The Banking System - Some Things to Know

Readers here know that this blog has followed events related to our monetary system for many years in an effort to monitor any events that might lead to some kind of disruption to the present monetary system whether that be major reform or a completely new monetary system. 

Extensive effort has been made here to provide the best quality information on this topic we can find. On the right side of the blog are links to many various systemic risks that have been identified over the years. Another link leads you to several different proposals or ideas on how to reform or remake the present monetary system. These come from some of the best experts (in my opinion) in the world on this topic. So all that archived information remains available and free to access for anyone who wants to use it.

Now we have a new set of issues arising with banks around the world and including in the US. By now, everyone knows a couple of large US banks failed and the FDIC and Federal Reserve have intervened in an effort to maintain public trust in the banking system. So, it is natural to ask the question -- Is this problem going to worsen and become a systemic risk to the entire monetary system?

We cannot answer that question here. We have advised readers that systemic risks like this are present all the time and at any time one or more of the risks could result in a failure of the present system. This most recent situation simply serves to remind us of that fact. It's too early to tell if this event will worsen and trigger a major crisis leading to major problems with the present system. Our advice here is to monitor events closely and if possible review your own banking situation to see if or how you could be impacted.

The best thing we can do here is to just try to provide some reliable basic information in an effort to help readers assess things. With that in mind, below is a bullet point list of information with that goal in mind.

-Some banks are experiencing problems with liquidity (having enough ready cash to meet funding requirements such as depositor payments and withdrawals). 

-Some banks are struggling because the rapid rise in interest rates has caused some of their investments in things that have an inverse relationship with interest rates to drop in current market value. For example, government bonds drop in value when interest rates rise. So long as the bank does not need to liquidate the bonds to meet cash demand requirements from depositors, they don't have to sell the bonds and take a loss.

-If for any reason cash demand requirements from depositors exceeds available ready liquid cash, then banks have a problem. They could be forced to sell their long term investments at a loss to raise the needed cash.

-The Federal Reserve, recognizing this problem, created a program to allow banks needing cash to sell their bonds to the Fed for full market value even though their current market value has dropped below what they paid for the bonds (because interest rates have risen).

-The FDIC insures each individual bank deposit account up to $250,000, however they do not insure any amount over $250,000 unless the bank involved is deemed to be a "systemic risk" if it fails. This means many smaller regional banks do not currently have protection above the $250,000 amount since they would not be viewed as "systemic risks" to the entire banking system. Congress is discussing this situation right now per this article on CNBC.

Given the facts above, obviously anyone who has a bank account needs to understand the above information and review their bank to assess what level of risk it may have at this time. One tool I did find that may be helpful is found on this link for iBanknet. This web page allows you to search individual banks where you can find a link to their Balance Sheet information.  You may have to enter a code to prove you are not a computer bot first. 

Once you find your bank and go to the link showing the Balance Sheet information, you can then review the assets and liabilities the bank has. It will give an idea of what kind of risks that particular bank may or may not have at this time. The data is pretty current on the banks I looked at.

A couple of other information resources you may find of value or interesting to read are linked below.

If we find credible information regarding the impact of this situation on the overall banking system and/or the monetary system, we'll post it here. (note: Central Banks take global liquidity action)

Recent Update/Discussion on the Banking Issues from Jim Rickards

Alisdair Macleod - Banking Chaos

Dr. Warren Coats (former IMF) - Econ 101 and Bank Runs

Jim Rickards - The Fed Finally Broke Something

Conclusion: It's impossible for anyone to really predict how this situation will play out. Our entire system is fully based on public trust and confidence both in the monetary institutions they rely on and also the currencies issued by various governments. So long as the public maintains trust in that, it is easier to operate a more stable system. If public trust is eroded too much, it becomes much harder to operate a stable system. Each person has to assess for themselves what level of public trust exists at any given point in time. No one can 100% sure what human behavior/reaction will be when problems arise in any system. 

Is there anything that could disrupt the current monetary system?

 Having followed this question now for a decade I came to the conclusion that so long as the US dollar remains the primary global reserve currency we are unlikely to see any major changes to or current monetary system. The catalysts for major change would have to come from some kind of major political realignment in the US that no longer priortized US dollar hegemony. The last two major elections in the US seem to leave the nation politically gridlocked with no impetus for major change emerging as we reported earlier this year. 

So, at this point, the only question to ask is if there is anything that could disrupt the current monetary system? Of course, if the present system were to implode under some kind of major financial crisis, we would see an immediate power struggle to control whatever new monetary system emerged. That's unpredictable both in terms of timing or in terms of who would control such a new system. 

There is one obvious other scenario out there that could eventually disrupt the current system if there is no major crisis leading to collapse of the present system. It is clear that the world has divided into two major competing factions. The US/West led by the western central banks and institutions such as the IMF and the East led by the BRICS nations. The proxy war in the Ukraine has caused monetary system control issues that mostly are behind the scenes to emerge more into the public arena. The Russian invasion into the Ukraine led to the US/West weaponization of the US dollar and the global SWIIFT payments system in retaliation to the Russian move into the Ukraine. 

While the military confrontation gets most of the news media and public attention, anyone who has followed these monetary system issues for awhile understands that the real war is for control of who will decide what money is and who will control it's supply and distribution for commerce. That is where the real power lies and why nations (both West and East) are willing to use military power to gain the advantage.

We have reported here that the BRICS nations led by Russia and China have long talked about ways to bypass the US dollar and undermine the monetary power structure controlled by the western central banks and the IMF. For many years this discussion has continued, but without much actual change to the present US dollar dominated system. If that system is ever to be undermined, it will most likely happen as a result of the direct efforts of these eastern nations to make it happen. 

With that background, here is a link to an interview in April 2022 with Russian economist Sergey Glazyev. In this interview, Glazyev lays out the most detailed plan I have seen on how the BRICS nations can eventually bypass and undermine the US dollar. 

Russia's Glazyev introduces the new global financial system

If you want to read a detailed description of how the BRICS hope to disrupt the US dollar hegemony, this article is worth your time to read. I cannot predict whether this plan will be successful or not, but a key component of it is to get the world to move away from trading oil in US dollars (the so called petrodollar system that has run the world since the 1970's). Just yesterday Reuters reports that China is pushing hard to get Saudia Arabia to switch to using Yuan for oil sales. This excerpt from the article is worth noting:

"At the start of Friday's talks, Prince Mohammed heralded a "historic new phase of relations with China", a sharp contrast with the awkward U.S.-Saudi meetings five months ago when President Joe Biden attended a smaller Arab summit in Riyadh."

The article makes it clear that this meeting between China and Saudi Arabia is part of the ongoing effort to undermine the US dollar:

"President Xi Jinping told Gulf Arab leaders on Friday that China would work to buy oil and gas in yuan, a move that would support Beijing's goal to establish its currency internationally and weaken the U.S. dollar's grip on world trade."

As events unfold, what we should monitor is to see if Saudi Arabia moves away from the US dollar for oil sales (added note 1-17-2023). First to perhaps the Yuan and then later to the new proposed alternative reserve currency proposed by Russian economist Glazyez. If anything is going to disrupt the current US dollar based monetary system, it would likely be something along those lines. 

Added note 12-22-2022: Alisdair Macleod offers his thoughts on the potential for a major change in the current monetary system in this article. It delves into the "end of the petrodollar" speculation. This is a view that has been around for quite some time, yet the US dollar based system has persisted. We have stated here for quite some time we think it will take a major crisis in the current system to change things. We still hold that view here. We don't try to predict the timing of any such event.

Added note 1-9-2023: It was brought to my attention that Russian Official Medvedev recently posted his predictions for what could happen in 2023 on his Twitter account (see them here). While many of these seem far fetched, #10 on his list (pasted in below) did get may attention and does relate to what this blog monitors. I passed his prediction #10 on to one expert and he replied that it was possible that one could unfold some time in the future. Certainly the proposal outlined by Russian economist Glazyev above fits in with this prediction. Here it is:

"10. The Bretton Woods system of monetary management will collapse, leading to the IMF and World Bank crash. Euro and Dollar will stop circulating as the global reserve currencies. Digital fiat currencies will be actively used instead."

Added note 2-24-2023: This new article by Alisdair Macleod is worth reading. It updates the potential for the BRICS nations (led by Russia) to move forward with a new monetary system that could disrupt the present dollar based monetary system. It also covers recent news related to CBDC's suggesting we are not likely to see those disrupt anything any time soon or perhaps forever.

Added note 3-13-23: For those following the bank problems in the US, this new update from Jim Rickards is probably as good a take on things as you are going to find.

Did the US Election Open the Door for Change?

The short answer is no.

Not much new to report here. The US midterm elections were basically another tie just confirming that the public is split 50-50 which is not news. It's been that way for some time in the US. The slight shift towards the Republicans in Congress will mean the nationalists do have a bit more leverage if House of Representatives does fall under Republican control as expected (they are expected to have a 5-10 seat majority as this is written). 

The Republican side of the House did become significantly more nationalistic, so that is more of what changed than the actual numbers in terms of seats held by the Republican party. Several of the incoming new Senators are also more nationalistic than the people they are replacing, so the Senate will also move a bit more nationalistic. 

I don't expect any of these election results to provide any impetus for major change in the monetary system any time soon. The more likely result is just continued gridlock and no desire for major changes to the status quo in the monetary system. 

As we have said here for quite some time now, the only force for major change out there that we can see is a major implosion/collapse of the present monetary system. That would force some kind of major change. It's impossible to forecast what that change might look like with neither political party having complete control. It's anyone's guess as to who the public would blame for all the pain that would come with such a collapse. For that reason, I would expect both parties to continue to just try to keep the present system wobbling along and do their best to avoid a major negative event. 

Not much else to report. If I see something changing, I'll add a post here.

Final post election update 11-17-22: It's now confirmed the US is returning back to divided government and probably a lot of gridlock over the next two years. None of that suggests the people vying for political control will have much interest in making major changes to the current monetary system. It's still unclear who the public might blame if the current system just imploded in that time frame for any reason. Usually, whoever is President during such an event gets most of the blame whether deserved or not. It does matter because it will determine who the public trusts to move forward after a major negative economic event. So, we likely either get two more years of not much happening or a major political realignment away from whoever is blamed for any major negative event if that takes place. There is nothing to suggest US policy designed to maintain global reserve currency status for the US dollar will change if no major economic events disrupt the present system. That means likely nothing here to report again for some time.

Where Do Things Stand - What Things Should We Monitor?

This blog was started because out of the 2007 great financial crisis (GFC) there was growing concern that the existing monetary system most people have lived with for their entire lives might be unable to be sustained long term. This blog attempted to monitor events and look for indications that some kind of major change or transformation in our present system might be on the horizon. The existing system I will define as a system based upon the US dollar as the world's global reserve currency, operated and administered by the world's central banks, and payments systems and fiat currencies fully controlled by those central banks. Any major change to that system (whether you may view that change as good or bad) is important to understand because it would clearly impact all of us. If the US dollar were to lose its status as the global reserve currency, it is very likely every individual that uses money would be impacted and that includes all of us. It is possible the impact could be dramatic. So, the premise here was that it is important to monitor events to see if major change is in progress or might be coming sooner rather than later. A further goal of this blog was to try and learn as much as possible about how leading experts around the world viewed this situation and what proposals exist to reform or fully replace the presetnt monetary system should it fail. A mantra here has always been, "what matters is what actually happens, not what I or anyone else might prefer to happen". 

 With all this in mind and with the US and the world clearly engaged in a more open struggle to determine which way the future will unfold, this article is an attempt to try and provide an update on where things stand and what should we monitor going forward to get an idea of what will "actually happen" regardless of what we may personally wish would happen. It is critical to have as firm a grasp on reality as possible to make personal financial decisions. This new article by Jim Rickards seems to sum up the where we stand situation as clearly and succinctly as any I can find. Below is a relevant quote from his article:

"The bottom line is the world is looking to turn away from dollar dominance in global finance. Given the severe sanctions regime against Russia, it may end sooner than most expect."

So, if Jim's analysis is correct (and I believe it is) the biggest global battle in progress is the battle to determine if the existing US dollar based monetary system as administered by the major central banks will continue to dominant the world's power structure or if it will replaced by something new and different. 

After years of following all this and based upon direct input from a variety of experts like Jim Rickards my take is as follows.

There appear to be two major competing factions in the world over where we will go in the future (see recent article by Robert Pringle on this). A globalist view sees us moving towards a more centralized global governing structure where major global institutions make policy and the world's monetary system becomes more and more digitized and centrally controlled over time. A nationalist view sees us moving towards a breakdown of the existing more centralized power structure with individual nations reclaiming more national sovereignty. 

So, while many view the current world conflict as East vs. West, my take is that the real battle is between the globalist and nationalist factions that exist in both the East and West. This can lead to strange alliances we would not expect. Nationalists in nations thought of as adversaries might work together on the big picture battle against a "globalist view" of the future for example. I think this view of things provides a better basis for understanding the information narrative wars we all see around us every day across all media platforms from mainstream media to social media to alternative internet based media.

What Should We Monitor?

My best guess is that we should watch to see how the ongoing battle between the globalist view for the future and the nationalist view unfolds. It seems as if these two factions have been somewhat gridlocked for many years with both sides having advantages and disadvantages in terms of gaining more leverage over the other side. 

So, the first big thing to monitor is if we see a shift indicating one side or the other is gaining more leverage to move the future in the direction it prefers. If things stay gridlocked, we can expect that the present monetary system will continue to prevail for as long as possible. That is where we have been since 2007. At any time going forward, that could change, so it is important to understand the battle underway (between globalists and nationalists) to control any major changes to the global power structure going forward. 

The biggest upcoming event to monitor is the outcome of the midterm elections in the US. Both sides of this struggle for control of the future are all in to win those elections. We can expect, given the high stakes for control and loss of control in the US, that just about anything could happen to try and influence voters between now and November. If the Republican party achieves a significant win this fall (regains control of the House of Representatives), I would view that as a shift in leverage towards the nationalist side of this conflict. If the Democrat party holds on to the House, I would view that as a shift in leverage towards the globalist side.

The other biggest thing to monitor is what happens globally in the struggle to disrupt the present US dollar centered monetary system and global payments system. The globalists are more likely to want to preserve the US dollar based system as long as possible and, if a major transition takes place, to move to a globally accepted fiat currency system controlled by the same basic institutions who run the present monetary system (central banks, IMF, etc). The global nationalists, which in my view would now include the BRICS nations, are more likely to try and replace the present US dollar centered monetary system with an alternative system where they would be less subject to being controlled by the western central banking institutions and the IMF (the opposite of a globalist vision of the entire world uniting under a global governance power structure). So, this is what I would encourage people to monitor in the coming year. 

Who decides what money is and how it will be distributed  to the population holds immense power over what actually happens all the way down to the individual level. These big picture issues (and which side controls them) are likely more tied to how the future will unfold than any single issue politics such as cultural social issues or even things like inflation and employment. Those are the smaller battles in the information narrative war.

As I view things, those individual political issues are symptoms of how the big picture issues are decided along with which side (globalist or nationalist) will have the most control of the global power structure. That is why this blog focuses on monitoring the big picture issue of the future of the monetary system. Whoever controls the money and payments system controls how things work as Jim Rickards explains in his article linked above.

Added comment 8-17-22: I see no reason to change anything stated above. It appears to me that things are unfolding very much as expected with the November US elections being the biggest upcoming event to monitor. Unless something major happens, I'll likely not have much else to say until those results are known.

Added comment 9-21-22: While I have nothing new to report and things appear to continue to unfold as expected above politically in the US, some readers may have interest in this new interview Jim Rickards did with Steph Pomboy. It's somewhat of an update on things with Jim now more concerned about policy makers creating a deep recession and/or global liquidity crisis that could be worse than the GFC of 2008. Obviously, if that happens, the potential for the present monetary system to become unstable would go sharply up. Below are the links to Part I and Part II of the interview. Part II is the first 25 minutes or so of the second link:

Part I - Deep Recession and/or Liquidity Crisis?

Part II - Double Digit Inflation if the Fed Pivots Too Soon?

Information War is Not Focused on Monetary System Change Right Now

Not much has changed since the last update here. Certainly we have not seen anything yet dramatically impact the present monetary system other than inflation and the Fed attempted response to inflation. None of that implies a major change to the present monetary system. Instead, it is just more effort to try and preserve the existing system by getting inflation under control and continue to prop up the US dollar as the global reserve currency (see Reuters link below). Clearly, Russia (and China along with perhaps other BRICS nations) would be happy to see the US dollar undermined and we can assume they will continue working towards that end. So again, no major change to the status quo so far. If we were to see a major drop in the US dollar or the ruble, that would indicate something worth noting is probably taking place. But not so far. (see chart of ruble vs dollar since sanctions were imposed here).

This blog does not attempt to delve into politics other than to try and assess the political trends in place and how they might impact changes to the present monetary system. Right now, world events seem to suggest that a major "information narrative war" is in full swing in the United States with tangential impacts all around the world. My own take on this is that much of competing information narrative war we see every day all around us is instigated by various competing factions in the intelligence agencies that influence what information flows out to the public, led by the competing US intelligence factions. In my view, all that noise they generate makes it especially difficult to sort out true information from intentional disinformation used by all the competing factions to try and gain more leverage with the general public to their side of the information war. This always ramps up during election cycles and I expect that to be the case again this year. 

Conclusion: My conclusion from the above is that the information warriors are engaged for now on swaying the upcoming US elections; so the monetary system is not a prime area of focus for them right now. While whatever happens in the political realm can significantly impact the monetary system, I would be surprised if anything major happens to change the present monetary system before the US midterm elections in November. 

I also expect the "information narrative war" to just keep ramping up until the elections and won't be surprised at anything that happens in the political world leading into the fall. Fewer people vote in mid term elections so both sides know they can win by swaying just enough of their base voters who do vote to show up. It is possible to significantly change the balance of power with a relatively small number of voters in the key races that determine that balance of power. As always, both sides will do just about anything to win. Whoever "wins" then immediately faces an ongoing intense effort to undermine their ability to govern. All that moves monetary system issues to the back burner. The only monetary issue even being talked about in the US right now is inflation.

Added note 6-18-2022: Just to insure that we understand that current US policy is devoted to maintaining the global reserve currency status of the US dollar, Fed Chairman Powell makes it clear in these recent remarks as reported by Reuters:

https://www.reuters.com/markets/us/feds-powell-us-digital-dollar-could-help-maintain-international-primacy-2022-06-17/

Added note 6-25-22: BRICS Announce Potential Rival for US Dollar

Added note 6-28-22: The Move Away From Western Based Global Cooperation Continues

Added note 6-30-22: New Article by Robert Pringle - We Remain Stuck in a Bad Money Trap, Why?

End of Global Cooperation?

In the last update here I made the comment pasted in just below dated 4-18-22. Nothing major that I am aware of has changed since. However, in regards to a key point that we may seeing the end of "global cooperation" going forward from here, I did see this article about the idea that Russia and other nations may be moving forward with some kind of plan to back the ruble with commodities (possibly to include gold). Obviously, if Russia and other nations make a move like this, it will be significant news potentially impacting the global monetary system. But I could not help but notice one part of this article discussing a recent interview by a high level Russian official (Nikolai Petrushev). It provides some insight into the very key point I had mentioned below about the weaponization of the monetary system creating trust issues around the world.

Here is the key paragraph with a quote from Russian official Nikolai Petrushev (added underline is mine)

"On the subject of the financial sanctions themselves, and the freezing of Russia’s FX reserves held abroad, Patrushev states that by imposing sanctions against Russia, the “the West is hitting not only Russia, but also itself”, and has damaged trust in the US dollar as the world’s de facto reserve currency:

“The current global financial system is built solely on trust, including in the United States as the issuer of the world’s reserve currency. Half a century ago, the gold factor was present, but in 1971 the States untied its currency from its quotes, which made it possible to issue money virtually without control.”

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Previous Update as of 4-18-2022:

Nothing major in terms of an update to report as a change from anything below as the war in the Ukraine just continues to drag on for now with no clear end of the conflict in sight. So things are still pretty much the same in terms of economic impact on the monetary system. Jim Rickards did do another pretty in depth interview to update things from his point of view which you can find here. Jim is a good source because for the most part he tries to offer objective analysis based on the latest information and he adjusts things as new information comes in as best he can. But no one really knows where all is going for sure and what the full impact long term is going to be. The easiest observation to make is one that Jim goes into this most recent interview  --- It is most likely the the period of "globalization" we have had for some time is coming to an end and we probably are entering a new world where there are at least two and maybe more competing power blocs that now are more concerned about being able to be independent from the other bloc(s) (for survival) and far less motivated to move forward with "global cooperation". The weaponization of the monetary system has probably destroyed any trust left that people can count on not having their assets confiscated if they behave in a manner not acceptable to those in control of the monetary system. Once that kind of trust is lost, it can take a long time to ever restore. 

Is the Current Geo Political Conflict a Trigger for Major Monetary Change?

I have not posted anything here for some time simply because there were no major events likely to lead to major monetary system change taking place. Now, with military conflict underway and the world watching to see if this will be resolved without further escalation, it's reasonable to ask if this situation could be the trigger for major monetary system change. I'll offer some thoughts on that here.

My answer right now would be it is too early to tell. We need to see if this military conflict is resolved without further escalation or not. The trend right now is towards increasing escalation with both sides making moves to ramp up pressure on the other side. If that trend continues, we certainly could arrive at a place where the current global financial and monetary system is destabilized. Below I'll bullet point some things I plan to watch over the coming weeks/months.

• Does limited military conflict expand beyond borders into broader scale military conflict? (not yet)
• Is the oil and gas supplied into global markets by Russia cutoff by sanctions? (so far it's not)
• Does a monetary system alliance emerge between Russia and China to bypass the US dollar? (not yet)
• If so, how does that impact the global reserve currency status of the dollar? (nothing so far on this)
• Are important strategic commodities needed in the East and West cutoff from each other? (not yet)
  
• Will gold emerge from all this as a more prominent factor in the financial system? (not yet)
• Is the world trending to more "global monetary cooperation" or "competing monetary systems"? (an East vs. West trend seems in place right now rather than global cooperation)
• Is what is happening a simple military conflict or are there deeper chess moves being made?

Please note that despite all the dramatic events taking place right now, I still really have no final answers to the questions listed above yet. That is why I say it's too early to tell if these events are the start of major monetary system change or not. It may take weeks/months to see the answers to these questions emerge, but these are the things I would suggest to monitor over time.

One other comment. War is horrible. I hope the conflict now underway is resolved as soon as possible with the least possible loss of life and hardship on the regular citizen who always bears the worst brunt of war. The prayer here is for military conflict to cease as soon as possible with the best possible future outcome for all the regular citizens (on both sides) who suffer most in the midst of war. While trying to understand the monetary and financial implications of events is important to do, it pales in comparison to the loss of innocent human life and suffering that comes with war.

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Update as of 4-18-2022:

Nothing major in terms of an update to report as a change from anything below as the war in the Ukraine just continues to drag on for now with no clear end of the conflict in sight. So things are still pretty much the same in terms of economic impact on the monetary system. Jim Rickards did do another pretty in depth interview to update things from his point of view which you can find here. Jim is a good source because for the most part he tries to offer objective analysis based on the latest information and he adjusts things as new information comes in as best he can. But no one really knows where all is going for sure and what the full impact long term is going to be. The easiest observation to make is one that Jim goes into this most recent interview  --- It is most likely the the period of "globalization" we have had for some time is coming to an end and we probably are entering a new world where there are at least two and maybe more competing power blocs that now are more concerned about being able to be independent from the other bloc(s) (for survival) and far less motivated to move forward with "global cooperation". The weaponization of the monetary system has probably destroyed any trust left that people can count on not having their assets confiscated if they behave in a manner not acceptable to those in control of the monetary system. Once that kind of trust is lost, it can take a long time to ever restore. 

Update as of 3-8-2022 on the bullet point list above:

• Does limited military conflict expand beyond borders into broader scale military conflict? (not yet, but war by proxy creeps closer)
• Is the oil and gas supplied into global markets by Russia cutoff by sanctions? (Yes - US,UK, but not the EU)
• Does a monetary system alliance emerge between Russia and China to bypass the US dollar? (not yet, but some media speculation about it out there)
• If so, how does that impact the global reserve currency status of the dollar? (nothing so far on this, most assume long term impact)
• Are important strategic commodities needed in the East and West cutoff from each other? (Russia says it is making a list and will release it later)
  
• Will gold emerge from all this as a more prominent factor in the financial system? (not yet, but price has reacted upwards -one source advises me that gold cannot be linked to any currency below $15,000 per ounce if anyone tries to do that)
• Is the world trending to more "global monetary cooperation" or "competing monetary systems"? (an East vs. West trend seems in place right now rather than global cooperation)
• Is what is happening a simple military conflict or are there deeper chess moves being made? (the indications are that this is a deeper chess game beyond just this initial military action by Russia)

Still too early to tell if all this results in actual major monetary system change. I am advised by an expert that all this will result in calls for such change, but no one knows where that will go yet.

Added note 3-12-22: For those interested in Jim Rickards take on all this, you can find that in this recent interview.

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Update as of 4-4-2022:

There is a lot of debate/discussion going on all over the world in regards to the recent decision by Russia to demand payment for natural gas in either rubles or gold. Also, the recent decision by Russia to pay 5,000 rubles per gram of gold to banks willing to sell gold to them at that price point.

Questions being asked are:

-Is Russia in essence putting gold back into play in global trade?

-Is this just an effort to bypass US/EU sanctions or is it the start of an effort to try and destabilize the US dollar?

-Will Russia actually formally back the ruble with gold?

-Will China formally back the Yuan with gold?

-How will the US dollar react to all this over time?

-Who will win the apparent Currency War? (interestingly predicted by Jim Rickards a decade ago in Chapters 1 & 2 of his book - Currency Wars.

I don't have answers to these questions. I can offer some comments I have seen and gotten from a variety of experts around the world for those who may be interested.

-one expert told me they do not think the US dollar will quickly or easily be destabilized, but these moves do indicate efforts towards that end. This expert did also say that if Russia and or China were to use gold backing for currency, that would be a very significant event. This recent article (from someone else- Charles Hugh Smith) kind of lays out this point of view.

-others believe these events increase the chances of not only the US dollar, but all western fiat currencies losing trust and confidence. Here are a couple of different articles taking that view:

Edging Towards a Gold Standard  (here's a vdeo discussion with the author of this article)

Russian Ruble Relaunched linked to gold and commodities

While I cannot answer my list of questions above, I can offer a few observations that seem factual to me at this point in time:

-any movement towards some kind of global monetary system or cooperative global currency appears to be dead for now. The world seems currently to be breaking down into at least two competing spheres of influence with currencies and commodities being weaponized by both sides. 

-gold has emerged out of the shadows as one of weapons in play now. We know both Russia and China have been stockpiling huge gold reserves for years. There are official estimates which are substantial, but also many rumors/reports of much larger reserves than are officially being reported. It is pretty clear that we are now seeing why that took place as having national fiat reserves blocked from use by sanctions shows everyone that "the global monetary system", such as it is, cannot be trusted to honor its normal rules once things break down.

-it appears very likely that we are seeing the start of a long and bitter currency war that will leave all kinds of wreckage in its path. Both sides likely suffer significantly and, as usual, the regular people just trying to live normal lives and earn a living will suffer the most.

-distrust of both government and all kinds of "establishment" institutions seems to be at the highest point I can recall in my lifetime, making it all the harder for those in power to unite people towards any sort of common goals. 

I will just continue to monitor events and provide an update if I see something important to update. But really, this blog has pretty much covered all this for years and the information already presented here is totally relevant to current events as best I can tell.

Fed Continues To Evaluate a CBDC

Not much new here, but Fed Chairman Powell again states the Fed will continue to look at a central bank digital currency (CBDC) and decide whether one seems useful or not. He made it clear that the Fed is in no hurry and does not feel any pressure to move forward on any particular time table.

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from the CNBC article:

"Powell noted the dollar’s position in the world and said the Fed is “in a good place” to make a decision on whether to implement its own digital currency. He expressed some concern about the regulatory landscape and said the Fed likely will need congressional permission should it decide to proceed."

Dr. Warren Coats (former IMF) Proposes "A Future Digital SDR"

Readers here know we have long covered monetary system reform proposals from Dr. Warren Coats. Dr. Coats is formerly the head of the SDR Division and is in my view a leading expert in the world on the SDR along with IMF rules and regulations. So we feature him here as the best source of information on this topic. 

Dr. Coats recently sent me his new article, The IMF's $650bSDR Allocation and a future 'digital SDR' recently published on centralbanking.com (8-3-2021) that outlines his proposal for the IMF to promote a broader adoption of the SDR as a globally used form of currency. It's important to note that Dr. Coats proposal includes issuing SDR's under currency board rules. 

In this article, Dr. Coats is responding to the current proposal to issue a new $650 billion (SDR) allocation of SDR's in response to the Covid pandemic as one way to assist developing nations. Below I have selected a few extracts from the article and then a few summary comments.

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"While a strong case can be made for financial assistance by high-income countries to low-income ones to combat the Covid-19 pandemic, an SDR allocation cannot properly be justified on that basis. This link is unfortunate, and mixes the monetary contribution of SDRs to the stock of international reserves with the case for aid to developing countries. Such aid, while potentially justified, is a fiscal issue – and should be addressed as such. The case for a new allocation must be based on “the objective of meeting the long term global need to supplement existing reserve assets”

. . . . . 

"As indicated in the opening paragraphs, the case for expanding the role of SDRs in international payments is strong. But, in fact, their role has been very limited beyond the IMF. To become a serious supplement to, if not replacement for, the US dollar in the international monetary system, the SDR would need to be usable for payments by private-sector parties. This would require the creation of private or market SDRs. Following the model of national currencies in which central banks create base money that backs the deposits created by banks (broad money), the IMF’s ‘official’ SDRs could back private digital SDRs.

Article XXII of the IMF’s Articles of Agreement provides that: “In addition to the obligations assumed with respect to special drawing rights under other articles of this agreement, each participant [in the SDR department] undertakes to collaborate with the fund and with other participants in order to facilitate the effective functioning of the special drawing rights department and the proper use of special drawing rights in accordance with this agreement with the objective of making the special drawing right the principal reserve asset in the international monetary system.”

In support of member obligations to make “the special drawing right the principal reserve asset in the international monetary system” the IMF needs to facilitate and encourage the private-market uses of the SDR for pricing and paying for globally traded goods, as well as for denominating financial assets. The breath, depth and liquidity of such uses of the US dollar are important factors in the dollar’s widespread use in international payments and as a reserve currency."

. . . . 

Digital SDR currency 

"As with national currencies, the internationally issued SDR needs a central issuer of the base money version of market SDRs (M-SDRs). The IMF should oversee the development of a procedure for issuing M-SDRs following currency board rules and backed 100% by official SDRs or by an appropriate mix of sovereign debt of the five basket currencies."

. . . . .

"Banks offering M-SDR deposits/currency to their customers would hold an SDR reserve backing with the IMF SDR trust fund. The base money M-SDRs issued by the IMF trust fund would perform the same payment settlement function as do central banks for the base money they issue, with the critical difference that depositors/participants would be global, rather than national. This would enable virtually instantaneous final settlement of M-SDR payments globally."

Find the full article on centralbanking.com here

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Added comments: These proposals may sound as if we are about to see some major changes to the present global monetary system which is what this blog was created to monitor. However, a question that I always ask Dr. Coats when this topic arises is if he sees any signs of movement towards this kind of change. I am quite confident Dr. Coats would know that. I asked him that again and here is his reply to that:

"The IMF has no plans for a digital SDR and they say they are too busy with the allocation itself and related covid lending to focus on my other private SDR promotion suggestion though they might in the future."  

This reply is in line with what we have reported here for some time. If anything changes in this regard and I am aware of the change, I will report it here. But I continue to see no indication that this kind of major monetary system change is on the near term horizon. There is no better source on this than Dr. Coats in my view.

Fed's Powell -- Proper Reaction To Surging Inflation is a "Challenge"

In comments to the US Senate, Federal Reserve Chairman Jerome Powell admitted inflation is running higher than they expected and that how to react to that is a "challenge". His comments are reported in this article on Kitco. Below is a couple of excerpts from the article and then a bullet point list of his key comments.

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"We don't have another example of the last time we reopened a $20-trillion economy with lots of fiscal and monetary support," Powell said. "The challenge we are confronting is how to react to this inflation, which is larger than we expected. To the extent it is temporary, it wouldn't be appropriate to react to it. But to the extent it gets longer and longer, we" have to continue to revaluate the risks that would affect inflation expectations, and that is what we are monitoring."

. . . . . 

Debt was another issue discussed during the testimony, with Powell highlighting that the U.S. is not on a sustainable path.

"Debt is growing substantially faster than the economy. In the long run, that is not sustainable. The laws of gravity have not been repealed. We'll need to get back on the sustainable path at some point. The time to do that is when the economy is strong — unemployment is low, taxes are rolling in. That is the time to do it."

• Inflation is way above the Fed's 2% target - they are "not comfortable" with that
• Current inflation problem is "unique" in history recovering from a pandemic shutdown
• Higher Inflation expectations can lead to higher actual inflation
• Fed will discuss reducing QE if high inflation persists
• Fed will use its tools to fight inflation if necessary
• The laws of gravity have not been repealed
• US debt is growing faster than the economy which is "not sustainable"
• Fed will continue to study a central bank digital currency - not sure if it is needed
• Cyber risks of ransomware attacks is what Powell worries about the most

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My added comments: In these comments Chairman Powell outlines the problem facing the Fed which we have long reported here. The Fed is in a potential no win position. If they continue intervening in the interest rate market to keep rates suppressed, the risk of way too much inflation is clearly present and now the Fed is finally admitting that. However, despite the assurance that the Fed has "tools" to fight inflation (which would mean allowing interest rates to rise), if they take that route they speed up the explosion higher of US debt which Chairman Powell just described as "unsustainable".  Higher interest rates means US debt grows faster and quicker towards unsustainability.

It is impossible to believe the Fed is surprised by this situation. Economists and analysts have been predicting this situation for years and almost anyone who understands math can easily figure out propping up a debt dependent system with ever expanding money creation and even more and bigger debt cannot go on forever without consequences. 

The problem is that no one has the courage to step up and be honest about how these policies create this kind of problem because the solutions involve inflicting pain and accepting a share of blame for creating the problem. Politicians love spending money because it buys them votes and funnels money to the special interests that fund their campaigns. They want the central bank to just keep bailing them out with more and more new money so they can keep spending without having to pay for it with much higher taxes on the middle class (where all the votes are). Politicians do not like being honest about the mess all this eventually creates and certainly don't have any interest in accepting any share of the blame for their role when problems arise from these policies. The public just mostly ignores the situation until some kind of real world consequences show up in their daily lives. They instinctively know something is wrong about piling up more and more debt and creating money out of thin air to paper over problems, but don't really want to believe a price will ever have to be paid for it and their leaders assure them it's all under control. It's easier to just accept that and ignore reality.

Bottom line: So long as all the parties involved in this process (central banks, politicians, and the general public) refuse to be honest and transparent about how these policies lead to an "unsustainable" system, we can expect that nothing will change and the same policies will continue anyway (even as they admit it's not sustainable) until something forces them to change (the system cannot function). It appears no one is really interested in proactively reforming the policies of the present system leading to unsustainability and accepting any share of blame for them. We can reasonably expect that the various parties involved will all point fingers of blame to someone else if the day of unsustainability does arrive. Politicians out of power will blame the political party in power at the time (too much debt). The political party in power will blame the Fed (too much easy money). The Fed will blame the politicians in both political parties (too much debt). None of that will solve the problem of course, but will just create confusion in the hopes the public will blame someone else for the mess. So we are all reduced to just hoping it doesn't come any time soon, even though Chairman Powell just told us once again it is unsustainable.

Fed Official Skeptical of the Need for a "FedCoin" CBDC

 We have reported here for some time that despite constant speculation about the Fed moving towards a so called FedCoin CBDC (Central Bank Digital Currency), we did not see any evidence such a thing was on the horizon any time soon. Now we have a Fed official questioning why they need one at all as quoted in this article in Yahoo Finance. This fits with all the other evidence we have seen and direct input from experts in the field. Below are a couple of excerpts from the article.

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"A top Federal Reserve official on Monday advocated against creating a digital version of the U.S. dollar, questioning the use cases and security of a Fed-issued digital currency.

“The potential benefits of a Federal Reserve CBDC [central bank-issued digital currency] are unclear. Conversely, a Federal Reserve CBDC could pose significant and concrete risks,” Randal Quarles told the Utah Bankers Association Monday."

. . . . . 

Click here to read the full article

The Bank for International Settlements (BIS) recently issued this update on global efforts to move forward on CBDC's. While it tries to paint a positive picture about a future for CBDC's, it also lists lots of obstacles and notes that only a handful of central banks have moved beyond just studying the pros and cons. The BIS report also states there are no plans to replace cash and it's just as likely central banks might try using a wholesale version of CBDC's which the public would never see or use just to move money between banks easier. While there is lots of speculation about CBDC's, if you read the actual reports and studies on them, they always list lots of obstacles to overcome and always talk about them as a long term horizon event. Here, the Fed indicates they haven't even decided if they even want a CBDC.

Added note: CNBC offers this more detailed article on these comments. Here is an excerpt:

“First, the U.S. dollar payment system is very good, and it is getting better. Second, the potential benefits of a Federal Reserve CBDC are unclear. Third, developing a CBDC could, I believe, pose considerable risks,” he said. “So, our work is cut out for us as we proceed to rigorously evaluate the case for developing a Federal Reserve CBDC.”

Dr. Warren Coats on Bitcoin

Former IMF official Dr. Warren Coats offers a new article on the prospects for Bitcoin to function as a currency. He also describes what he believes would an "'ideal monetary regime" in the article. Below is an excerpt from that part of the article.

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"The ideal monetary regime is to fix the value of currency to something (such as gold, or a basket of currency as in the case of the IMF’s SDRs, or a small basket of widely traded commodities) and then allow the public to adjust the supply to match its changing demand for that fixed value. Such a system follows currency board rules. The central bank passively supplies or redeems its currency in response to the public’s demand at the fixed price. Such a system has been adopted by several countries as is described in detail in my book on the creation of the Central Bank of Bosnia and Herzegovina.  [“One Currency for Bosnia-Creating the Central Bank of Bosnia and Herzegovina”]"

Click here to read the full article

OMFIF Article - Digital Renminbi is No Threat to the US Dollar

The OMFIF publishes this article which argues that the US dollar will not be significantly impacted by a so called "digital renminbi".   Below are a couple of excerpts. I added underline for emphasis.

"More than 50 years after Valéry Giscard d’Estaing lamented the dollar’s ‘exorbitant privilege’ and two decades after the euro’s launch was seen as a threat to dollar domination, the latest mutation has hit – will the digital renminbi surpass the dollar? Adding to the fog are errant questions about whether the dollar’s demise will be fast and furious, and whether it is a winner takes all hegemonic proposition.

Those arguing for a surge in the digital renminbi’s global role seem to view digitalisation as a revolution in the international currency landscape. But large global trade and capital flows already predominantly take place in digital form. Digitalising a central bank currency is not a game changer. But that doesn’t mean that the US doesn’t have much needed work to do in strengthening its payments systems."

......

"The question facing the US is not how to protect the dollar’s global role. Rather, the US should focus on maintaining a healthy economy. Promoting strong economic performance, restoring buffers after the pandemic, tackling challenges and buttressing robust institutions and openness will ensure that the dollar’s vibrant global role is maintained."

Please click here to read the full article

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My added comment: While the US has vast political differences, one thing has remained constant so far. No matter who has political power, the US does in fact make every effort to "protect the dollar's global role". So far that seems to remain unchanged with the new Administration. Time will tell us if any real change does take place in that regard.

IMF - US Dollar Share of Global Foreign Exchange Reserves Drops to 25-Year Low

This new report from the IMF confirms a long term trend of gradual movement away from the US dollar continues. At the same time, the report also confirms what has been reported here for many years in that monetary system changes tend to move slowly unless something unexpected forces more rapid change. Below are some excerpts from the report.

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"The share of US dollar reserves held by central banks fell to 59 percent—its lowest level in 25 years—during the fourth quarter of 2020, according to the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) survey. Some analysts say this partly reflects the declining role of the US dollar in the global economy, in the face of competition from other currencies used by central banks for international transactions. If the shifts in central bank reserves are large enough, they can affect currency and bond markets."

. . . . 

"Turning to this past year, once we account for the impact of exchange rate movements (orange line), we see that the US dollar’s share in reserves held broadly steady. However, taking a longer view, the fact that the value of the US dollar has been broadly unchanged, while the US dollar’s share of global reserves has declined, indicates that central banks have indeed been shifting gradually away from the US dollar."

. . . . 

"Despite major structural shifts in the international monetary system over the past six decades, the US dollar remains the dominant international reserve currency. As our Chart of the Week shows, any changes to the US dollar’s status are likely to emerge in the long run."