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"Everyone should be aware that inflation may rise in the future—and that it may do so unexpectedly strongly. But the long-term picture is that we are living in a disinflationary world, not in an inflationary one." ~ Mr. Claudio Borio, Head of the Monetary and Economic Department, Bank of International Settlements (BIS)

By Catherine Austin Fitts

The United States became the world's largest economy in the 1870s, but it took another five decades for the U.S. dollar to make serious inroads to compete with the pound sterling as the world's reserve currency. From World War I through the creation of the Bretton Woods System in 1944—a year before the end of World War II—the pound sterling and the U.S. dollar shared a reserve currency duopoly. After Bretton Woods, the U.S. dollar emerged as the global reserve currency.

The U.S. dollar has remained the global reserve currency ever since. Although the launch of the euro in 1999 drew some market share from the dollar, the countries in the European Union still depend on the U.S. military and NATO for their defense. The yen has a small market share of global reserves and trade, but Japan also depends on the U.S. for its national security umbrella. The pound sterling continues to function modestly as an international currency.

The financial crisis that began in 2008 strengthened the dollar position, as global investors sought significant amounts of safe-haven securities, and liberal monetary policies provided significant monies to fund dollar-denominated loans and capital. The subsequent euro crisis and European bank losses resulting from sovereign debt issued by the Southern European countries flatlined further growth in the euro share of reserve currency holdings. The dollar remained—as The Economist described it—"dominant and dangerous."

As the world recovered from the shock of the financial crisis, there was a growing push in numerous quarters to find ways of reducing dependency on the dollar as the dominant global reserve currency. This was led by countries smarting from the sting of U.S. financial sanctions, the aggressive extension of U.S. legal and regulatory authority throughout the global financial and banking systems, and competition for offshore haven funds. Several countries continued to resist joining the BIS central banking system.

The BRIC nations (Brazil, Russia, India, and China) as well as the Association of Southeast Asian Nations (ASEAN) went to work on creating swap capacity between central banks. New lending banks were created to reduce dependency on the IMF and dollar-denominated lending. Central banks began developing cryptocurrencies. Gold reserves rose in Russia and in central banks along the Silk Road, often at the expense of the dollar market share. China increased its global arrangements to create liquidity for the renminbi in financial capitals around the world and was finally able to persuade the IMF to include the renminbi in its SDR. Most importantly, China and Russia significantly increased their financial and economic cooperation. The Russian central bank opened its first overseas office in Beijing, creating an institutional capacity to bypass the dollar and to phase in a gold-backed standard of trade.

Then came the Trump election—with efforts to repatriate capital to the U.S., the U.S. cancellation of the Iran agreement, and a U.S. Congress intent on Russophobia. Russia proceeded to launch an alternative to the SWIFT payment system, and Europe created a system to avoid sanctions on trade with Iran while working on an independent credit card system. Meanwhile, Mark Carney, governor of the Bank of England, announced the movement to a multipolar world, and the President of France declared the unipolar empire a failure. Last month, the BRIC nations met to discuss the creation of a joint cryptocurrency, and Putin announced the U.S. dollar was likely to collapse soon.

Will the U.S. dollar maintain its position as the dominant global reserve currency? If it does not, what does that mean for you and me? Or is the important question whether all major currencies will convert to digital currency—further centralizing political and economic control? Indeed, the time has come to take a serious look at The State of Our Currencies.

In Let's Go to the Movies, I will revisit The Spider's Web: Britain's Second Empire—an investigation into the world of Britain's secrecy jurisdictions and the City of London.

Please e-mail your questions for Ask Catherine or post them at the Money & Markets commentary here.

Talk to you Thursday!

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16 Comments

  1. When conductng business for smalls and mediums gets close to impossible, U.S. people go underground. An example is the huge plant-medicine industry.

    Organized gangs are trying to entice small ops above ground in the typical rob-little-guys types of operations. Likely many small ops will not fall for it and will remain small enough to evade capture.

    More than underground horticulture, world-famous, are other cushions under the fraudulent regular economy.

    There are maker-spaces, 3-d printing of parts, seed libraries, tool libraries, urban farms, and other enterprises. I do not see these mentioned in conventional economic discussions. A lot of trade isn’t on the books that are cooked and controlled. The Wild West of cryptos is another cauldron of variables hard to know what to think of.

    The U.S. has been predicted to crash for decades now. Yet, the U.S. continues not to crash as predicted. Hernando de Soto used to talk about underground economies outside the U.S.

    Many acted as if the underground economy within the U.S. is negligible. This is clearly not so.

    Massive underground economies exist inside the U.S. Baiting them above ground seems to be the opposite of what is going on now.

    Some of the chief U.S. billionaires with visions of complete control will have to be outed by people like the president of Madagascar, Sara Cunial, and others now joining in from Spain and Germany.

    Those who kill by accumulated small pricks have the assets to compensate survivors of their harm.

    U.S. people may be the last to be compensated, as US. media is so badly captured.

    Nonetheless, the over-stepping cannot now be backed away from fast enough to stop massive world-wide rebellion, it seems to me.

  2. Dear Catherine

    Whereas China is acquiring gold in huge amounts and is encouraging is citizens to do likewise, according to GATA, however, Germany is waging a war on gold being held by is citizens:

    https://www.bullionstar.com/blogs/ronan-manly/german-government-escalates-its-war-on-gold/

    “ · · · · In the run up to the end of the year during December, a remarkable sight emerged across Germany – long lines of customers queuing up outside the country’s precious metals shops and gold dealer showrooms.”

    By the way, do you have any thoughts on the case of Bernard von Nothaus?
    https://en.wikipedia.org/wiki/Bernard_von_NotHaus
    http://www.libertydollar.org/

    1. Andrew:

      It is indeed a fascinating comparison. My feedback from the gold market is the push by the Germans is quite severe.

      I have not followed the Liberty Dollar case. The people I respected in the gold market were not a fan of Nothaus and the Liberty Dollar and their reasons appeared sound so I never invested any time in looking into the effort. I had a subscriber who was interested so I started to look at the site and then listen to Nothaus describe his litigation. Sounded to me that the Liberty Dollar did not make economic sense for purchasers and that Nothaus did not have an understanding of how to navigate the real environment. That was not a serious due diligence, so please take this with a grain of salt,

      Catherine

  3. Catherine, I was wondering if you at some point would consider the implications of the government pushing us into an inescapable digital currency where everything is cashless. That’s the obvious direction we are going, and that means they would undoubtably make precious metals illegal, as they did gold in the 1930s. That ups the ubiquitous surveillance even higher, since all purchases could be tracked and traced, and the possibilities of something like China’s Social Credit System could be put in place. You could be penalized or punished by having your digital “money” deducted or even appropriated. The government could make any alternative taxable or illegal, such as barter for instance. If the digital concentration camp is coming our way, are there any suggestions or solutions to dealing with it?

    One more thing about precious metals. To me it doesn’t make sense to hold onto them, because they could be made illegal or confiscated, and if somehow they were permitted in the future, any rise in their price would be offset by the rise in inflation. Right now, you could get more bang for your gold or silver by buying tangible commodities like food, water, and shelter. They will never be cheaper than they are right now.

    1. Steven:

      Will discuss in next Money & Markets – the topic will come up in Part I of NT&S.

  4. This is a MASSIVE amount of the most pertinent information on our currency / economy / life style SWOT analysis I have heard. This is going to require at least four listens to absorb. Worth the price of admission for the entire year!!

    Thank you again Catherine!

    1. Dave:

      I am so glad you found this useful, especially as you have digested many if not all of the wrap ups. Left to my own devices, I would have spent another few weeks reading and researching. There is such a wide latitude of scenarios. I finally realized that best to lay out my framework and keep the discussion going. The most intense global prototype period is upon us. So it is very fluid. All input, feedback and questions are welcome. This will take all of us working together to master.

      Catherine

      1. You are most welcome.

        I notice that Kiplinger just predicted that the Euro is in trouble and that the ECB is out of ammunition to deal with global slow down – AND that means the dollar will stay strong and reserve currency for some time to come. So it looks like the next Rabbit out of the Hat for the Dollar and the Anglo-American alliance is to try to move the Euro market share down.

          1. No way to know. I think the chances that he was pushing his book ( so intentionally aggressive or bluffing) is greater than not. But Kiplinger may be talking their book and bluffing too. This all comes down to who has what weaponry, including space and weather, and what they can do on both offense and defense. No way to know. I believe the dollars success so far comes down to covert force. What that means is the covert force is going to keep growing.

    1. Why would the US let HK be converted to CNY? They will do everything to prevent that.

    2. Yes. Trying to maintain the dollar peg in HK will keep getting more difficult. This is a war of attrition.

    1. The Fed has been on high alert after they pulled the plug on the global housing market in 2006. It is hard to keep that much paper floating. It is like a juggler working with maximum pins.

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