June 18, 2014
“Whoever is winning at the moment will always seem to be invincible.”
— George Orwell
Wise words indeed as they aptly describe misguided confidence in the US dollar.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT), which helps manage the global banking system, tells us that US dollar settlement accounts for the vast majority of global trade.
And as Orwell suggests, many people take it for granted that just because the dollar is in the lead today, it will be that way forever.
They couldn’t be more wrong. There’s been a dominant reserve currency for thousands of years.
The Byzantine Empire’s gold solidus was the world standard for centuries; when they hit the reset button in the 11th century, it became the gold hyperpyron.
Eventually this was abandoned for Venetian ducats. Soon Spain’s silver pieces of eight became the dominant reserve standard to the point they were still legal tender in the United States until 1857.
By the 1860s, the British pound sterling was the world’s primary reserve currency, and over 60% of world trade was settled in pounds.
Reserve currencies come and go. So will the dollar. This is nothing new.
It’s bad enough that US debt is greater than any other nation’s in the history of the world. Or that the dollar is being rapidly debased by a tiny banking elite.
But what’s really driving the nail in the dollar coffin is the US government’s continued appalling arrogance, particularly in bullying around foreign banks.
Just one tiny example is the US government’s $10 billion threat against French bank BNP Paribas, which may even include criminal charges.
BNP’s bank in Geneva stands accused of financing deals with Iran. Never mind that it’s perfectly legal for a bank in Switzerland to do business with Iran. Iran, after all, is one of Switzerland’s largest trading partners in the Middle East.
The issue is that BNP violated a 2012 -executive order- from Barack Obama (#13622) that requires non-US companies to enforce US sanctions.
The arrogance is really overwhelming. This isn’t even an actual law. It’s just an executive order– a royal decree from King POTUS, first of his name.
And even if it were an actual law, on what possible grounds could the US government claim jurisdiction to regulate foreign banks? None. But this doesn’t stop them from doing so.
FATCA is another great example– a seismically destructive law passed in 2010 that mandates all sorts of US compliance requirements on foreign banks.
The only reason the US is able to get away with this is because the dollar (and hence the US banking system) is so important to their global business.
Their patience has run out, and things are starting to change.
The Chinese government has been rapidly loosening controls over the renminbi to increase its reserve status and compete with the dollar. And the rest of the world has quickly adapted to the opportunity.
The proof is clear. According to SWIFT, China’s renminbi is now the second most used currency in the world for global trade settlement, putting it ahead of even the euro.
In London, renminbi trade last year surged 50% to $25.3 billion per day. And there’s every indication that this growth will continue.
Singapore’s central bank is now offering overnight renminbi liquidity. Russian companies are preparing to pay for trade in renminbi. Even the World Bank’s IFC just issued its first renminbi-denominated bond.
It’s happening. And based on the data, it’s completely obvious… to just about everyone but the US government.
I was surprised to see an article in the Financial Times’ banking intelligence subsidiary (‘The Banker’) entitled “The US’s dollar domination is coming to an end.”
Shocking. This reality has become obvious to just about everyone… except for the US government.
And seeing it reminded me of another great Orwell quote– “[W]e have now sunk to a depth at which restatement of the obvious is the first duty of intelligent men.”
Orwell was right. Fortunately, intelligent people can choose to embrace this obvious reality and benefit from it… rather than ignore reality and be devastated by it.