An increasing number of prominent international voices are starting to question why the U.S. dollar should be so overwhelmingly dominant in global trade, writes Michael Snyder on American site The Economic Collapse.
China and South Korea have signed a major agreement to facilitate trade with one another using their own national currencies. French finance minister Michel Sapin says “now is the right time to bolster the use of the euro”. A few days ago, the German press exploded in outrage when Germany arrested a U.S. spy. And of course our relations with Russia are probably the worst that they have been since the end of the Cold War.
And as the Russians now rapidly move away from the U.S. dollar, they seem intent on bringing the rest of “the BRICS” with them. It seems that the Kremlin chose the all-in-one approach for establishing its anti-dollar alliance. Currency swaps between the BRICS central banks will facilitate trade financing while completely bypassing the dollar. At the same time, the new system will also act as a de facto replacement of the IMF, because it will allow the members of the alliance to direct resources to finance the weaker countries. Thus drastically reducing the amount of dollar-based instruments bought by some of the biggest foreign creditors of the US.
Of course the key economic player in the BRICS alliance is China. So will China actually go along with a “de-dollarization” strategy? The truth is that China has been making moves to become more independent of the dollar for a long time. China’s central bank has authorized the Bank of Communications, the country’s fifth largest lender, to undertake yuan clearing business in the South Korean capital, the People’s Bank of China (PBoC) said in a statement. China is seeking to make the yuan – also known as the renminbi – used more internationally in keeping with the country’s status as the world’s second biggest economy behind the United States.
Unfortunately, most Americans don’t care about any of this at all. They don’t understand that more U.S. dollars are actually used outside the United States than are used inside the United States. Because most of the rest of the world uses U.S. dollars to trade with one another, this has created a tremendous amount of artificial demand for our currency. In other words, the value of the U.S. dollar is much higher than it otherwise would be, and this has enabled us to import trillions of dollars of products at ridiculously low prices. The standard of living that we enjoy today is highly dependent on this arrangement continuing.
And our ability to fund the federal government and our state and local governments is heavily dependent on the rest of the planet loaning our dollars back to us for next to nothing. If we actually had to pay realistic market rates to borrow money, the finances of the federal government would have already collapsed long ago.
So it is absolutely imperative for our own economic well-being that this “de-dollarization” trend not accelerate any further. The rest of the world could actually severely hurt us by deciding to stop using the almighty dollar, and the more that the Obama administration antagonizes both our friends and our foes around the globe the more likely that is to happen.