March 23, 2022: The day Dollar domination ended … for good
March 23, 2022: The day Dollar domination ended … for good
It’s quite remarkable that the West didn’t see this coming. It was stupid enough to insist on unproductive sanctions against countries who would not surrender to its corporate colonialism. West’s elites didn’t realize that the reckless over-usage of sanctions as a tool for political pressure would one day become ineffective in causing the desirable regime change in any country-target. And that this reckless policy, would instead overheat the dollar-domination machine, accelerating the de-dollarization process in the targeted countries and elsewhere.
The war in Ukraine and West’s sanction-driven typical response against Russia, would only accelerate the de-dollarization process. That is, the attempt of the Sino-Russian bloc to decouple national economies from the declining neoliberal economic system of the West and make this new separate system attractive to other developing nations — several of which also suffer from long-term Western sanctions — of the Global South.
The attempts of Russia, China, BRICS and others to free themselves from the Western monetary monopoly and the dollar domination didn’t start recently. We saw a continuous effort towards de-dollarization since at least the beginning of the previous decade.
As we wrote back in August, 2014, what we see now, is a cruel battle with time. On the one hand, Russia and China, together with the rest of the BRICS, are trying to get rid of the dollar and form their own currency system to gain complete independence, on the other, the neocon banking-corporate puppets in the US are in panic and seek desperately a pretext to come to war with Russia and put an end to this threat for their plans. This explains their agony to drag Russia into a warm conflict.
Western sanctions are having an unintended effect. They are accelerating the birth of a parallel ecosystem where countries not allied to the West are able to operate without the constant threat of sanctions. Free of western control, this alternative platform is gaining traction at a surprisingly fast pace.
The move towards a non-western world is happening most rapidly in the area of finance. This is hardly surprising because financial flows are easier to reroute — and replace — than say, a shipment of coal or an oil tanker.
It is now abundantly clear to Moscow that the US-UK evil twins are not content with symbolic sanctions but are really out to destroy its economy. Anticipating this blow to its financial jugular, Russia had in July drawn up a law that would create a local equivalent of SWIFT.
Vesti Finance says sanctions aimed at restricting Russian access to finance will have almost no sense, since Russian companies will find the necessary money in China. And the Chinese are keen to increase the impact of the renminbi and turn it into the world’s reserve currency.
The move to a parallel payment system is happening in tandem with the ditching of the US dollar on which the entire US economy — and hegemony — pivots. The dollar’s status as the reserve currency is due to it being the only currency accepted de-dollarizationin the petroleum market, which is why it’s also known as the petrodollar. That’s about to change as Russia and other emerging powers are planning to drop the petrodollar and end the dollar’s reserve status.
… the Russian oil company [Gazprom Neft] has started shipping oil from the Arctic and the tankers will arrive in European ports this month, with payment to be received in rubles. Gazprom will also deliver oil via the Eastern Siberia-Pacific Ocean pipeline (ESPO), accepting payment in Chinese renminbi.
Worth mentioning is that the Siberia-sized $400 billion gas contract with China — which Moscow and Beijing had haggled over for a decade — finally got inked in May 2014, after westerns sanctions kicked in.
So in effect, by not playing by the rules and systems set by the West they are creating an alternative arrangement in which they neither enter into conflict situations with the West nor enter into subservient alliances (like those offered to South Korea and Japan). Years from now, westerners will ruefully look back at the sanctions as the tipping point that ushered in a world without the West.
Therefore, no matter what the mainstream media pundits of the West tell you, Russia wasn’t unprepared for a new round of sanctions against it, the hardest ever.
The Russian payment system for electronic fund transfers, MIR, was established by the Central Bank of Russia under a law adopted on 1 May 2017. The development and implementation of this system was spurred by the imposition of international sanctions against Russia in 2014.
… for the past eight years, Russia has been preparing for the worst. In June of 2014, just three months after its invasion of the Crimean Peninsula, the country established its own payment system to help process credit card transactions domestically. Russia’s National Payment Card System-known to Russians as NSPK-has continued to process credit card transactions during the latest fighting in Ukraine. Even though Mastercard, Visa, American Express, PayPal, and Discover have all suspended their operations in Russia, its citizens aren’t experiencing the type of disruption many might expect.
A spokesperson for Mastercard confirmed in a separate email to Fortune that the company doesn’t have the ability to block domestic transactions in Russia, but it receives “no benefit” from them. This is because Mastercard, along with other Western companies, signed an agreement for their transactions to be processed by NSPK in 2015. Russians are still blocked from using Western credit cards outside of the country, but that’s only helped the Kremlin’s goal of keeping assets from moving abroad. The sanctions also boosted Russia’s own credit card company, MIR, which is built on the back of NSPK and owned by the Central Bank of Russia. When MIR debuted in late 2015, Russians were slow to adopt the card. Then, the government mandated that public sector employees receiving state funds and welfare benefits use MIR payment cards, spawning new growth for the firm.
Today, there are more than 100 million MIR cards issued, according to the company. And with U.S. card companies leaving Russia, MIR can more easily grow its market share. In recent years, other countries, including Turkey, India, and China, have also developed their own payment systems to limit the influence of U.S. credit card companies and limit the pain caused by any sanctions.
Recently, Iran’s envoy to Russia has said the two countries are in talks over the possible recognition of MIR, according to Iranian media. Iran’s move seems that it comes from country’s desire to “ become less dependent on the international banking system”, as it’s one of the countries that suffered most from Western sanctions.
Also, according to Russian news agency, Tass, “ Moscow and Caracas are developing steps to connecting Venezuela to the Mir payment system and using the respective card in Venezuela …” Venezuela is another country that has suffered from US sanctions for years.
We saw several other efforts by the Sino-Russian axis and others towards de-dollarization. Like, for example, the demand of Russia oil benchmark futures to be priced in rubles, back in 2016. Or, the Chinese attempt to roll out a yuan-denominated oil contract in 2017. Or, Maduro’s suggestion to oil producing countries to create a currency basket for trading crude and refined products, in 2017.
Perhaps the most unpleasant surprise for the US imperialists came from one of their closest allies, Saudi Arabia. The Saudi regime seems that it turns its back to the traditional-ally Anglo-American axis and moves towards the Sino-Russian one. As the Wall Street Journal reported in mid-March, “ Saudi Arabia is in active talks with Beijing to price some of its oil sales to China in yuan, people familiar with the matter said, a move that would dent the U.S. dollar’s dominance of the global petroleum market and mark another shift by the world’s top crude exporter toward Asia.”
Dollar hegemony seems to be the position that has just ended as of this week very abruptly. Dollar hegemony was when America’s war in Vietnam and the military spending of the 1960s and 70s drove the United States off gold. The entire US balance of payments deficit was military spending, and it began to run down the gold supply. So, in 1971, President Nixon took the dollar off gold. Well, everybody thought America has been controlling the world economy since World War I by having most of the gold and by being the creditor to the world. And they thought what is going to happen now that the United States is running a deficit, instead of being a creditor.
Well, what happened was that, as I’ve described in Super Imperialism, when the United States went off gold, foreign central banks didn’t have anything to buy with their dollars that were flowing into their countries — again, mainly from the US military deficit but also from the investment takeovers. And they found that these dollars came in, the only thing they could do would be to recycle them to the United States. And what do central banks hold? They don’t buy property, usually, back then they didn’t. They buy Treasury bonds. And so, the United States would be spending dollars abroad and foreign central banks didn’t really have anything to do but send it right back to buy treasury bonds to finance not only the balance of payments deficit, but also the budget deficit that was largely military in character. So, dollar hegemony was the system where foreign central banks keep their monetary and international savings reserves in dollars and the dollars are used to finance the military bases around the world, almost eight hundred military bases surrounding them. So, basically central banks have to keep their savings by weaponizing them, by militarizing them, by lending them to the United States, to keep spending abroad.
This gave America a free ride. Imagine if you went to the grocery store and you just paid by giving them an IOU. And then the next week you want to buy more groceries and you give them another IOU. And they say, wait a minute, you have an IOU before and you say, well just use the IOU to pay the milk company that delivers, or the farmers that deliver. You can use this as your money and just you’ll as a customer, keep writing IOU’s and you never have to pay anything because your IOU is other people’s money. Well, that’s what dollar hegemony was, and it was a free ride. And it all ended last Wednesday when the United States grabbed Russia’s reserves having grabbed Afghanistan’s foreign reserves and Venezuela’s foreign reserves and those of other countries.
And all of a sudden, this means that other countries can no longer safely hold their reserves by sending their money back, depositing them in US banks or buying US Treasury Securities, or having other US investments because they could simply be grabbed as happened to Russia. So, all of a sudden this last week, you’re seeing the world economy fracture into two parts, a dollarized part and other countries that do not follow the neoliberal policies that the United States insists that its allies follow. We’re seeing the birth of a new dual World economy.
Russia and China have been putting in place an alternative system. So, they almost pretty smoothly are shifting over to using their own currency with each other instead of using the dollar. And that’s part of what has ended the dollar standard and ended dollar hegemony.
If the way you have dollar hegemony is to have other countries deposit your money in your banks and handle their oil trade with each other by financing it in dollars, but all of a sudden you grab all their dollars and you don’t let them use US banks to pay for their oil and their trade with each other, then they’re going to shift to a different system. And that’s exactly what has ended the dollar hegemony …
While Western media pundits are struggling hard to make their audiences believe that Russia is suffering badly from the imposed sanctions (and that it is more isolated than ever), the reality seems to be completely different. With the Dollar hegemony now dead and the entire Global South ready to escape from the Western monetary monopoly, it seems that the terms of the game have been reversed. And the declining US with some of its Western allies, are the ones that appear to be getting more and more isolated from the rest of the world.