In the past week or so we’ve seen evidence as to how the monetary system is continuing to change shape. Slowly but surely the US Dollar is losing its global dominance.
The Daily Bell commented on reports out of Russia where they may change how the Russian Central Bank operates:
“Here’s an excerpt from yet another recently published article (translated from the Russian) describing how the ruble may now evolve (here).
We must nationalize the ruble. What does it mean? It means that we must separate the internal markets from the external ones.
… Thus, the first step for Russia is secession from the IMF and others similar institutions designed to keep the entire world in bondage. The dollar noose must be cut.
Now the amount of printed rubles will not be determined by how many dollars we have but by the actual needs of our economy.
… We have absolutely no need in the central bank in its current form, but we do need a financial regular. Under any regime, it was the Treasury that performed this function. Let it remain the same now regardless of the official name. It may continue to be called the Central Bank. If the essence is changed, there is no need in changing plaques.
You can also see an article (here) that goes into this issue more deeply and claims that Putin has in mind backing a portion of the ruble with gold as well. (We should note there are claims the ruble is backed by gold already.)
The dramatic – historical – Russian currency changes (if these articles are accurate) seem a little difficult to discern in full at this moment, but obviously things are changing fast. And they are changing for China’s “money” as well. In fact, some have speculated China and Russia could launch a joint, gold-backed currency (here, see bottom of article).
At the beginning of October, the yuan joins the IMF’s SDR basket (here). This means that major international institutions can issue bonds payable in yuan (actually RMB, the Chinese external currency).
And that is just what has happened already. The World Bank is issuing a large yuan/RMB tranche and this will be the first of many (here).
Investors who want to place funds in RMB rather than dollars will use the new yuan/RMB-based instruments. The US will continue to print dollars but those dollars may not find a home abroad so easily. Instead they may circulate back into the US economy creating significant price inflation.”
They go on to say:
“We are well aware that the same banking influences that created the monstrous, modern state is ruining US and the West generally in order to build up a more febrile internationalism.
The BRICs, invented by Goldman Sachs are part of it. So is this reconfiguration of reserve currencies.
It seems natural, of course, as “directed history”always does. But it is not natural in the slightest. From what we can tell, it is pre-planned.
Remember both the IMF and the World Bank are controlled by the US. And yet it is these two organizations that are facilitating the rise of the yuan/RMB.
Also, please pay attention to how Russia will issue rubles into the economic system (from the same translated article we quoted previously):
How can we calculate [how many rubles Russia needs]? In exactly the same way as the United States calculates the amount of dollars needed for its economy. Just as the European Union does the same.
The best justification would be that from now on Russia issues rubles based on the value (in rubles) of all natural resources explored on its territory. It is quite amusing that subsequent steps are no rocket science; they are dictated by common sense itself. Since we are breaking down the disadvantageous system,
Putin may be taking a big step, but by circumventing his central bank (initially imposed by the West) he can be seen as moving toward more state control of Russian currency.
And for years, we have debated heatedly with people like Ellen Brown (here) who believe that federal governments can do a much better job of printing money than quasi-independent central banks.”
…To begin with, such systems may work very well. But since the “money” is being created by human deciders rather than the competitive market, distortions are inevitable. Price-fixing, which is what it is, never works.
And while we are making the point that this newfound ruble freedom may not be so profound as advertised, let us note that the advent of a currency war is being accompanied by military tension as well.
Conclusion: Whether such tensions are legitimate or dramatized is difficult to say. But given elite banking control of so much around the world, we would not be surprised if we are simply being exposed to a gigantic performance of sorts directed from the top down.Ironically, despite apparent “setbacks,” London’s City surely leads the way.”
So Russia are making noises about changes to their central bank. This could have an impact as to just how many US Dollars Russia requires.
Meanwhile we are also seeing changes in how banks interact which will also result in a reduction in trade via the US Dollar. Therefore a corresponding lessening in demand for US Dollars…
“Yesterday I told you how a consortium of 15 Japanese banks had just signed up to implement new financial technology [called Ripple] to clear and settle international financial transactions.
This is a huge step.
Right now, most international financial transactions must pass through the US banking system’s network of correspondent accounts.
…Big international banks in particular cannot function if they don’t have access to the US banking system.
As long as the US dollar remains the world’s dominant reserve currency, major banks must able to clear and settle US dollar transactions if they expect to remain in business.
This means having access to the US banking system… the gatekeeper of the US dollar.
But having watched BNP Paribas get blackmailed into paying an absurd $9 billion fine to the US government, the rest of the world’s mega-banks knew instantly that their heads could be next ones on the chopping block.
So they started working on contingency plans.
Blockchain technology provided an elegant solution.
Instead of passing funds through the US banking system’s costly and inefficient network of correspondent accounts, blockchain technology provides an easy way for banks to send payments directly to one another.
I cannot understate how important this technology is.
Blockchain may very well be what neutralizes the US government’s domination of the global financial system.
And while there’s been a lot of momentum in this direction (hence yesterday’s letter to you), even I’m surprised at how fast it’s moving.
Today, four of the world’s largest banks announced a brand new joint venture to create a new financial settlement protocol built on blockchain technology.
Deutsche Bank from Germany, UBS from Switzerland, Santander from Spain, and Bank of New York Mellon have joined together to launch what they’re naming the very un-sexy “utility settlement coin”.
Like Ripple, Setl, Monetas, and several other competing technologies, Utility Settlement Coin has the potential to end the reliance on the US banking system for cross-border payments and financial transactions.
Banks will be able to send payments to one another directly without having to transit through the Wall Street financial toll plaza.
…If foreign banks are able to transact directly with one another without having to go through the US banking system, then why would they need to park trillions of dollars in the United States?
Adoption of this technology could cause a gigantic vacuum of deposits out of the US banking system.
US banks would take a big hit. And the US government would have far fewer foreign buyers to sell its ever-expanding piles of debt.
Make no mistake, the adoption of this technology is a game-changing development with far-reaching implications. And it’s happening very quickly.
If these mega-banks can hit their milestones, they’ll launch commercially in eighteen months.
Mark it on your calendar– that may be the end of peak US financial dominance.”
How Will the Global Monetary System Change Take Place?
So we have other major nations as well as banks looking for ways to avoid the forced usage of US Dollars.
This week we also had a really thought provoking question from a reader (Thanks Richard!) that follows on nicely from these changes that are slowly putting an end to the current monetary system. We’ll publish his full question below and then our response after that…
“I have been reading your material with interest and note your suggestions, however I have been doing some other reading on the whole issue of currency failures and in particular, the fate of the US dollar.
There seems to be two main schools of thought, one steadfastly refuses to acknowledge (or understand), that the US cannot keep printing money forever in order to keep the home fires burning and maintain its favoured position in global affairs, and the other which openly suggests and acknowledges that China is just waiting in the wings so to speak.
For decades now, it has been apparent to me that it is not possible to keep blowing up the balloon, however with ever increasing levels of ingenuity (or perhaps more correctly, deception and chicanery), the power brokers and money manipulators have managed to keep the wheels on the wagon for what now seems like an impossibly long time.
However I believe that the day of reckoning is steadily approaching and may now be in sight for the US and their monetary shenanigans (although we cannot exclude their dancing partners in this whole exercise, who have all supported and benefited from the US initiative), so the question in my mind is this:
You have suggested that if the US currency fails and there is a massive devaluation of the US dollar, then most nations will follow suit, to attempt to maintain some parity or stability in their systems – do I have that correct?
So, if the Chinese step up and suggest (demand more likely), in the face of a US currency failure, that the Yuan replace the USD in global transactions (the Yuan has already been accepted as a “reserve currency” – although what faith should be put in that designation is a moot point, however the Chinese are also talking about having a gold backing for their currency, so whilst that won’t please the money-masseurs, it may/should engender more faith in their proposals), won’t other nations adopt a “wait and see” position rather than just follow the US lemmings over the cliff?
Sure there may be a period of “adjustment”, but if the Yuan is gold-backed and installed as the global trading currency, then won’t that mean that other nations can adjust their exchange rates to the Yuan and not some devastated US dollar?
What’s your take on this please?
A clarification first. Where you say:
“You have suggested that if the US currency fails and there is a massive devaluation of the US dollar, then most nations will follow suit, to attempt to maintain some parity or stability in their systems – do I have that correct?”
Rather what we mean is that while some people think the US Dollar collapsing would mean other currencies would be worth more, our thought is that the US dollar may actually be the last currency to fall. But that all fiat currencies will be losing value. Just as they have done for many years.
See this article for more detail:
It won’t necessarily be a devaluation overnight just by the USA and then other countries as you say choosing to follow or not.
Perhaps a more likely is scenario is that put forth by the likes of Jim Rickards where a new international monetary arrangement is reached. Just like at Bretton Woods post WWII.
He makes the argument that the Chinese do not want to have the global reserve currency. As the very nature of this means they would have to run a trade deficit as the US has done for many years in order to produce enough currency to satisfy the rest of the world. This is what is called “Triffins Dilema” and Rickards argues the Chinese are aware of this and so do not want a global reserve currency. But merely want a “seat at the table” and for the Yuan to play a large role in whatever the new international monetary landscape looks like.
(This article explains the dilemma quite well: http://dailyreckoning.com/the-triffin-dilemma/)
Richards argues that the SDR will be what is rolled out in the next crisis as central banks will not be able afford to bail out their countries next time around. His theory is that the use of the IMF’s SDR’s effectively disguises to the man in the street who actually caused the undoubted resulting inflation.
Of course Rickards background shows he is also a definite insider. So we need to bear this in mind.
Here’s an argument to look cautiously at Rickards theories as well because of this:
But we still think he shares a lot of very useful information.
Regardless of how it all plays out the system currently is inherently unbalanced and will eventually need rebalancing. This could still occur as you mention where “other nations can adjust their exchange rates to the Yuan and not some devastated US dollar”. But the key point is that given how much excess currency has been produced (and likely even more will be produced yet) all currencies would need to adjust. And that adjustment would have to be down versus something. That something will likely be gold.
An article we posted last week had a interestingly angle on how the decentralisation of everything could actually have a very negative effect for China.
So perhaps China’s ascension to the top of the world is not a given either?
Overall we don’t have a definite theory we push as to how this all plays out as we just don’t know. Nor do we like to follow any one persons theory. “Listen to all and follow none” is a creed worth following we reckon.
Our ideal remains for a monetary system that is decided on by free markets. As we describe here:
Not by men sitting round a table somewhere sharing cigars and deciding on how things should be. Then handing it down from on high to the rest of us.
But while a free market for money is our ideal it is perhaps not the most likely outcome. So we become our own central bank with our own “reserves” so regardless of how things play out we expect to maintain at least a portion of our wealth into the future.