It’s been bugging me for years!

Why is the world’s financial system brokered through the US dollar?

Why, when there is a crisis in the world, does the US dollar (the safe haven, apparently) soar, even when the crisis is entirely within the US? Does that make any sense?

It’s because the Western World has developed the SWIFT system that decrees it shall be so. (The origins of this are much too complicated to discuss here.) And that system has ruled the world’s trade protocols.

It means that international transactions get brokered through New York bankers in USD. We lose on both ends of the transaction when we convert from CAD to another currency.

When I set up a company that did business both in Canada and Central America, I chose Scotiabank because it is the dominant bank in Central (and parts of South) America. (Yes, our Canadian Scotiabank.) I reasoned that funds could be easily transferred between Scotiabank branches in Canada and Central America.

Not so! I discovered that they go to New York first, get changed to USD, then to the pesos (or colons or cordobas.) I might as well have opened an account in The Bank of Managua.

When someone sent me Australian dollars for our Canadian product—you guessed it!—it went through New York first.

It rankled me (as did the pressure to price everything in USD rather than CAD, which I resisted.)

Apparently, it’s rankled many others all over the world, as well.

As the US slides deeper and deeper into debt, and its financial system becomes ever shakier–I guess a futurist might have seen this as inevitable when the dollar was taken off the gold standard, but who thought of it back then?—some voices in the wilderness have been crying out to wrest our financial well-being from its dependence on the USD and, particularly, US debt.

Several significant initiatives have responded and are now playing out before our eyes.

 

One was the creation of cryptocurrencies, financial products independent of national currencies and, in their true form, outside of government control. It initially was massively criticized by the financial establishment, but has gradually become accepted. It is now a sound investment, if done right. Banks, among the most conservative of institutions, have themselves invested heavily in cryptocurrencies to shelter them from the vagaries of national governments.

Such cryptocurrencies as Bitcoin and Etherium have soared as a result. So much so that there are now cryptocurrency ETF’s traded on the stock markets (a way of making it easy for everyone to invest in them, but also of having cryptocurrency investments retained within the US financial system; these are not purchases of cryptocurrency themselves but of shares in imaginary companies that rise and fall with the value of the cryptocurrencies).

El Salvador was the first country to embrace bitcoin for its financial underpinnings and to mandate that it be accepted for financial transactions. It’s turned that country’s economy around. Now Argentina has done the same.

With bitcoin and other cryptocurrencies now well established, they have become a favoured alternative to dependence on US banking system for many financially savvy investors.

 

A second major initiative to counter the USD stranglehold is the formation of BRICS. Who’d have thought that kicking Russia out of SWIFT because of its invasion of Ukraine would backfire so badly? (The idea was to crush the Russian ruble by not allowing other countries to exchange with it because it could not be transacted through SWIFT).

Instead, Russia courted other countries who were also unhappy about the US financial hegemony, and they have formed an alliance to compete with SWIFT. The big 5 (B=Brazil, R=Russia, I=India, C=China, S=South Africa), though their cumulative economies are much smaller than those of the West, represent 39.7% of the world’s population.

BRICS is still in the formation stage and facing some uncertainty (India recently bought a massive amount of oil from the US in USD than from Russia in rubles), but seemingly sure to succeed. It’s reported that at least 24 other countries, mostly in Africa and other parts of the developing world, have already applied to join BRICS.

This week’s news is that Nigeria (world’s sixth largest country by population) has signed a deal with India (founding member of BRICS). Undoubtedly, the organization will soon rival the SWIFT group in population controlled, if not economic size.

It’s speculated that the group may use the Chinese renminbi, by far its largest used currency, as its medium of exchange.

It’s inevitable that this, together with US’s downward debt spiral which its Western allies tend to track with, will weaken our Western economies and strengthen those of this rival.

 

Against the backdrop of the BRICS threat, a third initiative is looming, evidently aimed at taking the steam out of BRICS’ powerful engine.

It’s reported that SWIFT is exploring the prospect of creating a neutral currency for its trade base, rather than using the US dollar. I suspect it will be a strictly digital currency.

We (i.e., anyone outside the US) should hope that this comes to pass. It should elevate other SWIFT countries (assuming all the developed Western countries, and many others, remain with SWIFT) in comparison to the United States, and weaken our dependence on their dollar, which flourishes at the expense of our currencies (as noted earlier).

Russia was right in that analysis.

 

What seems inevitable, is that the US economic system is headed for decline and will take its partners–much of the developed world–with it, so long as the current system remains. Should a new currency replace the USD within SWIFT, other countries may be less impacted by a US decline (if they “play their cards right.”)

What should the average guy do? Buy bitcoin? Buy investments in BRICS countries to cover one’s bases when their inevitable rise competes with the SWIFT block (something like mitigating risk by having both stocks and bonds in your portfolio?)

The president of Blackrock, the world’s largest financial advising firm, recently advised exactly that. In the face of US debt, and with the stock market likely to face intense pressure, he suggested moving funds into bonds. That’s the most conservative approach possible; it doesn’t move anything outside of the Western-controlled financial system, only creates a hedge against stock decline. But it wouldn’t be in Blackrock’s interest, and might even be illegal, to suggest something less conservative.

But, it’s another credible voice of concern in the growing chorus of such voices (of which there are now thousands—have you heard even a single voice to the contrary?)

Or should one simply hope and “pray it ain’t so?”

As a minimum, one should, I suggest, get some financial education, so as not to get buried alive in any financial avalanche d heading our way.

Like carrying an avalanche transceiver when one goes skiing or snow-mobiling in BC’s back country.

At least, that’s how I see it . . .