The US and its dollar are getting crushed by US monetary policies, China’s strategic moves, and cryptocurrency.
March 27, 2023
By: Bobby Casey, Managing Director GWP
Every day, the United States move further away from relevance, and it only has itself to blame. For years, I’ve been talking about how China was the country to watch. China is playing a much more sophisticated game of Go, while the US is playing checkers.
Here are a few events which unfolded recently that absolutely matter:
The Ukraine is set to become China’s largest overseas farmer in a 3m hectare deal
Ukraine was one of the top ten global wheat exporters. China’s demand for wheat has grown considerably. This would be the largest lease or purchase of overseas farmland by China to date.
While no official number was released, media in Ukraine is estimating the deal to be roughly $2.6 billion.
To be fair, talks about Ukrainian and Chinese agricultural trade is not new. These discussions started at least twelve years ago.
Last year, the Export-Import Bank of China approved a US$3 billion agricultural loan to the country. A fund for joint construction projects was set up, with contributions of US$600 million expected this year.
XPCC is also investing in Ukraine in other ways. It has signed a memorandum earlier this month with the Autonomous Republic of Crimea on infrastructure investments in the peninsula, including an expressway, a government housing project and a bridge across the Strait of Kerch.
Argentina and Brazil have similar deals with China, but not nearly the same scale.
China’s alliances are not with the US. They align more with Russia. I don’t know what to make of the Ukraine taking military aid from the US to fight Russia, while promising 3 hectares of farm land to China. But it doesn’t look good for the US. As we mentioned a while back with China and African countries, the US has gone in with military might while China has gone in with loans. In terms of conquesting, China has done more of that on economic terms while the US has nothing to show for its interventionism.
China brokered a peace deal between long time enemies Saudi Arabia and Iran
Here comes China again, this time brokering peace deals in the Middle East! It should go without saying that this move was entirely self-serving. China loses no sleep over who lives or dies in the Middle East. But it is a little restless about a region that is responsible for 40% of its crude imports.
The optics of brokering this deal were certainly flattering too.
And while they were at it, they threw the petro-yuan on the table:
In a widely watched visit to Saudi Arabia in December, Xi pledged to purchase more oil and gas from the Gulf, and also encouraged states in the region to conduct energy sales in the Chinese yuan. Some observers have speculated that the Iran-Saudi deal could set the stage for a broader employment of the petroyuan, whereby oil transactions would be settled in yuan, as opposed to the U.S. dollar, which for decades has been the standard currency used in energy transactions. China recently secured such an arrangement with Iraq and other countries have considered similar options amid U.S. sanctions on Russia.
Saudi Arabia and Iran seek to join BRICS alliance
What did you expect coming out of those peace talks? BRICS stands for Brazil, Russia, India, China, and South Africa. If the two are accepted, we could be looking at BRIICSS: a veritable superpower of oil and resources that would have no foreseeable need for the US.
While BRICS accounts for 42% of the world’s population, its members have less than 15% of the voting rights in the World Bank and the IMF, according to the Pretoria-based Institute for Security Studies.
Its five members founded the New Development Bank, intended as a counterweight to the IMF and World Bank, in 2014, and Bangladesh and the UAE joined the institution in 2021. Egypt and Uruguay are expected follow suit soon, according to the NDB’s website.
It’s not just Saudi Arabia and Iran looking for entry either. Argentina, the United Arab Emirates, Algeria, Egypt, Bahrain, Indonesia, along with two nations from East Africa and one from West Africa (yet to be formally identified) are all seeking entry.
While there isn’t an over rebuke toward the idea of expansion in general, there isn’t a tremendous amount of enthusiasm toward expansion for expansion’s sake. Without clear objectives or a well-defined process and evaluation for entry, member nations are wary.
Iran and Saudi Arabia aren’t without their leverage given their energy resources. They could very well be closer to the top of the list for admission than the other petitioners.
US dollar burning its candle from multiple sides, facing a very real threat of hyperinflation
There are theories claiming the collapse of Silicon Valley Bank, Signature Bank, and Silvergate were actually the Federal Reserve and politicians attacking cryptocurrency. Some crypto advocates are calling this Operation Chokepoint 2.0:
…[E]nforcement from the U.S. Securities and Exchange Commission have led people to believe the U.S. government wants to oust crypto businesses. Many crypto proponents call the mission “Operation Chokepoint.” On March 13, bitcoiner Nic Carter tweeted about the alleged mission and said he warned about chokepoint a month ago. “I didn’t think in a million years they would go 100x further and actually take down the top three crypto-facing banks,” Carter said. “It’s breathtaking. And this wasn’t an accident. It was a demolition.” He also wrote a comprehensive blog post about the subject on Pirate Wires. The post details “the Biden administration’s coordinated, ongoing effort across virtually every U.S. financial regulator to deny crypto firms access to banking services.”
More specifically, these folks believe the US federal government is deliberately trying to close any on or off ramps to or from cryptocurrency. One venture capitalist, Balaji Srinivasan, is urging people to get their crypto off the exchanges and to head toward crypto-friends jurisdictions.
Why would they say that?
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…Signature Bank’s shutdown, spectators were confused about why it happened. Adding to the speculation, Signature board member and former politician Barney Frank said regulators shut down Signature to send an “anti-crypto” message.
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…when Signature’s assets and bank branches were acquired, new owner Flagstar Bank opted not to acquire Signature’s digital currency business.
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U.S. senator Elizabeth Warren of Massachusetts blamed crypto risk for Silvergate’s liquidation and many other U.S. politicians joined her chorus.
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The White House also published its economic report and downplayed crypto assets, noting they do not fulfill the properties of sound money and have failed their purported goals.
Rudyard Kipling once said, “If you can trust yourself when all men doubt you, but make allowance for their doubting too.” I don’t know if they are right or wrong. I generally leave myself open to any case that calls the government and its motives into question.
The motives are there. The endless printing of money by the Federal Reserve, as well as the erratic fluctuation of the interest rates was a mess of its own making is debasing the value of the dollar at a precipitous rate. No one else did that to the US except the US Federal Reserve.
The second motive brings us back to the earlier items in this post, the US is slipping in its reserve status globally with BRICS and other countries moving away from the dollar, toward the yuan.
And, finally, the implicit threat of cryptocurrency’s fixed supply.
These all seemed like disparate or maybe loosely connected events. But in reality, they are very closely connected. I don’t disagree with Srinivasan’s advice to get to a more crypto friendly jurisdiction. It’s going to become more and more difficult for Americans to opt out of the US and the dollar as the desperation of the US intensifies.
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