by Robert Wheeler
November 29, 2018
Over the past few months, there has been a steady uptick in the
number of countries dumping significant portions of their dollar
This is causing many people to worry whether or not the
economy is in for a massive shock sooner, later, or somewhere in
While American corporate media outlets either ignore the
developments entirely or claim that there is nothing to worry about,
the reality is that the dumping of the dollar is a process that is
More than that, it appears it is a process that is
at least partially coordinated by a number of countries that have
been targets of American sanctions and financial bullying in the
Thus, while corporate media outlets ignore the vanishing dollar
dominance and reassure their hapless audience that everything is
fine, alt media outlets are predicting a second Weimar Republic,
this time in North America.
Who Is Dumping The Dollar?
Since the dollar currently enjoys its status as the
currency, it is constantly being bought and sold by nations across
the entire planet.
This arrangement is essentially what is keeping
the dollar strong even after
the United States embraced neo-liberal
Free Trade policies that saw the greatest economic system the world
has ever known turned into a shell of its former self.
arrangement allows the United States to sell its "debt" to the rest
of the world, which other countries are willing to buy because of
the stability of the American governmental system and the fact that
America is still an economic powerhouse.
But as the U.S. stretches its military and financial forces thin in
the course of expanding its empire across the world, the collapse of
that empire looms and, with it, increasingly jittery feet from
countries desiring to make prudent financial decisions.
countries tired of being victims of the empire, those who desire a "multipolar" world, and those seeking to expand their own empires,
however, the smell of blood is wafting through the air.
China, the emerging and competing empire, has already started the
process of dumping the American dollar in a careful and coordinated
This is particularly concerning since China holds so much
of America's debt and so many U.S. dollars.
If China dumped all of its
holdings at once, America would likely enter a new financial crisis.
Fortunately for Americans, however, such an immediate move would
also throw China into a crisis which is most likely the main thing
holding China back.
But make no mistake: China is moving forward with the plan of
relieving itself of the dollar.
After all, the country recently
inked a deal to trade oil in Yuan instead of the dollar.
"Mainland it is laying the ground for the Belt and Road Initiative,
and China is even sweetening the pot by offering swap facilities to
local countries to promote the use of the yuan," Stephen Innes, Head
of FX Trading for OANDA in Asia Pacific
Indeed, it appears that developing country-to-country trading
mechanisms are emerging as well which will eventually subvert the
dollar as the world reserve currency.
Interestingly enough, the
development of such a system is a result of aggressive Americans
sanctions and financial bullying over the past few decades.
The United States maintains sanctions on all of its target nations
But the U.S.
also threatens its "allies" with sanctions if they dare act
rationally on the world stage or refuse to follow American dictates.
As a result, America is sanctioning itself into
creating a world where it has taken its ball and gone home so many
times that the rest of the kids realize it's possible and even
easier to just play the game without the American bully on the
India is also slowly moving away from the dollar. Recently, it
announced that it would be paying for the Russian S-400 system
(important in its own right) and
settling the payment in rubles, not
But it's not just the development of country-to-country
financial/trading mechanisms. Other countries have been slowly
dumping the dollar outright. In fact, China has done that also.
a look at
a recent report from RT detailing how China just dumped
the largest amount of Treasuries in 8 months.
The article states,
In September, China's share of
U.S. Treasuries holdings had the
highest decline since January as ongoing trade tensions with
Washington forced the world's biggest economy to take measures to
stabilize its national currency.
Still the biggest foreign holder of the
U.S. foreign debt, China
slashed it's share by nearly $14 billion, with the country's
holdings falling to $1.15 trillion from nearly $1.17 trillion in
August, according to
the latest data from the Treasury Department.
The fall marks the fourth straight month of declines.
followed by Japan, whose share of U.S. Treasuries fell to $1.03
trillion, the lowest since October 2011.
Washington has accelerated the Treasury issuance to avoid potential
growth in the federal deficit due to the massive tax cut pushed by
Donald Trump, as well the federal spending deal approved
by the government in February.
Chinese purchases of U.S. state debt have been decreasing over recent
The latest drop comes on top of the escalating trade
conflict between Beijing and Washington over trade imbalance, market
access, and alleged stealing of U.S. technology secrets by Chinese
So far, the U.S. has imposed tariffs on $200 billion of
Chinese goods and Beijing retaliated with tariffs on $60 billion of
U.S. goods and stopped buying American crude.
China has been steadily dumping U.S. dollar holdings over the past
several months and Japan has followed suit.
China and Japan - the two main holders of the
U.S. Treasury securities - have trimmed their ownership of notes and bonds in August,
according to the latest figures from the U.S. Treasury Department,
released on Tuesday.
China's holdings of
U.S. sovereign debt dropped to $1.165 trillion in
August, from $1.171 trillion in July, marking the third consecutive
month of declines as the world's second-largest economy bolsters its
national currency amid trade tensions with the U.S..
China remains the
biggest foreign holder of U.S. Treasuries, followed by long-time
Tokyo cut its holdings of U.S. securities to $1.029 trillion in
August, the lowest since October 2011. In July, Japan's holdings
were at $1.035 trillion. According to the latest figures from the
country's Ministry of Finance, Japanese investors opted to buy
British debt in August, selling U.S. and German bonds.
reportedly liquidated a net $5.6 billion worth of debt.
Liquidating U.S. Treasuries, one of the world's most actively-traded
financial assets, has recently become a trend among major holders.
Russia dumped 84 percent of its holdings this year, with its
remaining holdings as of June totaling just $14.9 billion. With
relations between Moscow and Washington at their lowest point in
decades, the Central Bank of Russia explained the decision was based
on financial, economic and geopolitical risks.
Turkey is also backing away from the dollar, having dropped out of
the "top-30 list of holders of American debt."
This probably has
more to do with Turkey finally coming to the realization that the
was engaging in "hamburger diplomacy" and has no real allegiance to
Turkey accept as a vassal state. The failed military coup in the
country and the U.S. arming of Kurdish forces in Syria have done
nothing but push Turkey toward Russia.
India remains in the top 30 holder list but it has cut its holdings
for five straight months.
As would be expected, Russia has been consistently moving forward
not only to dump the dollar in a responsible manner but also to make
its financial system more distinctly Russian and less dependent upon
the whims of the Anglo financier arrangement.
One of Russia's largest banks, VTB is seeking to decrease the share
of U.S. dollar transactions at home as locals are choosing the Russian
ruble over the greenback.
"There is one interesting thing I wanted to highlight.
beginning of this year, people seem to be less interested in making
dollar deposits or taking out dollar loans, compared to
ruble-denominated deposits and loans.
We believe this to be an
important step towards the de-dollarization of the Russian finance
sector," said VTB head Andrey Kostin at a Kremlin meeting with
President Vladimir Putin.
According to Kostin, VTB experts have drafted a package of proposals
designed to further promote the ruble in international settlements.
"I think that we
need to create our own financial tools.
This would serve
as an additional safeguard for the Russian financial sector
against external shocks, and would give a new impetus to its
development," Kostin added.
The financial tools Kostin mentioned are
floating Eurobonds, shares and other derivatives that are now used
only in the West.
Russia has been seeking the ways of decreasing the dependence on the
U.S. currency after Washington and its allies imposed sanctions
against Moscow in 2014.
In May, President Putin said Russia can no
longer trust the U.S. dollar-dominated financial system since America
is imposing unilateral sanctions and violates World Trade
Organization (WTO) rules.
Putin added that the dollar monopoly is
unsafe and dangerous for the global economy.
It is important to remember that
Russia has also dumped $47bn worth
of Treasury bonds, dumping nearly half of its holdings at once.
What Happens if the Dollar Loses
So why is this concerning? What would happen if the dollar loses its
status as the world's reserve currency?
The truth is, no one fully knows exactly what such a situation would
look like and it would depend on a number of factors such as how
quickly the dollar is abandoned by the world, the action taken by
the U.S. government in response, and the economic situation of the
country once the dollar is unseated.
Despite mainstream claims, we've never really been in this specific
Other countries have seen their currency used as
the de facto world reserve but, when their time was up, there were
also many other factors at play and the world financial system was
less intertwined than it is today.
Still, although we may not know the specifics, we do have
idea of what would happen.
First, Americans are going to lose the convenience of being able to
use their currency just about anywhere in the world, both on a
business and individual level.
That's not such a big deal on the
individual level though it may cause a few hiccups for mid-sized
Second, interest rates will most assuredly go up.
This is going to
make it harder for businesses and individuals to pay back any loans
they may have received to start or maintain their businesses, buy a
home or car, and it will stifle economic growth and it is going to
make more people hesitate to request those loans knowing that
interest rates will be so high.
Third, and perhaps the most dangerous, is the potential for
widespread inflation and devaluing of the currency. Loss of world
reserve status will undoubtedly lower the value of the dollar.
question, however, is whether that devaluation would occur slowly
over a period of years or even decades or whether it would take
place within months, weeks, or days.
Obviously, the former would be
preferable if the dollar does have to be unseated because it would
at least allow time for Americans to brace themselves and to prepare
and innovate for the coming devaluation that would gradually get
In some cases, American exports might
even be helpful for
some American exports (though not helpful in terms of wages - competing via lower living standards is a race to abject poverty).
But at least a slow burn would allow for Americans
"in the know" to
stock up on food, attempt to pay off their debts, arm themselves,
and make prudent financial decisions in anticipation.
A quick and sudden loss of reserve currency status, however, would
bring about an immense crisis that virtually no one is prepared for.
As Webster Griffin Tarpley wrote in his article
"The Second Wave
The Depression - Hyperinflation Likely," published in 2009,
The next wave is likely to involve a worldwide dollar panic.
ballpark figures, we can say that there are about $4 to $5 trillion
sloshing around the world in the form of hot money, U.S. Treasury
securities, Euro dollars, and various forms of zeno-dollars. Japan
has about a trillion, China almost $2 trillion, and so forth.
naturally very unwise for a developing country like China to hold so
many dollars rather than using them to purchase needed
infrastructure and capital goods, and the Chinese leaders are now
very uncomfortable with their own foolish decision, which was of
course taken under heavy U.S. pressure.
But the point is that this
$4.5 trillion overhang is by its very nature exceedingly unstable.
Every country that holds large sums of dollars or
U.S. treasury bonds
is nervously eyeing every other such country to see if they show
signs of bolting for the exit.
Up to now, so far as we know, no
large holder of dollars has attempted to reduce its exposure to the
battered greenback by dumping these dollars on the international
If anyone did so, would cause a true universal financial
panic which would create chaos and mayhem not just in the United
States and Great Britain, but in the vast areas of the rest of the
world as well.
This is concretely how hyperinflation could now very
if one or more
U.S. creditor nations attempts to abruptly
lighten up on dollars, the value of the U.S. currency could undergo a
catastrophic collapse, and that would spell runaway hyperinflation
on the U.S. domestic front.
The numbers are a decade old but the concept is still there...
That being said, given that the United States has used its status as
a method of financing itself into maintained prosperity, the loss of
that status would remove that privilege.
Instead, the United States
would be forced to either knuckle under to the dictates of the
financiers that will have the country on its knees or do what it
should have done all along:
nationalize the Federal Reserve
FED - and
begin issuing credit stimulus and imposing across-the-board tariffs
It would be nice to hope for the best and prepare for the worst but,
as things appear today, we might want to start preparing much more
The U.S. economic system, partially as a result of
becoming an empire with all its requisite destabilizations and wars,
mostly a result of Free Trade, and partially a result of private
central banking among a host of other factors, has been sacrificed
on the altar of globalism.
Aggressive behavior on the financial,
political, and military fronts has thus created a world seething
with anger and hatred at the United States, who is now willing and
able to begin weakening the dollar dominance in hopes for the
creation of a new "multipolar" world out of the ashes of
the old "American" one.
There are no signs that anyone in the American government is either
prepared to defend against the dollar collapse or to prevent it. In
fact, all signs point to the possibility that such a collapse is
desired by the Anglo-financier community.
In other words, the best time to prepare is today...