Another Day, Another Nation Dumps the Dollar

From South Africa’s City Press:

South Africa will this week take some initial steps to unseat the US dollar as the preferred worldwide currency for trade and investment in emerging economies.

Thus, the nation is expected to become party to endorsing the Chinese currency, the renminbi, as the currency of trade in emerging markets.

This means getting a renminbi-denominated bank account, in addition to a dollar account, could be an advantage for African businesses that seek to do business in the emerging markets.

The move is set to challenge the supremacy of the US dollar. This, experts say, is the latest salvo in the greatest worldwide currency war since the 1930s.

Well — like the rest of Africa alongside all of its natural resources which (in spite of Kony 2012’s best efforts) becomes more Chinese by the day — it is clear where South Africa’s allegiance lies. Most interestingly, though, this is the first nation with an Anglo-American economic elite to come out against the present global order and more or less endorse China.

Readers are reminded of this chart:

It is rather intriguing to note, by the way, that when the term “emerging economies” is used, the underlying reality is that these are the productive economies. America’s GDP is mostly spent on the consumption of foreign goods, (or goods made from foreign components), on the back of foreign oil. And the emergent reality of the 21st Century (forward-looking readers will already understand) is that consumptive nations need productive nations, but not vice verse. Right now, without “emerging nations” subsidising American consumption (and agriculture, etc), what would become of the dollar? I think the only thing standing in the way of it becoming toilet paper is U.S. military might. But what would happen to that military might as a result of a global trade slowdown resulting from — for example — the closure of the Strait of Hormuz? As I detailed last week, as a result of her addiction to fragile global trade networks, America has rendered herself extremely fragile.

From the Huffington Post:

Blocking the Strait of Hormuz would create an international and economic calamity of unprecedented severity. Here are the crude realities. America uses approximately 19 to 20 million barrels of oil per day, almost half of which is imported. If we lose just 1 million barrels per day, or suffer the type of damage sustained from Hurricane Katrina, our government will open the Strategic Petroleum Reserve (SPR), which offers a mere six- to eight-week supply of unrefined crude oil. If we lose 1.5 million barrels per day, or approximately 7.5 percent, we will ask our allies in the 28-member International Energy Agency to open their SPRs and otherwise assist. If we lose 2 million barrels per day, or 10 percent, for a protracted period, government crisis monitors say the chaos will be so catastrophic, they cannot even model it. One government oil crisis source recently told me: “We cannot put a price tag on it. If it happens, just cash in your 401(k).”

Readers may be surprised to learn that I still have a lot of faith in America and the West. Only in the West is there an intellectual climate that allows for the kind of speech published on this blog. A free intellectual climate leads to innovation, and the free and honest exchange of ideas, all of which indirectly spur economic development. And certainly, while America is not perfect, it generally has a freer intellectual climate than most other nations. Further, America has huge reserves of energy and natural resources, and a low population density and thus room to expand.

But ultimately — as we shall over the next ten or twenty years — the present day American consumerism is a glittering economic dead end. The present world order is unravelling, and Americans — like many great empires before them — are in danger of suffering a lot of fallout.

20 thoughts on “Another Day, Another Nation Dumps the Dollar

  1. Based on your graph USA has at least 20 years to go. I am still long USD. The US public will go without welfare before the USD is kaput. Well armed Police and a well trained army to keep rioters in check.

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  3. What do you think about the assertion made by some that oil is not actually a scarce resource and usable stocks exist on the American mainland, which are not yet used. The oil scarcity notion was invented by Rockefeller, of Standard Oil to grow his business in the late 1800s, they apparently also invented the term fossil fuels to generate the impression that oil can only be formed by ancient organisms, which does not explain why oil is found at very deep levels of the earth, where organisms could not have lived. Global warming is also a myth.

    Arguably the Internet has opened up communication for everyone, in the west people were largely manipulated by a corporate media, now we are still manipulated but there are many more ways to escape.

    If China becomes the replacement of American global hegemony I am not sure that would be a good thing. In some ways China is also going to face huge problems…their model of development and productive capacity may be better than the American consumerist model now, but it does not mean that it is the way forward. Chinese society has many problems, and working in China is not as easy as working in America. Do we really want to live in a world where we all work like the Chinese (long dreadful hours, for little pay and benefits) in huge factories? No thanks.

    • I suppose I tend to lean toward the conventional view that crude oil is the product of ancient forests and organisms that have been subducted under the Earth’s crust.

      But where did all of these things that became oil come from?

      To really understand the truth in terms of hydrocarbon scarcity (because, let us not forget that oil is just one of many kinds of hydrocarbon) we need to go way back in time, before the Earth even existed. We know that hydrocarbons (e.g. methane) are fairly common in the solar system. We find them in asteroids. We’ve detected that they fall as rain on the surface of Saturn’s moon Titan. Their commonness around the universe is because they’re cooked up in stars before they go supernova. Most of the materials in our solar system (including virtually all asteroids, Earth, our bodies and anything that isn’t the Sun, really) is supernova debris.

      So there are plenty of sources of hydrocarbons, but probably not so many of crude oil. Of course, crude oil isn’t really that special, and many of its properties can be replicated with other fuels.

      As for global warming, I believe that the Earth is warming due to human beings. I actually think that on balance this is probably a good thing, as it is holding off glaciation which is something that has hurt human civilisation before. There is probably some need to restrict emissions beyond a certain level as a matter of risk aversion, but some global warming is probably beneficial for humans. Nature may not feel the same, but nature is far smarter than us, and I don’t think we should try to second-guess her.

      • I have read on websites (Can’t always believe what you read can you!) that the Russians found a way to extract oil from such deep depths, there is no way it was formed by fossils (Life could not reach that depth) so it is possible that other reasons exist. But in the interest of extracting the best price they too restrict supply.

        But who knows, the misinformation on the internet is tuning people out. They might as well switch it off. They can leave Facebook, Youtube (Funny movies of cute pets and people being silly) for the masses, and go back to to old fashioned scientific symposiums. At least then travel and accomodation is tax deductible.

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  6. Hi Aziz,

    Where do you see the GBP in the future? there seemed to be little response to the last £125bill of QE

    I agree that oil is replaceable, gas is surely the future in transportation, current petrol cars can be converted to use gas, a small unit in the boot holds the tank and equipment, i hear all the taxis in hong kong have been converted, one can fill up in your garage at home. fracking has produced new reserves

    • Australia and Ukraine run all their taxis and 25% of domestic cars (Growing) on Liquid Petroleum Gas, so the change to Natural Gas will be easy. For this reason Great Britain could import Natural Gas from Australia, halving fuel costs. Australia, being part of the Commonwealth is a safer bet than Russia or Iran or othe hotbed countries.

    • Where do I see GDP in the UK? I see it trending sideways like Japan until we address the issues of barriers to entry, overregulation, addiction to statism, etc.

      Stimulus can probably increase GDP somewhat, but we are in a truly zombified economy, so I’d expect there to be a withdrawal shock if the government stimulates and then withdraws the stimulus juice. The point is there is that stimulus solves no problems in itself, it just kicks the can and gives society the opportunity to address the real problems.

      I think the best way forward is to maintain spending or slightly increase spending on infrastructure and cut regulations, cut barriers to entry, etc. Cameron government seems to be doing the exact opposite: austerity plus more regulations. Whoops.

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