Is it a powerful dollar or a declining one?

Alarm sounding for U.S. economic collapse as Trump is insisting on trade deal with China

January 27, 2020 - 23:30

Nowadays, if a country exports one billion euro of its crude oil to a European country, the mentioned billion euro of revenue can be accessible and utilized in the world trade system only and only after its equal dollar-based value has been recognized by the U.S. otherwise the said revenue has no any value in the international markets’ transactions.

Accordingly, requesting the U.S. dollar and depositing a hefty amount of the dollar in the world nation’s central banks is the only way to determine the national currency in any country. The world nations have no way out of this trend unless they reinvigorate their exports to the U.S. or invest in the United States to gain more dollars or deposit them more in the U.S. projects. The world nations, which are deeply depended on the dollar, even accept the consequences of trading with dollar, including inflations, in order to use privileges of having share in the world trade system and have a say there.  

It is worthy to say that, within the framework of imposing “trade with dollar policy” on the world trade system, the U.S. expanded its military supremacy under the pretext of providing security for supplying energy as well as shipping. The U.S. later provided a cold-war situation and made the world nations so depended on the security of shipping and energy that the world countries had no way but accepting the dollar’s upper hand.

After the World War II, the representative of 44 world nations managed to establish two key organizations of the International Monetary Fund and the World Bank in line with enhancing their economic growth and fixing or reinvigorating the value of their national currencies based on Bretton Woods system in 1945.

The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement.

The U.S. as the winner of the World War II, managed to take the privilege of announcing the value of each ounce of the gold as the supporter for the dollar as well as a new trend in which the values of other countries’ national currencies would be regulated and fixed based on the dollar’s value. In the beginning, the value of each dollar was determined based on the value of each ounce of the gold which was $35, but later this evaluating system collapsed in 1970 due to lack of enough gold for providing support for the dollar.

In 1971, the gold lost its position to provide support for the dollar and *Fiat dollar hit the international markets. In the recent 50 years, the dollar was used as a political currency in world trade. A trend to which the U.S. strategic partners and other world nations have been to adhere.

*Fiat money has been defined variously as Any money declared by a government to be legal tender. State-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard. Intrinsically valueless money used as money because of government decree.

As certain basic goods, including crude oil and natural gas were trading based on dollar value, enthusiasm to attained more dollars was continuously on the rise. An Oil Shock in the 1970s, which made the oil price manifold more, also turned large industrial countries into economic crisis. Simultaneously, the oil-exporting countries’ requests to attain more dollars, caused the U.S. Treasury Department to print more banknote which in turn pave the ground for creation of inflationary dollar in the world.   

The above-mentioned situation faced the oil-importing countries, especially Japan and Germany, a high unemployment rate and severe economic recession.

The U.S., however, did not face any form of the inflationary economy at the time because it resorted to creating fractional trade-balance with its trade partners to force them to apply for more dollars. Therefore, the U.S. trade partners which enjoyed the highest rate of exports to the United States only earned Fiat dollar or dollar-based credits against their exports to the U.S. in several decades.

In fact, the exporters were selling their goods to the U.S. free of charge as they were earning Fiat dollars or bonds.

The bonds are issued by the U.S. Treasury Department to cover the budget deficit. The bonds include profit rates for domestic or foreign customers who enjoy dollar deposits in the U.S. banks. Therefore, Today the U.S. is living with the money it has earned via presenting bonds or paying with Fiat dollar.  

In other words, a part of payments against the other countries’ exports to the U.S. is fulfilled by the bonds which are noting but debts of the United States’ government and people.

Inevitably and due to preventing the decline of the dollar and the world’s financial system, certain industrial economic-power countries, including China and Japan, have to accept not only Fiat dollar and the bonds against their exports to the United Sates but also they have to purchase more bonds when the bonds’ value face decline. The move helps the exporters to the U.S. save the value of their previously-purchased bonds.   

It should be noted that China itself enjoyss the highest positive trade balance and dollar deposits in the world.

In the current situation, the U.S.’ unrivaled leadership of the world which has been based on “the world nation’s dependency on security of energy supply by the United States’ military” and “the role of dollar in the world trade” since 1945, has in recent years been challenged severely by two world powers of Russia and China.

If the U.S. President Donald Trump is forcing the world nations to invest in the United States or procure their needed energy from the U.S., he wants only to narrow down the country’s trade balance deficit with Washington’s trade partners as well as decreasing the private and public sectors’ debts.

The mentioned debts, which are surpassing the U.S. per capita production, have pushed the U.S. towards a serious destructive stage which can lead the country into an economic recession severer than the recession in the first decade of the third millennium or even another decline of the Wall Street.

Trump’s insistence on attracting more foreign investments has its roots in the U.S. Treasury Department’s policy that the country’s debts and budged deficit have reached at a critical stage which may cause the economic-power countries, including China, India, Russian ad even Europe to revise and replace dollar with another currency gradually or omit dollar from their economic interactions via using the method of barter trade. The mentioned countries may even try not to deposit their currency resources in the U.S. Treasury Department or resort to purchasing more gold to narrow down their dependency on the U.S. Fiat dollar.

In line with the said policy, China and the Russian central bank have managed to increase their stockpile. Moscow hit the record on gold purchase in 2019.

Trump knows well that in such situations the dollar, which once was the generator of his country’s military and economic powers, has moved rapidly towards a dollar that will accelerate the United States’ decline both in military and economic terms.

Trumps, who is trying hard to persuade China to import oil and gas from the U.S., wants Beijing, which is one of the greatest economies around the world, to be dependent on the U.S. dollar to ultimately prevent the creation of a substitute currency for dollar.   

On the other hand, China in its new deal with the U.S. and in line with saving Beijing’s economic strength in the international arena has agreed to purchase as much as $200 billion of agricultural products, energy, and industrial and financial services from the United States within the next two years.

However, the European Union (EU) has voiced its concerns over the inked deal between Washington and Beijing, which as the EU has claimed, will result in damaging trade balance harming the European companies. The EU has threatened that it will file a complaint before the World Trade Organization.

China and Russia, via their long term cooperation, and Britain, via leaving the EU, have heard the alarm of irrecoverable economic recession of the United States sooner than the other countries.

At the beginning of the third millennium, China and Russian started their long term cooperation with a lower dependency on the U.S. dollar. In 2014, the President of China and Russian signed a 30-year-long agreement on exporting 30 trillion cubic meters of Russia’s natural gas with a value of $400 billion to China.  

In January 2019, the second pipeline of transferring Russia’s crude oil to China went on stream which turned Russia into the largest oil exporter to China. In fact, today there are several politically-constructed gas and crude oil pipelines around the world which have turned their implementers into the main players in the diplomatic and economic arenas. The term Geopolitics might also been turning into Geoenergy.   

The Russia-China gas transferring project, which is now atop energy-transferring agenda worldwide, has remarkably changed the political balance in favor of Moscow so that the country’s President Vladimir Putin has decided to restructure the country’s traditional political system to institutionalize the newly-gained power of geo-energy policy.

Base on the above explanation, it could be clarified that Russia and China are turning into the generating and consuming energy hubs which will simply challenge the U.S. leadership in providing security of energy supplies.

The oil and gas that were once exported to the western countries by Russia and instead the country was facing political-economic instability and sanctions, now are exported to China bringing about stable economy and political powers.

Briefly saying, Russia, China and India, with good economic growth and multi-billion population market, enjoy the capacity of resorting to barter trade or omitting the U.S. dollar from their trade transactions. If so, the new currency will be valued based on the value of the international energy or the gold, the world nations will get rid of dependency of the U.S. dollar, oil crude can be traded out of the baskets of dollar defined in the U.S-made world trade system and the crude can be sold in barter trade method.

The proposed method can be model for future world trade.

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