Currency Wars_ The Making of the Next Global Crisis - James Rickards [87]
• October 28, 2008: Interfax reports that Vladimir Putin, prime minister of Russia, advised Wen Jiabao, premier of China, to abandon the U.S. dollar as a transaction and reserve currency.
• November 15, 2008: The Associated Press reports that Iran has converted its financial reserves into gold.
• November 19, 2008: Dow Jones reports that China is considering a target of four thousand metric tons for its official gold reserves to diversify against the risks of holding U.S. dollars.
• February 9, 2009: The Financial Times reports that transactions in gold bullion have reached an all-time record.
• March 18, 2009: Reuters reports that the United Nations supports calls for the abandonment of the U.S. dollar as the global reserve currency.
• March 30, 2009: Agence France Presse reports that Russia and China are cooperating on the creation of a new global currency.
• March 31, 2009: The Financial Times reports that China and Argentina have entered into a currency swap, which would allow Argentina to use Chinese yuan in lieu of dollars.
• April 26, 2009: Agence France Presse reports that China is calling for the reform of the world monetary system and replacement of the U.S. dollar as the leading reserve currency.
• May 18, 2009: The Financial Times reports Brazil and China have agreed to explore conducting bilateral trade without using dollars.
• June 16, 2009: Reuters reports that Brazil, Russia, India and China, at a BRIC summit, call for a more “diversified, stable and predictable currency system.”
• November 3, 2009: Bloomberg reports that India has purchased $6.7 billion worth of IMF gold to diversify assets away from the weaker dollar.
• November 7, 2010: World Bank president Robert Zoellick states that the G20 should “consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”
• December 13, 2010: French president Nicolas Sarkozy calls for the consideration of a wider role for SDRs in the international monetary system.
• December 15, 2010: BusinessWeek reports that China and Russia have jointly called for the dollar’s role in world trade to be diminished and are launching a yuan-ruble trade currency settlement mechanism.
This is just a sample of the many reports indicating that China, Russia, Brazil and others are seeking an alternative to the dollar as a global reserve currency. A role for commodities as the basis for a new currency is another frequent refrain.
These are daunting trends and pose difficult choices. Upholding U.S. national security interests cannot be done without knowing the dynamics of global capital markets. U.S. dependence on traditional rivals to finance its debt constrains not only fiscal policy but U.S. national security and military options. Geopolitical dominoes are already falling in places such as Pakistan, Somalia, Thailand, Iceland, Egypt, Libya, Tunisia and Jordan. Much larger dominoes are waiting to fall in Eastern Europe, Spain, Mexico, Iran and Saudi Arabia. Challenges to U.S. power grow stronger as the U.S. dollar grows weaker.
Then there are the geopolitical big three—the United States, Russia and China. Of those, the United States is the most secure against foreign financial attack yet seems intent on undermining itself by debasing its dollar. Russia is visibly weak, yet its weakness can be its strength—it has a history of turning its back on the world and surviving in autarky. China appears resilient but, as shown throughout history, is the most fragile, having repeatedly fluctuated between centralized empires and fragmented warring states for five thousand years. It is hard to appreciate how much the Chinese leadership lives in dread of the least sign of unrest from the unemployed, the countryside, the Falun Gong, the Tibetans, the Uighurs, North Korean refugees or the many other centrifugal forces at play. A global economic crisis possessed