China/Russia Combine Tries to Dethrone Dollar’s Unilateral Global Status

August 13th, 2013 | by Morris Beschloss | Comments

While the U.S. Treasury debt has reached a debt-to-gross domestic product of 110%, an all-time record disparity, the dollar has remained the king of the world currencies. In fact, it currently dominates all other currencies combined in its usage as the basis of buying and selling all types of commodities on the world markets. That is why the dollar continues its supremacy, despite the fragility of the current U.S. economy that stands behind it. Two international events have recently taken place that may pose the most serious challenge ever to a post World War II monetary scenario ruled by America’s greenback:

1) Within the last year, the two former world Communist rivals, once headed by Mao’s China and Stalinist Russia, have made a heretofore non-existent accommodation possible, in a marriage of convenience. China brings to the table global outreach in world trade and markets, practically non-existent to the current successor of the once superpower Soviet Union. Russia contributes its massive resources of oil and natural gas, plus an assortment of raw materials critical to the ambitious world economic leadership Beijing covets. Under the accession to China’s leadership of President Xi Jinping and Premier Li Keqiang, China’s world trade position with a rational domestic growth of 7% per annum seems to be on top of his priorities.

2) Russia, under maximum leader Vladimir Putin now views China as a partner in challenging what both perceive as a United States riding the waning momentum of past world perception of overall monetary supremacy and stability. This conception has not only supported the funding of America’s enormous out of control debt, but has continued to keep the “greenback” in an unassailable strong world position. The joint strategy also now being employed by Russia and China is the accelerating mining and acquisition of gold reserves. These held by the two together still amounts to only half that held by the U.S. While the gold standard as such may no longer be in vogue, it does represent the mighty currency respect the U.S. still enjoys globally.

While the U.S. has been satisfied to rest on its laurels, the People’s Bank of China (PBOC) has signed nearly two trillion yuans worth of swap deals with 20 countries and regions. Additionally, China’s foreign exchange reserves have increased from $2.2 trillion in 2009 to $3.5 trillion currently. Significantly, U.S. dollars held by China fell from 69% to 54% during the same period. At the same time, the Chinese government’s “brain trust” has allowed its currency to gain a more realistic value vis-a-vis the dollar; previously it had been artificially devalued to maintain a global competitive advantage.

With Beijing stabilizing its current export expansion while concentrating on “inward development,” China has effectively increased its purchasing power. This enhances its ability to purchase the bulk of its energy (copper, iron ore, oil and gas) from Russia. This offers unlimited fossil fuels nearby access, as opposed to its oil sources in the Middle East and Africa, which are constantly beset by the political and military instability of that region.

At this time, the Sino-Russian combine is viewing the United States and its questionable leadership as the best opportunity yet to reach eventual pre-eminence of this new world alliance. Such an attempt by previously failed world currencies such as the yen, pound, or euro are now aggressively being generated by the Russia/China alliance. Although much depends on America’s ability to maintain the dollar’s strength, the current assault is the most serious ever launched against it; and cannot be taken lightly.

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