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Will Russia Sanctions Accelerate Inflation, Devalue US Dollar and Strengthen Chinese Yuan?
Russia is a commodities superpower. The nation's Eurasian landmass is rich in all kinds of natural resources from food to fuel to metals. To punish Moscow for invading Ukraine, the US and G-7 nations have imposed sanctions on Russia. These sanctions have effectively removed Russian commodities from the global supply chain, triggering double digit price increases for food, fuels and metals. Will the G-7 actions leave the US dollar much weaker? Will the Chinese currency, backed by commodities, gain strength at the expense of the US dollar and Euro? Will the era of commodity-backed money return? In a note to clients, Credit Suisse investment strategist Zoltan Pozsar has answered some of these questions. He says "this (Russia) crisis is not anything we have seen since President Nixon took the U.S. dollar off gold in 1971". "After this war is over, "money" will never be the same again.....and bitcoin (if it still exists then) will probably benefit from all this,” he adds.
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| Map of "International Community" Sanctioning Russia |
Post World War II History:
The current global financial system was created in Bretton Woods located in the US State of New Hampshire. Over 700 delegates representing 44 countries met in Bretton Woods in July 1944. The Bretton Woods System, now referred to as Bretton Woods I, required a currency peg to the U.S. dollar which was in turn pegged to the price of gold. This system collapsed in the 1970s but created a lasting influence on international currency exchange and trade through its development of the IMF and World Bank. Zoltan Pozsar believes it is now time for Bretton Woods III. What is Bretton Woods III? Here's how Zoltan Pozsar explains it:
"From the Bretton Woods era backed by gold bullion, to Bretton Woods II backed by inside money (Treasuries with un-hedgeable confiscation risks), to Bretton Woods III backed by outside money (gold bullion and other commodities)".
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| Russia's Commodity Exports. Source: Bloomberg |
Commodity Superpower:
Russia is a vast country. Russian landmass extends from Europe to East Asia. It is one of the largest suppliers of oil, gas, metals and wheat. Russia is also a major exporter of fertilizer. China will likely take advantage of the western sanctions to buy up Russian commodities at lower prices.
Pozsar argues that while Western central banks cannot close the gap between Russian and non-Russian commodity prices as sanctions lead them in opposite directions, the People’s Bank of China can “as it banks for a sovereign who can dance to its own tune.”
“If you believe that the West can craft sanctions that maximize pain for Russia while minimizing financial stability risks and price stability risks in the West, you could also believe in unicorns,” Pozsar wrote.
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| Pre-Ukraine War Inflation in US. Source: Wall Street Journal |
Bretton Woods III:
Pozsar argues that the Bretton Woods II collapsed when the G7 countries seized Russia’s foreign exchange (FX) reserves, leading to a rise of outside money – reserves kept as commodities – over inside money – reserves kept as liabilities of global financial institutions.
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| East vs West Economic Output. Source: Wall Street Journal |
"We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East (Chinese Yuan) that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West,” Zoltan wrote.
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Riaz Haq
The era of US dollar dominance is 'finished,' says Wall Street veteran who just retired after 54 years
https://markets.businessinsider.com/news/currencies/dick-bove-banks...
"The dollar is finished as the world's reserve currency," Dick Bove, who retired as a financial analyst after 54 years this month, told The New York Times. Bove, 83, predicted that China's economy would surpass America's in size.
The dollar's reign as the world's reserve currency is nearly over, Dick Bove says.
The newly retired bank analyst blamed corporate offshoring and flagged the threat posed by China.
Bove highlighted the de-dollarization trend and said other analysts are too bought in to admit it.
The US dollar has been the lifeblood of global finance and trade since World War II — but one Wall Street veteran thinks the end of that era is nigh.
"The dollar is finished as the world's reserve currency," Dick Bove, who retired as a financial analyst after 54 years this month, told The New York Times.
Bove, 83, predicted that China's economy would surpass America's in size. He blamed the outsourcing of US manufacturing to other countries, arguing that trend has given other countries more control of international production, the global economy, and worldwide money flows.
He also suggested that cryptocurrencies such as bitcoin could help fill the void left by the dollar's shrinking influence.
Dollar-denominated assets make up nearly 60% of international reserves, per the International Monetary Fund. However, several countries are embracing "de-dollarization" — working to erode dollar dominance — especially after the US took advantage of Russia's reliance on the greenback to levy sanctions against it following its invasion of Ukraine in 2022.
Nations ranging from Brazil and Argentina to India and Bangladesh are exploring the use of backup currencies and assets, such as the Chinese yuan and bitcoin, for trade and payments.
Several governments have blasted the excessive influence of US monetary policy on other economies and currencies, the dollar's strength for pricing out poor countries from imports, and the diminishing need for a petrodollar now the US has achieved energy independence through domestic shale oil and green energy production.
Bove, who worked at 17 brokerages during his career, told the Times that analysts who aren't forecasting dollar doom are simply "monks praying to money" who are unwilling to bite the hand that feeds them: the traditional financial system.
Jan 31
Riaz Haq
US Congressman Says Countries Tired of Inflation Tax, Could Abandon US Dollar
https://sputnikglobe.com/20240520/us-congressman-says-countries-tir...
WASHINGTON (Sputnik) - Countries are growing weary of the US dollar and could abandon the currency due to inflation, US Congressman Thomas Massie said on Monday.
“The whole world is holding dollars, so when we devalue the dollar, we’re not just taxing our own people, we’re taxing the entire world,” Massie said in an interview with Glenn Beck.
“The rest of the world is getting tired of being used that way… and when they start using alternate forms of money to do their transactions, or holding different assets in their own sovereign wealth funds, then we’re not going to be able to do that trick on anybody except for US citizens.”
Last week, Massie introduced bills to audit and abolish the Federal Reserve, citing their contribution to inflation. The Federal Reserve devalued the dollar and enabled free money policies that caused high inflation, Massie said.
The legislation to end the Federal Reserve now has over 20 cosponsors in the House of Representatives, Massie said.
https://x.com/SputnikInt/status/1790041974902247876
Jun 10
Riaz Haq
Saudi Arabia privately hinted earlier this year it might sell some European debt holdings if the Group of Seven decided to seize almost $300 billion of Russia's frozen assets, people familiar with the matter said, according to Bloomberg.
https://www.middleeasteye.net/news/saudi-arabia-threatened-sell-eur...
Like other Gulf states, Saudi Arabia’s currency is pegged to the dollar and it sells its oil in greenbacks, boosting the dollar’s position as the world’s reserve currency.
In January 2023, Saudi Arabia said it was considering trading in currencies other than the US dollar after reports that it was in discussions with China about selling some crude in yuan.
It’s not clear how much European debt Saudi Arabia holds, but its central bank’s net foreign currency reserves stand at $445bn. Saudi Arabia holds $135.9bn in US treasuries, placing it 17th among investors in the US bonds.
US President Joe Biden’s pledge to make Saudi Arabia “a pariah” over the murder of Middle East Eye and Washington Post columnist Jamal Khashoggi crystallised fears that Washington could one day turn on its decades-old ally.
Biden has since pivoted and is leaning on Saudi Arabia to seal a normalisation deal with Israel and play a role in post-war governance of the Gaza Strip.
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Like other Gulf states, Saudi Arabia’s currency is pegged to the dollar and it sells its oil in greenbacks, boosting the dollar’s position as the world’s reserve currency.
In January 2023, Saudi Arabia said it was considering trading in currencies other than the US dollar after reports that it was in discussions with China about selling some crude in yuan.
It’s not clear how much European debt Saudi Arabia holds, but its central bank’s net foreign currency reserves stand at $445bn. Saudi Arabia holds $135.9bn in US treasuries, placing it 17th among investors in the US bonds.
US President Joe Biden’s pledge to make Saudi Arabia “a pariah” over the murder of Middle East Eye and Washington Post columnist Jamal Khashoggi crystallised fears that Washington could one day turn on its decades-old ally.
Biden has since pivoted and is leaning on Saudi Arabia to seal a normalisation deal with Israel and play a role in post-war governance of the Gaza Strip.
Saudi Arabia’s threat underscores concerns in wealthy Gulf states that the West could one day apply similar economic levers it is pulling against Russia to Gulf powers' overseas assets, if criticism of human rights issues in the Gulf or their foreign policy decisions resurfaces.
Russian President Vladimir Putin has courted Saudi Arabia, as he relies on the oil-rich kingdom to counter Moscow’s isolation on the world stage and shore up energy markets.
Putin made a rare visit to Saudi Arabia and the UAE in December.
Jul 9