The Coming Global Financial Revolution (part 1)

Russia is following the American playbook – Ellen Brown

The following article by Ellen Brown was written 9 months ago, but its central theme remains relevant today. And even more so, because the likely expansion of the BRICS countries (Brazil, Russia, India, China and South Africa) into a much larger alliance (probably including Argentina, Indonesia, Turkey, Iran, Saudi Arabia, Pakistan, Egypt and Algeria) heralds the development of a new trade settlement currency, to be used by the entire alliance. This currency is set to bypass the U.S. dollar as a rival reserve currency, and its impact on the U.S. economy will be profound. Part 2 will appear in the next issue. [Ed]

No country has successfully challenged the U.S. dollar’s global hegemony until now. Foreign critics have long chafed at the “exorbitant privilege” of the U.S. dollar as global reserve currency. The U.S. can issue this currency backed by nothing more than the “full faith and credit of the United States”. Foreign governments that need dollars not only accept them in trade but also buy U.S. securities with them, facilitating U.S. government deficit spending including spending on its foreign wars. But no government has been powerful enough to break that arrangement – until now. How did it happen and what will it mean for the U.S. and global economies?

The Rise and Fall of the PetroDollar

Some history first: The U.S. dollar was adopted as the global reserve currency at the Bretton Woods Conference in 1944, when the dollar was still backed by gold on global markets. The agreement was that gold and the U.S. dollar would be accepted interchangeably as global reserves, the dollars to be redeemable in gold on demand at $35 an ounce. Exchange rates of other currencies were fixed against the dollar.

But that deal was broken after President Lyndon Johnson’s “guns and butter” policy engaged in major spending on the war in Vietnam along with his “Great Society” social programs at home. French President Charles de Gaulle, acting on the false assumption that the U.S. was running out of money, cashed in a major portion of the French stock of U.S. dollars for gold and threatened to cash in the rest; and other countries followed suit or threatened to do so.

In 1971, U.S. President Richard Nixon ended the convertibility of the dollar to gold internationally (known as “closing the gold window”), in order to avoid draining the U.S. gold reserves. The value of the dollar then plummeted relative to other currencies on global exchanges. To prop it up, Nixon and Secretary of State Henry Kissinger made a deal with Saudi Arabia and the OPEC countries that OPEC would sell oil only in dollars, and that the dollars would be deposited in Wall Street and City of London banks. And in return, the U.S. would pledge to defend the OPEC countries militarily. Economic researcher William Engdahl also presents evidence of a promise that the price of oil would be quadrupled. An oil crisis triggered by a brief Middle Eastern war did cause the price of oil to quadruple, and the OPEC agreement was finalized in 1974.

The deal held firm until 2000, at which time Saddam Hussein broke it by selling Iraqi oil in euros. Libyan president Muammar al-Qaddafi followed suit.

Both presidents wound up assassinated, and their countries were decimated in war with the United States. The Canadian researcher Matthew Ehret observes:

“ We should not forget that the SudanLibya-Egypt alliance under the combined leadership of Mubarak, Qaddafi and Bashir, had moved to establish a new gold-backed financial system outside of the IMF/World Bank to fund large scale development in Africa. Had this program not been undermined by a NATO-led destruction of Libya, the carving up of Sudan and regime change in Egypt, then the world would have seen the emergence of a major regional block of African states shaping their own destinies outside of the rigged game of Anglo-American controlled finance for the first time in history. “

The Rise of the PetroRuble

The first challenge by a major power to what became known as the petrodollar has come in 2022. In the month after the Ukraine conflict began, the U.S. and its European allies imposed heavy financial sanctions on Russia in response to its military invasion. The Western measures included freezing nearly half of the $640 billion (USD) in financial reserves owned by Russia’s central bank, expelling several of the largest Russian banks from the SWIFT global payment system, imposing export controls aimed at limiting Russia’s access to advanced technologies, closing down their airspace and ports to Russian planes and ships, and instituting personal sanctions against senior Russian officials and high-profile tycoons. Worried Russians rushed to withdraw rubles from their banks, and the value of the ruble plunged on global markets just as the U.S. dollar had in the early 1970s.

The trust placed in the U.S. dollar as global reserve currency, backed by “the full faith and credit of the United States,” had finally been fully broken. The Russian President Vladimir Putin said in a speech on March 16 that the U.S. and EU had defaulted on their obligations, and that freezing Russia’s reserves marks the end of the reliability of so-called first class assets. Putin announced on March 23 that Russia’s natural gas would be sold to “unfriendly countries” only with Russian rubles, rather than with the euros or dollars currently used. Forty-eight nations are counted by Russia as “unfriendly,” including the U.S., U.K., Ukraine, Switzerland, South Korea, Singapore, Norway, Canada and Japan.

Putin noted that more than half of the global population remains “friendly” to Russia. Countries not voting to support the sanctions include two major powers – China and India – along with major oil producer Venezuela, Turkey, and other countries in the “Global South.” The “friendly” countries could now buy from Russia in a range of currencies, said Putin.

On March 24, duma member Pavel Zavalny said at a news conference that Russian gas could be sold to the West for either rubles or gold, and to “friendly” countries for either national currency or bitcoin.

Energy ministers from the G7 nations rejected Putin’s demand, claiming it violated gas contract terms requiring sale in euros or dollars. But on March 28, Kremlin spokesman Dmitry Peskov said Russia was “not engaged in charity” and won’t supply gas to Europe for free (which it would be doing if sales were in euros or dollars which it cannot currently use in trade). Sanctions themselves are a breach of the agreement to honor the currencies on global markets.

Bloomberg reports that on March 30, Vyacheslav Volodin, speaker of the duma (lower house of the federal assembly), suggested in a Telegram post that Russia may expand the list of commodities for which it demands payment from the West in rubles (or gold) to include grain, oil, metals and more. Although Russia’s economy is much smaller than that of the U.S. and the E.U., it is a major global supplier of key commodities – including not just oil, natural gas and grains, but timber, fertilizers, nickel, titanium, palladium, coal, nitrogen, and rare earth metals used in the production of computer chips, electric vehicles and airplanes.

On April 2, the Russian gas giant Gazprom officially halted all deliveries to Europe via the Yamal-Europe pipeline, a critical artery for European energy supplies.

U.K. professor of economics Richard Werner calls the Russian move a clever one – a replay of what the U.S. did in the 1970s. To get Russian commodities, “unfriendly” countries will have to buy rubles, driving up the value of the ruble on global exchanges just as the need for petrodollars propped up the U.S. dollar after 1974. And by 30th March, the ruble had already risen to where it was a month earlier.

This article was first posted on ScheerPost.
Ellen Brown is an attorney, chair of the U.S. Public Banking Institute, and author.

Source: Web of Debt blog, 5 April 2022 https://ellenbrown.com/2022/04/05/thecoming-global-financial-revolution-russia-is-following-the-american-playbook/