Geopolitical Economy Report editor Ben Norton spoke with Ecuadorian economist Andrés Arauz, a former presidential candidate who came close to winning the 2021 elections. Arauz discussed Latin America’s attempt to create a new currency and regional financial architecture, to challenge what he described as the “hegemonic, neo-colonial” US dollar-dominated system. “We need the type of bank that can really serve the Global South”, he urged, calling for a “clearing and settlement bank that can allow for these transactions to take place, and that is not afraid of sanctions from the United States”.
Even before German Chancellor Olaf Scholz met newly re-elected President Lula da Silva in Brasília last week, the latter had visited neighbouring Argentina, where he floated the idea of creating a common currency union for the two countries. The international response? Shaking heads. “It’s a terrible idea,” tweeted Paul Krugman, Nobel laureate in economics. In the German weekly Die Zeit, Thomas Fischermann wrote about a “dream money of the South.” So, was the announcement of a common currency for southern Latin America just talk? A monetary union of all of Latin America would cover 5 percent of global gross domestic product (GDP) – in comparison with the euro’s 14 percent, estimates the Financial Times.
On Friday, Jan. 13, Treasury Secretary Janet Yellen wrote to Congress that the U.S. government will hit its borrowing limit on Jan. 19, forcing the new Congress into negotiations over the debt limit much sooner than expected. She said she will use accounting maneuvers she called “extraordinary measures” to keep U.S. finances running for a few months, pushing the potential date for default to sometime in the summer. But she urged Congress to get to work on raising the debt ceiling. Lifting it above its current $31.385 trillion limit won’t be easy with a highly divided and gridlocked Congress. As former Republican politician David Stockman crowed in a Jan. 11 article: 15 [House] votes and the slings and arrows of MSM opprobrium were well worth it. That’s because the GOP’s anti-McCarthy insurrection obtained concessions which just might slow America’s headlong rush to fiscal armageddon. And just in the nick of time! We are referring, of course, to the Speaker elect’s promise that there will be no more debt ceiling increases without off-setting spending cuts; and that in the event of a double-cross a single Member of the House may table a motion to vacate the Speaker’s chair.
China’s central bank has taken a series of steps to accelerate the global drive toward de-dollarization, challenging the hegemony of the greenback. The People’s Bank of China is increasing the share of gold in its foreign-exchange holdings, bucking the US dollar, which has for decades been dominant in reserves. This January, China also signed an agreement with Argentina’s central bank for a currency swap deal, in which Beijing will provide 130 billion Chinese yuan (roughly $19 billion USD) to help Buenos Aires stabilize its currency and economy. The South American nation said it is “committed to deepen the use of the RMB [renminbi] in the Argentine market for bilateral exchange”. (Renminbi is the official name for the Chinese currency, also known as the yuan.)
The US dollar is used in the majority of international trade, and its status as the global reserve currency gives the United States an “exorbitant privilege” that underpins its geopolitical and economic dominance. Yet opposition to Washington’s hegemony is growing around the world. Institutions of Eurasian integration are proposing their own currencies and payment systems. Latin America, too, has ambitious plans to end its dependence on the US dollar. Prominent economist Andrés Arauz, a leftist leader who came close to winning Ecuador’s 2021 presidential elections, published a blueprint for a “new regional financial architecture” to unite Latin America, challenging the hegemony of the dollar and Washington-dominated institutions like the International Monetary Fund.
Iran has proposed creating a new currency to do trade with China, Russia, India, Pakistan, and other members of the Shanghai Cooperation Organization (SCO). Tehran sent a letter to the SCO in early 2022 suggesting that a new currency could help the Eurasian nations strengthen their bilateral trade with each other, according to Iran’s foreign minister for economic diplomacy, Mehdi Safari. A Eurasian currency would also make it easier for these countries to circumvent unilateral Western sanctions, which are illegal under international law. Such a development would directly challenge the US-dominated financial system and the status of the dollar as the de facto global reserve currency. The US dollar is still used in the majority of global trade transactions, although the overall percentage is shrinking by the year.
Whether the U.S. should have its own central bank digital currency (CBDC) is hotly debated. Several countries, including China, already have CBDCs in operation; but the U.S. Federal Reserve is proceeding with caution. Prof. Saule Omarova, President Biden’s nominee for Comptroller of the Currency, is in favor of a CBDC and has made a strong case for it; but many conservative commentators are opposed, and her nomination remains in doubt.
A five-alarm fire has broken out in a little known, but critically important area of the financial system where high-quality bonds are swapped for cash. The “repo” market, which is short for repurchase agreements, is part of the nondeposit, shadow banking system that remains largely unregulated despite the fact that it was ground zero in the 2008 financial crisis.
The International Monetary Fund has issued a warning that’s largely been brushed aside by mainstream media. Kristalina Georgieva, the head of the IMF, is warning that the global economy risks another “Great Depression.” What makes things worse, is that the propaganda outlets in the United States are continuing to ignore the red flags of a looming disaster. Mainstream Americans are blissfully unaware that they are unaware of what’s coming in this manipulated economy we are all forced to live under.
What’s going on in the repo market? Rates on repurchase (“repo”) agreements should be about 2%, in line with the Federal Reserve funds rate. But they shot up to over 5% on Sept. 16 and got as high as 10% on Sept. 17. Yet banks were refusing to lend to each other, evidently passing up big profits to hold onto their cash—just as they did in the housing market crash and Great Recession of 2008-09. Because banks weren’t lending, the Federal Reserve Bank of New York jumped in, increasing its overnight repo operations to $75 billion, and on Oct. 23...
You may recall that from 17 September 2019, the United States Federal Reserve injected massive amounts of liquidity into banks due to a quite abnormal situation on the repo market . The repo market designates a mechanism used by banks to obtain short-term financing. They sell securities they hold in repurchase agreements (repo). For example they place US Treasury bonds or Triple-A company securities in repo overnight, to serve as warranty or collateral for the loan they are making, and they buy them back on the following day.
It is remarkable that Bank of England Governor Mark Carney recently spoke publicly about “the U.S. dollar’s “destabilizing” role in the world economy,” going on to suggest that “central banks might need to join together to create their own replacement reserve currency.” This is very significant because in his capacity as Bank of England Governor, Carney serves as Chairman of the Monetary Policy Committee, giving him a major role in directing national economic and monetary policy.
The idea of societal collapse is very undefined. What I do believe is that it’s too late to avert catastrophic climate change, and so we’re headed towards 2, 3, 4 degrees of warming and destruction of most global ecosystems, on which we depend for our food and for everything else. So I think that regardless of that you, I or anyone is able to do in the next 5-10 years, we’re going to see a large-scale destruction of our way of life. So we need to be thinking in terms of resilience and adaptation rather than mitigation.
In the last decade or so, the reputation of the U.S. dollar has been widely discredited because it is viewed by many governments around the world as a risky asset since the U.S. economy holds more than $21 trillion in debt and if you add the unfunded liabilities in the form of promises to ensure payments to retirees associated with government pensions, entitlement programs and social security amounts to more than $200 trillion. The dollar is a fiat currency based on “faith” which is issued by the Treasury department and backed by the full weight of U.S. government...
Donald Trump seems determined to double down and keep pressing forward on his trade war with China. He promises more and higher tariffs, apparently not realizing that U.S. consumers are the ones paying these taxes — not China’s government or corporations. While tariffs clearly impose a cost on people in the United States, this cost could be justified as a weapon to change a trading partner’s harmful practices. During his campaign, Trump pledged to wage a trade war with China over its currency policy. He said he would declare China a “currency manipulator” on day one of his administration, putting pressure on China to raise the value of its currency against the dollar.