The Chinese Belt and Road Initiative (BRI), part of China's bid to revive the old Silk Road east - west trade route, intends that by lending out money using an new reserve currency instead of the US dollar, to open up huge opportunities for investment and the strategic transformation of the south east Asia region.

The facilitation of easy trading systems by the BRI, led by China, Russia and Iran, aims to create different transit routes for movement of goods between east and west as well as boosting economic development along the new Chinese 'Silk Road'. Naturally Chinese banks and investors interested in creating infrastructure or developing potential industrial poles in the countries involved in this grand Chinese initiative will be among the main beneficiaries if the plan succeeds.

Hong Qi, president of China Minsheng Bank, recently told an economic forum in Beijing that BRI potentially opens the way for about $10 trillion worth of investments in infrastructure in the countries that are part of the system, in areas railways, urban development, logistics and cross-border e-commerce.

At the time of writing,more than $10 billion has already been committed in projects planned by companies already operating in over thirty countries and regions along the BRI. These projects will be financed through the banks of China’s public and private sectors. According to data from the China Banking Regulatory Commission, a total of nine Chinese banks are involved in the financing of projects, with 62 branches having been opened in 26 countries. A further $10 billion could come from European countries as a result of investments stemming from the China-CEEC forum.

Despite delays in the development of such projects, analysts believe that the BRI is the ideal ground for making regional cross border trade agreements based use of national currencies and cutting out the US dolar (oaka Petrodollar,) Such agreements would create the possibility of closer economic ties within the the region. Thus, not only are public and private banks involved in investments but the Asian Investment Infrastructure Bank (AIIB) and the Silk Road Fund are also part of the financial package that should lay the foundation for the accelerated development of the Chinese BRI. Confirming a new approach to the development of the BRI, Chinese investors during the first ten months of 2017 proposed projects totalling $11 billion in the 53 countries involved.

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The BRICS counties are considering starting an internal gold trading platform, according to Russian officials. When this happens, the global economy will be significantly reshaped, and the West will lose its dominance, predicts a precious metals expert.

In 2016, 24,338 tons of physical gold were traded, which was 43 percent more than in 2015, according to Claudio Grass, of Precious Metal Advisory Switzerland.

Gold moving from the West to the East

“We have to put the BRICS initiative into a broader context. It is just part of a geopolitical tectonic shift which started decades ago. We have seen a constant outflow of physical gold from the West to the East. At the same time, the West has lost the economic war, and as a consequence, the focus now turns to the financial system. China dominates the world economy and has displaced the US as the world’s most formidable economic powerhouse,” he told RT.

The creation of a new gold standard by BRICS is also a step to end the US dollar’s domination of the global economy

“As Bejing and Moscow understand that America used the dollar to control the world, by implementing a new kind of ‘Gold standard 2.0’ they want to distance themselves from this control. Furthermore, the vast majority of the people in Asia sees gold as superior, or ‘real’ money, something the West has forgotten, because of all the paper wealth (credit) they have accumulated,” said Grass.

The expert notes the BRICS countries account for 40 percent of the world’s population and around 23 percent of the world’s domestic product.

"In combination with the announcement of pricing oil in yuan, using a gold-backed futures contract in Shanghai, the establishment of the Asian Infrastructure Investment Bank and the New Development Bank, China is setting up an alternative to the post-Bretton Woods establishment. This is certainly a game changer,” said Grass.

Physically backed precious metals market spells the end of paper gold trade

The level of trust between BRICS countries can help them establish intragroup gold trading, which would be 100 percent physically backed.

“This will present a viable challenger that could over time lead to a break up of the current system since the West will likely still trade paper gold in the meantime,” Grass said.

According to London gold clearing statistics for 2016, the total trading volume in the London Over-the-Counter (OTC) gold market is estimated at the equivalent of 1.5 million tons of gold. The volume of 100oz gold futures on New York's COMEX reached 57.5 million contracts during 2016 or 179,000 tonnes of gold, the analyst notes.

The amount of mined gold is much smaller

“If we now take into consideration that only approximately 180,000 tons of gold have actually been mined up to today the scam is just gigantic and obviously unsustainable. The paper scams in London and New York will either blow up when the paper price of gold drops to zero or when just a fraction of investors insists upon receiving physical gold in return,” Grass said.

The expert believes that with paper gold trading, the established gold exchanges could cease to exist sooner or later.

“They will likely become obsolete and lose their importance over time. Although one cannot predict exactly how fast this will happen, the trend is clear: OTC and COMEX are working toward their own destruction,” he said.

The analyst recollected the Heartland Theory of Halford Mackinder, a British geostrategist at the beginning of the 20th century who influenced the likes of Kissinger and Brzezinski. Following the theory, we will soon face a war between physical gold and the US dollar.

As well as the concerted effort led by China, Russia and Iran to replace the Petrodollar as the global currency, its status is also being undermined by the shift of financial activity to digital technology and changes in the geopolitical balance. What comes next is all too easy to predict ...

In the summer of 1974, Treasury Secretary William Simon traveled to Saudi Arabia and secretly struck a momentous deal with the kingdom. The U.S. agreed to purchase oil from Saudi Arabia, provide weapons, and in essence guarantee the preservation of Saudi oil wells, the monarchy, and the sovereignty of the kingdom. In return, the kingdom agreed to invest the dollar proceeds of its oil sales in U.S. Treasuries, basically financing America’s future federal expenditures.

Soon, other members of the Organization of Petroleum Exporting Countries followed suit, and the U.S. dollar became the standard by which oil was to be traded internationally. For Saudi Arabia, the deal made perfect sense, not only by protecting the regime but also by providing a safe, liquid market in which to invest its enormous oil-sale proceeds, known as petrodollars. The U.S. benefited, as well, by neutralizing oil as an economic weapon. The agreement enabled the U.S. to print dollars with little adverse effect on interest rates, thereby facilitating consistent U.S. economic growth over the subsequent decades.

An important consequence was that oil-importing nations would be required to hold large amounts of U.S. dollars in reserve in order to purchase oil, underpinning dollar demand. This essentially guaranteed a strong dollar and low U.S. interest rates for a generation.

Given this backdrop, one can better understand many subsequent U.S. foreign-policy moves involving the Middle East and other oil-producing regions.

Recent developments in technology and geopolitics have already kicked off a process to end the era of dollar dominance. This can only have a major impact on global financial markets. The 40-years of stability this system has guaranteed is being dismantled, and that is due in part to the exponential growth of technology which makes cross border trades relitively simple to conclude in the currency of the vendor's nation. Moreover, the current system no longer is in the best interests of the major players in the global oil trade. Developments such as these have begun to exert influence on financial markets and will only grow over time. The upheaval of the petrodollar recycling system will trigger a major change in the way nations with large economies trade with each other.

Technology is also affecting the energy production industry dramatically, and this impact is also growing. Although power generatede by wind and solar farms has proved disappointing, other technologies such as tidal and run-of-river schemes are showing more promise and new ways of extracting fossil fuels, while not living up to scientists' claims are having a significant on supply and prices. The pattern-seeking human mind is built for an observable linear universe, but has cognitive difficulty recognizing and understanding the impact of exponential growth. Albert Einstein is rumored to have described compound interest (another form of exponential growth) as the most powerful force in the universe.

The growth of oil production from new technologies such as hydraulic fracturing (fracking) and horizontal drilling has both reduced U.S. oil imports and led to lower global oil prices. With the U.S. economy more self-reliant for its oil consumption, reduced purchases of foreign oil have led to a drop in the revenues of oil-producing nations and by extension, lower international demand for Treasuries and U.S. dollars. China, now the world’s largest importer of oil, and with ambitions to overtake the USA as the most powerful economy, is no longer comfortable purchasing oil in a currency over which it has no control, and has taken steps that allow it to circumvent the use of the U.S. dollar:

China has signed an agreement with Russia to purchase Russian oil and natural gas in yuan. Iran, India, Turkey and a number of other nations have now added their names to the agreement. As an example of China’s newfound power to influence oil exporters, China has persuaded Angola (the second-largest oil supplier to China) to accept the yuan as legal tender, another move by Beijing to speed up internationalization of the yuan. The incredible growth rates of the Chinese economy and its thirst for oil have given it tremendous negotiating power and will lead other countries to cater to China’s needs at the expense of their historical client, the U.S.

China will launch an oil exchange by the end of the year (Russia has already opened one) where oil trades will be settled in yuan. Note that in conjunction with the existing Shanghai Gold Exchange, also denominated in yuan, any country will now be able to trade and hedge oil, circumventing Petrodollar transactions, with the flexibility to take payment in yuan or gold, or exchange gold into any global currency.

As China further forges relationships through its One Belt, One Road initiative, it will pull other exporters into its orbit to secure reliable supplies from multiple sources, while pressuring the terms of the trade to exclude the U.S. dollar.

The world’s second-largest oil exporter, Russia, is currently under sanctions imposed by the U.S. and European Union (though some EU nations are circumventing this by buying Russian oil through internediaries,) and has made clear moves toward cutting the dollar out of oil and international trade. In addition to agreeing to sell oil and natural gas to China in exchange for yuan, Russia recently announced that all financial transactions conducted in Russian seaports will now be made in rubles, replacing dollars. Clearly, there is a concerted effort from the East to reset the economic world order.

Meanwhile in the USA, THE FEDERAL RESERVE is now in the beginning stages of a shift toward "normalization," which will lead to a reduction of "quantitative easing" (buying US government bonds,) for the U.S. Treasury market. The Fed’s total assets stand at approximately $4.5 trillion, or five times what they were prior to the financial crisis of 2008-09. The goal of the Fed is to “unwind” this enormous balance sheet with minimal market disruption. This is like performing a high-wire act a thousand feet in the air without a safety net. Additionally, at some not-so-distant future date, the U.S. will need to finance enormous and growing entitlement programs, and historical international sources for that financing will no longer be willing to support that endeavor by holding up the price of US bonds.

Market participants could theoretically accept such a de facto devaluation but it is unlikely the banks would tolerate it for long. The accumulation of many small losses in a low-volatility and generally trendless market has robbed them of confidence and the psychological balance to embrace any new model offering unknown consequences. They are frozen with fear that the lower-yield profile of recent years could become permanent in a brave new world .

The government of the USA has threatend to impose economic sanctions on China if The People's Republic does not adopt the new sanctions imposed against North Korea, the US Treasury Secretary has warned. Steven Mnuchin said that among the actions being considered was a move to cut off Beijing’s access to the US financial system. This seems particularly self defeating even by usual Washington foreign policy standards, China, Russia and Iran have been working for several years to separate themselves from the US dollar (The Petrodollar) and set up an alternative reserve currency for global trade, as has been reported many times in this page and elsewhere on our site.

"Economic warfare against North Korea economic works," Mnuchin said Tuesday at the Delivering Alpha Conference in New York City. "We sent a message that anybody who wanted to trade with North Korea – we would consider them not trading with us." We wonder what planet this Munchkin lives on. The USA has been levying economic sanctions on North Korea for sixty five years, and the communist regime in Pyongyang is still in place and still as defiant as ever.

The Treasury Secretary was not alone in uttering risible threas however, his statement echoed the words of the US envoy to the UN, Nikki Haley, calling the fresh round of sanctions against Pyongyang "historic." Munchkin Mnuchin added "if China doesn’t follow these sanctions, we will put additional sanctions on them and prevent them from accessing the US and international dollar system."

The USA might find that not only difficult to implement, but more harmful to the US and its allies than to China, just as the sanctions on Russia have harmed the economies of EU nations more that Russia's debt free economy. Washington has until now been reluctant to impose economic sanctions on China over fears of possible retaliatory measures from Beijing and the potentially catastrophic consequences for the global economy.

Washington runs a $350 billion yearly trade deficit with China which also holds $1 trillion in US debt. This amounts to an astonishing 28 percent of US Treasury bills, notes and bonds held by foreign governments. The US State Department however, seems more interested in putting pressure on Beijing and other countries trading with Pyongyang as they demand a "supercharged" response to North Korea’s nuclear tests, including imposing sanctions on companies from China and any other country doing business in North Korea. If the U.S.A. tried throwing its weight around as it has will many small countries in the past, it may find itself up against an adversary with just as much weight to throw around.

"I believe the response from the United States and our allies should be supercharged," said Ed Royce, chairman of the House of Representatives Foreign Affairs Committee during a hearing Tuesday, "We need to use every ounce of leverage [...] to put maximum pressure on this rogue regime," he said. Royce also called on Washington to target major Chinese banks, including the Agricultural Bank of China and the China Merchants Bank for dealing with Pyongyang.

He also said China was apparently reluctant to follow through on the sanctions adopted by the UN Security Council (UNSC) against the North. "It’s been a long, long time of waiting for China to comply with the sanctions that we pass and, frankly, with the sanctions that the United Nations passed," he said.

The committee chair went on to say the US could give Chinese banks and companies "a choice between doing business with North Korea or the United States." He added that the US should also "go after banks and companies in other countries that do business with North Korea the same way." We believe that back doors for trade with North Korea were already in place before Russia and China agreed to withhold their veto when the latest sanctions were voted through by the ~United Nations security council.

A Trade War With China Will End Dominance Of US Dollar - RT

Russia will speed up its project to reduce dependence on the dollar and U.S. international payment systems, and intensify efforts to persuade trading neations to settle cross border transactions in the currency of the vendor nation in response to U.S. sanctions, Deputy Foreign Minister Sergei Ryabkov said on Monday.

Reuters report that Ryabkov said that "we will of course intensify work related to import substitution, reduction of dependence on U.S. payment systems, on the dollar as a settling currency and so on. It is becoming a vital need." The reason for that is that "the US is using its dominating role in the monetary and financial system to impose pressure on foreign business, including Russian companies."

While the world's mainstrewam media has been focused on Syria, Ukraine, Yemen and other trouble spots, the currency war has been simmering on the back burner for almost a decade. Three years ago the MasterCard payment system stopped serving clients of seven Russian banks without warning after Washington imposed its first set of sanctions on Moscow in 2014. In response, the Russian government ordered the creation of a national payment system. With the support of the country's banking system, China and Iran the Brics bloc created new systems for international trade and the Mir charge card was introduced in 2015, although there is no information on what its adoption rate has been in the following years.

As Zero Hedge reported late last month, part of the latest Russian sanctions imposed by the USA are restrictions on the Russian banking and energy sectors: these target Russian firms already hit by earlier rounds of santions, limiting the financing period for them to 14 and 60 days. The new law will also punish individuals for investing more than $5 million a year or $1 million at a time in Russian energy export pipeline projects or providing such enterprises with services, technology or information support, a provision that has drawn strong condemnation from Washington's European allies.

It will be interesting to discover just how the US government intends to enforce these sanctions on non - US businesses and individual foreign nations. The neo - liberals and neo - cons in Washington might cling to a deluded belief that they are still the most powerful nation militarily, but to start trying to impose US laws on transactions conducted between sovereign nations is surely an overreach too far and will not be tolerated.

US energy companies have criticized the tightening of already existing sanctions as damaging for business and the German government has protested strongly that the US action will hit EU nations hard but have little effect on Russia. At the same time, the European Union expressed concerns the new penalties may undermine the bloc’s energy security. European Commission president Jean-Claude Juncker pledged to prepare an "adequate" response and "within days" if the measure hurt the interests of European companies. So far Europe has to elaborate on what, if any, retaliation to the sanctions it will unveil.

The joint bid by Russia, China and Iran to create an alternative to the US dollar (Petrodollar) as the reserve currency, and to eventually replace it is reported throughout this page, go back to our active CONTENTS list to browse the article. Or read other articles on the CURRENCY WARS:

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When Donald Trump defeated Hillary Clinton ("Crooked Hillary") in the 2016 US Presidential Election, the world hoped he would at least attempt to keep his campaign promised and abandon the "perpetual war" foreign policy of his predecessors Barack Hussein Obama and George W Bush (though realists were not betting much money on it actually happening. Six months into his presidency Trump seems to be just as totally in thrall to the Washington War Party and The Deep State as Obmaa, who promised to be the peacemaker and joybringer of the twenty first century, but became the first president to serve two full terms without a single day on which the USA was not at war.

It is only due to the restraint of Russia and China in the face of contstant provocation by the USA and NATO that we are not already in (or indeed out of at the wrong end) a global conflict. Had Hillary Clinton won the presidency, one of her campaign pledges, to directly attack Syria and depose the Assad regime (an ally of Russia and China, the ensuing conflict would probably have destroyed most of what is left of European civilisation by now.

But while Washington has been huffing and puffing, Russia and China have been waging a more subtle kind of war, with the aim of replacing the US dollar (the petrodollar) as the global reserve currency. And it looks as though they are winning. The death of the petrodollar could be imminent which would drastically reduce America’s ability to wage war with other people’s money or protect its business sector from competition.

We have reported the moves to create a trading system in which cross border trades are settled in the national currency of the vendor, and the establishment of global investment banks by both Russia and China. Now the formation of a BRICS gold marketplace, which could easily bypass the U.S. Petrodollar in bilateral trade, continues to take shape as Russia’s largest bank, state-owned Sberbank, announced this week that its Swiss subsidiary has started trading in gold on the Shanghai Gold Exchange.

Russian and Chinese officials have repeatedly signalled that they plan to create a system with China and Iran using 'paper' gold as a means of nullifying the dollar's influence in bilateral trade between economically and politically powerful nations. We reported in 2015 that a number of influential nations and the EU, the world's largest trading bloc had signed up to the system. This latest movement is quite simply the manifestation of a larger game being played out between the great powers.

A transformation of the entire global monetary system is in progress, driven by the decline of the west where self destructive politically correct thinking and corporate greed dominates foreign and economic policy, and the economic ambitions of Russia, China, Iran, and India, Brazil and other emerging economies. The implications of these changes should worry U.S. policy makers because the relationship between the USA and the two regional powers in the Middle East, Israel and Saudi Arabia which for nearly the past half century has been underpinned by the monopoly of the petrodollar in world trade, particularly in oil, the worlds most traded commodity. Now the petrodollar is being attacked while saudi Arabia has been destabilised by increasingly extremist Wahhabi Muslim rulers.

The dollar was established as the global reserve currency in 1944 with the Bretton Woods agreement, commonly referred to as the gold standard. The U.S. leveraged itself into this power position by holding the largest reserve of gold in the world. The dollar was pegged at $35 an ounce — and freely exchangeable into gold.

By the 1960s, a surplus of U.S. dollars caused by foreign aid, military spending, and foreign investment threatened this system, as the U.S. did not have enough gold to cover the volume of dollars in worldwide circulation at the rate of $35 per ounce; as a result, the dollar was overvalued.

When America finally abandoned the gold standard in 1971, the dollar became a pure fiat currency (decoupled from any physical store of value), until the petrodollar agreement was concluded by President Nixon in 1973. The quid pro quo was that Saudi Arabia would denominate all oil trades in U.S. dollars, and in return, the U.S. would agree to sell Saudi Arabia military hardware and guarantee the defense of the Kingdom, which gave the medieval Kingdom military dominance over all the middle east except for Israel. At the time US military hardware held an enormous technological advantage over anything Russia and China had. More recently military analyists have warned that while the USA has been obsessing over the 'rights' of gay and transgender soldiers, both rival powers have surpassed them.

A report by the Centre for Research on Globalalization clarifies the implications of these most recent moves by the Russians and the Chinese in an ongoing drive to replace the US petrodollar as the global reserve currency.

by Phil T Looker