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Page added on May 14, 2014
De-Dollarization: Russia Is On The Verge Of Dealing A Massive Blow To The Petrodollar
Is the petrodollar monopoly about to be shattered? When U.S. politicians started slapping economic sanctions on Russia, they probably never even imagined that there might be serious consequences for the United States.
Image: U.S. Dollar (Wiki Commons).
But now the Russian media is reporting that the Russian Ministry of Finance is getting ready to pull the trigger on a “de-dollarization” plan. For decades, virtually all oil and natural gas around the world has been bought and sold for U.S. dollars. As I will explain below, this has been a massive advantage for the U.S. economy. In recent years, there have been rumblings by nations such as Russia and China about the need to change to a new system, but nobody has really had a big reason to upset the status quo. However, that has now changed. The struggle over Ukraine has caused Russia to completely reevaluate the financial relationship that it has with the United States. If it starts trading a lot of oil and natural gas for currencies other than the U.S. dollar, that will be a massive blow for the petrodollar, and it could end up dramatically changing the global economic landscape.
The fact that the Russian government has held a meeting to discuss “getting rid of the US dollar in Russian export operations” should be front page news on every mainstream news website in the United States. That is how big this is. But instead, we have heard nothing from the big mainstream news networks about this so far. Instead, we have only heard about this from Russian news sources such as the Voice of Russia…
Russian press reports that the country’s Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions. Governmental sources believe that the Russian banking sector is “ready to handle the increased number of ruble-denominated transactions”.
According to the Prime news agency, on April 24th the government organized a special meeting dedicated to finding a solution for getting rid of the US dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia.
The “de-dollarization meeting” was chaired by First Deputy Prime Minister of the Russian Federation Igor Shuvalov, proving that Moscow is very serious in its intention to stop using the dollar.
So will Russia go through with this?
After all, this wouldn’t just be a slap in the face. This would essentially be like slamming an economic fist into our nose.
You see, Russia is not just a small player when it comes to trading oil and natural gas. The truth is that Russia is the largest exporter of natural gas and the second largest exporter of oil in the world.
If Russia starts asking for payment in currencies other than the U.S. dollar, that will essentially end the monopoly of the petrodollar.
In order to do this, Russia will need trading partners willing to go along. In the article quoted above, the Voice of Russia listed Iran and China as two nations that would potentially be willing to make the switch…
Of course, the success of Moscow’s campaign to switch its trading to rubles or other regional currencies will depend on the willingness of its trading partners to get rid of the dollar. Sources cited by Politonline.ru mentioned two countries who would be willing to support Russia: Iran and China. Given that Vladimir Putin will visit Beijing on May 20, it can be speculated that the gas and oil contracts that are going to be signed between Russia and China will be denominated in rubles and yuan, not dollars.
And the reality of the matter is that China has seemed ready to move away from the U.S. dollar for quite some time. In a previous article, I included a quote from a French news source that discussed how China’s official news agency has even called for a “new international reserve currency… to replace the dominant US dollar”…
For decades the US has benefited to the tune of trillions of dollars-worth of free credit from the greenback’s role as the default global reserve unit.
But as the global economy trembled before the prospect of a US default last month, only averted when Washington reached a deal to raise its debt ceiling, China’s official Xinhua news agency called for a “de-Americanised” world.
It also urged the creation of a “new international reserve currency… to replace the dominant US dollar”.
For much more on what China is thinking, please see my previous article entitled “9 Signs That China Is Making A Move Against The U.S. Dollar“.
So why is the petrodollar so important?
Well, it creates a tremendous amount of demand for the U.S. dollar all over the globe. Since everyone has needed it to trade with one another, that has created an endless global appetite for the currency. That has kept the value of the dollar artificially high, and it has enabled us to import trillions of dollars of super cheap products from other countries. If other nations stopped using the dollar to trade with one another, the value of the dollar would plummet dramatically and we would have to pay much, much more for the trinkets that we buy at the dollar store and Wal-Mart.
In addition, since the U.S. dollar is essentially the de facto global currency, this has also increased demand for our debt. Major exporting nations such as China and Saudi Arabia end up with giant piles of our dollars. Instead of just letting them sit there and do nothing, those nations often reinvest their dollars into securities that can rapidly be changed back into dollars if needed. One of the most popular ways to do this has been to invest those dollars in U.S. Treasuries. This has driven down interest rates on U.S. debt over the years and has enabled the U.S. government to borrow trillions upon trillions of dollars for next to nothing.
But if the rest of the world starts moving away from the U.S. dollar, all of this could change.
In order for our current standard of living to continue, it is absolutely imperative that everyone else around the globe continues to use our currency.
So if Russia really does pull the trigger on a “de-dollarization” strategy, that would be huge – especially if the rest of the planet started following their lead.
The U.S. economy is already teetering on the brink of another major downturn, and there are a whole host of indications that big trouble is on the horizon. For much more on this, please see the article that I posted on Monday entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“.
Just about the last thing that we need right now is for our petrodollar monopoly to be threatened.
It would be nice if things would calm down in Ukraine and the relationship between the United States and Russia could go back to normal.
Sadly, that does not appear likely any time soon.
In fact, the Ukrainian government has already admitted that “we are essentially at war“, and on Tuesday six Ukrainian soldiers were killed and eight were wounded in a convoy attack in eastern Ukraine.
The regions in eastern Ukraine that have just declared independence have given the government in Kiev until Wednesday to pull their forces out of eastern Ukraine or else face war.
If a full blown civil war does erupt in Ukraine, it is going to take this crisis to a completely new level.
Unfortunately, most Americans are incredibly apathetic at this point and know very little about what is going on.
But in the end, this could have dramatic implications for all of us.
27 Comments on "De-Dollarization: Russia Is On The Verge Of Dealing A Massive Blow To The Petrodollar"
GregT on Wed, 14th May 2014 8:02 pm
TPTB are either instigating the collapse of BAU and laying the blame on Russia, or they are trying to start another world war to lower the youth unemployment rate, and ‘stimulate’ the economy.
I highly suspect the latter.
Davy, Hermann, MO on Wed, 14th May 2014 8:44 pm
Greg this is brinkmanship. It is bad for business globally. What we are talking about is basically a trade war which in effect is a global economic civil war. The global system is too interconnected to allow such a move on the dollar that is not coordinated among the critical economic nodes of Europe, Asia, and the US. The unintended consequences will be an economic correction to the global system that could lead to the end of BAU. I suspect this is a game of chicken with high stakes. It is being played by people with selfish interests, huge ego’s, and disregard for the general public. This is the case with TPTB today in both the US and Russia. Most other nations fare little better in this regard but it is this situation between the Western powers and Russia that appears to be a coalescing “Black Swan” of global disruption and a confidence destroyer. BAU is unstable now just wait until this war heats up or goes hot!
Makati1 on Wed, 14th May 2014 8:54 pm
About time someone kicks the USD out of the top spot. A trading system using multiple currencies is how it should always have been. The non-western world is tired of the US skimming and living off of their work and resources. If it leads to a total collapse, so be it. Maybe it will also cripple the US military and make them leave those 1,000+ bases behind. They don’t belong outside the 50 states anyway.
Davy, Hermann, MO on Wed, 14th May 2014 9:19 pm
The Mak is on the attack!
Feemer on Wed, 14th May 2014 9:22 pm
I live in the US, but it seems to me that the Euro should be the reserve currency. Have there been problems? Yes, but a currency controlled by more than one nation, especially fiscally responsible nations like Germany and France, could potentially be more stable, for example, one country failing to raise its borrowing limit isn’t going to plunge the world back into recession. This is the first of many signs that the West is losing power…china will succeed the US sadly. I say sadly because they rape their environment, the US at least has some environmental regulations.
GregT on Wed, 14th May 2014 9:41 pm
Feemer,
The Chinese are raping their environment in an attempt to emulate the Western dream, and they are relying on western consumption, resources and technology to do so.
As long as there are currencies, backed by nothing, with interest to be repaid, we will continue to be forced down the exponential growth dead end.
Recession, and depressions, will continue to be the norm, unless we do away with the Zionist central banking cartels, and all of the other financial Ponzi schemes.
Plantagenet on Wed, 14th May 2014 10:15 pm
GregT
Stop your usual anti-semitic BS. Its beyond silly.
Makati1 on Wed, 14th May 2014 11:51 pm
Plant, do you still have any working brain cells? The Banksters are behind the destruction going on around the world. If they happen to be mostly Jews, perhaps there is reason to be anti-semitic? After all, they are the cause of much of the trouble in the Middle East also.
Northwest Resident on Thu, 15th May 2014 12:01 am
“Maybe it will also cripple the US military and make them leave those 1,000+ bases behind.”
Makati1, the US military is the only thing preventing chaos from descending like pure hell on human civilization.
And if you get your wish, then next time a typhoon or landslide hits the Philippines and wipes out wide areas, the US military won’t be there to save thousands and thousands of Philippinos from starvation and riot. But I suppose that’s okay with you as long as the evil USA gets what’s coming to it, right?
MKohnen on Thu, 15th May 2014 2:06 am
GregT,
I don’t think TPTB are instigating the end of BAU. I think BAU has already collapsed at the top, but we don’t really see it yet. I think this is what all the US/Russia/China crap lately is about. The collapse has happened and it’s coming down the pike. The gloves are coming off and the preparations are being put in place. Really, I can’t see any other explanation for how TPTB have been acting recently.
Arch Duke Ferdinand has been shot!
If I was just a regular Joe back in the day when this happened, there is no way I would have really known the full implications of that one act, but TPTB of the day certainly did, and the wheels hit the road and sanity was tossed out the window: the same thing we’re seeing happening today! So many people are saying stupid things like, “Oh, the Russian’s wouldn’t do that, it’d hurt their economy.” Wake up people, their economy is falling already, and what magic bullet is Putin going to pull out of his arse to save it? Russia hasn’t exactly spent its Golden Years making friends, so if they’re going to fall, they have to do what they can to take others down with them. The US house of cards is starting to face serious headwinds. Without growth it’s doomed. Without cheap energy it’s doomed. Without cheap products from ever-expanding China it’s doomed. The list goes on and on, and every one of these “it’s doomed” issues are failing. At this point in history, what will happen to the US when it can no longer afford it’s military, or to pay off countries so that they will stay friendly? In all truth, I don’t believe that America (and by that I mean the US and Canada) have many true friends left in this world. China will burn from the inside if growth stops and they don’t have an enemy to direct the rage of 700 million starving people at.
Maybe I’m just paranoid, but it doesn’t necessarily mean I’m wrong 🙂
Davy, Hermann, MO on Thu, 15th May 2014 5:43 am
MK, I also mentioned this “TPTB are taking their gloves off” for a fight. I don’t know if they are truly buying into the end of BAU. Frankly it is theory at this point just like PO. My angle is through systematic theory. Systematic theory is all-inclusive of all other issues but it is still theory. Real life is billions of individual decisions and a world ecosystem, climate, and geology beyond comprehension. Since TPTB are mostly short term even in their long term goals I doubt they are buying into the end of BAU now. I think they understand the implications of the energy and climate issues. Food and water is on their list too. So, it is possible but I think at this point it is brinkmanship. They are pushing the limits in self interest in my mind. The danger of brinkmanship is pushing too far like your WWI example.
Feemer your example of the Euro as a reserve currency is probly the worst example of a reserve currency. It is an incomplete pseudo currency due to the fact that Europe will not take the final step of eliminating sovereignty of the many member countries. This created internal stresses in the various countries on the periphery and strength in the heart of Europe. Germany is not going to subsidize the periphery so consequently you have pseudo sovereign default now covered up by a European style QE of buying the sovereign bonds of the member countries on the periphery by the Euro central bank. China is an even worse example with its internal controls on its currency and its spiral of massive internal debt creation, bogus statistics, an severe corruption. IMA this debt creation is unprecedented in human history in the amount and the rapidity of its creation. Russia is a pimple on the ass of world trade. All other bricks are basket case resource driven or in India’s case just a basket case. Your mention of China as the new hegemonic country of the future is off the mark. China is the best example of a country at its limits of growth facing diminishing returns with an excessive population in overshoot to its carrying capacity with its all-important financial system in a debt death spiral.
Mak, climb back in your hole of political propagandist ideologue. You are stinking up the board!
Makati1 on Thu, 15th May 2014 6:49 am
Northwest, the US did damn little there. But, to read their propaganda, they single-handedly saved the Philippines. Actually, China and other countries did the most. The US just wants to get their feet back into the Philippines to make it a target for the next war, again.
If you actually believe that the US is saving the world and not destroying it, your indoctrination is complete. Congratulations!
Makati1 on Thu, 15th May 2014 7:31 am
BTW: “… The controversial planetary entity (IMF) and its Western apparatchiks, along with various communist and socialist dictatorships and the United Nations, have long been agitating to ultimately dethrone the embattled U.S. dollar. Top-level American officials at the U.S. Treasury and the Federal Reserve have been helping them along. The dollar’s place as the global reserve currency would be filled by the IMF’s SDR, currently composed of a basket of currencies that includes dollars, British pounds, euros, and Japanese yen. The IMF, the UN, and multiple national governments have all openly advocated precisely such a plot in reports and statements made in recent years. The Obama administration, meanwhile, has exploited the Ukraine crisis to further empower the IMF while reducing U.S. influence. …”
http://www.thenewamerican.com/economy/item/18207-imf-bailout-for-ukraine-and-a-new-world-currency
It seems that the West is being leveled to 3rd world conditions, by the West.
Davy, Hermann, MO on Thu, 15th May 2014 7:40 am
Mak, fantasies above.
Mak what did your girlfriend China do for the Philippines?
Mak, you can inject all the political propaganda ideologue copy and paste crap you want. The hard reality (you live in fantasy not reality) is no other currency can take the dollars position currently, IMF SDR are limited and need global cooperation, and a global engineered new reserve currency needs global cooperation. We are not going to see global cooperation at this point so it will be a global collapse that brings on the end of the dollar. There will be no need for a reserve currency with a global collapse. So Makster, you can huff and puff all you like but you dream of the dollar demise is just a dream.
GregT on Thu, 15th May 2014 10:03 am
A comment from Makati’s linked article:
“Smells like the federal reserve and its minion of banks is in control of the IMF and printing fiat SDR’s out of thin air as it has always done , just printed and issued by another one world global government, aka the new world order, agency like the UN, only this one is called the IMF (for international monetary fund, I presume) – but still taking its orders from the new world order elitists, just as the federal reserve does .”
Hmmm, what ever happened to Arthur?
Davey on Thu, 15th May 2014 10:18 am
No sh*t Greg, I miss Art!!
Arthur on Thu, 15th May 2014 12:00 pm
Don’t know if this post will make it, but I saw a “you’re blocked” message for days, so I assumed I was banned, not sure though. After a few days you’re through the cold turkey and realize that reading and posting costs a lot of time. Currently working hard for a client. Need 15,000 euro for 12 * 250 Watt panels and passive solar heating (trombe wall, storage, vacuum tubes, whatever). Will visit the Munich solar fair coming June and make up my mind about what system is best and put my money where my mouth is:
http://www.intersolar.de/en/intersolar-europe.html
Meanwhile the garden does well: potatoes, onions, carrots, beets, red cabbage, the lot. Little green house next year. By the end of next season I should be able to live off the grid almost completely in the middle of a midsize town, hopefully before a collapse sets in, if any (probably not).
Take care and all the best. Maybe I drop by irregularly some time.
Pops on Thu, 15th May 2014 12:38 pm
I’ve said this before, there is not enough currency in circulation from any other country to replace the dollar, that’s number one.
Number 2 is no one is going to hold a manipulated currency as a reserve. Russia said they would let the Ruble float next year but it began to crash so I doubt that will happen, China won’t let the Yuan float outside the range they set.
No 3 is China and Russia are both acting really aggressive toward their neighbors, I doubt other countries will be looking forward to holding their cash.
No 4 I don’t know about Russia but china is holding lots of dollars and they aren’t going to just burn that value willey nilley.
The US$ may not stay the standard forever but I’m pretty sure it won’t go away overnight as every gold & gorp dealer wants you to believe.
Northwest Resident on Thu, 15th May 2014 12:54 pm
Pops — Thanks for the words of wisdom on all the hype surrounding the “petro dollar”. Funny how those pushing the “de-dollarization” fantasy the hardest are those who just happen to also be selling gold, silver, survival gear/supplies and other crap.
Davy, Hermann, MO on Thu, 15th May 2014 1:59 pm
Good Summary Pops, maybe The Makster will read that and weep
Yeti on Thu, 15th May 2014 6:50 pm
Per Mak, “Actually, China and other countries did the most.”
“China is the world’s second largest economy and closer to the Philippines than other major donors of assistance to the typhoon-ravaged archipelago.
Yet the paltry $1.6 million in aid it pledged to its neighbor was less than the check written by Swedish furniture store Ikea.
China’s pledge, which it boosted after getting flack for its original offer of $100,000, is a fraction of the amounts pledged by other countries in the region and much farther away, including the USA, which pledged $20 million. Australia promised $30 million. The United Kingdom offered $16 million. Japan and United Arab Emirates each pledged $10 million. Ikea is sending $2.7 million, according to UNICEF.”
Makati1 on Thu, 15th May 2014 7:46 pm
Yeti, promises do not equal actual help.
So far little of the ‘promises’ have actually appeared in reality. The US is spending #1 million PER DAY, to keep troops here as ‘advisers’. That’s $180M per year, every year. The US mostly sent military not healthcare workers to the disaster site.
Davy, Hermann, MO on Thu, 15th May 2014 9:34 pm
makster, your girlfriend China snubbed you guys and you now want to spit on the west who were the most generous. Shame on you Mak!
clueless on Thu, 15th May 2014 10:54 pm
Davy, the US generous? lol. It won’t give or help, unless it gets something much much bigger in return. Period.
Davy, Hermann, MO on Fri, 16th May 2014 5:28 am
Clueless, that is called national self-interest. Most all nations give in this way. Our government is generous in self-interest but I will tell you the American GP is among the biggest donors in the world. Many of these general public commoner people are not wealthy. They are religious and driven by their beliefs. I wonder boy wonder how generous you are.
Hate America on Sun, 25th May 2014 5:36 am
The death of America and its corruption is finally at hand, I’m lovin’ it. Before you attack me know I am an American born and raised, and it is about time America falls. If you live here you know of the corruption, the fed, rigging scandals, politicians, police, bankruptcy abound. Guess what I have done for the last 10 years. Converted my money to gold baby and I try never to spend money here unless I have to, and I make a decent working wage. I am doing my part and now the world is doing the same. It is good to see other coutries defeat the corrupt bankers. Americans, not I, have sat on their thumbs for years. I love having court side seats to ruin. I even have a place to expatriate to when it is all done. America you have it comming, and if you saw the smile on my face you know your end is finally here, suckers. Here is some advice for those that belief in reincarnation. Wake the F up next time before it is too late.
Retarded America On Fire For Good
northwestresident on Sun, 25th May 2014 11:11 am
Hate America — Is that you noobtube, posting under a new moniker?