De-dollarization possibly about to snowball

[Zenaan Harkness]

The article below presents thoughts that seem overly simplistic to me,
being not based much in facts such as the recent awareness that Iran
is now selling its oil in Euros:
http://russia-insider.com/en/politics/iran-dumps-petrodollar-wants-euros-all-oil-sales/ri12679

(Oh dear, sorry Saddam Hussein, you just weren't a big enough fish,
and you were put in place by the CIA, so you should have been a little
cleverer, or waited 20 years, to sell your oil in Euros.)

and Rupees:
http://russia-insider.com/en/its-happening-iran-india-dump-petrodollar-settle-oil-payments-rupees/ri12083

and the consequent rise (last two/three weeks) in the price of gold by
about $150 an ounce - here in Australia, gold normally changes price
inversely to our currency's price wrt USDollar - but last Thursday,
our dollar went UP one cent, and gold ALSO went up (instead of down),
in the order of $100. This is rare.

Yes, when the game shifts, there is a run away from fiat currency into
precious metals, in particular gold. We've seen this historically too
(great depression).

Just because there's not enough gold don't mean a bee's dick of
nothing - that just means that the final fall back currency (gold and
silver) have a run on them and the price skyrockets. Let's see if the
gold price march continues this week and next - if so, it's likely to
skyrocket IMHO ...

Of course we already know that Russia is settling with China in
Yuan/Renminbi, although I don't recall the price of gold going up when
that happened - probably because the USA has had so much pressure on
Russia (Ukraine, sanctions, Syria, media disinfo), but now with India,
and now Iran, and the whole Saudi/shale-oil (and against rest of the
world) price war, well perhaps it's starting to get real enough that
the hedge funds are starting to say "oh shit!"

Viva la change!


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http://russia-insider.com/en/no-virginia-trading-oil-other-currencies-wont-kill-dollar/ri12825
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No, Virginia, Trading Oil in Other Currencies Won't Kill the Dollar

America doesn’t care what color electrons you use
Jacob Dreizin Subscribe to Jacob Dreizin
5 hours ago | 801	Comments
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This is the only way to really "kill the dollar." Don't try this at home

There are good reasons for doing certain cross-border trade in your
own currency, or that of your trade partner.

Consider that all digital dollar transactions across borders, anywhere
on this planet, have to go through one or more U.S. banks.

And if Uncle Sam doesn't like you, well, he can just cut you off from that.

No more foreign trade for you!

It happened to Iran in 2012, forcing the country to survive on a
bizarre gas-for-gold scheme with Turkey, complete with a "gold
express" on passenger flights from Dubai to Tehran.

Russia was also threatened with something roughly along these lines in 2014.

Thus, the main benefit of using non-dollar currencies in your foreign
trade:  You're not as vulnerable to the whims of Uncle Sam.

And for countries on the outs with the Uncle, that's very important.

But that's it.

Folks who claim that “de-dollarization” in the oil trade—or any other
trade—will “kill the dollar” (or something like that), don't ever
explain how.

Sure, it sounds good, but what is the mechanism of action?

Answer:  There is none.

Because, today, demand for the dollar isn’t based simply on the
convenience of using it to settle accounts across borders.

Or more precisely, that’s part of it, but by no means the root of it.

The dollar is convenient because every country and major bank has some.

In other words, demand for the dollar is based on its status as the
global reserve currency.

And its status as the global reserve currency is due to the massive,
highly-liquid market for U.S. Treasury bonds.

And the massive, highly-liquid market for U.S. Treasury bonds owes its
existence to:

(1)  The USA's unique position of running perpetual, large,
unrestrained budget deficits, while

(2)  maintaining its ability to pay off the debt issued to cover those
deficits by issuing more debt perpetually, while

(3)  the world needs somewhere to stuff its trillions in cash (to
include trillions of dollars earned by running large, perpetual trade
surpluses with the USA.)  Because, after all, a foreign central bank
holding cash dollars wouldn't be able to pay itself a return, and as
for potential large depositors, your national deposit insurance scheme
only guarantees accounts up to some trivial amount.  Whereas the USA
can print dollars and thus, guarantees all of its bonds.

Does this sound like a confidence scheme?

Hell yeah!

But what are you going to do about it?

That is, if (hypothetically) everyone suddenly lost confidence in the
USA's ability to pay its debts without inordinately debasing its
currency...


...Where else could they put their money?

You can't dump those trillions and trillions in your local non-U.S. bank.

No one would guarantee it!

Beyond some token amount, no state can guarantee deposits in a
currency that it can't print itself.

Nor is anyone yet prepared to guarantee the hypothetical equivalent of
those dollars in local currency terms.

Not to mention, the nature of double-entry accounting means banks
would have to immediately loan that money out or put it on deposit
with their Central Bank—which creates its own set of problems.

So all those folks who chant “there will be a run from the dollar”
should think about what they're saying.

Moreover, they should ask themselves:  A "run" into what, exactly?

What would the nations and banks of the world convert their dollar
reserves into?

It can't be “rubles” or “yuan”, because that available volume of
rubles or yuan (not debt instruments, but actual bank money to play
around with) doesn't exist.

The authorities would have to print mountains more rubles or yuan on
the spot, crashing their value (and thus, paradoxically, supporting
the dollar.)

But more to the point in our debt-money system, that volume of ruble
or yuan sovereign debt does not exist.

Hence, saying “there will be a run from the dollar into (blank)”,
ignores the fact that there's not enough (blank.)

Not by a long shot.  Not even if the dollar crashed 50 percent
overnight against every other currency.

But even if there was enough, your money-changer or bond dealer would
have to take those dollars you're handing him, and put them somewhere!

After all, he won't just throw them away.  He has to eat, too.

So where would they go?

Into U.S. bonds!

Thus reinforcing the dollar's status as the global reserve currency!

So as you can see, a cataclysmic “run on the dollar” is impossible
under the current system.

Uncle Sam has this one locked down tight.

As I explained here, it would take a total collapse of global finance
to even begin to get the ball rolling away from dollar hegemony.

And as I also explained here, the pain of such a collapse would be
borne primarily by emerging markets like Russia, China, etc.

And that's the last thing those countries want.

So as long as the dollar remains the world's reserve currency,
“de-dollarization” of the oil trade means nothing to the dollar.

It's certainly a good idea for the countries involved.

But America could care less.
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