It's a Global Monetary Coup (Attempt)
China and Russia have designs on a multipolar monetary world
Previously, I’ve described the situation today as an economic world war. But I think it’s more accurate to call it a global monetary coup.
China and Russia plan to upset the global world order, and introduce their own monetary system.
This new system will operate in direct competition with the legacy US-dollar-dominated one. Today the dollar has about 60% market share of central bank exchange reserves.
One of the “perks” of having the world’s #1 reserve currency is that it gives the US the ability to sanction a nation’s ability to conduct international trade. Sanctions are currently in place on Iraq, Afghanistan, Libya, Cuba, Iran, Russia, Venezuela, Belarus, and even some allies like Turkey.
A backlash was inevitable. The new monetary system is designed to bypass the dollar. It has the potential to take significant market share in international trade. In oil, gas, and everything else.
A recent interview with one of the people planning this system, Sergey Glazyev, was fascinating. It was published by Pepe Escobar in an outlet called The Cradle.
Glazyev appears to be legit, and he lays out the plan in exquisite detail:
In the first phase of the transition, these countries fall back on using their national currencies and clearing mechanisms, backed by bilateral currency swaps. At this point, price formation is still mostly driven by prices at various exchanges, denominated in dollars. This phase is almost over: after Russia’s reserves in dollars, euro, pound, and yen were “frozen,” it is unlikely that any sovereign country will continue accumulating reserves in these currencies. Their immediate replacement is national currencies and gold.
The second stage of the transition will involve new pricing mechanisms that do not reference the dollar. Price formation in national currencies involves substantial overheads, however, it will still be more attractive than pricing in ‘un-anchored’ and treacherous currencies like dollars, pounds, euro, and yen. The only remaining global currency candidate – the yuan – won’t be taking their place due to its inconvertibility and the restricted external access to the Chinese capital markets. The use of gold as the price reference is constrained by the inconvenience of its use for payments.
The third and the final stage on the new economic order transition will involve a creation of a new digital payment currency founded through an international agreement based on principles of transparency, fairness, goodwill, and efficiency. I expect that the model of such a monetary unit that we developed will play its role at this stage. A currency like this can be issued by a pool of currency reserves of BRICS countries, which all interested countries will be able to join. The weight of each currency in the basket could be proportional to the GDP of each country (based on purchasing power parity, for example), its share in international trade, as well as the population and territory size of participating countries.
So a new digital currency based on purchasing power parity, population, and territory size. This would clearly benefit both Russia and China. Here in the West, everything would get much more expensive.
And it gets crazier. Glazyev suggests that the “Global South” could be freed of its crippling debt obligations (think Argentina or parts of Africa).
Glazyev: Transition to the new world economic order will likely be accompanied by systematic refusal to honor obligations in dollars, euro, pound, and yen. In this respect, it will be no different from the example set by the countries issuing these currencies who thought it appropriate to steal foreign exchange reserves of Iraq, Iran, Venezuela, Afghanistan, and Russia to the tune of trillions of dollars. Since the US, Britain, EU, and Japan refused to honor their obligations and confiscated the wealth of other nations which was held in their currencies, why should other countries be obliged to pay them back and to service their loans?
In any case, participation in the new economic system will not be constrained by the obligations in the old one. Countries of the Global South can be full participants of the new system regardless of their accumulated debts in dollars, euro, pound, and yen. Even if they were to default on their obligations in those currencies, this would have no bearing on their credit rating in the new financial system. Nationalization of extraction industry, likewise, would not cause a disruption.
This isn’t just an economic war. It’s an coup attempt against the dollar, and the euro. If Russia and China’s alliance grows to include India, and it probably will, that is a lot of economic and military firepower.
As usual, I’m sure our US government has plenty of tools and tricks yet to be deployed. But this “Eurasian” alliance should not be underestimated.
They will attempt to lure countries in with debt relief, cheap energy and commodities. And if inflation gets bad enough, it’ll probably work. We’re already seeing unrest begin in as prices soar.
This is shaping up to be an epic battle. Let’s hope that outside of Ukraine, it stays economic in nature, as opposed to kinetic.