March 3, 2024

Why the US dollar has become an at-risk currency

The Biden Admin’s policies of inflation, sanctions and massive govt spending all have consequences

Why the US dollar has become an at-risk currency

The ongoing sanctions against thousands of dubious business-people associated with rogue nations and leaders may be hitting the bad-guys hard, but it is also paving the way for currencies other than the dollar to emerge as major tools of global finance.

Everywhere you turn there’s chatter about the ongoing US economic sanctions against Russia. The Russian Central Bank, Russian banks, Russian companies, Russian oligarchs — and anyone caught helping them — have seen their fortunes entangled since Moscow invaded Ukraine just over a year ago.

From Davos to Aspen, American Treasury officials tout the unprecedented scale and scope of this powerful economic weapon.

And why not? The effort has been impressive. The US government task forces have beached scores of yachts, grounded planes, blocked hundreds of millions of dollars of central bank assets and cut Russian financial institutions off from the global SWIFT financial system. 

Sanctions are an ancient game: in 432 B.C., Athens crushed its rival — Megara — by banning their traders from Athenian marketplaces.

For the US government in the 21st century, economic sanctions aren’t merely second nature, they’ve become a central tool of foreign policy. More than 10,000 people and dozens of countries are subject to sanctions worldwide. 

But more than 100 countries haven’t signed on to those efforts. Which is why oil from the Urals still flows to Asia,Turkey and most of Africa, while grain stolen from Ukraine is winding up across the Black Sea in Russia.

Meanwhile, the profits of this illicit trade is finding its way to places like Dubai, now chockablock with “sanctioned” Russians looking for real estate. 

This isn’t to say that we shouldn’t support Ukraine: we should — and we must. But while it makes sense to financially cripple our avowed enemies — Russia, China, Iran, North Korea — coalitions are forming around ways to avoid existing sanctions and to protect against the risk of future sanctions. 

Much of the action involves creating alternatives to the dollar as the world’s default currency. If you can keep your reserves in another currency or park them in physical assets like gold or commodities, the thinking goes, you’re halfway to safety. 

Take China, for whom supplanting and discrediting the dollar is a key component of its “winning without fighting” campaign known a detailed in the book Unrestricted Warfare. The sanctions push, however necessary, has accelerated China’s quest to defeat the dollar, and many other nations are taking note.

While a chorus of experts still insists that there’s no alternative to the dollar, this is untrue. The dollar will dominate as long as it serves the interest of those who use it. Once the dollar begins placing assets at risk, alternative tools of commerce are certain to emerge. And they already are.

Make no mistake: a shift away from the dollar would be a huge blow to America’s international standing. The days of being able to print limitless amounts of currency could end, along with our ability to buy foreign goods cheaply. 

Stark proof that a new game is afoot filtered out of Davos last month. Saudi Arabia’s Finance Minister, Mohammed Al-Jadaan, made the stunning announcement that—for the first time in 48 years — the world’s biggest oil producer was open to trading in currencies other than the US dollar.

That’s a far cry from the deal Richard Nixon cut with King Faisal decades ago to solely accept dollars as payment for oil. (In exchange, Nixon agreed to protect the Kingdom from Soviet, Iranian and Iraqi aggression.) That pact laid the groundwork for a strong dollar as oil money began to flow through the Federal Reserve. 

The deal between the US and Saudi Arabia to only use dollars for oil sales dates back to a 1970s-era agreement between then-Saudi King Faisal (above) and former US Pres. Richard Nixon (seen here together in 1971).

Today, China imports 1.4 million barrels of oil a day from Saudi Arabia (up 39% over the past year), making it the Kingdom’s largest customer. Which is why both sides are seeking cheaper alternatives to using dollars for every transaction. With Aramco investing in a massive new refinery in China, the relationship will only deepen.

The Saudi shift is only the latest data point. At the 2022 BRICS summit in Beijing, Vladimir Putin announced plans to expand the Shanghai Cooperation Organization (SCO) and develop an alternative for international payments using a currency basket of Chinese RMB yuan, Russian rubles,  Indian rupees, Brazilian reals, and South African rand. For reference, the SCO is the world’s largest regional organization, representing 40% of the world’s population and 30% of global GDP. 

A new currency is only part of the picture. China is pioneering new exchanges to shift commodity trading from Western institutions like the troubled London Metal Exchange and the New York Mercantile Exchange.

Even the Europeans have gotten into the act, by creating a special-purpose vehicle — INSTEX — to facilitate non-dollar, non-SWIFT humanitarian transactions with Iran to sidestep U.S. sanctions. Russia, predictably, expressed interest in participating and the first transaction was completed in March 2020 to facilitate a medical equipment sale to Iran to combat COVID.

The beat goes on: China’s Cross-Border Interbank Payment System (CIPS) processes only 15,000 transactions a day — Western-favored CHIPS moves 250,000 daily — but it’s growing. Russia offers its own System for Transfer of Financial Messages to allow users to bypass SWIFT.

Even the Swiss-based Bank for International Settlements — Hitler’s banker— is getting into the act, creating a renminbi liquidity line to support contributing central banks in times of crisis. So far, the central banks of Chile, Hong Kong, Indonesia, Malaysia, and Singapore have subscribed. 

In the 21st century, a currency’s value — including the dollar — will become increasingly competitive. If there is less demand for dollars, the value of the dollar will decline. Everything will become more expensive. Not all at once, but over time — making deficit spending more costly or, unthinkably, impossible.

It’s not farfetched to imagine the US experiencing a debt crisis because no one shows up to buy its bonds. The US dollar  will become just one more currency, among many. And ultimately, if the dollar loses it shine, so will the ability of the US to project power.

To stem this tide, hard choices must be made: like strategically reducing our enemy count even as we continue to support allies like Ukraine. Perhaps most difficult, the US must get its economic house in order by – once and for all – finally figuring out how to live within its means. 

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The U.S. Dollar has been the Currency of the World – Tucker Carlson

Sinking fortunes of the U.S. under the disastrous Biden Global policy of using the dollar as a political weapon for sanctions and war



| Global Economy

Dumping the Dollar: Will a new BRICS currency replace the US currency for trade?

Has the U.S. Dollars downfall begun under Biden?

The BRICS collective, comprising Brazil, Russia, India, China and South Africa, is working on a common currency in an attempt to ditch the US dollar and push back against America’s dominance. The move comes as Moscow and Beijing call for de-dollarisation in the face of Western sanctions

Ditching the Dollar: Will a new BRICS currency replace the US dollar for trade?

Dumping the Dollar: The BRICS collective, comprising Brazil, Russia, India, China and South Africa, is working on a common currency in an attempt to ditch the US dollar and push back against America’s dominance. The move comes as Moscow and Beijing call for de-dollarisation in the face of Western sanctions

The US dollar has been the official currency for international trade for years now. However, in recent times there has been talk of creating a new currency in an attempt to dump the dollar and push back against American hegemony.

This de-dollarisation has received a boost in recent times, especially after the Russia-Ukraine war began last February. And last week, this movement received further impetus when Alexander Babakov, the deputy chairman of the State Duma, was quoted as saying that the BRICS nations are in the process of creating a new medium for payments — established on a strategy that “does not defend the dollar or euro”.

Is the BRICS nations actually creating a new currency for trade? Who’s at the forefront of this movement? Will it benefit India? Will the plan actually fructify? There are several questions to this issue and we try to answer them all.

Dethroning the king of currency

The US dollar has been called the king of currency. It became the official reserve currency of the world in 1944. The decision was made by a delegation from 44 Allied countries called the Bretton Woods Agreement.

Since then, the dollar has enjoyed a powerful status in the world. It has given the US a disproportionate amount of influence over other economies. In fact, the US has for long used imposition of sanctions as a tool to achieve foreign policy goals.

However, not everybody likes playing by US rules and countries like Russia and China would like to call a halt to dollar hegemony. This process is called de-dollarisation — and it refers to reducing the dollar’s dominance in global markets. It is a process of substituting the US dollar as the currency used for trading oil and/or other commodities.

The proponents of de-dollarisation say that this process would reduce other countries’ dependence on the US dollar and the US economy, which could help mitigate the impact of economic and political changes in the US on their own economies. Moreover, countries can reduce their exposure to currency fluctuations and interest rate changes, which can help to improve economic stability and reduce the risk of financial crises.

This move has been gaining speed in the last few years, especially in the previous year. In 2022, the International Monetary Fund noted that central banks today are not holding the greenback as reserves in the same quantities as yesteryear.

“The dollar’s share of global foreign-exchange reserves fell below 59 per cent in the final quarter of last year, extending a two-decade decline, according to the IMF’s Currency Composition of Official Foreign Exchange Reserves data,” the paper stated. “Strikingly, the decline in the dollar’s share has not been accompanied by an increase in the shares of the pound sterling, yen and euro, other long-standing reserve currencies… Rather, the shift out of dollars has been in two directions: a quarter into the Chinese renminbi, and three quarters into the currencies of smaller countries that have played a more limited role as reserve currencies.”

To punish Russia for its invasion of Ukraine, western governments froze $300 billion of Russia’s foreign currency reserves last year, roughly half the total, and expelled Russian banks from the Swift international payments system.

As Jason Hollands, managing director of investment platform Bestinvest, explains, “The so-called dollar “weaponisation” has rattled many countries and not just Russia.”

“Countries willing to continue to trade with Russia, like India and China, have started doing so in rupees and yuan instead, triggering talk of the de-dollarisation of the international trading order.”

He added that Brazil and China are now trading with each other in yuan, helping to establish the Chinese renminbi as an international currency and dollar challenger.

India too has been trying to move away from the dollar. Recently, 18 countries, including UK, Germany, Russia and even the United Arab Emirates, have been given permission to trade in Indian rupees. In February, noted economist Nouriel Roubini had said that the Indian rupee over time could become one of the global reserve currencies in the world.

In an interview to ET Now, the economist nicknamed Doctor Doom had said, “One can see how the rupiah could become for some of the trade that India does with the rest of the world, especially South-South trade could become a vehicle currency.”

“It (Indian rupee) could be a unit of account, it could be a means of payment, it could become a store of value. Certainly, rupiah over time could become one of the variety of global reserve currencies in the world.”

The BRICS currency

Taking this forward, the BRICS collective — made up of Brazil, Russia, India, China and South Africa — are also mulling creating a new currency to facilitate trade. It is reported that the new financial agreement could be seen as soon as in August when the countries meet for their annual summit in South Africa.

Sources have disclosed that Russia is behind the idea, as it has faced economic sanctions from the West over invasion of Ukraine.

Alexander Babakov highlighted the fact that Russia and India would both benefit from the creation of a common currency that could be used for payments, calling it the “most viable” route to take at this time. “New Delhi, Moscow should institute a new economic association with a new shared currency, which could be a digital ruble or the Indian rupee,” Babakov was quoted as saying.

He went on to note that China would also play a crucial role in the development of a common currency as it would add an additional 1.4 billion participants to the system. “New Delhi, Beijing and Moscow are the nations that now institute a multipolar world that is endorsed by the majority of governments,” he said. “Its composition should be based on inducting new monetary ties established on a strategy that does not defend the US’ dollar or euro, but rather forms a new currency competent of benefiting our shared objectives.”

Interestingly, Brazil already has begun to accept trade settlements and investments in yuan. India and Russia have the Rupee-Rouble mechanism for trade in which they settle dues in rupees instead of dollars or euros.

This shows that the BRICS nations are intending to change the dollar-dominated system, which would eventually lead to de-dollarisation across the globe.

Implications of a BRICS currency

If the BRICS nations do go ahead with their plan and come up with a new currency, it could help stabilise their economies. For an investor in BRICS countries, it would mean increased consumer confidence. This would lead to an uptick in spending and economic growth.

But will India accept this new currency? Will it want to be economically aligned with China with whom it is having a standoff at the border? Moreover, some experts say that this new deal might benefit Beijing more than New Delhi.

What happens next is unknown. But the fact that the dollar is losing power is certain. We shall keep an eye on this topic and get you more on this in the future.

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Yellen: IRS to reveal plan this week for spending $80 billion

House Republicans passed legislation that would pull back most of the money

Yellen: IRS to reveal plan this week for spending $80 billion – Roll Call

Congress last year enacted the funding to crack down on tax cheats and make dealing with the agency smoother for taxpayers.

The IRS will lay out its plan this week for spending $80 billion in extra funding over the next decade, Treasury Secretary Janet L. Yellen said Tuesday.

The strategic operating plan will offer the first glimpse of exactly what the IRS has in store for funding that Democrats passed last August to crack down on tax cheats and make dealing with the agency smoother for taxpayers. Lawmakers have pressed Yellen in recent congressional hearings to produce the plan after the IRS missed a mid-February deadline she originally set.

Yellen emphasized that the IRS will undergo a transformation thanks to the nearly $80 billion in funding during a swearing-in ceremony Tuesday for the agency’s new commissioner, Danny Werfel.

Speaking in the lobby of the IRS headquarters, she said the agency needs to invest in technology to make employees more productive, shift to doing things digitally and improve automated services. Yellen said that to go after unpaid taxes from wealthy households and big businesses, the money will fund data and analytics along with hiring more accountants and attorneys.

Yellen added that combined with “stable discretionary funding” from the annual appropriations process controlled by Congress, the $80 billion for the IRS will reverse a persistent gap between taxes owed and paid to the federal government.

But the annual funding is dependent on a Republican-controlled House, which has railed against an IRS initiative that it warned would lead to an “army of auditors” targeting the middle class. The first bill the House passed this year was a measure to claw back most of the money.

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