Tag: Petrodollar

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Bitcoin price crosses $10,000, Central Banker Warns that Banks Could Be ‘Eviscerated’

The price of Bitcoin continues its ascent (as of this writing, the price is $10,800) as the ongoing global currency reset comes into greater focus. Japan has led the way in recent weeks, as approximately 60% of Bitcoin transactions have been conducted in Japanese yen. Other cryptocurrencies such as Ethereum and Litecoin have also increased in value, led by US dollar and South Korean won trades.

Incredibly, in a recent interview, St. Louis Fed President James Bullard said:

“(We could) wake up one day and most of the big banks have been eviscerated and most of that activity has moved elsewhere,”

This marks a realization that banks will inevitably become irrelevant as our world transitions to a decentralized system of currencies that central banks are powerless to stop. At this time, the FED has no practical options to manage the massive influx of capital into cryptocurrencies. Any attempt to rapidly raise interest rates to strengthen the US dollar would devastate equity and bond markets and thereby plunge the global economy into depression. While US politicians may increase threats of regulations and taxation, there is no feasible way to confiscate cryptocurrencies.




As painful as it will be for bankers to lose their livelihood (may need to sell their second homes in the Hamptons), the greater US population stands to benefit. China is planning to destroy the petrodollar system and remove the US dollar as the world’s reserve currency. The sooner the US (along with Japan and South Korea) can transition to an alternative system, the better prepared its citizens will be for future economic turmoil.

Originally Published on News from Chai.

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With the Petrodollar Dying Can a US – Japan Alliance Slow a Rising China?

Massive changes in world alliances are occurring now, with the rapid decline of the petrodollar. This decline is led by China’s drive to move the Middle East into their sphere of influence. This past week, Reuters hinted at the petrodollar’s inevitable demise with an articletitled ‘The waning power of the petrodollar’.

Russia – Saudi Arabia Relations

Saudi Arabia is the cornerstone of the petrodollar system. The ‘blossoming friendship’ between Russia and Saudi Arabia is another direct threat to this arrangement. Saudi Arabia agreed to cut crude oil shipments to its customers in August by more than 600,000 barrels per day and will meet with Russia, among other nations, on July 24 to discuss compliance. According to a Moscow Times report, Saudi Arabia agreed to an arms deal valued at $3.5 billion with Russia.  They will also consider investing in a LNG plant currently being built by Russia.

But, to replace a global reserve currency, currently the US dollar, an alternative system must be implemented to replace the existing one.

New US Stance on China

By fixating on the theme of ‘Russia – Trump collusion’ charges, commentators in the US miss the reality that China is clearly the bigger (if not biggest) threat to US hegemony. While both Russia and China are two of the top three military powers in the world, the size of the Chinese economy (approximately ten times the size of Russia’s) gives China a substantially greater ability to inflict severe harm to the US economy than Russia. As forecast last November, instead of selling out US strategic assets to China, the Trump administration, to its credit, has implemented a more nationalistic approach to benefit its own citizens and not its personal interests. A Bloomberg report partly confirms this, as Chinese ‘cross-border purchases plunged 67 percent during the first four months of this year’ due to ‘tighter capital controls and increasingly wary counterparties’. This reflects a clear contrast to a prior administration that approved the sale of sensitive US missile technology to China. Interestingly, related entities, like a foundation, haven’t been (as of today) criminally prosecuted since witnesses strangely commit suicide before they were scheduled to testify. Also, the Trump administration is focused on potential Chinese spying. Guo Wengui, a Chinese dissident residing in the US, has claimed that China has ‘at least 25,000 Chinese intelligence officers and more than 15,000 recruited agents conducting espionage operations in the US’.

China’s Solution

China is moving towards implementing some type of gold backed currency or trade note to minimize the role of the US dollar as the world’s reserve currency. Russia’s largest bank has just this week begun trading physical gold on the Shanghai Gold Exchange. Since virtually all business and consumer transactions today are done digitally, the viability of a gold standard remains in question. The days of going to your local store and buying an item for a gram of gold are long gone. China’s central bank (PBOC) has developed its own digital currency and there have been rumors that China will roll out a cryptocurrency backed by gold. Several firms have already introduced a gold-backed cryptocurrency.

Japan’s Plan

With the world’s third largest economy, Japan maintains its place as a key participant to stunt Chinese ascendance. The Japanese central bank has bought stocks at unfathomable proportions as they now own at least ‘71 percent of all shares in Japan-listed ETFs’. Japan has officially moved to a policy of ‘unlimited money printing’ according to Forbes. While central bank manipulation can prolong unsound economic policy, there is no dispute that Japan’s massive debt load (approximately 234% debt-to-GDP ratio) can never be paid back.  So, before the Japanese Yen begins its inevitable decline on the path towards hyperinflation (like Venezuela or Zimbabwe), Japan must transition to an alternative system. Since they have negligible natural resources and a military force incapable of invading countries for profit, Japan appears to have settled on Bitcoin as their solution. On July 1, the consumption tax on the sale of Bitcoin was officially eliminated and over 260,000 retail stores are now poised to accept Bitcoin via a specialized application.

A fundamental appeal of cryptocurrencies (and blockchain technology) is its decentralized nature and its empowerment of individuals to bypass the central banking system of control. Japan has moved to the forefront of the break with central bank authority. The nature of China’s government, which censors the Internet and restricts free speech, cannot be expected to yield control to the individual in lieu of the state.

China’s Overreach

There may be some signs that more nations are wary of China’s ambitions. Last month, China attacked India and destroyed two Indian bunkers. After it flew six warplanes over the Miyako Strait between two southern Japanese islands in a military exercise, China dryly told Japan to ‘get used to it’. The US, India and Japan have aligned against this Chinese threat with recent naval exercises.

Conclusion

Perhaps, more nations will align with a renewed US led by President Trump who has worked to destroy the US deep state and who vowed at his inauguration to ‘seek friendship and goodwill with the nations of the world’ and ‘not seek to impose our way of life on anyone’ versus an increasingly imperialist China. Unfortunately, according to US military intelligence, defense cooperation and economic ties between Russia and China is slowly expanding. However unlikely, it would be most beneficial for US interests to drive a wedge between the Chinese-Russian alliance to forestall this progress.

The potential transition from the US as the world’s only superpower to something else will be a historic moment. It will inevitably arouse concern from countries historically allied with the US. These counties could take the advice of Philippines President Duterte who speaking on behalf of his own country said ‘We cannot forever be the little brown brothers of America. … We have to develop, we have to grow and become the big brother of our own people’.

Originally Published on News with Chai

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Middle East Realignment Driven by China’s Drive to End Petrodollar Dominance

China’s goal is to become the leading economic superpower and to move the world away from the US dollar. They have been forming alliances with Middle Eastern countries including Iran, Qatar and Turkey. The petrodollar system is the primary reason the US dollar is still the world’s reserve currency as oil producing countries like Saudi Arabia do not sell their oil in currencies other than US dollars. Without this agreement, the US dollar would eventually lose its role as the global reserve currency. China has been working with countries in the Middle East to sell their oil in yuan and thereby weaken the US. 

The Chinese strategy has been to internationalize their currency via a number of different projects (see list below). A Zerohedge report in April articulates how China and Russia are joining forces to bypass the US dollar in global trade. The Shanghai Cooperation Organization (SCO) described as a ‘Eurasian political, economic, and security organization’ is one of the means of executing that vision. Its members include China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan. Earlier this month, India and Pakistan were admitted as members. These countries are expected to further enhance their economic relations via trade. For China to successfully meet its goals, a larger base of countries must join this block. 

Iran

According to this report, bilateral trade between China and Iran grew to $31.2 billion in 2016. Iran is currently listed as having ‘Observer status’ in SCO. As Russia has long wanted Iran to attain full membership status, China recently signaled its support. Incidentally, Iran announced earlier this year that it would stop using the US dollar in its official statements. Iran and China conducted a naval drill in the Gulf a few weeks back.

Turkey

President Tayyip Erdogan implied last December that Turkey is taking steps to allow commerce with China, Russia and Iran to be conducted in local currencies. A Chinese report confirmed that to ‘increase the trade volume and foreign investments between Turkey and China, and decrease their dependency on the US dollar during financial transactions, China and Turkey have started direct trading with their local currencies’. Current trade volume of $28 billion is expected to increase.

Turkey even dropped hints at shuttering the Incirlik air base to US air operations. With the US support of the Kurds in their fight against ISIS, there may be a stronger motivation to act. In fact, Turkey refused German lawmakers access to the base leading Germany to announce plans to withdraw 280 troops, as well as surveillance planes and refueling jets, from the Incirlik air base. If you are interested in understanding the historical importance of thie Incirlik air base read this and this. Turkey is listed as a ‘Dialogue partner’ in SCO.

Qatar 

Over two years ago, Qatar launched the first Chinese yuan clearing hub in the Middle East. According to Qatar’s central bank governor, Sheikh Abdullah bin Saud al-Thani, it would create ‘the necessary platform to realize the full potential of Qatar and the region’s trade relationship with China’. Since it opened, Industrial and Commercial Bank of China has cleared more than 590 billion yuan ($86 billion) in transactions in Qatar. Zheng Chunyi, General Manager of ICBC Doha, confirmed that ‘Qatar, the United Arab Emirates and Kuwait are the most active Middle East countries using the RMB clearing center for direct payments with Chinese mainland and Hong Kong’. 

Iran-Turkey-Qatar Axis

The newly formed Iran-Turkey-Qatar axis (as evidenced by events such as this, this and this) is tied together by each countries’ burgeoning relationship with China. While Russia has a greater military presence in the Middle East (via Syria) and draws the most attention from Russia-phoebes in the US, China is the key financial player. Together, both Russia and China have emerged as a direct threat to US supremacy in the region. Although Iran has always had better relations with China, Turkey and Qatar have been solidly aligned with the West as each country still maintain US military personal at their bases.  Perhaps, both countries are hedging their bets based on a calculation that will see a rising China and declining US.

The Petrodollar

Since the inauguration, President Trump has not mentioned the 28 page document (known simply as ‘The 28 pages’ and discussed during the campaign) which implicated members of the Saudi Arabian government for their involvement in the 9/11 attacks on the World Trade Center. He in fact visited Saudi Arabia last month, participated in a sword dance and signed off on a $110 billion weapons deal. Why? The answer is the petrodollar. The key part of this agreement is that the US must defend Saudi Arabia as long as they sell their oil in US dollars.

It would appear that China is taking no chances and is working on pushing Saudi Arabia into its sphere of influence. Byron King from the Daily Reckoning speculates that China is looking to modify its terms of its oil trade with Saudi Arabia as follows:  

‘China is currently modifying the terms of its oil trade with Saudi Arabia. Specifically, China is working on a deal to pay for Saudi oil using Chinese yuan. This effort poses a direct threat to the security of the dollar. If this China-Saudi deal happens — yuan for oil — it’s another step closer to the grave for the petrodollar, which has dominated global finance since 1974.’

Whether the speculation is true or not, the threat to the US dollar as the reserve currency is real. The petrodollar system is under an attack directed by China.

From a US perspective, options are limited and further actions like a US invasion of Syria could make the situation worse. Since the US military has decided to back the Kurds to fight ISIS, there is less of a chance to win back Turkey. In my opinion, the best option would be for the US to maintain the current petrodollar system as long as possible until a new one backed by cryptocurrencies is ready. I outlined this in my prior post titled Global Currency Reset Happening Now as Bitcoin Price Explodes. Unfortunately, the US Senate doesn’t have a clue. 

Projects that will Further Internationalize the Chinese Yuan

– China’s yuan inclusion in the International Monetary Fund’s currency basket

– China International Payment System (CIPS) is an alternative payments system to SWIFT

– Asian Infrastructure Investment Bank (AIIB) is an international financial institution that will finance infrastructure projects in the Asia region

– Bilateral Currency Swap Lines completed between China and over thirty counterparties to enable greater overseas trade of the yuan

– Silk Road Gold Fund to facilitate gold purchase for the central banks of member states

– Shanghai Gold Exchange launched to set a new benchmark price for gold bullion

This post originally appeared on News with Chai blog.