You won’t hear about this in the mainstream media, but there appears to be an international hot war taking shape.
So far, the manoeuvring has related to the positioning of currencies – which has resulted from the use in the West of quantitative easing (QE) and the consequent attempts by non-Western nations to displace the US dollar as the world’s reserve currency.
Several commentators refer to this as a currency war. But the undertones of this ongoing conflict suggest that military conflict could be the ultimate result.
Almost imperceptibly, the value and stability of the money in our pockets and bank accounts has been put under threat through the unprecedented, ongoing money-creation experiment that is QE. The way QE has been implemented at home has major political implications which are barely discussed in the mainstream media.
But non-Western nations don’t have the same constraints and increasingly see our central banks’ currency manipulation as just another form of financial, ‘legalised aggression’ which they are determined to fight. The tectonic plates of economic power and international influence are shifting.
For decades, the US dollar has been the world’s undisputed reserve currency, reflecting the States’ position as the world’s only economic superpower. The consequence of this is that most of the world’s commodities, such as oil, are priced and traded in dollars. Which, by extension, means US economic policy significantly affects the rest of us.
As Reality Check editor Valentin Mândrăşescu, at the Voice of Russia, writes on the Testosterone Pit website: “The fact that the world’s financial system is based on the dollar allows the Federal Reserve to export inflation to other countries, while the federal government runs a huge deficit with impunity.”
The US is in its fifth year of QE and has a mountainous deficit. The US Federal Reserve is creating $85bn every month – that’s $85bn created out of thin air and added to the dollar money supply – and a large body of economic opinion believes this is ultimately hyperinflationary and will lead to the currency’s collapse. The same risk applies to sterling, because of the Bank of England’s continuation with QE.
Meanwhile, China has become an industrial and economic powerhouse. For the last decade, the West has benefitted from the flow of increasingly high-quality but still cheap consumer products, as well as finance, from China.
So China has exported deflation, while the US has exported inflation. This position is unsustainable, not only because of the threat of hyperinflation in the US, but also because the days of cheap Chinese labour are coming to an end. Just as important, though, is the fact that the Chinese appear intent on promoting the yuan to challenge the dollar’s supremacy.
Over the past three years, China has been busily striking up currency swap agreements with a whole host of trading partners large and small. These include Brazil, Pakistan, France and Australia, as well as Japan and South Korea and other members of the Association of Southeast Asian Nations. Before these agreements were reached, these countries would need to use US dollars as an intermediary currency to transact their trade with each other. But these agreements cut out the middle man and enable the parties to trade directly with each other using their own currencies.
China’s strategy is expected to increase the global use of the yuan and increase the influence and share of China in regional and international trade. And the so-called BRICS alliance of countries – Brazil, Russia, India, China and South Africa – appear to be taking up the agenda to dismantle the dollar-dependent financial system.
Movements in gold reserves over the last few years also reinforce the trend, with China and Russia thought to be aggressively buying physical bullion to give their currencies extra credibility in the eventuality of a Western currency collapse. The major Western currencies – the dollar, the euro and sterling – have become less trusted as a store of value with every passing month of QE. And Japan’s headlong jump into QE-based expansion will only accelerate the trend, with the yen having already lost a third of its value in six months.
But where does all this talk of war come from? Well, in the run-up to the fifth BRICS summit, held in Durban at the end of March, the Kremlin published a document outlining Russia’s economic strategy “in the context of BRICS co-operation”. It wants to reform the world financial system to create a more representative and predictable system of reserve currencies, along with “independent rating agencies”.
The document openly states that BRICS can, by removing the dollar’s reserve currency status, make the world financial system “fairer, more stable, and more efficient”.
And it goes on to state: “Russia assumes that, given enough political will of the leadership of the BRICS countries to advance their co-operation, this alliance can become one of the key elements of a new system for global governance, primarily in the economic and financial domains.”
Writing on the Testosterone Pit, Valentin Mândrăşescu says: “The language used in this document indicates that it has been written or strongly influenced by Sergei Glaziev, Vladimir Putin’s economy advisor. Glaziev has repeatedly accused Federal Reserve chairman Ben Bernanke of starting ‘a currency war’ against the emerging markets. He also believes that Bernanke’s policy will ultimately lead to a military confrontation.”
Indeed, the document itself says: “The conservation logic of the current financial and political system leads to a further escalation of military and political tensions, including the start of a major war.”
Glaziev believes we are currently in a ‘financial war’. The document accuses the US, EU and UK of “refinancing their banks using negative real interest rates” while “$1.5tn, €1.2tn and comparable amounts of yen and pounds are used to finance debt pyramids and acquire real assets across the world”.
In other words, Western banks, the primary recipients of all the QE money, are flooding developing markets with loans from their artificially created bubble of liquidity in a move designed to keep their debtors in “debt traps”, with the ultimate goal of “obtaining political control” and “seizing the [debtors’] real assets”.
According to Mândrăşescu, the strategy outlined in the document has all the hallmarks of being designed by Putin’s ‘inner circle’, and can therefore be accepted as the official Kremlin view of the BRICS future. Says Mândrăşescu: “The fact that the Kremlin decided not to hide the document or leak it to a chosen few journalists, but publish it outright, is a very strong signal, a very vocal angry signal directed at the US. A signal that the Western media chose to ignore.”
The signs are that the BRICS alliance, and China in particular, is serious about following through on significant parts, if not all, of the strategy. Meanwhile, the Kremlin’s anger with the West over its support for the Syrian rebels seems to have strengthened its desire to challenge the Western financial order. Just don’t expect to hear much about the ensuing financial war in the mainstream media.