China to Pass the US economy in 2014?

This article says it could happen this year.  Earlier than previously expected (which was 2019).

The article notes that "the findings will intensify arguments about control over global international organizations such as the World Bank and the IMF, which are increasingly out of line with the balance of global economic power.

The other BRIC nations are also listed among the largest economies as well with India at 3rd and Russia 6th. And most of the BRIC nations are growing faster than the US in GDP.

Meanwhile, China downplays the report much as they downplay their ongoing accumulation of gold reserves. China prefers to operate in a low profile manner.

All these changes are part of the process that will lead to monetary system change in our view. The question that remains is what will be the timing for major change? The key signs to watch for remain:

- end of the petrodollar for oil trading

-significant decline in the US dollar index (monitored at the top right of this blog) which also results in a significant increase in the price of gold (and silver).

-continued bypassing of the US dollar in major global trade deals around the world

-any crisis which moves the IMF into the position of the global lender of last resort (instead of the US FED). Adoption of the SDR as a reserve currency (perhaps in combination with a digital cryptocurrency for use outside the IMF that ties into the internal SDR)

-a rise in the BRIC bank as a real competitor to the IMF/World Bank along with adoption of other currencies than the US dollar in that institution (currently scheduled to startup in 2015)

Revisiting the Ukraine - Anything new to report?

With the news this week that the West is adding on some new sanctions against Russia, it is time to review and see if anything happening there might speed up monetary system changes.

There are plenty of articles suggesting that the tension is ramping up between the US, the EU, and Russia over the Ukraine. Here are just a few examples:

US imposes more sanctions

Pro Russian forces seize TV station

Moscow calls US/NATO buildup "Unprecedented"

Russian - Ukraine forces heading for military clash?

Moscow: US to face "payback" for sanctions

I think you get the idea. The US and the EU have announced some new additional sanctions. Russia has reacted by calling for "painful payback".

Here are a couple of other articles from the BRIC's post:

Kremlin:  US Sanctions help Russia Unite

and this one which may be the most significant of all:

China criticizes US Sanctions against Russia


Here are some important segments from this last article as China has tried to sit quietly on the sidelines until now:

"Beijing announced its support for a beleaguered Moscow after the US and Canada announced fresh sanctions against Russia for it’s alleged “inaction” in easing tensions in Ukraine.

In a public signal of increasing Sino-Russian cooperation, China called on all parties to resolve the Ukrainian crisis through dialogue rather than sanctions, Foreign Ministry spokesman Qin Gang said Monday.

“We believe that sanctions are inconducive to the solution of problems. On the contrary, they will escalate tensions,” he said."

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This article goes on to point out that Putin will be in China in May on a "strategic visit."
So, it is becoming clearer that if the tension keeps ramping up and a real conflict unfolds, China is going to come down beside Russia. We can assume the other BRIC nations likely will too.

How does all this impact the prospects for montary system change? For now, not much really. So far nothing all that significant has actually happened. These additional sanctions are still nothing that would trigger major global changes. Russia is talking about "payback", but has not done anything significant so far.

It does look like however that the prospects for these major powers coming together within the IMF to move forward with some kind of new monetary system and currency seem dimmer right now. If the Ukraine continues to escalate into a major economic battle (or even an actual military conflict), it seems impossible that these countries will be working together on anything at the IMF or other existing global institutions.

More likely would be a speeding up of the alternatives the BRIC nations are already working on. If things stay as they are, it appears that it might be 2015 before we see some major triggers for change. That is the pace that has been announced. But a crisis can always change the timing of events. If lots of people start really getting impacted (hurt), pressure will emerge to solve "the crisis".

If the Ukraine were to explode into a real major crisis involving the major world powers, that could change the timing for monetary system changes. We will continue to keep an eye on it.

Yuan set for Global Growth

Just another step in the path that leads away from the US dollar as sole global reserve currency.

Here is the full article:

"The Chinese currency renminbi, or yuan, regained some posture during opening of markets on Monday after a slide to its lowest rate against the dollar since 2012.
On Friday, it hit 6.25 before closing at 6.1576 to the dollar.
According to the China Foreign Exchange Trading System it gained 11 basis points on Monday to 6.1565.

Although it has retreated by 3.3 per cent against the greenback since January 1, the weakening of the yuan signals greater employment opportunities in China because its exports are cheaper in the US and Europe.

The 2 per cent rise and fall flexibility allowed by the central bank has made the yuan the fastest growing trade currency in the world.

According to data released by Swift, which monitors global currency trade, the yuan is the second most used currency after the greenback in Europe.

It’s little surprise that HSBC predicts a surge in the yuan’s trading power in international transactions.

HSBC’s forecasts appear to confirm what financial experts around the world have been saying about the yuan.

Last month, Philip Lowe, the Deputy Governor of the Reserve Bank of Australia (RBA), told delegates at the Centre for International Finance and Regulation (CIFR) conference in Sydney that the internationalization of China’ s currency could eventually transform global capital markets.

He added that while China’s transition to a more flexible exchange rate will be gradual, it nevertheless carries with it the “potential to create a seismic shift in the international monetary and financial landscape”.

“Over the past few years, the share of China’s international trade that is denominated in RMB [or yuan] has risen significantly and this trend is expected to continue,” he said.

“We saw the latest step in this transition just last week when the daily trading range for the RMB against the US dollar was widened from 1 per cent to 2 per cent,” Lowe said.
Beijing has made financial and economic reform a priority as it deals with a slowing economy."

Russia, India, and China working on $30 billion oil pipeline

Every time we see these BRIC nations working together on massive energy projects, we can assume these are steps to move away from the UD dollar.

This article in the Bodhita (publication) details the progress being made on the pipeline.


Here is the full article linked above pasted below:

"Russia and India are planning to construct a $30 billion oil pipeline through China’s restive Xinjiang province. If successful, the pipeline will be the most expensive in the world.

The groundwork for the project was laid on October 21, 2013, during Indian Prime Minister Manmohan Singh’s visit to Moscow for the 14th India-Russia Annual Summit. Singh and Putin issued a joint statement that said, “Russia and India have agreed to establish a joint group to study the possibility of direct ground transportation of hydrocarbons.”

That announcement reaffirmed the two countries’ joint commitment to implement the Agreement between the Government of the Russian Federation and the Government of the Republic of India on the Enhancement of Cooperation in Oil and Gas Sector, which was concluded on December 21, 2010.

The project has been on the drawing boards for nearly a decade, as Russia and India first began discussing it in 2005.

Four years later, in 2009, the foreign ministers of Russia, India and China agreed to enhance energy cooperation. Sergei Lavrov, S.M. Krishna and Yang Jiechi met in Bangalore to discuss energy security, the fight against terrorism and climate change. In a joint declaration, the diplomats said, “India, Russia and China are seeking to intensify international energy cooperation on a new basis to help make the energy market more open, transparent and competitive and reflect the common interests of all the parties involved.”

At the end of last year, India’s biggest oil and gas company, Oil and Natural Gas Corp. (ONGC) confirmed its interest in the pipeline project, saying, “The pipeline from Russia seems appropriate. The details of the project will be clarified with the Russian partners.”

Political support in Russia for the Xinjiang pipeline project has increased in the wake of worsening relations with the U.S. and EU over Crimea. On February 26, Russian Deputy Prime Minister Dmitry Rogozin observed, “This is one of the major infrastructure projects that can be implemented.” But he also added, “I think it has a right to exist, but we should make calculations to see how profitable it can be.”

The pipeline also has political support in China. China’s Center for Strategic Studies in Energy Director Xia Yishan recently said, “The project is beneficial for both India and China, as it would allow China to become an oil transit in addition to its ‘status’ of recipient of the Russian oil.”

The pipeline project will strengthen India’s intention to become a member of the Shanghai Cooperation Organization (SCO), of which Russia and China are charter members.

India on the Grand Geopolitical Energy Chessboard

Meanwhile, as reported by Bodhita earlier while the US is talking with India & China to isolate Russia, Russia & India are planning to go over to transactions in roubles and rupees over the next fifteen years that could very well remove the dollar.

Russia and India may go over to transactions in roubles and rupees over the next fifteen years, the President of the Indian Business Alliance (IBA) in Moscow, Sammy Manoj Kotwani said Monday after a session of the International Council for Trade and Investment, which reports to the Russian Union of Industrialists and Entrepreneurs (RUIE).

“Quite naturally, it would be too unrealistic to give up the US at once but a possibility of this kind does exist,” he said. “If there’s a wish to do effectuate this transition, the dollar can be removed.”

Sammy Kotwani said the decision of Visa and MasterCard executives to work with the agents blacklisted by the US Administration was an error on their part.

“It was their error and they’ve already realized it,” he said.

IBA Moscow represents the interests of 150 Indian companies working in Russia.

Moreover, the Yuan may already have become a de facto reserve currency with at least 40 central banks investing in the yuan and several others preparing to do so, putting the mainland currency on the path to reserve status even before full convertibility.

What remains to be answered however is what are the threats that comes with such shifts in Global Power ? And is India prepared to counter such threats much less perceive it ?

South Africa a Customer for new BRIC's Development Bank?

The BRICS Post runs this article suggesting that state owned enterprises (SOE's) in South Africa might become customers for the new BRICS Bank.

Here is the relevant portion of the article:

"In response to a question from The BRICS Post on whether the SOEs would access finance from the proposed BRICS Development Bank, Gigaba said that this was an option that would be looked at, but the rates charged would have to be competitive with that available to the SOEs in international capital markets.

“Transnet and Eskom have access to the international capital markets, so that sets the bar for what the BRICS Development Bank needs to compete with,” he said.

The BRICS Development Bank was approved at the 2013 BRICS Summit in Durban, South Africa. The next BRICS summit is to be held in Brazil in July 2014, but a firm date has not yet been finalised.

South Africa has been enhancing its trade and investment ties with other BRICS member countries and trade with these countries account for a fifth of South Africa’s total foreign trade."

Russia pushing to sign Eurasian Economic Union Treaty in May

This Hungarian publication reports on Russian efforts to speed up the formation of the Eurasian Economic Union along with a proposed eventual currency for the Union called the Altyn.

More evidence that Russia wants to go its own way and that 2015 seems to be a pivotal year for things getting more serious. The full article linked above is pasted below as well:




Altyn Silver coins from the era of Peter the Great -- 1711



"The treaty establishing the Eurasian Economic Union will be signed by the leaders of Russia, Belarus and Kazakhstan in May, Russian First Deputy Prime Minister Igor Shuvalov said Thursday.

"The presidents of the three countries are determined to ink the treaty, which will come into force as early as January 1, 2015. 

The Eurasian Economic Union aims to pursue extensive economic relations with the EU including the possibility of establishing a "common economic space and even a free trade zone," the deputy prime minister said.

In 2011, the presidents of Belarus, Kazakhstan and Russia signed an agreement, setting a target date of 2015 for launching the Eurasian Union, an economic union made up by post-Soviet states.

Kyrgyzstan and Tajikistan have already expressed interest in joining the organization.

Current members of the Customs Union have also decided to speed up the introduction of the planned common currency called "Altyn”. According to original plans, "Altyn" was about to become a reality in 2025, but because of Western sanctions imposed on Russia the leaders of the three countries have agreed that they introduce it as early as 2020.

Altyn is a historic Russian currency. The name (originally "alti") means “six” in Tatar."

(the Voice of Russia – hidfo.net – edited by hungarianambiance.com)

Rickards Suggests a Gold backed Bitcoin

In his latest article in the Darien Times, Jim Rickards suggests the idea of a gold backed Bitcoin.

In this article, Rickards talks about the tax problems that come with Bitcoin due to the recent IRS ruling as to how Bitcoin will be taxed. He also debates the pros and cons of Bitcoin as a currency concept.

What I found interesting in this article however was this paragraph:

"One solution to the bitcoin volatility problem is to link bitcoin to gold at a fixed rate. This would require consensus in the bitcoin community and a sponsor willing to make a market in physical gold at the agreed value in bitcoin. This kind of gold-backed bitcoin might even give the dollar a run for its money as a reserve currency, especially if it were supported by gold powers such as Russia and China who are looking for ways out of the current system of dollar hegemony."


Now I do not think that a gold backed Bitcoin will be coming. At least not in any major way.
Bitcoin advocates and backers are not interested in gold and do not see any need for gold backing. They tend to view gold as an old school currency alternative.

But I do ask readers to hold on to this general concept. I do think an asset backed cryptocurrency that will have the approval of the existing global banking system is a real possibility. Let's keep an eye out for it as things unfold in the coming weeks and months.

News Publication Devoted to the BRIC nations

There is a news publication that devotes itself to news concerning the BRIC nations. Here is what they say about their mission:

The BRICS Post is an international news and views website with writers, analysts, and experts in over a dozen countries.

It is published by BRICS Media Network Ltd, a not-for-profit company limited by guarantee, registered in England and Wales in July 2012.

Our vision holds that emerging markets in the five countries that constitute BRICS will increasingly play integral roles in shaping global economic policy and fostering healthy exchange of ideas and innovation.

Our mission is to deliver reliable, insightful news, opinion and expert analysis from the five BRICS countries.

Our committment is to build a platform to unravel the intricacies and complexities of information flow from these countries and provide space to views which are rarely heard in the global arena. We believe that there is a lot which needs to be understood better and that there is a lot which needs to be told better.

In light of events that seem to say the BRIC nations are heading off to build their own system, we will monitor this publication for relevant news articles. Here are three that readers here might find of interest:

Central Bankers Spat

Russia-China ties to alter Global Equations: Putin

Russian Gas Giant buys 50% stake of South Stream

It appears this publication will probably offer us a glimpse into these nations that will provide more insight than just the usual mainstream news sources. Just these 3 articles are further evidence that the BRIC's seem ready to move ahead on their own as they look at the future.

Future of the IMF in Question?

Here is an interesting article written by Russian economist Valentin Katasonov about the current situation at the IMF and its future. The article is titled "The International Montary Fund might not live to see its anniversary".

We have tracked the stalled IMF reforms here on this blog and noted how we think this issue is important in relation to the potential for coming monetary system change. For major change to come from within the IMF, it has to be seen as a major global player. The inabililty to get the reforms passed has cast doubt on the IMF around the world.

We have also covered the growing frustration of the BRIC nations over all this. They expected these reforms to pass way back in 2012 and that by now another round of reforms would be coming that would continue to increase their influence within the IMF. Instead, here we are in 2014 and no reforms have been approved by the US (which holds veto power at the IMF). And prospects for approval seem dim during this election year.

Recently the BRIC nations issued a statement giving the US until the end of this year to approve the reforms. Included in that statement was the threat that if the approval is not done this year, it would be time to take steps to bypass the US and IMF and move on with other institutions. The BRIC nations have been steadily working on those institutions in what I call "Plan B" all along.

Until recently, we have not been given much insight into the details of these plans or any possible timing for implementation. But now we have articles appearing that indicate that in 2015 they will be ready to start moving forward without the IMF if that is what is required.

This article is interesting because it is written from the Russian point of view so you get to see how they think about all this. In addition, the article re-confirms the 2015 target date for the new BRIC led global financial institutions and that significant funding is being discussed to start up the bank. It lists two options for the BRICs including this one:

"Some believe that a kind of revolution could soon occur in the IMF: a decision on reforming the fund will have to be made without U.S. participation... But formally the Fund's charter in the form it has had since the Jamaica Conference in 1976 will not permit this. Such a revolution will in fact mean not a reformation of the IMF, but the creation of a new organization with a new charter on its foundation - and without the U.S."


Since the IMF charter will not allow a "revolution from within the IMF" the article then goes on to discuss the second option:


"There is one more possible option. It is already fairly well worked out and has every chance of success. This is the Currency Pool (Currency Reserves Pool) and the Development Bank of the BRICS countries. The main decision to create these organizations was made at the meeting of BRICS countries on the eve of the G20 summit in St. Petersburg in September 2013. The BRICS Currency Pool and Development Bank will have capitalization of 100 billion dollars each. Operation is planned to start in 2015. Currently such questions as the schedule of capital formation, the shares (quotas) of individual countries, and the location of the headquarters of both organizations are being decided. These international organizations of the BRICS countries could become crystallization points which attract other countries to themselves. Who knows: maybe in time they could become financial organization which could replace the International Monetary Fund and the World Bank."

"As we can see, in both options for getting out of the current dead end, the IMF has no place in the new world financial order."
 

 

 

It is pretty hard to miss the point being made in this article. This is a direct threat being issued to the US/IMF. Either give us what we want within the IMF or we are going to walk and be up and running by 2015 with our own system.

This would, of course, have huge implications for what we are following on this blog. If the US dollar continues to get bypassed in global trade deals and especially energy deals , it will be a key signal to us that change is at hand. If the petrodollar comes to an end, demand for US dollars around the world will drop sharply. The value of the US dollar will be impacted significantly.

It is looking more and more like the end of 2014 is a real deadline because the BRIC nations are taking actual concrete steps to setup their own system. They have the capital to fund it. Nations around the world that need access to capital will then have a new alternative to the IMF and the World Bank. This would introduce something new to the global financial system. Competition. The IMF and World Bank would no longer be able to dictate terms to countries they loan money to. Those countries could seek out a better deal from the new kid on the block (the BRIC bank).

We are convinced this is the real story to follow over the next couple of years. How this is resolved will likely tell us what to expect in terms of major monetary system change and its impact on the value of the US dollar as world reserve currency. Something that will impact the entire world one way or another.

Heads Up on History Channel documentary on Gold

Tonight the Cable channel H2 (part of the History Channel) ran a full one hour program discussing various ideas about gold and possible price manipulation of gold being done to keep the public confident in the US dollar.

This program is not yet posted anywhere that I can link to it online, but I did see that the H2 Channel is scheduled to run the program again on Thursday April 24th at 9pm Central time (10 pm Eastern). Note: they are also showing this again tonight at 1AM Central if you happen to see this post in time.

I will not offer extensive commentary on this program except to say it is interesting to see this on a mainstream cable channel in prime time. The program includes appearances by Jim Rickards and Peter Schiff and other notable gold advocates. It also has some notable conspiracy advocates as well who offer a variety of ideas as to what is going on with gold.

If I were to try and read anything into this program at all, it might be that we are perhaps getting closer to major monetary system change and someone has decided it is important for the public to be more aware of all these issues. But I can only guess as to why they would run a program like this at this time. And of course I cannot possible verify any of the conspiracy theories that are presented.

I just wanted to make readers aware of it since it does relate to what we watch here.

If someone posts the program on Youtube or another location online, I will put a link to it on the blog here so that anyone can watch it that wants to.

My added thoughts:

It may be that we are getting closer to a time when some major changes are going to need to take place. The research we have done here which includes constant monitoring of all major news sources (mainstream and some credible alternative news sites) along with input we have gotten here from some of our more high profile readers leads us to think that we will see major changes. They may start to to show up as early as this year although it may be next year before major changes start to show up. 

For example, we have reason to believe there will be more to report on the GSD (asset backed reserve currency) that Klickex is working on at some point later this year, but nothing is ready for public reporting at this time. Until it is, we prefer to stay silent. Just realize that silence does not mean nothing is happening.

All we can do here is try to stay on top of every source we can find and report it to you here (just like this H2 Channel program tonight for example). If we get confirmation of major change coming from any credible source, we will report it here as soon as we can. 

But we will not report speculation on timing etc. since we cannot possibly verify all the massive amount of speculation that is out there on this topic. If things do not look likely to change quickly as best we can tell, that is what we will report here. Credibility is all important on a topic like this. Right now, nothing looks imminent. But things can always change quickly of course.

update 4-20-14: The History Channel has made this epsisode available online for some people depending on your cable provider. See the link above to see if you can watch the episode online. In addtion, they have added more viewing dates as shown below.

Upcoming Airings:

• April 27, 2014 - 02:00-03:00AM ET
• April 28, 2014 - 11:00-12:00AM ET
• April 29, 2014 - 03:00-04:00AM ET
• May 02, 2014 - 11:00-12:00AM ET
• May 03, 2014 - 03:00-04:00AM ET

In Depth Interview with Rickards on The Death of Money

If you are interested in Jim Rickards new book this is probably the most in depth interview he has given that covers just about the whole book.

At this point things have slowed down related to monetary system change. We will continue to monitor events that relate to the three scenarios we have listed that could lead to major change.

With the situation in the Ukraine really not ramping up so far, there is not an event which seems imminent right now. Without a trigger, things seem more likely to move along slowly over time rather than suddenly at this point.

Rickards describes High Frequency Trading (HFT) as a form of derivative

In this article in the London Evening Standard, Jim Rickards discusses one of our 3 scenarios we listed as potentially causing major monetary system changes. We mentioned that a derivatives crisis that starts unexpectedly could cause things to change quickly due to it being a crisis condition.

While this seems like the least likely scenario right now, this article looks at it from a somewhat different view. The article is actually a commentary on the new book by Micheal Lewis (Flash Boys) about problems with High Frequency Trading (HFT).

Rickards takes the position that HFT trading can actually work like options because the buy bids can suddenly disappear from the market due to the nature of how these trades are structured. He then goes on to say that this makes them another form of a derivative product. A derivative crisis could be the result that comes very suddenly and unexpectedly.

Since this is one of the 3 events we listed as keeping an eye on, this article is relevant and worth the time to read. It is the scenario we talk least about because there is really no way to predict it or have any sense of timing if it did happen. 

But if a big entity were to get hit with a derivative trade that could not be covered by the counterparty, it could start a chain reaction across the banking system. This would obviously lead to a big crisis and all kinds of likely change. Rickards says only the IMF could handle such a crisis now since the FED and other Central Banks are already over extended from the previous crisis.

Off topic, But worth reading

This is a little article I found posted on Yahoo News. This is clearly way off topic here but I do want to post it because I think I can make an application from it that does kind of relate to the topic we follow here.

This article could have been written by someone with a conservative political view or a liberal political view. It so happens this one is from a liberal who wants people on both sides to re-learn the art of treating each other with respect. While I prefer to leave my own political view out of this blog, I do agree with the tone of this article and how it relates to some of the events we are following here.

First I encourage you to read the article. After that here is my effort to apply it to what we follow here.

Our topic here is the potential for major monetary system change in the future. In covering this topic we strive to simply report what we see happening without trying to bias the reader as to whether what is happening is good or bad. We think each person should make those decisions for themselves.

While there are certainly major differences between people who are more inclined to trust government as a solution and those who are less inclined to do so, we think the first important task is to get the facts correct. It is impossible to have an intelligent discussion or friendly debate without accurate information. So we try very hard to provide that here as the starting point for each reader. That is our primary goal here.

After that, people will see things differently of course. Let's use the IMF and a new global reserve currency as an example. Some people will view the IMF as an important player needed to keep global financial stability. They may see a new monetary system using some kind of new reserve currency as a great thing that can be helpful to the world.

On the other side, there will be some who view global institutions like the IMF, World Bank, UN etc. as something bad. They will be concerned about entrusting and concentrating too much power in such global institutions. They may view a new global reserve currency as an effort to control the population on coerce people to conform to a "global consensus" that they may not share.

These divisions and deep feelings are very real and should be respected by all who want to be in the discussion. What we need in this world is a genuine effort to try and make the world a better place for everyone. We start off knowing we will never all agree, but we all have to live here together anyway. What we desparately need is for people from all sides of the debate to listen to each other with respect. There will always be some people with bad motives from all sides of the political spectrum. But I firmly believe most people just sincerely want a better world for their family and for other people too. 

We won't all agree on everything. But treating each other with kindness and respect and a true concern for others welfare can go a long ways to making a better world in our view.

Most people do not want a government entity so powerful it can coerce people to do bad things. History has demonstrated how awful that can be. So keep in mind that the conservative who has concerns about this has valid reasons to be concerned. Global institutions should work to be aware of this concern as well. After all, they are supposed to be in those positions to serve and help people rather than rule with an iron fist.

Also, most people don't want to see other people suffer and in need. So keep in mind that the liberal who feels something is wrong when he sees some elites making billions while other people live in poverty and desparate need has a valid reason to feel concern. Those feelings are very important to them.

The balancing trick is to try and find solutions that do the most good without concentrating too much power (which is where very bad things have happened in history). The more people of good will on either side of the political aisle that try to work together, the better shot we have at doing some good.

We don't have to agree on everything. We just need to care about others enough to at least listen, respect their views, and try to find solutions that can work best for both sides whenever possible. Perhaps the model provided by the US Founding Fathers would serve us well. They diffused power on purpose, but still allowed for ways to provide for the common good where it made sense to do so. They were not perfect, but they created one of the best governing concepts in history in our view.

But again, before any of this can happen, we all need factual accurate information to discuss. That is what we are dedicated to trying to provide here as best we can. And we encourage everyone to keep an open mind and listen to other points of view with respect.

Thank you to all our readers! We appreciate all your kind comments and support for the effort we are making here. Our hope is that we can make a small contribution by providing accurate information on these important events.

Whatever happens, we hope and pray it will make the world better for more people.

Another move in the Global currency chess game

Think of what we are seeing as kind of like a giant chess match involving the major powers. These days currency wars have taken the place of high scale military wars. Here is another move in the chess match.

Some quotes from the article:

"Russian state-controlled oil producer Gazprom Neft said it had received positive responses from Asian clients about the possibility of using euros as a settlement currency instead of the dollar."

"Company head Alexander Dyukov said this week Gazprom Neft had broached the idea of dropping the dollar, traditionally the currency of choice for the global energy sector, in response to a possible new round of Western sanctions over Russia’s annexation of Crimea."

"He said the company had discussed with buyers the possibility of switching contracts to euros and that 95 percent had said they were ready to do it. Gazprom Neft ships around 30,000 barrels per day of oil eastward."

“Gazprom Neft has held discussions with its eastern partners about the possibility of completing settlements in the European currency. They, in turn, expressed their potential readiness for this,” the oil arm of top Russian top natural gas producer Gazprom said in emailed comments on Thursday."

Russian Publication suggests alternative to the IMF is moving forward

Here we have an article that speaks directly to what we have been following here. Namely that the BRIC nations will continue to move forward to bypass the IMF and the US dollar since progress within the IMF appears to be stalled.

It seems likely that this will continue no matter what the IMF does because trust does not really exist that the IMF will be reformed in a way that would satisfy the BRIC nations. This way they are moving forward on their own Plan B regardless. And they can certainly use this competitive structure to pressure the US and IMF. 

If this continues and ramps up, the US and IMF response will be of interest here. Will they just allow all this to take place or will the US start to try and respond in some way? Note the 2015 date in the article. The BRICs gave the IMF/US til the end of this year to pass the reforms.

This article also confirms that all this could lead to dropping the US dollar (and possibly soon if things break down further) and using other currencies. Gold backing for those currencies would not be surprising either given the massive gold buying taking place in Russia and China (and other Eastern nations).

Here some quotes from the article:

"Very soon, the IMF will cease to be the world's only organization capable of rendering international financial assistance. The BRICS countries are setting up alternative institutions, including a currency reserve pool and a development bank."

"The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the International Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement for the World Bank, will begin operating as soon as in 2015, Russian Ambassador at Large Vadim Lukov has said."

"In addition, the BRICS countries have already agreed on the amount of authorized capital for the new institutions: $100 billion each. "Talks are under way on the distribution of the initial capital of $50 billion between the partners and on the location for the headquarters of the bank. Each of the BRICS countries has expressed a considerable interest in having the headquarters on its territory," Lukov said.

Source: Russia Beyond the Headlines -http://rbth.com/business/2014/04/14/brics_countries_to_set_up_their_own_imf_35891.html)Source: Russia Beyond the Headlines -http://rbth.com/business/2014/04/14/brics_countries_to_set_up_their_own_imf_35891.html)

"The currency reserve pool will also help the BRICS countries to gradually establish cooperation without the use of the dollar, points out Natalya Samoilova.This, however, will take time. For the time being, it has been decided to replenish the authorized capital of the Development Bank and the Currency Reserve Pool with U.S. dollars. Thus the U.S. currency system is getting an additional boost. However, it cannot be ruled out that very soon (given the threat of U.S. and EU economic sanctions against Russia) the dollar may be replaced by the ruble and other national currencies of the BRICS counties.

Source: Russia Beyond the Headlines -http://rbth.com/business/2014/04/14/brics_countries_to_set_up_their_own_imf_35891.html)Source: Russia Beyond the Headlines -http://rbth.com/business/2014/04/14/brics_countries_to_set_up_their_own_imf_35891.html)

Article from a reader on IMF Conference on Monetary Policy

Thanks to Bullion Baron for sending us a link to this article. It is a recap from the IMF of a "High Level Conference on Monetary Policy" recently held. Jim Rickards also mentioned this meeting yesterday on his twitter account. 

The purpose of the meeting was "to make out the contours of monetary policy once the economy and the financial system have settled into their post-crisis normal."

The opening comments from Christine Lagarde were “The world is continuing to change. Monetary policy, and central banking, will not go back to what they used to be once the crisis is finally behind us.”

When you read through the article it is mostly about returning back to a more normal environment for Central Banks even though Ms. Lagarde's comments sound like it was about possible major change going forward.

It basically just says expanded monetary policy may be used again if needed, but the preference is to return back to more normal tools. It also said better collaboration is needed between Central Banks to reduce negative spillover impacts when they use expanded monetary policy.

In other news, the Bretton Woods Committed has a May meeting scheduled to "consider the value and changing nature of multilateralism in an age of austerity". Multilateralism is often mentioned these days, but as we saw at the IMF, it seems to fall apart when push comes to shove sometimes.

There seem to always be meetings and talk of change, but actual change seems to move pretty slowly. We'll see if events change the pace later this year.

Here are the details of that upcoming meeting at the World Bank Headquarters:

Bretton Woods Committee Annual Meeting

Date: 

 Wed, May 21, 2014 9:00am - 2:00pm

Location: 

 World Bank Headquarters

Join the Bretton Woods Committee for its 31st Annual Meeting on Wednesday, May 21, 2014 from 9:00 a.m. to 2:00 p.m. at the World Bank Headquarters for a dialogue among leaders and experts across business and civil society to consider the value and changing nature of multilateralism in an age of austerity.

Confirmed speakers include:

• Jim Yong Kim, President of the World Bank
• Christine Lagarde, Managing Director of the International Monetary Fund
• Paul Volcker, former Chairman of the Federal Reserve
• Mohamed El-Erian, Chief Economic Advisor at Allianz and Chair of the President's Global Development Council
• Bill Rhodes, Senior Advisor and former Senior International Officer for Citigroup

Jack Lew, United States Secretary of the Treasury has been invited to speak.

Due to the anticipated level of interest and limited seating, please register before May 2nd.

G20 Official - IMF Reforms are "at a dead end"

This CNBC article just confirms what we have already noted here. While there is lots of talk about bypassing the US at the IMF and a possible "Plan B", the reality is more likely that nothing is going to happen soon unless some kind of new crisis emerges.

Here are some quotes from the article. 

"Reforms to the International Monetary Fund have hit a deadlock despite a declaration from global financial chiefs that they would move forward without the United States if it fails to ratify the changes by year-end, a G20 official said on Sunday."

"Some said that we need to give the U.S. more space," the official, who participated in the G20 talks and spoke on conditions of anonymity, said. "I say we are at a dead end."

Christine Lagarde, managing director of the IMF, said it is too early to talk about alternatives.

"Plan A is going to be explored to the end, and in depth, but if that plan A doesn't work, then we will worry about plan B."

For now, the G20 official said, there is no plan B.

"There is nowhere to go," he said. "Initially, you have a discussion, but then when you move to details, there is nothing."

"At the G20 meeting over the weekend, officials tried to stay optimistic that the U.S., despite complaints from some Republicans have that the changes would cost too much at a time Washington was running big budget deficits, will come forward.

But the prospects are not promising, the G20 official said."

my added comments: 

this is a more realistic assessment of things in our view because there is no reason to think the Republican House will change on this prior to the elections this fall (unless a new crisis emerges). And if they win this fall as expected, it is hard to see why they would change after the elections either. It seems like this reform package is probably dead unless something major happens that puts pressure on Congress to change. The only thing I can think of right now would be a global financial crisis where it was essential for the IMF to step in. Otherwise, why would they change their minds? 

It seems like the more likely scenario is Russia and China continuing to work on trade deals they bypass the US dollar, continue to build their new developement bank, and for both countries to seek wider adoption of their own currencies. And a gold backing for either the Yuan or the Ruble or both would not be shocking at some point either.

What do we keep an eye on now?

With the April meetings concluded and no progress on the IMF reforms, a good question is what should we keep an eye on now regarding issues that could cause major monetary system change?

It does not appear that the IMF reforms will be approved this year. We think those a big key to open the door for major change coming from within the IMF. Of course, events could change and cause the US Congress to reconsider at any time. If that happens, we will report it here.

Until then however, here is a list of the other issues that could lead to change that we will continue to watch. These are listed in no particular order, but any of them are possible.

- a ramping up of tensions over the situation in the Ukraine. So far this is really a non event in terms of instigating any major monetary system change. In order for this to make an impact the conflict between the US and Russia would have to intensify quite a bit. The US would have to impose much more serious sanctions and Russia would have to respond by attacking the US dollar instead of just talking about it. I don't take rhetoric all that seriously until it is followed up with serious actions. So far, neither side is taking any serious actions. This could change though. If it does, then it could lead to a problem for the US dollar this year.

-an unexpected sudden failure of a too big to fail financial institution. This is what started the 2008 crisis. If it happened again this time the numbers are even bigger and the FED is not in a position to bail things out again. This is probably the #1 event that could cause a sudden crisis that might cause the US Congress to quickly approve the IMF reforms and funding. The IMF might then step forward as the only entity left with a clean balance sheet to deal with the crisis. This is what Jim Rickards is actually forecasting. So we will continue to watch this and continue to post Rickards interviews as he does them.

-the BRIC nations finally just give up on the IMF and move aggresively forward to build a new monetary system that bypasses the US dollar. It appears they will give the US at least the rest of this year before moving aggressively. But they will continue to keep building their structure at a steady pace I have no doubt. They will use this as leverage to try and pressure the US to give them what they want at the IMF. If that doesn't work they will be in position to move forward without the US. This looks like something that will happen over an extended period of time right now, but events can change. This will no doubt lead to an end of sole reserve status for the US dollar eventually. The only question is over what period of time. 

These are the 3 most likely scenarios we can see that can lead to major change right now. We think the US dollar will lose sole reserve status eventually. We may see clear evidence of it by the end of this year or it may take several years. But we think it will happen. We will continue to keep an eye on all the above here until things change. We may post less frequently unless events unfold that suggest change is imminent. We want to only post articles that are relevant and meaningful to monetary system change. If that change happens over several years, the events will get spread out over quite a bit of time and are less likely to be "breaking news" type events. But if events speed up, we will post them here.

G20 gives up on IMF reforms until year end

Here we have it. The G20 issues a statement that they will give the US until year end 2014 to approve the IMF reforms.

So unless there is a major global crisis this year it appears no reforms will be approved. If the Republicans win this fall as is currently expected, there is really no reason to think anything will change before 2016.

This pretty much takes the biggest agent for major system change off the table for now. We will continue to follow events and anything can happen at any time. But for now, it seems unlikely that anything major would happen this year unless a major global financial crisis unfolds.

Washington Times on IMF "Plan B"

The Washington Times runs this article which talks a little more about a mysterious "Plan B" mentioned by Christine Lagarde regarding the IMF reforms.

"The International Monetary Fund has a “Plan B” for proceeding with reforms giving greater powers to developing countries even though the U.S. has not approved them, but it is not ready to take that route yet, IMF Managing Director Christine Lagarde said Thursday."

"“I don’t think that our institution should move to Plan B until we have full certainty and massive disappointment that Plan A is definitely dead. I’m not prepared to declare that at this point,” she said at a press briefing, noting that the Obama administration has pledged to keep trying to get the reforms through Congress."

"Ms. Lagarde did not explain what “Plan B” might involve, but IMF officials say it would be difficult and complicated for the institution to circumvent the effective veto power that the U.S. has over major IMF decisions and activities. The U.S. has the largest voting share on the IMF board, with a 17 percent voting share that makes its approval indispensable most of the time."

"The emerging countries may press for faster action on the reforms than Ms. Lagarde is offering. In a sign that they already are the topic of backroom discussions, U.S. Treasury Secretary Jacob Lew met behind closed doors Thursday with his Russian counterpart, Russian Finance Minister Anton Siluanov."

 We'll continue to follow it to see if anything comes from the G20 and IMF meetings this weekend in Washington.