China and Russia Launch War on Dollar?

Much of the power of the "West" has lain in the power of the US Dollar as a reserve currency. It has given the USA the power to impose sanctions unilaterally on other countries because it can threaten third parties with denial of access to clearance facilities such as "Swift". If the USA says there should be no trade with Iran even French companies will obey. It also allows the US to sustain a huge Current Account deficit.

The way around this problem for likely targets of sanctions is to de-dollarise, to insist that foreign trade occurs in gold, Yuan, Euros etc. Historically this has been difficult because the dollar was king and the targets of sanctions were minor economies compared with the West. Thanks to globalisation and the astonishing admission of China to the WTO in 2001 some potential targets of sanctions are huge economies that no longer require the dollar as the global reserve currency, gold, euros or yuan might be used instead. However, the dollar has momentum, it is still the de facto global reserve currency.

Since 2014 China and Russia have been excluding dollar transactions from mutual trading and both have been de-dollarising. It is not just China and Russia who are moving out of the dollar. Central banks are major gold purchasers at the moment which should give us cause for concern that they be losing faith in the dollar.

De dollarising - see Zero Hedge

The COVID19 crisis is accelerating the change but China and Russia have been shifting in the direction of de-dollarising for at least six years.

What happens when the dollar is toppled? Changes in reserve currencies happen every 50 to 100 years. The transition is usually painful as we saw in the 1920s as gold and sterling gave way to the dollar. During the transition countries try to corner the gold market and the banks are very wary of large foreign exchange transactions so international trade declines. After the transition the new reserve currency or method causes a shift of power to those who control it.

De-dollarisation seems to be happening but I hope it doesn't. The Russians and Chinese certainly seem to be planning de-dollarisation. Will these National Socialists win?

7/8/2020

Postscript.

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