in. Despite the dollar’s recent strengthening, these nations have been in the midst of a multi-decade-long plan to de-dollarize. Even before the Ukraine conflict started, both China and Russia were stockpiling gold and working on denominating transactions outside of the U.S. dollar. It was another “secret” that was out there in the open.

If it’s any consolation, we are shutting down energy production because we want to save the planet. Everyone with a brain knows that that policy is child’s play, a retreat and withdrawal from the systems of world commerce.

If you think that the war against Russia is going to end well, try puffing on a different kind of cigarette.