Sunday, July 6, 2014

Is the US Dollar Under Attack Now? - Part II

There is so much news coming out right now on this topic (US Dollar under attack) that I decided to make a Part II on this. It appears that the recent move by the US to levy sanctions on a French bank has added some momentum to the Russian led BRIC's campaign to attack the US dollar based monetary system. Since this is what this whole blog is devoted to, we have to cover this as fully as we can.

First let's get a little more background on the recent US sanctions against the French bank. Here is a story run by Reuters when the nearly $9 Billion fine was announced. At first glance this story seems unrelated to any BRIC effort to bypass the US dollar. 

But France's reaction to the US fine has added momentum to the "anti-dollar" alliance as the Voice of Russia called it in the article we linked in Part I below. The alternative media site Zerohedge ran this article explaining how French officials fired back at the US by talking about how this US action will cause many countries to view the US dollar as more risky to use. The Zerohedge article cites this Q&A with a Bank of France official (Noyer) in a recent interview:

"Q. Doesn't the role of the dollar as an international currency create systemic risk?

Noyer: Beyond [the BNP] case, increased legal risks from the application of U.S. rules to all dollar transactions around the world will encourage a diversification from the dollar. BNP Paribas was the occasion for many observers to remember that there has been a number of sanctions and that there would certainly be others in the future. A movement to diversify the currencies used in international trade is inevitable. Trade between Europe and China does not need to use the dollar and may be read and fully paid in euros or renminbi.Walking towards a multipolar world is the natural monetary policy, since there are several major economic and monetary powerful ensembles. China has decided to develop the renminbi as a settlement currency. The Bank of France was behind the popular ECB-PBOC swap and we have just concluded a memorandum on the creation of a system of offshore renminbi clearing in Paris. We have very strong cooperation with the PBOC in this field. But these changes take time. We must not forget that it took decades after the United States became the world's largest economy for the dollar to replace the British pound as the first international currency. But the phenomenon of U.S. rules expanding to all USD-denominated transactions around the world can have an accelerating effect.

So we have Bank of France governor Christian Noyer saying "Trade between Europe and China does not need to use the dollar and may be read and fully paid in euros or renminbi".

Putin seized on this event to accuse the US of trying to blackmail France in this Bloomberg article. Here are some quotes from this Bloomberg article:

"President Vladimir Putin accused the U.S. of seeking to blackmail France into scrapping a contract to sell Mistral warships to Russia by offering to cut a record $8.97 billion fine against BNP Paribas SA.(BNP)

“We know about the pressure which our U.S. partners are applying on France not to supply the Mistrals to Russia,” Putin told Russian diplomats in Moscow today. “And we even know they hinted that if the French don’t deliver the Mistrals, they would quietly get rid of the sanctions against the bank, or at least minimize them,” he said without naming BNP Paribas.“What is that if not blackmail?” Putin said."
A Russian official that was quoted in the Voice of Russia article linked in the post just below said that this US action against France was causing countries in Europe to think about bypassing the dollar more often. So it appears there is some backlash against the US on this.

Now we have this article in Reuters that came out yesterday. It quotes the the Chief Executive of oil major Total as saying "There is no reason to pay for oil in dollars". Here is the full Reuters article with some key parts in bold type:

"(Reuters) - Oil major Total's chief executive said on Saturday the euro should have a bigger role in international trade although it was not possible to do without the U.S. dollar.

Christophe de Margerie was responding to questions about calls by French policymakers to find ways at EU level to bolster the use of the euro in international business following a record U.S. fine for BNP.
"Doing without the (U.S.) dollar, that wouldn't be realistic, but it would be good if the euro was used more," he told reporters.
"There is no reason to pay for oil in dollars," he said. He said the fact that oil prices are quoted in dollars per barrel did not mean that payments actually had to be made in that currency.
French Finance Minister Michel Sapin said on Thursday that euro zone finance ministers would discuss ways of boosting use of the euro in international trade in their next monthly meeting on Monday.
"It would be a way to protect businesses when, outside of U.S. territory, they carry out transactions that are perfectly legal in the country they belong to," he said."
That last quote from French Fiance Minister Michel Sapin is apparently in reference to French unhappiness with the US decision to hit BNP Paribas, SA. with the huge fine. It seems like the US may have crossed a line here that has at least some in Europe upset. It also appears that this could play into the hands of the BRIC nations "anti-dollar" alliance talked about in the Voice of Russia article. The Chief Executive of Total goes out of his way to question the need for using US dollars for oil trade which attacks the so called "petrodollar".
And don't overlook China. While Russia is clearly leading this anti dollar effort, China is quietly and steadily helping out by pushing the yuan. This China Daily article is about further steps China is taking to make the yuan more convertible (and thus more able to compete with the US. Here is an interesting quote from this article: 
"The world's 2nd largest economy is seeking to increase the use of the yuan in global trade and investment to reduce China's dependence on the US dollar
The move is also aimed to reduce the exposure to the economic policy decisions made by global financial institutions (like the IMF), in which Washington has a big influence."

China is quietly reaching out all over Europe to expand its influence as seen in this article.
Everywhere we look we see Russia and China doing everything they can to move the world away from the US dollar based system. Russia is more openly aggressive, but China is clearly behind the Russians on this issue. All this suggests that right now the East vs. West scenario is heating up. The BRIC nations seem united at least in their desire to bypass the US dollar and to send a message that they will no longer accept a back seat at the IMF. They are working all over the globe to get allies.
Whether this is a genuine split that will leave the world permanently divided (BRICs vs. West) or just an effort to gain leverage within the existing global monetary system is unknown to us. We just know all this is very relevant news for this blog to cover and should be watched closely to see how it plays out. We'll see what happens at the upcoming BRIC's summit in mid July.

added note 3:40 pm: Relevant Bloomberg Article - France wants to Boost use of Euro

Update 7-8-14 2pm (CST): US now targeting German Banks?

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