The whole world has been avoiding US Dollar like plague, China and Russia in particular have been actively hoarding gold like there is no tomorrow.

By Ted Torrance

The World Acquires More Gold While China Is Dumping Treasuries

China (Officially) Buys Gold For 7th Straight Month As Treasury Holdings Tumble

Recently,

Who In The World Is Most Interested In Facebook’s Libra (It’s Not Who You Think)

After two days of grilling by US politicians (including demands for a moratorium and fearmongering of the end of banking and the ease of funding terrorism) and endless byelines supporting and denigrating Facebook’s new digital currency, Libra, one would suspect that it is Americans that should be most interested in Zuckerberg’s latest idea for world domination.

That would be wrong.

Perhaps not entirely surprising, it is in fact the Chinese, based on global search volumes, that are the most interested in Libra.

This is ironic since, as we noted in 2015, it was soft capital controls by Chinese authorities that sparked the big run-up in cryptocurrencies as an alternate store of wealth (to avoid government interference).

Are the Chinese once again worried that as economic growth slumps and debt-driven gains evaporate that Chinese authorities will crackdown harder on capital’s exodus from the trade-war-turmoiling nation?

Perhaps but the real judging by the questions from US politicians, Libra is the most dangerous ‘thing’ in the world.

The followings provided a pretty clear indication why is U.S. so against the Libra?

“Why Switzerland? Why a basket of currencies? Why not Petrodollar?”

[27] McHenry: “Why are you doing this in Switzerland and why are you using a basket of currencies? Why not the good old American dollar”

Marcus: “…The choice of Switzerland has nothing to do about evading responsibilities or oversight. The goal of Switzerland is to home this Libra in an international place…”

In another word, US Dollar is the most lethal weapon which has been abused repeatedly for the past several decades to make anyone and everyone kowtow to the economic and/or political agenda of the American empire.

Ongoing living examples include Iran and Venezuela. And as such, it’s definitely in the interest of U.S. to assassinate any attempt to replace the greenback a.k.a. Petradollar, it has nothing to do with the bullsh*t why President Trump and Treasury Secretary Mnuchin disparaged Libra as conspiratorial and worthless: –

• “Bitcoin is highly volatile and based on thin air,”
• “We are concerned about the speculative nature of bitcoin and will make sure that the U.S. financial system is protected from fraud,” ominously adding that cryptos are used by“money launderers, terrorist financiers, and various bad actors.”
• “Treasury has very serious concerns over [Facebook’s] Libra.”
• “This is indeed a national security issue,”
• “We will not allow digital asset service providers to operate in the shadows.”
• “Crypto investors should be careful.”

The truth is Petrodollar/SWIFT Must Rule The World, or there goes Uncle Sam’s Empire. 

Comments from finance powerhouse JPMorgan:-

We Believe The Dollar Could Lose Its Status As World’s Reserve Currency

Almost eight year ago, JPMorgan’s Michael Cembalest created a chart which showed very simply and vividly that reserve currencies don’t last forever, and that in the not too distant future, the US Dollar would also lose its status as the world’s most important currency: –

As Cembalest put it back in January 2012, “I am reminded of the following remark from late MIT economist Rudiger Dornbusch: ‘Crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.'”

Why even the largest US bank has started to lose faith in the world’s most powerful currency?

Is the dollar’s “exorbitant privilege” coming to an end?

In Brief,

The U.S. dollar (USD) has been the world’s dominant reserve currency for almost a century. As such, many investors today, even outside the United States, have built and become comfortable with sizable USD overweights in their portfolios. However, they believe the dollar could lose its status as the world’s dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments.  

As such, diversifying dollar exposure by placing a higher weighting on other currencies in developed markets and in Asia, as well as precious metals makes sense today. This diversification can be achieved with a strategy that maintains the underlying assets in an investment portfolio, but changes the mix of currencies within that portfolio. This is a completely bespoke approach that can be customized to meet the unique needs of individual clients.

The rise of the U.S. dollar

It is commonly perceived that the U.S. dollar overtook the Great British Pound (GBP) as the world’s international reserve currency with the signing of the Bretton Woods Agreements after World War II. The reality is that sterling’s value was eroded for many decades prior to Bretton Woods. The dollar’s rise to international prominence was fueled by the establishment of the Federal Reserve System a little over a century ago and U.S. economic emergence after World War I. The Federal Reserve System aided in the establishment of more mature capital markets and a nationally coordinated monetary policy, two important pillars of reserve-currency countries. Being the world’s unit of account has given the United States what former French Finance Minister Valery d’Estaing called an “exorbitant privilege” by being able to purchase imports and issue debt in its own currency and run persistent deficits seemingly without consequence.

The shifting center

There is nothing to suggest that the dollar dominance should remain in perpetuity. In fact, the dominant international currency has changed many times throughout history going back thousands of years as the world’s economic center has shifted.

After the end of World War II, the U.S. accounted for biggest share of world GDP at more than 25%.  This number is brought to more than 40% when we include Western European powers. Since then, the main driver of economic growth has shifted eastwards towards Asia at the expense of the U.S. and the West.  China is at the epicenter of this recent economic shift driven by the country’s strong growth and commitment to domestic reforms.  Over the last 70 years, China has quadrupled its share of global GDP to around 20%—roughly the same share as the U.S.—and this share is expected to continue to grow in the years ahead. China is no longer just a manufacturer of low cost goods as a growing share of corporate earnings is coming from “high value add” sectors like technology.

China regaining its status as a global superpower

Source: Angus Maddison Database, IMF, J.P. Morgan Private Bank Economics. Data as of June 14, 2019

Earnings in China are becoming more balanced

Source: Bloomberg, J.P. Morgan Private Bank Economics. Data as of September 30, 2018. The low-value added sectors series is HP filtered to smooth over cyclical volatility. Low-value added includes materials and industrials. High-value added includes tech, health care, consumer staples, and consumer discretionary.

In addition to China, the economies of Southeast Asia, including India, have strong secular tailwinds driven by younger demographics and proliferating technological know-how. Specifically, the Asian economic zone—from the Arabian Peninsula and Turkey in the West to Japan and New Zealand in the East and from Russia in the North and Australia in the South—now represents 50% of global GDP and two-thirds of global economic growth. Of the estimated $30 trillion in middle-class consumption growth between 2015 and 2030, only $1 trillion is expected to come from today’s Western economies. As this region grows, the share of non-USD transactions will inevitably increase which will likely erode the dollar’s “reserveness”, even if the dollar isn’t replaced as the dominant international currency.

In other words, in the coming decades we think the world economy will transition from U.S. and USD dominance toward a system where Asia wields greater power. In currency space, this means the USD will likely lose value compared to a basket of other currencies, including precious commodities like gold.

Dollar’s declining role already under way?

Recent data on currency reserve holdings among global central banks suggests this shift may already be under way.  As a share of overall central bank reserves, the USD’s role has been declining ever since the Great Recession (see chart). The most recent central bank reserve flow data also suggests that for the first time since the euro’s introduction in 1999, central banks simultaneously sold dollars and bought euros.

Central banks across the globe are also adding to gold reserves at their strongest pace on record. 2018 saw the strongest demand for gold from central banks since 1971 and a rolling four-quarter sum of gold purchases is the strongest on record. To us, this makes sense: gold is a stable source of value with thousands of years of trust among humans supporting it.

USD share of central bank reserves, %

Source: Exante. Data as of September 30, 2018. The series is FX-adjusted. 

Trade Wars have long-term consequences

The current U.S. administration has called into question agreements with nearly all of its largest partners—tariffs on China, Mexico and the European Union, renegotiating NAFTA, as well as abandoning the Trans Pacific Partnership. A more adversarial U.S. administration could also encourage countries to reduce their reliance on USD in trade. Currently 85% of all currency transactions involve the USD despite the U.S. accounting for only roughly 25% of global GDP.Countries around the world are already developing payment mechanisms that would avoid using the dollar. These systems are small and still developing but this is likely to be a structural story that will extend beyond one particular administration. In a recent speech on the international role of the euro, Bank for International Settlements Chief Economist Claudio Borio brought up the benefits of pricing oil in the euro saying, “Trading and settling oil in the euro would move payments from dollars to euros and thereby shift ultimate settlement to the euro’s TARGET2 system. This could limit the reach of U.S. foreign policy insofar as it leverages dollar payments.” The European Central Bank also alluded to this theme in a recent report saying that “growing concerns about the impact of international trade tensions and challenges to multilateralism, including the imposition of unilateral sanctions seem to have lent support to the euro’s global standing.”We believe we are at an important juncture. On a real basis, the dollar stands currently more than 10% above its long-term average and on a nominal basis has actually been trending lower for 50 years (see chart below).

Source: Bloomberg as of June 13, 2019

Given the persistent—and rising—deficits in the United States (in both fiscal and trade), we believe the U.S. dollar could become vulnerable to a loss of value relative to a more diversified basket of currencies, including gold. As we scan client portfolios, we see that many of them have far more U.S. dollar exposure than we feel is prudent. At this stage of the economic cycle, we believe this exposure should be more diversified. In many cases, our recommendation would likely be to place a higher weighting on other G10 currencies, currencies in Asia and gold (see chart).

FX exposure

Source: J.P. Morgan Private Bank as of June 13, 2019.

Really?

Maybe. Perhaps, Probably.

Even the above is true, it’s only the financial bit. It’s not the whole story. it has certainly missed out the core reason – WEAPONIZATION Of The Dollar is the key factor why given a chance, the whole world would dump greenback as the global reserve currency without a single doubt.

All traditional victims of the American empire know that too well. eg. Russia, China, Cuba, North Korea, with leaders of Iraq and Libya murdered for trying to get away from the Petrodollar stranglehold, as well as toppling of host of Latin American regimes for economic gains. Venezuela is the most recent basket case.

Even Europeans have woken up to the fact that it doesn’t pay to be loyal to Uncle Sam, and they have ganged up to create a SWIFT alternative as a result:-

In Major Threat To Dollar’s Reserve Status, Russia Offers To Join European SWIFT-Bypass

The Billion Dollar Question: Will Instex Work?

Most likely not.

While it may not be that difficult to replace the Dollar as the global reserve currency since the whole world is fed up with Uncle Sam the “Global Bully”, and the is no problem whatsoever with the SWIFT money remittance system which is just a straightforward payment system that’s easily replaceable, technically speaking. The real issue lies with the almighty Military Industrial Complex whose military spending is more than the rest of the world combined, war or no war.

Judging from the ongoing fundamentals, it would appear no one is capable to break free from the greenback stranglehold.

If International Monetary Fund (IMF), which is runs by the same banking cartel behind Federal Reserve, fails to make Special Drawing Rights (SDR) the global currency – “The Financial New World Order: Towards a Global Currency and World Government“. As well as Euro which has the backing of essentially the same Globalist banking cartel ie. IMF, BIS, World Bank etc. couldn’t do it, guess no one else stands a chance to have any monetary freedom.

Resistance will be futile under present circumstances

In another word, the following efforts are a complete waste of time (and resources): –

• China studying Facebook’s Libra enthusiastically
• Venezuela rolled out state-run cryptocurrency backed by oil, Petro
• Cuba studying cryptocurrency to dodge U.S. Sanctions
• Iran Legalizes Crypto-Mining as Official Industry

If there is someone who may be able to turn the tide, it’s only China. Mainly due to their massive trade network and manufacturing facilities that’s second to none in this world.

China To The Rescue

But China could not, and must not try to do it alone.

If China is interested in Libra simply because they’re trying to introduce a blockchain based virtual currency to control the domestic populace, then the Middle Kingdom’s intelligence is truly questionable.

Why so?

China is already in absolutely control of her citizens in every sense. And Chinese have been proven sheeples who are more than happy to be enslaved to embrace a cashless society. And China is already a cashless society.

As such, China’s monetary concern should not be a domestic, but a global one. Their problem is the U.S. empire and the “Globalist” banking cartel, which technically shouldn’t be news to China since they’re already hoarding gold (along with Russia) like there is no tomorrow.

This is precisely why I commented “No idea why is China so fascinated with Libra… The Commies should concentrate on combating those who are about to gobble up their finances lock, stock, and barrel.”

But no, China won’t stand a chance to free themselves from the Petrodollar stranglehold by going solo. Such attempt will be doomed right from day one.

To have any chance at all, China must team up with at least the BRIC member countries. Of course, getting Europe ie, the “Globalist” banking cartel into their fold will a big plus.

Global Currency Requires Global Consensus Administered By Open Consortium

There are numerous reasons why China couldn’t do it on their own.

To begin with, why would anyone trust the RMB ¥ Yuan, much less the authoritarian regime of CCP (China’s Communist Party) which is infamously known as a “Control Freak”?

Another key factor is every single folk and nation on earth would want to have sovereignty especially when it comes to such a crucial commodity like Money.

That said, I believe an ideal global currency is one administered by a democratic elected body that’s transparent based upon open source technology ie. not a cryptocurrency, but an open virtual currency directly controlled by folks (not by their governments, and certainly not controlled by private corporations like Facebook).

While there are several ways to go about it, this is the only approach to ensure acceptance by the whole world.

The next question is why should China even consider a currency that’s not in total control of the communist regime? They’re after all “Control Freak”, aren’t they?

Freeing China Is Freeing The World, Vice Versa

The reasons are aplenty. Even just to free themselves from the Petrodollar stranglehold is good enough an incentive for China to lead the world in creating a global currency. Furthermore, this is also the most effective way for China to earn the respect to rule as the world’s #1, politically and economically speaking.

As such, China must stop indulging herself in “petty” issues like capital exodus/control and/or banning/blocking/censoring any such action.

“Big men do big things. Big regimes must aim to lead the world.”
– Son of The Dragon, 2019

We will save the rest for another article entitled: “How Can China Lead The World?”

Bottomline: China’s only hope to eternal Sovereignty is to create a true Global Currency.