International Forecaster Weekly

A US BRICS Currency War

By “isolating” Russia, the US government would force Russia to not only abandon use of the fiat dollar, but also to help accelerate the establishment of another monetary system for global trade that does not rely on fiat dollars.

Alfred Adask | April 5, 2014

On March 18th, The New York Times reported (“Putin Reclaims Crimea for Russia and Bitterly Denounces the West”) that:
“Russian President Vladimir V. Putin reclaimed Crimea as a part of Russia on Tuesday, reversing what he described as a historic injustice inflicted by the Soviet Union 60 years ago and brushing aside international condemnation that could leave Russia isolated for years to come.” 
The bit about “isolation” is a bunch of crapola.  Russia will never be “isolated” so long as it supplies 25% of the EU’s natural gas.  

More importantly, the primary value of the fiat dollar is based on its status as World Reserve Currency.  That status was based on post-1971 use of “petro-dollars” (the only currency that could be used to buy petroleum products on the international market) to settle most international trades.  As more international trade is conducted in currencies other than dollars, the dollar’s status as World Reserve Currency must diminish.  As the dollar’s status as World Reserve Currency diminishes, so does the perceived value of the fiat dollars.
If the US successfully “isolates” Russia—the world’s eighth largest economy—will be forced, forced, to stop accepting payment for its natural gas and petroleum products in fiat dollars.  By doing so, our government will thereby force a further reduction in fiat dollar’s perceived value, purchasing power and role as World Reserve Currency.  These reductions will cause some foreigners to dump their dollars and send them flying home to roost in the US, and thereby boost US inflation.
By “isolating” Russia, the US government would force Russia to not only abandon use of the fiat dollar, but also to help accelerate the establishment of another monetary system for global trade that does not rely on fiat dollars.  That alternative monetary system is already being built among the BRICS (Brazil, Russia, India, China and South Africa).  If this alternative currency system becomes established, the fiat dollar’s value and role as World Reserve Currency will fall even faster, leading to significant inflation and further stress on the US economy.

•  Since A.D. 1971, the US government has effectively forbidden the sale of crude oil by virtually all oil-producing nation for currencies other than dollars.  
In A.D. 2000, Saddam Hussein started selling Iraqi crude for currencies other than dollars and threatened the “petro-dollar’s status as World Reserve Currency.  Therefore, in A.D. 2003, the US invaded Iraq to stop Iraq’s financial heresy.  
That invasion failed in that we became trapped in Iraq for nearly nine years.  The long-term occupation of Iraq weakened the US financially and militarily.  Result?  Our government is no longer able to enforce the sanctions against oil-producing nations selling crude for anything other than dollars.
1) The number of oil-producing nations are selling crude for currencies other than dollars is significant and growing.  
2)  The dollar’s status as the world’s only petro-currency and World Reserve Currency is degrading.
3)  As measured on the US Dollar Index, the dollar’s perceived value has fallen from 125 in A.D. 2000 to 80, today.
Given that, in A.D. 2003, our government was so determined to protect the “petro-dollar” that it invaded Iraq, it seems unlikely that our government would work today to further injure the petro-dollar by “isolating” Russia and thereby force Russia to sell its natural gas and other petroleum products for currencies other than fiat dollars.     
Because the fiat dollar’s perceived value is based on its remaining stature as the world’s petro-dollar, the US shouldn’t dare to isolate and/or impose economic sanctions on any oil-producing nation. I.e., if Obama does isolate/sanction an oil-producing nation, that nation will be forced to abandon the fiat dollar and the dollar will be thereby damaged.
Therefore, although nothing’s impossible, I doubt that the Obama administration is dumb enough to actually “isolate” Russia and force a further decline in the dollar’s value and status as the World Reserve Currency.
Instead, I strongly suspect that, within the next month or three, President Obama will seek to “make nice” with Russian President Putin and even offer some special “deal” to entice Putin to continue using fiat dollars in the sale of Russian natural gas to the EU.

•  Whether such enticements are actually offered and accepted remains to be seen.  After all, Russia’s advocacy for use of a currency other than dollars to serve as World Reserve Currency isn’t new.  
Almost a year ago, Valentin Mândrăşescu—editor of The Voice of Russia's “Reality Check” warned of the BRICS’ plan to dethrone the dollar.  The article (“Russia’s Plan For the BRICS To Dismantle The Dollar System”) was published  in May of A.D. 2013 (nine months before the current Crimean conflict)  and was largely ignored:

“The status of the US dollar as the world reserve currency gives the US a number of advantages over other countries. The world’s most important commodities are priced and traded in dollars, even if most of these commodities are not produced in the US. The fact that the world’s financial system is based on the dollar allows the Federal Reserve to export inflation to other countries, while the Federal Government runs a huge deficit with impunity.”

US deficits may have been “run with impunity” for several decades—but that’ll last only until the world begins to lose confidence in the dollar’s utility in foreign trade and therefore begins to redeem dollars for US products and properties.  Once the world begins to cash their US dollars within the US rather than save them for foreign trade transactions, we’ll see something like the national equivalent of a “bank run”.  Then, all the inflation that we exported to foreign countries could return “all at once” to the US.  Prices for all things tangible like land, farms, buildings, machines, tools and gold may soar.  The value of all paper-debt instruments (such as US bonds, stocks, pensions, savings accounts, and cash) should fall.
To prevent the influx of foreign-held dollars, the US government’s current, primary job must be to maintain confidence in the fiat dollar.  For most of the past 40 years, that confidence was based on two things:  
1) The dollar was the world’s only petro-currency—if you wanted crude oil, you had to have dollars ; and
2) If an oil-producing nation dared to sell its crude for any currency other than dollars, the US military would intimidate or crush them.
Today, the dollar is no longer the only petro-currency and the US military has been exhausted by the war in Iraq.  
So, how will the US government maintain confidence in the dollar?  
I don’t believe it can.

•  Even so, everyone (including Russia and China) knows that as flakey as the dollar may be, if the dollar dies it won’t only collapse the US economy, it will also collapse the world economy—including those of Russia and China.
Thus, for the moment, the fiat dollar is like JPMorgan-Chase: “too big to fail”.
As much as Russia and China may hate the US dollar’s status as World Reserve Currency, there’s not much that they can do about it, other than distance themselves as much as possible from the US dollar and prepare for the inevitable dollar/global collapse.  If so, this might explain why China, and to a lesser extent, Russia, have been hoarding gold.  When the dollar inevitably dies, they want to have sufficient financial assets (rather than debt-instruments) to rebuild their own economies without dollars.1  

 “So far [as of May, A.D. 2013], only China has been active in challenging the dollar supremacy. The internationalization of the yuan is an official priority of Chinese leaders. Currency swap agreements with major trade partners like Brazil, France, or Australia are small but important steps in the Chinese strategy.”

These “currency swap agreements” are agreements to settle debts with other countries by means of their own currencies and without using dollars.  By not using dollars, these countries diminish the dollar’s role as World Reserve Currency.

“Changing the world financial system is not an easy task and certainly a very challenging undertaking for China. Now, it seems that Beijing has found an ally in the Kremlin. And there appears to be a consensus between the BRICS countries: the urgent necessity to dismantle the dollar system.”

Point:  At least nine months before the Crimean conflict, Russia was already working with China (and the other BRICS nations) to trash the dollar.  Today, by threatening to “isolate” and/or sanction Russia for annexing the Crimea, our government increases Russia’s need to cooperate with China.  Our government thereby pushes the world closer to the day when the dollar may collapse.
It would be profoundly stupid for our government to threaten a foreign oil-producing nation with isolation/sanctions if those threats would accelerate the demise of the petro-dollar.   And, yet, that’s exactly what our government is threatening to do.
“A week before the recent BRICS summit in Durban, the Kremlin administration silently produced a document which describes the Russian strategy in the context of BRICS cooperation. . . . . [T]he fact that the Kremlin decided not to hide the document or leak it to a chosen few journalists, but publish it outright is a very strong signal, a very vocal angry signal directed at the US.  A signal that the Western media chose to ignore.
“. . . the [document’s] authors point out that ‘there is a common desire of the BRICS partners to reform the outdated global financial and economic framework’.  .  . . Russia assumes that, given enough political will of the leadership of the BRICS countries to advance their cooperation, this alliance can become one of the key elements of a new system for global governance, primarily in the economic and financial domains.
“Move aside New World Order! The BRICS are coming to change the world.”
If Mr. Mândrăşescu’s report is true, Putin, China and the other BRICS countries are trying to challenge the New World Order.   That’s probably a good way to get some of them killed or even nuked.
More, insofar as the BRICS’ anti-N.W.O. strategy focuses on attacking the dollar, then Putin must believe that dollar is part of, and perhaps even the cornerstone for, the N.W.O..
If so, I agree with him.  I can’t prove it, but I’ve been convinced for a decade that there can’t be global governance and a New World Order, without a single, global currency—probably a “petro-currency”.  
I’ve also been convinced for the past decade that the US dollar was originally intended to be that single, global “petro-currency”.  However, when the US became trapped in Iraq, that changed.
As a result of that trap, the dollar’s standing as World Reserve Currency was so badly diminished that Zbigniew Brzezinski complained that N.W.O. plans were thereby set back by twenty years.  The Iraqi war debacle forced the N.W.O. to withdraw its support for the fiat dollar and seek an alternative currency able to assume the role of the next World Reserve Currency.  
But where is that alternative currency?  It won’t be China’s yuan since China appears to be working with Russia against the N.W.O..   It’s unlikely to be “special drawing rights”.
If the fiat dollar’s value continues to decline or even collapse, a lot of people around the globe will lose their savings.  The inherent dangers of fiat currencies will be seen by all.  Once that painful lesson is learned, I can’t imagine the world accepting another fiat currency as the next, new-and-improved World Reserve Currency.
Instead, the world will eschew fiat currencies and opt for gold-backed currency. 2

“The first point on the BRICS’ agenda is the reform of the world financial system . . . [T]his ‘reform’ is actually a dismantling of the dollar system. . . . .”

If the BRICS’ war against the dollar is real, we can assume that the US government is looking for ways to protect the dollar by attacking one or more of those five countries or their leaders.  
I don’t expect the US government to overtly go to war against any of those countries.  But the US could secretly support rebel groups within those countries or otherwise destabilize their economies.  
We certainly won’t attack the Russians.  They might nuke us.
We won’t attack China.  We need them to produce gee-gaws to sell at low, low prices at Walmart.
We’d have to be nuts to attack India.  There are too many people there, and they’re already so screwed up we might attack them and no one would even notice.
Brazil is too big to overtly attack, but we might fund Brazil’s anti-government dissidents.
But then there’s South Africa—probably the weakest, most vulnerable, and newest member of the BRICS. It’s the logical candidate for some sort of national chaos that might scare the rest of the BRIC nations into “playing nice” with the dollar.   For example, Obama might be able to secretly support South African unions seeking to close down platinum mines.
If the US government could destabilize South Africa, it might intimidate the other BRICS nations and fragment their alliance.  Once that alliance was shaken, there’d be less of an organized threat against the fiat dollar.  Seeing no alternative to the fiat dollar, confidence in the dollar might rise and the dollar’s perceived value might also rise.
However, any increase in dollar-confidence and dollar-value could only be temporary.  In the end, no matter how hard the US government and Federal Reserve seek to support it, the dollar is a fiat currency that’s destined for the same fate as all other fiat currencies:  hyperinflation and then destruction.
Whether Russia, China and the other BRICS nations can accelerate the dollar’s demise remains to be seen.   How long the US gov-co can shield the dollar from its ultimate fate remains to be seen.
But that ultimate fate—hyperinflation and then destruction—is certain.
The only question is When?