The Inexorability of De-Dollarization
De-dollarization is something that is actually happening. In this program we discuss the time frame of probably the most significant international process taking place in the global economy.
Paul Goncharoff, an American businessman in Moscow joins the program.
Paul says that re-linkage of fiat currencies to assets is inevitable. “The US dollar is the default global default currency. What has happened, I guess since the Vietnam war, is that with increasing insistence the US has utilized the dollar, I guess the word used now is ‘weaponized it,’ to a certain degree. This was a behavior modification or tool, for want of a better expression, to guide those countries using the dollar as a clearinghouse mechanism to go one way or another in terms of their international foreign policy. This has put pressure on a lot of countries, making them go down roads that they would have preferred not to go down.”
Countries can be forced to trade in US dollars: “This is the inequity of the situation and what gives rise to the idea of an alternative currency; something that has an asset backing — be it gold, or be it a basket of assets — which is something that was talked about 10 years ago… Today, the direction the dollar’s position in the world gives it the largess to enable it to run up these incredible debts, and that finances a global presence.” Individual countries can of course switch from the US dollar when trading in something like oil, but may choose not to do so, because they weigh what they can gain from keeping in favor with the US in terms of grants, support or whatever in return for what they will gain from trading their products in local currencies. “What has happened, taking this one step forward, is that the new Shanghai oil yuan contracts, which just began on March the 26th, have an interesting twist. There is an agreement with the Shanghai gold exchange and the Dubai gold exchange that that those yuan realized on the oil contracts can be converted to physical gold, in one kilo bars, and these can technically be transferred to wherever the customer is. More likely than not the gold will never leave the warranted warehouses in Dubai, or Shanghai, but there is the marker, it’s a gold priced marker, not a dollar priced marker.” In a way, who controls the currency controls everything. Paul comments that in the end of the day, is the most important thing.
Paul thinks that some concrete measures are being taken at the present time to introduce a gold backed currency/ies. “I believe that there is something afoot, whether it is a gold backed currency or some sort of major change in how the currencies are aligned to assets. My guess is that something of a currency basket may be agreed upon. That basket would be what is regionally traded — energy, gold, silver, maybe something else, but instead of having faith in the system alone, this will be backed by something that is real.”
To a certain extent, de-dollarization is already happening. Paul explains: “Iran, because of sanctions does not use the dollar to trade its oil, but it does use the Euro. China today is the largest buyer of oil, and uses the Yuan; they will not buy in dollars. Russia sells its oil to China in Yuan.” All of this does not mean, however, that the dollar is going to disappear. “This is a very complex issue, but the trend in any event is for the devaluation of the dollar over time. It jumps, fits and starts, and we won’t see the dollar disappear in this decade or over the next decade, but the primacy and the unipolar aspect of the dollar will change, it has to change. Others will not get any progress on this planet. You will find countries, even in the back yard of America, such as Venezuela, which is also the bête noire currently of the area, is not currently trading its oil for dollars. There are many countries that will join in to the de-dollarization process.”
It is unlikely that America will simply sit back and watch as the world continues with de-dollarization, although to suggest that preventing this may be behind invasions of certain countries is opening oneself up to the accusation of being a controversy theorist… Paul comments: “It is not in America’s interest to give up on the dollar. How can we [otherwise] afford our deficits? Now it’s over 21 trillion! It boggles the mind.”
Paul does not predict how many years it will be until we see the end of the supremacy of the US dollar; however he does give a hint: “In a predictable scheme of things, I see 10, 20 years.” 10 or 20 years is actually a very short period of time says host John Harrison. “Even then, the dollar will not disappear; it will always be a strong player, but not the only player. That actually in the long run is to the benefit of Americans…” America does not seem to be preparing for this however. Paul comments: “The party goes on until something happens. In markets, as in governments, until something really bites you painfully, you would rather not pay attention to it. It will go away by itself. That’s the way markets work… Consider Kodak, a very famous company for decades, it carried on as nothing happened [with film], until they just collapsed, until they just imploded. That happens often enough on the historical drawing board.”
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