Take your Pick!

              Dollars, Rubles, Yuan or Gold?

What’s that all about? Did you know there is a struggle going on for world domination? Probably you did. Did you know that the currency being used in international trade is a principle thing at the heart of it? Did you know that the way this turns out can affect many of us in the Western world? Did you know the many countries are lining up on one side or another in this titanic battle that can change the way things have been operating in the world for the last fifty years? Who knew?

About fifty years ago the Saudis and the U.S made an agreement that all oil trade in the world would be contracted in U.S. dollars. The agreement, called SWIFT, has resulted in the total of all energy transaction, (about one-third of all international trade in value terms,) being priced for payment in U.S. dollars. This has solidified the position of the U.S. dollar as the pre-eminent world currency. It gives the U.S. government enormous power in world affairs, much to the chagrin of Russia, China and Iran, and other outliers who wish to challenge it. It explains the degree to which American policy has been muted toward Saudi Arabia in spite of some of the policy positions that country has taken in the human rights area.

Fast forward to the Russia-Ukraine war, and current Russian aggression against a peaceful neighbor, and current efforts by many countries to punish Russia. The Swift system is a bone in the throat of Russia, China and Iran. I am sure that this has long been an issue these countries would like to see discarded. The action by Western nations to throw Russia out of the SWIFT system as a means of exerting economic pressure does, at the same time, strengthen the efforts and aspirations by some of these countries to bring SWIFT to an end.

Russia, the third largest oil exporting nation, is now insisting on payment for its oil in rubles, as Russia no longer has dollars to pay for its many imports. Most countries are refusing this, and where their urgent needs for oil force them to continue trade with Russia, (many seek to fill their needs elsewhere,) they are paying, rather, in gold, and insisting on the same for any Russian purchases. China and India, and others who are not able, or willing, to replace Russian goods from other sources, are continuing to deal with Russia on this basis.

All this is weakening world reliance on the U.S dollar, and raising questions about the future of the SWIFT system. This has been an unexpected outcome of world efforts to punish Russia for its aggression in Ukraine. How the oil Sheikdoms will ultimately act in this struggle is the big question. How quickly the Europeans can wean themselves off Russian oil is another imponderable. We can be sure the U.S administration is very much absorbed by any effects their policies will have on this important element of U.S. power in the world. Someone has said that 70% of U.S. dollars are held outside of the U.S. Others have said that the “petro-dollar” is the key to maintaining America as a pre-eminent world power.

Canada is faced with opportunities in this area that have not been foreseen. Many of us will welcome these new opportunities for Canadian enterprise. What about recent efforts to maintain lock-in Canadian oil/gas production. The renewal of U.S. shale oil production is another potential element of the situation, something that may demand an emergency effort.

The North American effort to move quickly to a non-fossil fuel world, that has been dictated by the real environmental threat the world faces, is in conflict with any efforts to quickly fill European deficits from other than Russian sources. If we hope to seriously free Europe from its dependency, we must now put off these efforts. Some would argue that the replacement of Russian oil, reducing their output, might leave the world balance sheet unchanged. I would imagine environmentalists would remain unconvinced.

The whole issue that permitting Russian aggression to succeed would open the world to aggression by China, Iran, North Korea, and other potential bad actors, is inevitably part of the equation. If excluding Russia from SWIFT, threatening U.S. financial hegemony, is the price we have to pay, many would feel that that is a price we should be willing to pay. There is certainly the possibility that the U.S. government may not be in accord with that position.

Russian aggression, which many among us are now saying has long been on the agenda and could have foreseen. European dependence on Russian oil has been a crisis waiting to happen that many have been aware of. Russian and Chinese abhorrence of the SWIFT system has long been known. U.S. absence from the management of world affairs for the past decade, which has been a feature of U.S. policy in more distant past, is being paid for in the current situation.

We are facing a more complicated regime today in world monetary affairs. Take your pick, rubles, dollars, yuan or gold! Who will be the winner? We know who we want to be the winner. Otherwise, we could be the losers!

The U.S dollar is soaring, but we have been going for the gold!