Russia, China Forsake the Dollar, Pressing U.S., EU

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This past week, Russia and China completed two major deals, striking a defiant blow against U.S. and European Union efforts to punish Moscow with economic sanctions:

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Xi Jinping and Vladimir Putin bonding.

First, Russia signed a long-term contract to supply China with natural gas, expanding the two major countries’ cooperation on energy. Second, Moscow’s and Beijing’s chief banks agreed to move away from the U.S. dollar as the international reserve currency, further inflaming the growing global currency wars.

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On May 21, The Washington Post reported:

The 30-year [natural gas] deal was announced after meetings in Shanghai between [Russian President Vladimir] Putin and Chinese President Xi Jinping. It is worth an estimated $400 billion, Alexei Miller, chief executive of the Russian energy giant Gazprom, told Russian reporters.

The gas agreement grows the energy relationship between the two giant countries. Peculiar Progressive has reported in earlier columns how Russia in 2011 had agreed to begin shipping oil to China, as much as 300,000 barrels a day.

What seemed to receive less notoriety last week in the U.S., but was well publicized internationally: the U.S. dollar has taken a hit from Russia and China. As Aljazeera America reported on May 20:

In a symbolic blow to U.S. global financial hegemony, Russia and China took a small step toward undercutting the domination of the U.S. dollar as the international reserve currency on Tuesday when Russia’s second biggest financial institution, VTB, signed a deal with the Bank of China to bypass the dollar and pay each other in domestic currencies…

 

…“Our countries have done a huge job to reach a new historic landmark,” Putin said on Tuesday, making note of the $100 billion in annual trade that has been achieved between the two countries.

Following the West’s conquering Nazi Germany and Japan in the mid-1940s, the dollar became international transactions’ reserve currency, i.e. a single, reliable form of money which countries worldwide can hold for conducting business.

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President Richard Nixon

A small crack in that process occurred in 1971, when President Richard Nixon cancelled America’s gold standard—no longer using gold as the globally accepted support for the printed paper dollar. The rumbling of international currency wars began following the 2008 world economic meltdown, when the U.S. Federal Reserve began the massive printing of fiat currency, and the world’s other central banks began to follow suit.

As the U.S. and European Union recently have struggled economically, they have seen the rise of united economic efforts outside their influence, primarily BRICS—the acronym for an association of Brazil, Russia, Iran, China and South Africa. The BRICS countries have continually expanded cooperation in trade areas, and look to become more involved in global affairs.

Recently, the U.S. and EU seemed to believe their backing the overthrow of the corrupt, but democratically elected government in Ukraine—a pro-Russian regime—might bring NATO closer to Russian borders and somehow destabilize Russian, and therefore BRICS, power. The North Atlantic Treaty Organization is the Western-backed military organization, created primarily to guard against Russian or Chinese aggression. Ukraine, a former member of the Soviet Union, sits on the northeastern border of Russia.

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The U.S. tried to increase this destabilizing effort by getting China to support the West’s sanctions against Russia. These came following Moscow’s backing Crimea’s recent separation from Ukraine and its new right, pro-Western government this year. But China–already receiving oil from Russia, plus heavy involvement in other BRICS trade activities–didn’t bite.

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BRICS Summit 2013
BRICS leaders meeting in 2013.

China’s central bank, in fact, had issued a memo months ago recommending it turn away from the dollar in all its oil transactions, depending instead on its own yuan. BRICS, too, has been looking at stepping away from Western funding sources like the International Monetary Fund, and setting up its own lending exchange among its BRICS member countries.

Peculiar Progressive also pointed out in a recent column how the West, rather than storing gold, had been selling it to Russia. Russia, in the meantime, and China have both been mining and storing even more gold. Russia is also the world’s major oil producer, and a chief gas producer and supplier, including to European countries. All this seems to point to Moscow setting itself up with BRICS for stabilizing its member countries as the world continues to struggle back from the 2008 global economic tragedy.

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Another harmful blow hit the EU in its European Parliament elections this weekend—a blacklash by voters against unification. As The New York Times reported today (Monday):

Members of the European political elite expressed alarm on Monday over the strong showing in European Parliament elections by nationalist and anti-immigrant parties skeptical about European integration, a development described by the French prime minister as an “earthquake.”

 

In France, Britain and elsewhere, anti-immigrant parties opposed to the influence of the European Union emerged in the lead. In France, the National Front won 26 percent of the vote to defeat both the governing Socialists and the Union for a Popular Movement, the center-right party of former President Nicolas Sarkozy. In Britain, the triumph of the U.K. Independence Party, or UKIP, which won 28 percent of the vote, represented the first time since 1910 that a nationwide vote had not been won by either the Conservatives or Labour.

This follows a strong EU effort at austerity—governments’ attempts to stabilize economic struggles through higher taxation, cuts in services, or both.

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The U.S., still struggling economically, has seen efforts at austerity by Republicans in Congress. With mid-term elections coming in November, we’ll see how voters respond to those efforts, as citizens are saddled with a nearly trillion-dollar credit card debt, over a trillion-dollar student loan debt, a national debt of $12.5 trillion (held by the public), and national infrastructure needs of $2.3 trillion.

Meanwhile, voters in the struggling Ukraine this weekend elected a pro-Western billionaire, Petro O. Poroshenko, as president. Russia, choosing to maneuver, said it was willing to work with him.

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