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Is this the begining of the end for the US dollar?

 
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kenneal - lagger
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PostPosted: Sat Jan 05, 2019 2:15 pm    Post subject: Is this the begining of the end for the US dollar? Reply with quote

This article from Capital and Conflict is flagging up the possibility. At worst it could severely limit the US's ability to continue living on large deficits with the rest of the world.


Quote:
The great unplugging
Boaz Shoshan

Way back in 2012 (remember then?), a Danish policeman ordered some Cuban cigars from Germany.

It was a perfectly legal and above-board bank transaction, but the money he paid – roughly £16,500 – disappeared.

Why? The answer is simple, but it reveals a flaw at the heart of global finance which creates more pressure by the year: the US dollar.

The Danish man had paid for the cigars in USD, a currency more acceptable to the German than krone, and so the payment had been routed through a US bank. And so in the US, a continent removed from the original transaction, the US authorities froze the transaction on the basis that it violated the US trade embargo on Cuba.

Using the US dollar lost the Danish policeman his money (the US rejected his appeal), and probably his cigars as well, illustrating the power the US wields in issuing and controlling the world’s reserve currency.

The absurdity of a German and a Dane doing business somehow violating an American trade embargo is not lost on the rest of the world, who have since been working to avoid the dollar trap. Especially those entering a Cold War against the US (China) as we enter an era of “great power competition”.

China is the world’s largest oil importer, and so far has been paying for it mostly in dollars. This exposes it to the risk that the US will lock it out of the global dollar-based financial system, if it doesn’t keep in line with the US (like Iran).

China wants to “unplug” from the dollar-based system and pay for commodities with yuan instead. Now that China is “too big to ignore” in the commodities space, it looks like it is gradually getting its wish. The Shanghai oil futures contract (denominated in yuan) has seen much more volume than anticipated when it was launched last year.

China has also been buying up commodity producing assets in Africa to reduce foreign reliance. This will also allow it to sell these commodities for yuan, increasing foreign demand for its currency. And with demand for currency, comes demand for government bonds, so investors can “park” their currency and earn a return on it. This in turn will allow the Chinese government to issue such bonds and borrow in its own currency, rather than the dollar.

And it’s not just China. India is also working around the dollar, incentivising rupee payments for oil from Iran. From Reuters, emphasis mine:

India’s finance ministry has exempted rupee payments made to the National Iranian Oil Co (NIOC) for crude oil imports from a steep withholding tax, according to a government order reviewed by Reuters.

The exemption, put in place December 28 but backdated to November 5, will allow Indian refiners to settle about $1.5 billion of outstanding payments to NIOC. Those have been building up since Tehran was put under stringent U.S. sanctions in early November.

The two countries on Nov. 2 signed a bilateral agreement to settle oil trades through an Indian government-owned bank, UCO Bank, in the Indian currency, which is not freely traded on international markets.


The dollar’s share of global currency reserves is now at an almost five-year low. Should China get its way, that figure is set to get much lower. But the US won’t roll over and let that happen easily.

The Second Cold War will exhibit many differences to the first. Energy, currencies, supply chains and trade between the US and the Soviet Union were not anywhere near as tangled as they are now between the US and China.

But while history doesn’t repeat, it does rhyme. Yesterday, the Chinese became the first to land a spacecraft on the far side of the moon. A new space race is underway…

Have a great weekend!

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vtsnowedin



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PostPosted: Sat Jan 05, 2019 3:11 pm    Post subject: Reply with quote

As long as the US imports millions of barrels of crude oil each day end exports millions of barrels of finished oil products along with all the grain and other food stuffs the US dollar will remain the worlds largest reserve currency.
The Chinese can settle their bills with Russia in Rubles, Yuan, vodka ,or dried Yak skins for all I care as every transaction will always be compared to the dollar to determine the fair exchange rate.
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emordnilap



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PostPosted: Sat Jan 05, 2019 5:32 pm    Post subject: Reply with quote

“Always”

😂😂😂😂😂😂
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BritDownUnder



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PostPosted: Sun Jan 06, 2019 10:09 am    Post subject: Reply with quote

The problem in handling international trades in currencies other than the US dollar is that it is fine if Iran sells oil in China and receives yuan but what if they want to buy Mercedes cars from Germany or wheat from Argentina and those two countries may not want to receive the yuan from Iran for their goods as eventually they know that they will have to buy something from China.

So Iran or Russia are stuck with basically buying Chinese goods in return as the yuan has a history of being manipulated by Communist China. Further China may also insist on paying less than the dollar equivalent open market price for the oil because Iran and Russia are 'naughty' in the eyes of some people and no one else wants to risk the ire of the USA and wants to buy their product. This may further strain their sanctions restricted economies.

I can see China also having a problem in getting the yuan more accepted overseas as a trading currency as they have a bit of a credibility problem and are not too well trusted, especially in Asia. They say one thing and do another. However they are going to be the biggest kid on the block very soon and will have to do something to get others to trust their currency.

Eventually some form of international currency will have to be accepted as payments between these countries as an alternative to the US dollar and in the end that will probably have to be GOLD.

Get ready for lots of Chinese fake gold doing the rounds very soon.
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Last edited by BritDownUnder on Sun Jan 06, 2019 10:13 am; edited 1 time in total
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stumuz1



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PostPosted: Sun Jan 06, 2019 10:13 am    Post subject: Reply with quote

No.

Simple reasons being:

1. China's growth has spluttered

2. Unlike the 'west' anything under 6% growth in China is stagnation. The 'unofficial' official rate of growth at the moment is 2%. This means an unhappy populace. What do one party despots do when people suffer economic hardship? Create a military emergency to fix the peoples attention elsewhere..... Remember General Galtieri military dictatorship in Argentina and concomitant Falkands war? Right on que Chairman Xi is threatening Taiwan!

3. The Fed is engaged in 'reverse quantitive easing' It is destroying dollars in the same way as it created them. This is causing and will continue to cause dollar shortage in the off balance sheet shadowy foreign loans market. Think Turkey.

4. Proof is in the pudding. US treasuries are now paying 2.5%. Our top paying equivalent of US treasuries (income bonds) are paying 1%

5. Wealth confiscation. China, Russia, and South America . Personal wealth can, and is regularly confiscated. Does not happen in the US and US treasuries can be held by non citizens. So they are a de facto store of wealth which can be cashed for any asset anywhere.

In a fiat currency world, the US dollar is the best looking horse in the glue factory.
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BritDownUnder



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PostPosted: Sun Jan 06, 2019 10:16 am    Post subject: Reply with quote

I am going to Taiwan tomorrow for work. I hope they hold off invading until Summer.
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emordnilap



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PostPosted: Sun Jan 06, 2019 10:17 am    Post subject: Reply with quote

Bring back Meynard Keynes, all is forgiven.
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stumuz1



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PostPosted: Sun Jan 06, 2019 10:20 am    Post subject: Reply with quote

BritDownUnder wrote:
as an alternative to the US dollar and in the end that will probably have to be GOLD.


Gidday Bruce!

No way will we ever go back to gold as money. If we did we would have to live under physical limits to growth.

Remember, currency is a metaphysical manifestation of your mind. Like pensions, savings, loans etc, they do not exist. Only the belief exists.
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raspberry-blower



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PostPosted: Sun Jan 06, 2019 12:40 pm    Post subject: Reply with quote

There is another thread on the state of the Petrodollar here

The current state of affairs was recently discussed by Wolf Richter here

In a nutshell the US $ is losing its support as the reserve currency although at the current rate of decline is somewhat glacial
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raspberry-blower



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PostPosted: Sun Jan 06, 2019 12:43 pm    Post subject: Reply with quote

stumuz1 wrote:


No way will we ever go back to gold as money.


Gadaffi tried that with a gold back African Dinar.

Look what happened to him Evil or Very Mad
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kenneal - lagger
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PostPosted: Mon Jan 07, 2019 2:49 pm    Post subject: Reply with quote

raspberry-blower wrote:
........ although at the current rate of decline is somewhat glacial


Don't forget that glaciers are speeding up exponentially worldwide!!
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