The coming global financial revolution part 2
Russia Is Following the American Playbook – Ellen Brown
This is the second part of an article by Ellen Brown (the first part appeared in the Jan-Feb 2023 issue of ERA Review). It was written more than 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, 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 global reserve currency, and its impact on the U.S. economy will be profound.
A page out of the “American system” playbook
Russia is following the U.S. not just in hitching its national currency to sales of a critical commodity but in an earlier protocol – what 19th century American leaders called the “American system” of sovereign money and credit. Its three pillars were (a) federal subsidies for internal improvements and to nurture the nation’s fledgling industries, (b) tariffs designed to protect those industries, and (c) easy credit issued by a national bank.
Michael Hudson, a research professor of economics and author of “SuperImperialism: The Economic Strategy of American Empire” among many other books, notes that the sanctions are forcing Russia to do what it has been reluctant to do itself – cut reliance on imports and develop its own industries and infrastructure. The effect, he says, is equivalent to that of protective tariffs. In an article titled “The American Empire Self-destructs,” Hudson writes of the Russian sanctions (which actually date back to 2014):
“ Russia had remained too enthralled by free-market ideology to take steps to protect its own agriculture or industry. The United States provided the help that was needed by imposing domestic self-reliance on Russia (via sanctions). When the Baltic states lost the Russian market for cheese and other farm products, Russia quickly created its own cheese and dairy sector – while becoming the world’s leading grain exporter.
“ Russia is discovering (or is on the verge of discovering) that it does not need U.S. dollars as backing for the ruble’s exchange rate. Its central bank can create the rubles needed to pay domestic wages and finance capital formation. The U.S. confiscations thus may finally lead Russia to end neoliberal monetary philosophy, as Sergei Glaziev has long been advocating in favor of MMT [Modern Monetary Theory]. …
“ What many foreign countries have not done for themselves – replacing the IMF, World Bank and other arms of U.S. diplomacy – American politicians are forcing them to do. Instead of European, Near Eastern and Global South countries breaking away out of their own calculation of their long-term economic interests, America is driving them away, as it has done with Russia and China. “
Glazyev and the Eurasian Reset
Sergei Glazyev, mentioned by Hudson above, is a former adviser to President Vladimir Putin and also the Minister for Integration and Macroeconomics of the Eurasia Economic Commission, the regulatory body of the Eurasian Economic Union (EAEU). He has proposed using tools similar to those of the “American system,” including converting the Central Bank of Russia to a “national bank” issuing Russia’s own currency and credit for internal development. On 25 February Glazyev published an analysis of U.S. sanctions titled “Sanctions and Sovereignty,” in which he stated:
“ [T]he damage caused by US financial sanctions is inextricably linked to the monetary policy of the Bank of Russia .. Its essence boils down to a tight binding of the ruble issue to export earnings, and the ruble exchange rate to the dollar. In fact, an artificial shortage of money is being created in the economy, and the strict policy of the Central Bank leads to an increase in the cost of lending, which kills business activity and hinders the development of infrastructure in the country.”
Glazyev said that if the central bank replaced the loans withdrawn by its Western partners with its own loans, Russian credit capacity would greatly increase, preventing a decline in economic activity without creating inflation.
Russia has agreed to sell oil to India in India’s own sovereign currency, the rupee; to China in yuan; and to Turkey in lira. These national currencies can then be spent on the goods and services sold by those countries. Arguably, every country should be able to trade in global markets in its own sovereign currency; that is what a fiat currency is – a medium of exchange backed by the agreement of the people to accept it at value for their goods and services, backed by the “full faith and credit” of the nation.
But that sort of global barter system would break down just as local barter systems do, if one party to the trade did not want the goods or services of the other party. In that case, some intermediate reserve currency would be necessary to serve as a medium of exchange.
Glazyev and his counterparts are working on that. In a translated interview posted on The Saker, Glazyev stated:
“ We are currently working on a draft international agreement on the introduction of a new world settlement currency, pegged to the national currencies of the participating countries and to exchange-traded goods that determine real values. We won’t need American and European banks. A new payment system based on modern digital technologies with a blockchain is developing in the world, where banks are losing their importance. “
Russia and China have both developed alternatives to the SWIFT messaging system from which certain Russian banks have been blocked. UK-based commentator Alexander Mercouris makes the interesting observation that going outside SWIFT means Western banks cannot track Russian and Chinese trades. Geopolitical analyst Pepe Escobar sums up the plans for a Eurasian/China financial reset in an article titled “Say Hello to Russian Gold and Chinese Petroyuan.” He writes:
“ It was a long time coming, but finally some key lineaments of the multipolar world’s new foundations are being revealed.
“ On Friday [March 11], after a videoconference meeting, the Eurasian Economic Union (EAEU) and China agreed to design the mechanism for an independent international monetary and financial system. The EAEU consists of Russia, Kazakhstan, Kyrgyzstan, Belarus and Armenia, is establishing free trade deals with other Eurasian nations, and is progressively interconnecting with the Chinese Belt and Road Initiative (BRI).
“ For all practical purposes, the idea comes from Sergei Glazyev, Russia’s foremost independent economist ….
“ Quite diplomatically, Glazyev attributed the fruition of the idea to ‘the common challenges and risks associateed with the global economic slowdown and restrictive measures against the EAEU states and China’.
“ Translation: as China is as much a Eurasian power as Russia, they need to coordinate their strategies to bypass the US unipolar system.
“ The Eurasian system will be based on ‘a new international currency’, most probably with the yuan as reference, calculated as an index of the national currencies of the participating countries, as well as commodity prices. …
“ The Eurasian system is bound to become a serious alternative to the US dollar, as the EAEU may attract not only nations that have joined BRI .. but also the leading players in the SCO (Shanghai Cooperation Organization) as well as ASEAN. West Asian actors – Iran, Iraq, Syria, Lebanon – will be inevitably interested.”
Exorbitant Privilege or Exorbitant Burden?
If that system succeeds, what will the effect be on the U.S. economy? Investment strategist Lynn Alden writes in a detailed analysis titled “The Fraying of the US Global Currency Reserve System” that there will be short-term pain, but, in the long run, it will benefit the U.S. economy. The subject is complicated, but the bottom line is that reserve currency dominance has resulted in the destruction of the US manufacturing base and the build-up of a massive federal debt. Sharing the reserve currency load would have the effect that sanctions are having on the Russian economy – nurturing domestic industries as a tariff would, allowing the American manufacturing base to be rebuilt.
Other commentators also say that being the sole global reserve currency is less an exorbitant privilege than an exorbitant burden. Losing that status would not end the importance of the
U.S. dollar, which is too heavily embedded in global finance to be dislodged. But it could well mean the end of the petrodollar as sole global reserve currency, and the end of the devastating petroleum wars it has funded to maintain its dominance.
Source: Web of Debt blog, 5 April 2022
This article was first posted on ScheerPost.
Ellen Brown is an attorney, chair of the U.S. Public Banking Institute, and author.