The US received a major blow to its global hegemony, and one which is sure to trigger more fighting talk from hawks in Washington.
This week it was announced that China has established a ‘payment versus payment’ (PVP) system to clear Chinese yuan and Russian ruble transactions. The aim, we’re told, is to to ‘reduce risks and improve the efficiency’ of its foreign exchange system.
The new mechanism, which could rival the long-held monopoly of the US SWIFT inter-bank payment system (allowing for simultaneous settlement of transactions in two different currencies) was launched on Monday after receiving approval from China’s central bank, according to a statement by the country’s foreign exchange trading system.
However, financial oligarchs in Wall Street will view this move as an act of aggression in challenging the preeminence of the US dollar as the planet’s global reserve currency – which is inextricably tied and nearly completely dependent on the US ‘Petrodollar’ to prop-up the value of the US fiat currency. Georgetown University scholars note here:
Since petrodollars and petrodollar surpluses are by definition denominated in U. S. dollars, then purchasing power is dependent on the U. S. rate of inflation and the rate at which the U. S. dollar is exchanged (whenever there is need for convertibility) by other currencies in international money markets. It follows that whenever economic or other factors affect the U. S. dollar, petrodollars will be affected to the same magnitude. The link, therefore, between the U. S. dollar and petrodollar surpluses, in particular, has significant economic, political, and other implications.
This post was published at 21st Century Wire on OCTOBER 13, 2017.