- President Maduro ‘ Venezuela will create a basket of
currencies to free us from the dollar,”
- Oil traders ordered to stop accepting U.S. dollar in
exchange for crude oil
- Order comes following calls from Russia and China to
find alternatives to current reserve system
- U.S. Dollar accounts for two-thirds of global trade
- Venezuela has over ten-times more oil than United States
- Super powers are gradually turning to gold to avoid
using world’s main reserve currency
- Are we seeing the beginning of the end for the U.S.
dollar?
Source: The Burning Platform
The oil-rich country of Venezuela has stopped accepting the U.S. Dollar as
payment for oil.
Last week President Maduro warned that the country would this week ‘free’
itself from the US dollar.
“Venezuela is going to implement a new system of international payments
and will create a basket of currencies to free us from the dollar,”
Yesterday Venezuela temporarily suspended the sale of U.S. dollars
through its Dicom auction system. This (and other moves) was in response to
U.S. sanctions put in place by the Trump administration.
Trump claims the sanctions are there to punish the country’s autocratic
leaders. Maduro claims Washington’s move was part of an “economic war”.
This morning The
Wall Street Journal reports that the Venezuela is already
telling oil traders not to accept the US currency.
Oil traders who export Venezuelan crude or import oil products into the
country have begun converting their invoices to euros.
The state oil company Petróleos de Venezuela SA, known as PdVSA, has
told its private joint venture partners to open accounts in euros and to
convert existing cash holdings into Europe’s main currency, said one project
partner.
The decision to suspend dollar trading on Diacom and to no longer accept
the the U.S. currency for oil is potentially a major blow for the world’s
reserve currency.
Venezuela’s decision comes at a time when other countries (namely Russia
and China) are already finding ways to avoid using the U.S. dollar.
History shows us that currency domination does not last forever. Are
we seeing the cracks in the latest global currency reserve system? Will those
who seek to come out of the shadows and force of the US begin to build up
their own systems to survive outside of the U.S. dollar and how important
will gold be?
How important is oil to Venezuela
According to OPEC oil accounts for 95% of Venezuela’s exports. The country
has ten times more oil reserves than the US, and nearly 70 billion more
barrels than Saudi Arabia.
However, because of its heavy reliance on oil as an export this means it
is heavily reliant on the price. Since President Maduro came to power the oil
price has crashed. Inflation is out of control and the bolivar is practically
worthless: $1,000 of local currency bought in 2013 would today be worth
$1.20.
The Trump administration has made it clear that it will achieve
a regime change through the destruction of what is an already
severely debilitated Venezuelan economy. Prior to the latest round of
sanctions one could see a way out for Venezuela but not anymore.
It is clear that Venezuela will have to seek outside help in order to
survive. That help will no doubt come from the other countries that are
fed-up of or suffering as a result of U.S. dollar hegemony.
China is set to launch a crude oil futures contract priced in yuan
and convertible into gold. This will give the likes of Russia and Iran a
means of bypassing both the U.S. Dollar and sanctions. Now, it may also be an
option for the world’s largest oil producer.
By making this convertible into gold it means countries are no longer held
hostage by foreign currencies. Gold is a borderless currency which speaks
everyone’s language.
Liberate us from the U.S. dollar
The new policy on oil payments has not been officially announced but it
comes less than a week after both President Maduro and Vice President Tareck
El Aissami called for liberation from the US dollar.
El Aissami (blacklisted by the US) has called for other sovereign
currencies to be used. On Friday he said, “To fight against the economic
blockade there will be a basket of currencies to liberate us from the
dollar.”
In an hour-long address to a new legislative body last week, President
Maduro said, “If they pursue us with the dollar, we’ll use the Russian ruble,
the yuan, yen, the Indian rupee, the euro,”
As mentioned in the introduction super-powers such as China and Russia are
keen for countries such as Venezuela to join them in avoiding the U.S.
dollar.
Plans have gone beyond just negotiating around U.S. sanctions and are now
in full infrastructure building mode. Russia, China and Iran are all setting
up a new financial system that will, in Putin’s words, focus on a “fair
multipolar world”, and “against protectionism and new barriers
in global trade.”
“Russia shares the BRICS countries’ concerns over the unfairness
of the global financial and economic architecture, which does
not give due regard to the growing weight of the emerging
economies. We are ready to work together with our partners
to promote international financial regulation reforms and to overcome
the excessive domination of the limited number of reserve
currencies.”
Excessive domination
Oil rich nations are certainly weary of the U.S dollar’s excessive
dominance over trade. Currently they have little choice over which currency
to use.
One theory put forward in William R. Clark’s book Petrodollar
Warfare is that the U.S. led wars ‘are fueled by the direct
effect on the U.S. dollar that can result if oil-exporting countries opt to
sell oil in alternative currencies. For example, in 2000,
Iraq announced it would no longer use U.S. dollars to sell oil on
the global market. It adopted the euro, instead.’
Even if countries are not oil-rich or fearful of the gun-wielding powers
of the U.S. they would still like the option to decide which currencies
they trade in. Trading in the U.S. dollar can make life very difficult
elsewhere.
When using the U.S. dollar foreign banks are required to clear payments
through the US, even if they are doing business elsewhere. This can’t just
happen, a dollar clearing licence from US authorities is required. This
can also be quickly taken away if Washington decides it wants to punish you
somehow.
Will the euro want them? Gold will
In the short-term, the solution for Venezuela might not be as simple as
accepting the euro.
Much of the current plan assumes that Europe will not sanction Venezuela.
Should they also take a similar stance to the US then Maduro’s nation will be
left with a choice of Rubles, Yuan and, of course, gold.
This is where Russia, China and Iran will certainly be on board. We know
that all three countries hold huge amounts of gold and are very open to using
it for trade purposes.
Jim Rickards explains:
China, Russia and Iran are coordinating a new international monetary order
that does not involve U.S. dollars. It has several parts, which together
spell dollar doom. The first part is that China will buy oil from Russia and
Iran in exchange for yuan.
The yuan is not a major reserve currency, so it’s not an especially
attractive asset for Russia or Iran to hold. China solves that problem by
offering to convert yuan into gold on a spot basis on the Shanghai Gold
Exchange.
This marks the beginning of the end of the petrodollar system that Henry
Kissinger worked out with Saudi Arabia in 1974, after Nixon abandoned gold.
This is not some back-of-a-beer-mat plan. At last week’s BRICs summit
members expressed full support to China moving away from the U.S. Dollar.
This is particularly pertinent at a time when U.S. Treasury Secretary is
threatening to cut China out of the U.S. Dollar system
If China doesn’t follow these sanctions, we will put additional sanctions
on them and prevent them from accessing the U.S. and international dollar
system. And that’s quite meaningful.
But how meaningful is it when the Asian super-power is putting
infrastructures (and deals) in place to trade in gold. Don’t forget, this is
the world’s biggest buyer of gold. They will unlikely need the U.S. dollar
forever.
How will this unfold?
Who knows how this will unfold. But what is clear is that the U.S. has
been relatively short-sighted with how it has used the power of its currency.
As it has sought to sanction, threaten and bully countries into the using
its currency, others have been slowly building up their gold reserves and
infrastructure systems. This means that the U.S. dollar sanctions will soon
not mean as much as they once did.
It is relatively easy to put controls on a country’s currency, but it is
very difficult to do so with gold.
Whilst Venezuela is no doubt struggling with the impact of the sanctions
from Washington they do have support from those elsewhere and that support is
very interested in physical gold.
Related reading
China
Reassures Global Markets and Promotes Yuan Denominated Gold Investments
China’s
Yuan Set To Become Global Reserve Currency With Gold Backing?
http://info.goldcore.com/currency_wars_bye_bye_petro_dollar_buy_buy_gold_goldcore_insight
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