Is a dollar drawdown possible?
Recent regional realignments and economic alliances in Asia seem to forecast a new global paradigm, even without any visible major changeover taking place. The new synergy and geoeconomics could potentially cause a gradual drawdown where the dollar currency would be simply set aside without a crash. Notwithstanding the fact that the traditional global power equation has remained undisturbed, a consolidation of Eurasia as seen in the now extended Shanghai Co-operation Organisation could change the practical on-the-ground scenario.
The past month has seen two major events. While trade cooperation is the backbone of sustainable development, the Belt and Road forum also laid the foundations for enhanced physical and electronic connectivity among the member countries. Following this mega-conference, the Shanghai Co-operation Organisation accepted Pakistan and India as full members at this year’s annual meeting, thus securing a large region and putting together a vast security alliance to work in tandem with the Belt and Road project.
In the meantime, the AIIB (Asian Infrastructure Investment Bank) is ready to work out how to finance and sustain Belt and Road projects. It seems that a global shift is considered a possibility as all the platforms are already in place. Most Asian nations seem proactively aware of the necessity of establishing a new monetary order; only this would explain the existence of parallel multinational financial institutions that can replace dollar-centric development banks and organizations. The list of platforms already in place is quite long.
Here is the entire Belt and Road Initiative financial machinery ready to replace the post-Breton Woods infrastructure. The West has the US Federal Reserve – the East has the Peoples Bank of China; International Monetary Fund – AIIB; World Bank – BRICS Bank; SWIFT convention for bank transactions – the CIPS and RPS; the Western gold market has the LBMA and COMEX – the East has the Shanghai Gold Exchange; the West as Standard and Poors, Moody’s and Fitch for credit rating – the East has Dagong and ACRA; Mastercard, Visa, Amex – Union Pay and JCB credit cards.
Considering future economic realities such as trade either in yuan, local currencies or gold for all Belt and Road, SCO and BRICS countries, the ramifications of the changeover portend to be immense as the combined population of the Shanghai Cooperation Organization is over three billion (the estimated world population is 7.5 billion) after the inclusion of Pakistan and India as members. Containing external economic risk for 40% of the world is necessary for Chinese trade, so it has no option but to ultimately replace the dollar.
Containing external economic risk for 40% of the world is necessary for Chinese trade, so it has no option but to ultimately replace the dollar
There are certainly immense advantages to single currency use, which can virtually bind Belt and Road countries together, because a large country like China would be more comfortable using its own currency for trade and working toward a more supportive, secure and stable financial system. Some months ago, Wang Jun of the China Center for International Economic Exchange said, “Since China has entered the critical period of economic transformation, it is time to raise financial security and demonstrate a better understanding of the interplay between finance and the real economy.
“If the Asian financial crisis and the 2008 subprime mortgage crisis are anything to go by, then the next cataclysm will come as a result of the failure of inadequate risk prevention, swiftly followed by a universal economic collapse.”
To prevent such an eventuality, a mega-project like the Belt and Road initiative has to plan towards the use of a single currency and stable financial infrastructure that is shock-proof. Up until now, there has been no real evidence of any Eastern plans for creating conditions for a new monetary system connected to gold. Even then, world events have transpired in such a way that Dmitry Orlov’s recipe for a “superpower collapse soup” is gradually coming together, and he predicts a crash precipitated by a severe shortfall in production of crude oil, large systemic trade deficits, over-sized military budgets, out-sized militaries incapable of victory, crippling levels of runaway debt, and a corrupt political elite incapable of reform.
Recently, one significant event worth mentioning has been Saudi Aramco going public. This could be a major indication of what the future holds if Petro China bids for the offered 5% of the conglomerate in its own currency. Such a stake would make China Saudi Arabia’s biggest customer and anchor tenant while widening its sphere of influence. Amidst all this multi-polar financial re-structuring, George Orwell’s definition of Oceania, Anglo-American dominance in the global economy could be at risk.
A worst-case scenario in case of such a changeover could be widespread war; or in contrast, it might contain any imminent war in defense of a fading dollar which causes the urgent introduction of a new “domestic” currency version that triggers inflation, supply shortage, and social chaos. Apparently, the emergence of any gold-backed currency would remove the credit card financing cover of the West.