The geopolitical shifts currently occurring are irreversible. It will take some time before it hits rock bottom, but the American empire is definitely on its downward slide.
We are currently witnessing some of the separation anxieties and growing pains the global community is feeling as it attempts to create a "multipolar" political paradigm. As the superficially imposed US Dollar commodity is gradually forced to relinquish its global clout, other currencies as well as traditional commodities such as gold and silver are making a strong come back. International calls to abandon the US Dollar continues unabated, and the effort in question seems to be pulling together the top two Eurasian powers - Russia and China.
Russian Prime Minister Vladimir Putin once again highlighted this matter last November when he met with Chinese and German leaders. Considering how deeply the US Dollar is entrenched in the world, however, tinkering with it will be easier said than done. Nevertheless, merely discussing the matter is in itself a very fundamentally important and courageous first step, and many nations around the world have begun doing just that. Such a discussion would have been unheard of just several years ago. The writing is now clearly on the wall and the US Dollar's global death-grip may be finally coming to an end.
On a related note, some financial analysts argue that the recent weakening of the Euro via the financial debacle in Greece was orchestrated by Wall Street to ultimately undermine the growing clout of the Euro. Although somewhat whitewashed, the New York Times article posted below this commentary discusses this matter.
While no one should begrudge the Chinese and Russians their mutual admiration society, the unspoken subtext of such announcements is the determination to diminish the influence of the United States in global affairs. For the nonce, China and Russia are content with newly-allied currencies. In the longer run, however, stronger military ties are a likelihood, given the military rivalry between both countries and the American superpower: Russia, over NATO’s eastward expansion, and China, over Taiwan, the Korean peninsula, and naval dominance in the Pacific region in general. For now, it is enough that the U.S. dollar is losing ground across the world, and that China and Russia in concert are the first major powers to openly repudiate it.
China-Russia currency agreement further threatens U.S. dollar
Vladimir Putin said it is "quite possible" that Russia will one day join the eurozone and create a currency that would eclipse the US dollar as the global reserve standard. Speaking at a conference in Germany the Russian prime minister, who is in the country for talks with Chancellor Angela Merkel, said he was convinced the euro would stabilise and strengthen despite the current sovereign debt crisis. He said: "Yes, there are problems. But the economic policy of the European Central Bank and of the governments of leading European economies ... convinces me that the stability of the euro will be ensured." He added: "We know there are problems in Portugal, Greece, Ireland and the euro is wobbling a bit. On the whole it is a solid, good currency and it should take its place, its role as a reserve currency."
Asked about Russia's role in the eurozone in the future, Mr Putin said: "Can it be supposed that one day Russia will be in some joint currency zone with Europe? Yes, quite possible." Speaking at the same event, Josef Ackermann, chief executive of Deutsche Bank, echoed Mr Putin and said he could imagine Russia joining a common European currency. Mr Putin said that for the past decade there has been a reliance on the dollar that needs to be rebalanced as it makes the world economy vulnerable. "We should move away from the excessive monopoly of the dollar as the only global reserve currency," he said. But the Russian prime minister was critical of European laws intended to improve transparency in energy supply and distribution. He claimed the "Third Energy Package", aimed at liberalising the market, will hinder investment and amounts to uncivilised "robbery". Moscow claims that the measures devalue the European assets of Gazprom, the state-controlled gas giant.
Russian Prime Minister Vladimir Putin on Thursday arrived in Berlin for talks with German Chancellor Angela Merkel, floating a bold idea of a free-trade zone across the European continent. Ahead of his visit to Germany, Putin, who meets Merkel today, said Russia and Europe could work together to form a free-trade economic zone spanning the entire European continent "from Lisbon to Vladivostok." Merkel, who developed an agreeable working relationship with Putin, a KGB agent in former East Germany, poured cold water on Putin's idea, not least because of a plan championed by the Russian premier to create a joint customs bloc with ex-Soviet Belarus and Kazakhstan. "The steps Russia has taken recently do not point in that direction," Merkel said.
Putin also criticized the European Union for its efforts to liberalize the gas market and promote competition there. For all its good intentions, the plan "undermines a desire by investors to commit funds to new projects," Putin said. Putin and Merkel are expected to discuss the fate of E. ON Ruhrgas' $4.5-billion stake in Gazprom, the world's largest gas producer. A Russian newspaper said E. ON wanted to sell its 3.5 per cent stake in the gas giant to Vnesheconombank, the state economic development bank.
Germany attacks US economic policy
Related information from the recent past:
Mr Zhou caused a stir earlier this year when he said the dollar could eventually be replaced as the world's main reserve currency by the Special Drawing Right (SDR), which was created as a unit of account by the IMF in 1969.
- Foreign currency held by a government or a central bank
- Used to pay foreign debt obligations or influence exchange rates
- The dollar is viewed as the world's reserve currency as the vast majority of reserves are held in the US currency
- Smaller amounts are held in euros, pounds and yen
: Dollar to be buried way before 2018:http://www.youtube.com/watch?v=D7dH4e8HYFAUS dollar to die out in oil deals? http://www.youtube.com/watch?v=mezD3f9QjD0Robert Fisk on the Gulf 'ditching the dollar' in oil trade: http://www.youtube.com/watch?v=CBDPGkW6SCU&NR=1
According to The Independent, the secret meetings between finance ministers and central bankers have already been held. The transition should be complete following a nine-year timeline, with a deadline of 2018. And American officials know of the plan and the meetings, though not the details, the paper reported. "These plans will change the face of international financial transactions," an anonymous Chinese banker told The Independent. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."
Immediately after the news broke, representatives from at least Kuwait and Saudi Arabia claimed that the report was inaccurate. "At our level, no," said Kuwait’s oil minister, Sheik Ahmed Al Abdullah Al Sabah, according to an Associated Press report entitled ‘Officials deny UK media report on move from dollar.’ "I didn't even dream about it." Gold hit a record high at over $1,040 an ounce amidst the news, while the dollar fell sharply against world currencies. A Reuters analysis of the report about the secret meetings claimed it was “a potentially major sign of the greenback's fading status.” The research director from Forex.com called it “another chapter in the plot against the dollar as the world’s most dominant reserve currency.”
This would certainly not be the first call to end the dominance of U.S. currency in world trade. The United Nations recently called for creating a new global monetary system, while Russia and China have both called for an end to dollar hegemony. Officials around the world have also expressed deep concern about the Federal Reserve’s inflationary policies and artificially low interest rates. The Independent article also highlighted an alleged potential for military and economic confrontations between the United States and China, citing statements made by government officials. "Bilateral quarrels and clashes are unavoidable," China’s former special envoy to the Middle East told the Asia and Africa Review. "We cannot lower vigilance against hostility in the Middle East over energy interests and security."
Diversifying away from the dollar will be a tricky undertaking for countries like China, Japan, and the Gulf Arab states. They hold trillions of dollars in reserves, and if they started selling rapidly, the price would tank, eroding a significant part of the value of their reserves. But it is not impossible, or even unthinkable. If and when the world does ultimately abandon the dollar, it will be bad news for the American economy. Faced with the prospect of rising prices for imports and a manufacturing base that has been shipped abroad, consumers will find themselves increasingly strapped for purchasing power. But with the Federal Reserve printing debt-money like it’s going out of style, can anyone really blame other countries for wanting to get out?
Economists even started talking in terms of a reversal of the global currency trends, rather than the temporary appreciation of the dollar. Analysts predict that the dollar will regain its value in the next few months. They do not see anything which could hinder its steady growth. Yet, Putin proposed that Russia and China stop using it as a settlement instrument. What is it - lack of confidence in the dollar's prospects or a political move? Experts differ on this count. Igor Nikolayev, chief strategic analyst at FBK private auditing firm, sounded skeptical: "I think it was a political statement rather than an economic decision. There is a dominant public sentiment that the United States is the source of all evil, so let's stop using the dollar," he explained. One has to bear in mind, though, that some other currency will need to be found to replace the dollar for international settlements. China is unlikely to use the ruble, and Russia would be equally reluctant to accept the yuan. "They could opt for the euro, but its future is uncertain, especially considering current developments on global financial markets. It is also unclear whether China would be happy to start using the euro while most of its international reserves are held in dollars," he added. There are more questions than answers here, Nikolayev concluded. To be objective, one has to admit that other analysts are not as skeptical about the possibility of using other currency units between Russian and Chinese companies. Andrei Marinchenko, director general of the Kalita-Finance company, said the idea was quite realistic. Moreover, he thinks that the ruble stands a good chance of being selected as a reserve currency, primarily because the Chinese are disappointed in the dollar but aren't yet accustomed to the euro.
Only time will show who is right. But to stop using the dollar in Russian-Chinese settlements is too important a decision to make for purely political reasons - that much is obvious. Suppose we do it; what will be the implications for Russian businesses, how will the new financial and political reality affect their incomes and savings? Marinchenko is convinced of a beneficial impact. According to Marinchenko, once the ruble is recognized as a settlement unit, it will enjoy growing demand with Chinese companies and individuals. The Russian currency will consequently grow stronger and more influential globally. Russia will also become immune to many shocks from stock market meltdowns and won't have to fear future devaluation or revaluation of the ruble. It will happen because the role of the U.S. dollar, which has earned a reputation as an unstable and unreliable currency lately, will be much less important.
A planned pipeline to China, a spur of a trans-Siberian pipeline that is under construction, would be capable of carrying about 300,000 barrels of oil a day. On Tuesday, the countries agreed only to build the spur, from the Russian town of Skovorodino to the Chinese border, at a cost of about $800 million. How much oil will flow through the pipeline, and at what cost per barrel, have been matters of contention for some time and have yet to be resolved. There is little doubt that the crushing cash needs of the Russian oil companies helped narrow the differences. Much of the companies’ revenue during the recent spike in oil prices went to taxes. As a result, the state oil company Rosneft owes about $21 billion to Western banks and has already been confronted with demands from creditors for early repayment. China, after years of piling up trade surpluses with the United States, is awash in cash, with currency reserves of $1.9 trillion, the largest in the world. The Russian government, which also has a healthy cash reserve, has pledged $9 billion in loans to its country’s oil companies, but that does not begin to cover their cash needs, which include the enormous sums needed to expand into the more expensive and remote fields in Siberia.
Mr. Wen and Mr. Putin also discussed relying on rubles and yuan in bilateral trade, rather than on dollars. Mr. Putin is an advocate of reducing the dollar’s role in international commerce. “At the moment the world, which is based on the dollar, is suffering serious problems,” he said.