The Iranian rial: crash. The Turkish lira: crash. The Argentine peso: crash. The Brazilian real: crash. There are multiple, complex, parallel vectors at play in this wilderness of crashing currencies. Turkey’s case is heavily influenced by the bubble of easy credit created by European banks.
Argentina’s problem is mostly to do with the neoliberal austerity of President Mauricio Macri’s government admitting it won’t be able to fulfill payment targets agreed with the IMF less than three months ago.
Iran’s has to do with harsh United States sanctions imposed after the Trump administration’s unilateral pullout from the Iran nuclear deal.
Brazil’s has to do with what the Goddess of the Market considers anathema: a victory by the imprisoned Lula (former president Luiz Inácio Lula da Silva) or his appointed candidate in the presidential election next October.
This is a serious currency crisis affecting key emerging markets. Three of these – Brazil, Argentina and Turkey – are G20 members, and Iran, absent external pressure, would have everything to qualify as a member. Two – Iran and Turkey – are under US sanctions while the other two, at least for the moment, are firmly within Washington’s orbit.
Now, compare it with currencies that are gaining against the US dollar: the Ukrainian hryvnia, the Georgian lari and the Colombian peso. Not exactly G20 heavyweights – and all of them also inside Washington’s influence.
Behold the axis of gold
Independent analysts from Russia and Turkey to Brazil and Iran largely agree that the overwhelming factor in the current currency crisis is a reversing of the US Federal Reserve quantitative easing (QE) policy.
As investment banker and risk manager Jim Rickards noted, QE for all practical purposes represented the Fed declaring a currency war against the whole planet – printing US dollars at will on a trillion-dollar scale. That meant mounting US debt was devalued so foreign creditors were paid back with cheaper US dollars.
Now, the Fed has dramatically reversed course and is all-out invested in quantitative tightening (QT).
No more liquid dollars flooding emerging markets such as Turkey, Brazil, Argentina, Indonesia or India. US interest rates are up. The Fed stopped buying new bonds. The US Treasury is issuing new bond debt. Thus QT, combined with a global, targeted trade war against major emerging markets, spells out the new normal: the weaponization of the US dollar.
It’s no wonder that Russia, China, Turkey, Iran – nearly every major regional player invested in Eurasia integration – is buying gold with the aim of progressively getting out of US dollar hegemony. As JP Morgan himself coined it over a century ago, “Gold is money. All else is credit.”
Every currency war though is not about gold; it’s about the US dollar. Yet the US dollar now is like an inscrutable visitor from outer space, dependent on massive leverage; a galaxy of dodgy derivatives; the QE printing scheme; and gold not being awarded its true importance.
That is about to change. Russia and China are heavily invested in buying gold. Russia has dumped US Treasuries en masse. And what the BRICS had been discussing since the mid-2000s is now in motion; the drive to build alternative payment systems to the US dollar-subordinated SWIFT.
Germany appears to be coming around to the idea. If that does happen, it could possibly lead the way towards Europe redefining itself geopolitically in terms of its military and strategic independence.
When and if that happens, arguably at some point in the next decade, US foreign policy configured as an avalanche of sanctions may be effectively neutralized.
It will be a long, protracted affair – but some elements are already visible, as in China using US trading markets to help the emergence of a wider platform transference. After all key emerging markets cannot wiggle out of the US dollar system without full yuan convertibility.
And then there are nations contemplating the creation of their own cryptocurrencies. Digital finance is the way to go.
Some nations, for instance, could use a cryptocurrency denominated in SDRs (special drawing rights) – which is, in practice, the world money as designated by the IMF. They could back their new digital coins with gold.
Mired-in-crisis Venezuela is at least showing the way. The “sovereign bolivar” started circulating last week – pegged to a new cryptocurrency, the petro, which is worth 3,600 sovereign bolivars.
The new cryptocurrency is already posing a fascinating question: “Is the petro a forward sale of oil or an external debt backed by oil?” After all, BRICS members are buying a large chunk of the 100 million petros – confident that they are backed by a surefire reserve, the Ayacucho block of the Orinoco Oil Belt.
Venezuelan economist Tony Boza nailed it when he stressed the peg between the petro and international oil prices: “We are not going to be subject to the value of our currency being determined by a website, the oil market will determine it.”
A Persian cryptocurrency?
And that brings us to the key question of the US economic war on Iran. Persian Gulf traders are virtually unanimous: the global oil market is tightening, fast, and it will run short in the next two months.
Iran oil exports will likely drop to just over 2 million barrels a day in August. Compare it to a peak of 3.1 million barrels a day in April.
It looks like a lot of players are folding even before Trump’s oil sanctions kick in.
It also looks like the mood in Tehran is “we will survive,” but it’s not exactly clear the Iranian leadership is really aware of the nature of the incoming tempest.
The latest Oxford Economics report seems pretty realistic: “We expect the sanctions to tip the economy back into recession, with GDP now seen contracting by 3.7% in 2019, the worst economic performance in six years. For 2020, we see growth of 0.5%, driven by a modest recovery in private consumption and net exports.”
The authors of the report, Mohamed Bardastani and Maya Senussi, say “the other signatories to the original deal [the JCPOA, especially the EU-3] have yet to spell out a clear strategy that would allow them to circumvent US sanctions and continue importing Iranian oil.”
The report also admits the obvious: there will be no internal push in Iran for regime change (that’s a thing only happening in warped US neocon minds) while “both reformers and conservatives are united in defying the sanctions.”
But defying how? Tehran has not come up with a win-win roadmap capable of being sold to anyone – from JCPOA members to energy importers such as Japan, South Korea and Turkey. That would represent true Eurasia integration. Just having Ayatollah Khamenei saying Iran is ready to pull out of the JCPOA is not good enough.
What about a Persian cryptocurrency?
I recommend an excellent article related to the DTS
https://www.goldbroker.fr/actualites/or-droits-tirage-speciaux-dts-458
Whilst smaller countries FIAT currencies are immediately affected, in the long term, it will be the USD’s demise as universal trust in the USA erodes.
"The new cryptocurrency is already posing a fascinating question: “Is the petro a forward sale of oil or an external debt backed by oil?”
This IS interesting. We need writers who can illuminate the question and suggest answers.
Get ready for a war fellows
Farewell to Bankrupted States of America.
Any dominating currency must have these 3 requirements:
1) Backed by a universal desired/necessity commodity. Yellow Gold is good but black gold/oil is better in the modern age.
2) A strong and hawkish financial sector and associated hedge funds to defend and wage economic war.
3) A world super power with strong military to defend #1, eg production, delivery, etc. And physical assets of #2
For the dollar regime:
#1 consists of mainly Saudi Arabia and ME oil cartels.
#2 is provided by Walll st
and #3 is US military.
Any oil rich country can try #1 but as soon as refuses to use USD, they will be attacked by the USA military, eg Iraq, Libya, etc. Only Russia is strong enough to do #1 and #3 but still not#2. This is well USA military is hell bent on making sure Russia stays down.
Only China can do both #2 and #3 as she’s lacking as well.
Thus China+Russia or both + oil countries have any chance of forming an alternative to the dollar hegemony.
The killer issue with the dollar regime is that both the US dollar and economy are fiat, as it’s not making anything besides agri and weapons running deficits with most countries, aka debt which USA is repaying by printing money. The last attempt to package American homes as tradeable assets exploded and even more vast amounts of money were printed to cover the lost and yet OPEC are forced to keep oil prices the same or lower in USD. Thus Iraq in cahoot with EU (France and German) attempted to price oil in Europe. This is also why USA is creating chaos and nation wrecking to former ME allies against the USSR as they were getting strong in #2 economy and military and moving away from backing USD with their oil.
Ever since Nixon took the USDollar out of the gold standard in 1971, the US has been " paying " for imports by issuing worthless fiat currency USD without giving up any goods and services in exchange. The USD is not worth the paper it is printed on. The US has been freeloading, scrounging, stealing and cheating the rest of the world. It is a planetary con job.
To rub salt into the wound, the US now uses the USD as a financial and sanctions weapon. The USD is " their dollar and the world’s problem ", yes, the USD is now a huge problem for the world.
The USD has to be ditched as the world reserve currency and replaced by the Bancor or the IMF’s SDR.
With the fiat currency USD as a reserve currency the US cannot escape from the massive trade deficits. Before 1971, US had trade surpluses and one of the arguments then, for using the USD as reserve currency was its trade surplus. Now the US has massive deficits. There were deficits in 1971 and 72 and every year since 1976 reflecting a fundamental contradiction and internal structural problem in the US economy. This is the "Triffin Effect."
Now, Navarro, Trump and gang blame other countries for it deficits and causing economic havoc around the world and to itself.
Signs of new times. Countries defending their interests find a way out to search solutions, sometimes, double blind but aiming sth concretely desirable
WuKong Sun Talking to yourself again ?
It’s worthless, so why have the CPC been buying it ? They must be v stupid
To be replaced by ? Yes it needs to be ditched, but… what to replace it with ?
As most readers here surly know, when China has announced something to be done in five years or the time period they state, they have done it on time.
About two years ago China announced that its currency would become fully convertible in five years.
This means that in around three years that event is quite likely.
China and Russia have been working on a SWIFT replacement for some time and China is trading oil in RMB convertible to gold through Shanghai.
The end of the dollar as the global reserve currency is clearly in sight.
That will be the end of the US trillion dollar military and the US led Western empire.
A cause for celebration as the US led Western empire is the last empire on earth, the last of 500 years of white European slaughter and plunder.
Not just the end of US hegemony but the end of the epoch of empire.
What a bright future for an interconnected Eurasia while Europe and the US are being left behind.
And it goes deeper, the underlying "ideals" of the Enlightenment, the ideals that justified the largest genocide in human history and hundreds of years of slavery – the Western Calvinists called by god to slaughter the innocents and rid the world of evil, is well and truly dead.
Yashad Rizvi I often do. Try it and be a better person/thinker once you realize how obnoxious you are. Being able to self reflexion and simulate separates the sophisticated from the simpletons.
This inner voice, and listener, at a higher level is your conscious. It’s there when U did something morally wrong and feel guilty or shame. Most people ignore or worst outsource this inner voice to organized religion thus being enslaved. This is why the religion is called opium of the masses and why Mao launched the Cultural Revolution to free people’s mind of chains of religion, tradition, and Confucianism. At a lower level this is what stops U from jumping a cliff, some people call it gut feeling. Overcoming it in reasonable situations practiced by few results in some amazing physical feeds. But only deep meditation can achieve even lower levels like slowing breathing and heart rate to extreme levels, withstand extreme cold. Most recent example would be the Thai boys trapped in the underground cave.
The Fed’s QE policy has done harm by inflating stock prices and redistributing income upward, but contrary to what this article says, it has not printed dollars.
https://www.cnbc.com/id/100760150
Escobar’s way out of his depth on this one.
Yashad Rizvi, there is a big difference between the Chinese and the American. Chinese work on the win-win approach(王道), while the American work on the zero-sum, beggar-thy-neighbour and piracy mentality and culture (痞贼道). Though USD is worthless, but by getting USD it makes both USA and China prosper, China will do it. Of course, to the selfish, zero sum and beggar-thy-neighbour wicked minds, Chinese actions are beyond their pea size brain can comprehend, as it reflected in what you asked. Perhaps to the jihadists, primitive barbarians, eating their victims’ guts alive is the only thing they are capable of.
Pepe Escobar. Wow! Very impressive expertise in geo-economics!
I agree in the short-term gold is the buffer against US hegemony in this case the international fiat $ (in main the ‘petrodollar’) tied in with the monopolistic control of world banking settlements SWIFT and the institutions like World Bank and IMF (although some would say that it is a global Jewry cartel rather than a US empowerment).
Whether cryptocurrency as in blockchain technology is the way of the future depends on A.I. and all global trade and financial transactions and data going digital. I am totally lost with this innovation.
I like to suggest that the recent falling currencies in Iran, Turkey, Argentina, Brazil even Indonesia, Japan and Australia, and even Russia have their contributing factors (aside from those you mentioned) also in the current US-China Trade War and the US sanctions as a pseudo-ideological (or should that be military) weapon. And this is why as soon as the BRICS Development Bank and it’s own financial settlement system is in place and off and running we can see an end of the US$ fiat, and a brand new multipolarity world where trade and debts can be transacted in any of a number of global reserve currencies, including yen and euro and rouble and rupee. There is no true global financial freedom unless the ‘pariah’ is set free from the monetary enslavement of the monopolist hegemon.
Vincent Cheok @ https://whirlwindrambler.com/
Yashad Rizvi even wukong self talk makes more sense than your blathering
Jim Lim 0.5 RMB for you, comrade
Joe Wong And the 1m Uighurs murdered ?
WuKong Sun Mao launched the cultural revolution, and murdered 70m people (you forgot to mention that)
I didn’t. https://en.m.wikipedia.org/wiki/Cultural_Revolution
"Estimates of the death toll, including civilians and Red Guards, vary greatly.[147] They range upwards to several millions, but an estimate of around 400,000 deaths is a widely accepted minimum figure, according to Maurice Meisner
Take quick look at how many civilian casualties by the US military during that time and continue everyday: https://en.m.wikipedia.org/wiki/Special:Search?search=usa+war+civilian+casualty
aadad