Control over the flow of money means control over so much more.
The Global Order — For Now
Just about every nation of the world has been under the oft-heavy-handed oversight of the United States of America since 1944. This was the pivotal year the Bretton Woods convention took place, when Washington gave birth to the International Monetary Fund (IMF) and World Bank, and of course to the gold-backed US Dollar which became the world’s premier reserve currency it remains today.
One may entertain the notion that perhaps we “earned the right” to oversee the global financial system after we “saved the world from Hitler” (which spilled far more Soviet blood than English), however the simple truth is that we sold war supplies to Allied nations and we got paid in gold. Afterward, the US had somewhere between 65–80% of the world’s official gold holdings. With a decimated Europe, economically and otherwise, and with America’s borders relatively untouched, we called the shots.
We convinced all of the Allied countries that the US Dollar was “as good as gold”. After all, what good are your trading partners if they have no gold to trade with? Thus we became the financial safe haven of the world.
The US might have been considered a mostly benevolent force in the world during those glorious decades of prosperity (at least, until Richard fucking Nixon). But alas, things were changing.
The postwar economic framework of big government, easy money, and low unemployment had served us well, but conditions were shifting. The huge economic boom after WWII and FDR‘s New Deal programs were running out of steam by the mid-60s.
Global competitors began crawling out of the rubble, and suddenly the US looked like it might not be the best place to keep money parked. The cost and mess of the Vietnam War didn’t help matters.
The Nixon Shock
The seventies was not a great decade for America. Because the dollar was still convertible to gold, many countries began reaching out and trading their dollars back in for physical gold instead. This, coupled with high government deficits, made President Nixon realize that something had to be done — because the world was calling bullshit on the amount of gold the US had, compared to the amount of money we had created.
Nixon shocked the world by his televised announcement on August 15, 1971: the mighty US dollar was no longer exchangeable for gold.
The significance of this moment in history cannot be understated. The nations of the world had placed their trust in us, and we did the worst thing we could have done aside from directly defaulting with a complete dollar collapse.
In many ways, the US was nearing a low point from both inside and out — not unlike today. Ignore this history at your peril.
Things continued to get worse. We knew how to deal with inflation, and we knew how to deal with unemployment — but not at the same time. Enter stagflation.
Nixon’s policies for short-term gains to seal his re-election did just that — they only worked in the short term. Then we suddenly had 8% inflation, 12% inflation, and the unemployment rate shot up above 10%.
The Oil Shock and Saudi Deal
Still more trouble was brewing. The US provided support for Israel during the Yom Kippur war in October 1973, which angered our Middle Eastern friend Saudi Arabia, along with the OPEC nations. The price of crude more than quadrupled over the next six months, drastically affecting US businesses and consumers alike.
With the dollar floating, no longer tied to gold, the US made a decisive move in 1974’s secretive deal with Saudi Arabia, that oil sales would henceforth only be priced in US dollars, in exchange for US protection. This is known as the “Petrodollar” system. This strategic move significantly re-strengthened the US Dollar, arguably, just as much as gold had done.
If we could no longer back our currency with gold, we were damn sure going to do it with oil.
Today’s Money Highway
The rest of the world exists however. Money needs to flow across borders for international trade and globalization. The main financial network that accommodates these transfers is called SWIFT — The Society for Worldwide Inter-bank Financial Telecommunications. Despite being based in Belgium, the US has increasingly leveraged this financial network for the enforcement of economic sanctions.
All in all, it’s been “Our way or the highway”. but in recent years, new financial highways are in fact being built — and the US is set to be bypassed.
The US no longer owns 3/4 of the world’s gold. If you believe the gold held at Fort Knox, KY both exists and is authentic, then you might as well trust the officially reported figure of 8,134 tons.
On paper, this is still the highest tonnage of holdings; the Chinese Communist Party, however, decides it’s own disclosures, and with China being the world’s largest gold-producing nation and a significant buyer, many industry experts believe China holds at least as much gold, if not more, than the US.
Today, we are busy blocking Chinese telecommunications firms, and trying to steal their popular social media company. We’ve tried to prevent Europe from doing business with Iran because “we don’t like Iran”, but Germany, along with a handful of EU member countries, are openly defying US sanctions — because the US is not in charge of Europe.
How SWIFT Works
We can look at the SWIFT network as a highway system. This system is managed by one country (Belgium), but is policed, and has checkpoints run, by the US.
Both the banks and the US intelligence apparatus happily monitor all the traffic (financial messages, essentially transactions) heading to and fro. If we see a vehicle with too many people (a large, suspicious transaction), we can stop it or flag it.
At each exit ramp lies a commercial bank, who checks the identity via KYC (Know Your Customer) and AML (Anti-Money Laundering), as well as CFT (Countering the Finance of Terrorism) rules. Because many US banks are international, having locations in almost all other countries, they perform the same checks, often redundantly. We run the show.
As long as the US has control, and most of the “cars” heading back and forth have dollars in them, we are satisfied. If a car tries to drive to North Korea or Iran, we stop them. In fact we can stop transactions to specific businesses or individuals — from reaching their destination. This is effectively how economic sanctions work. They rely heavily on the SWIFT network to blacklist entities.
The US Treasury and the CIA have had backdoor access to SWIFT since 2006 for their Terrorist Finance Tracking Program. SWIFT had never “banned” any entity prior to March 2012, when because of Iran’s nuclear activities, the EU joined the US call to sanction Iran directly via SWIFT — significantly impacting Iran’s oil revenue. President Trump also told SWIFT to cut off North Korean banks from the system. There are thousands upon thousands of pages of detailed sanctions actions with the OFAC (Office of Foreign Assets Control).
Bypassing the Buck
Being cut off from SWIFT means being cut off from US Dollars, and because most global trade occurs in dollars, this places the sanctioned entity at a significant disadvantage, and forces them to find a “black market” way to trade. Being blocked also means that the assets the country owns that happen to be outside of the border are frozen there. Iran, for instance, had over 100 billion Euros that they could not access.
Russia was threatened with the possibility of sanctions via SWIFT in 2014 after its foray into Crimea. Russia quickly began working on their own highway — the SPFS system — which has the ability to bypass SWIFT.
Today, the EU wants to do business with Iran again, as trade had been significantly increasing between them since the Iran nuclear deal was signed (which Trump pulled out of). So the EU is looking at alternate payment pathways, as is Iran.
The EU launched its INSTEX System to bypass US sanctions on Iran so they could continue trade. Now there are multiple EU member nations defying US sanctions.
Venezuela launched a digital “Petro”currency for oil sales, as they too, have felt the force of US sanctions.
China has created the PetroYuan — allowing convertibility to gold — as an alternate way for oil deals to be made — challenging the Petrodollar system the US had effectively monopolized ever since the agreement with Saudi Arabia in 1974.
That’s not all that China has been up to.
China has been working on its own cross-border payment system, known as CIPS, since 2015. Due to the size and reach of the Chinese economy, being the second largest in the world and threatening the US for the number one spot, it is no surprise the US is very concerned about the prospect of global trade happening outside of the SWIFT system using Chinese Yuan, which would begin to increase its prominence globally.
When combining this with China’s huge Belt & Road initiative — building infrastructure projects in over 80 countries — the possibility of the Chinese Yuan becoming much more widely used for trade is quite imminent.
Add to this China’s new Digital Yuan, currently being tested in four Chinese cities, and just this past weekend (10/17–10/18/2020) they gave away 10 Million of the new Digital Yuan to 50,000 lucky citizens. China is well on its way to redefining the global trade and payments highway apart from the United States and Belgium’s SWIFT system.
So China is threatening America’s economic position at the top, they are making inroads with dozens of countries with infrastructure projects and goodwill, they are already offering an alternative to the petrodollar, and now, along with its new CIPS system, are about to release their new digital currency.
Not Playing by the Rules
These revelations of China’s innovation and expansion are alarming for the West, so to me it is no surprise that the prospect of a war with China is looming.
Historically, when nations have challenged the West’s banking and US-led monetary system, it hasn’t ended well for them. We can surmise what will happen with China.
Saddam Hussein’s downfall came in 2003 as his statue in Fidos Square crashed to the ground as we all watched on the news. He had been tinkering with the plumbing of the US-run financial system, specifically the Petrodollar. He didn’t want to use USD for oil deals any longer, so he switched to the Euro. It was quite possible that ALL of the OPEC nations would do the same, depending on how things went. Obviously, we not only went over there to put a stop to it — we stayed for quite a while to ensure it didn’t happen anywhere else. We still have a presence in Iraq to this day.
Libya had oil, and Muammar Qaddafi had a stockpile of gold and silver worth an estimated $7 billion — plenty to at least partially back an alternate currency. Rumors that Qaddafi was trying to change the major currency used across Africa (the French Franc) to a gold-backed Libyan Dinar, swirled. Such rumors were confirmed with the leak of Hillary Clinton’s emails after 2016. Libya was attacked by a NATO-led force from March to October 2011. The surfaced email was dated April 2011, sent from Sidney Blumenthal to Clinton, highlighting these concerns.
Unease with the Global Order
There’s been increasing pushback about the US exerting majority control over the global financial system. After instituting more than 8,000 sanction measures over the last decade, we have clearly weaponized our dollar.
After instituting more than 8,000 sanction measures over the last decade, we have clearly weaponized our dollar.
We are strangling the lifeblood of several economies around the world, shouting “unfair” — while we’ve had more power than everyone else for years. We are plainly preventing the competition that Capitalists supposedly embrace. At some point, even our Allies stepped back and noticed that it’s getting a bit out of hand. They don’t want the US’s nose in their business.
The concern is obviously that these newly-built financial networks enable sanctioned countries to bypass the US-policed SWIFT system — which equates to bypassing the US Dollar.
De-Dollarization, Gold Purchases, and Repatriation
Since the 2008 Global Financial Crisis, many countries have been on edge. Central banks have been net buyers of gold; Countries that have kept their gold for safekeeping in New York, London, and France have been repatriating it back to their own countries. US Debt is slowly being dumped, and trade happening in USD is shrinking, as other currencies are more widely used.
It’s a financial coup, really.
It is quite clear the world is aware that the entire system has become fragile, and as such, they have been taking actions accordingly, shoring up their positions for the inevitable end of the mighty US Dollar’s Hegemony.
Central Bank Digital Currencies
China is not alone in its foray into a national digital currency — about 80% of the world’s central banks, including the US Federal Reserve, are at some stage in developing a new digital currency.
Separate financial networks aside, the advent of CBDC’s alone could absolutely be enough to unseat America from its role as overseer. Many countries are tired of wrangling with the US and its sanctions; if the financial pipelines are being re-designed and rebuilt, the chances of other countries with their own new digital currency willingly bending at the knee to work with some future US-based plan seems quite unlikely.
After all, if you’ve got a problematic stretch of road and it’s time for repaving, you may just decide to build a new road to bypass that area altogether.
Dollar Reserve Replacement Not Needed
We must understand, simply looking at the percentages of the major currencies used in global trade today and remarking that “there is no viable alternative to replace the dollar” as the reserve currency, is a terribly misinformed position. The world already operates on multiple currencies — there need not be one currency that “rules them all”. Multiple currencies can be used with the US share simply shrinking in the process. Further, it is entirely likely that such a shift away from the US dollar could happen extremely quickly. The other countries currency’s would pick up the slack without skipping a beat. It all comes down to which countries seem like the safest place if (and when) the shit hits the fan.
How many missteps can America make before even its closest Allies look elsewhere?
If American citizens lose faith in their own government, soon after, other countries and nations will lose faith in the United States as well. This faith in the stability our government is the primary factor that gives the US Dollar any value at all.
Even if we were to eliminate the PetroYuan, and effectively impose all sanctions, most of the developed world is ultimately moving to renewable energy. Oil is going to take a hit no matter what; and thus far, the US does not have another silver bullet with which to prop up the aging Petrodollar system.
US Hegemony over the global financial system is a huge part of its overall ranking. If not for the Petrodollar, our reserve currency status, and having the most aircraft carriers, we simply would not be at the head of the global order today.
A New Bretton Woods-Style Monetary Renegotiation Ahead
The steps being taken by many nations and their central banks serve to shore up their financial position as much as possible before the next monetary renegotiation becomes unavoidable. There is far too much global debt, seemingly insurmountable inequality, and a troubled, shifting financial system desperately trying to prop up the entire order.
Behind the scenes, all the players are scrambling. The Western debt-based monetary system is ultimately a form of a Ponzi scheme — and as such, must come to its logical end. This end has clearly been in sight since the 2008 Global Financial Crisis; the rest of the world is probably just as surprised as the US that we’ve somehow managed to drag it out this much longer, squeezing the markets with a decade-long bull run to get every last drop of value to shove into the vaults of the wealthy.
But let us remember:
Rome ruled the world — until it didn’t.