When Nations Unite: The BRICS Development Bank
You’ve probably seen the images of a gunned-down airplane in Ukraine by a surface-to-air missile, and have heard many different sides of the story on who’s responsible.
Obama blames Russia and Putin blames Ukraine.
The answer to whose responsible will likely never be known – except by those involved.
However, what we do know is that – as I mentioned many times over – the battle between the United States and Eastern nations has never been more intense in our modern era.
What we are witnessing is a full-on geopolitical war, fought with everything from guns and missiles to financial instruments.
These events may seem like isolated events but they are not, and they will impact us in very dramatic ways.
This week’s Letter is long, but its extremely important. I strongly suggest you read all the way through.
Tired of Being Slaves
Emerging economies have had enough of being slaves to a currency that has unlimited production, controlled by one organization.
This control has turned rivals into allies with a common goal of diversification away from the dollar.
It may be hard to grasp the concept of a world not ruled by the dollar, but what we are witnessing in the form of civil wars in the Middle East, to Ukraine and Syria, is a fight for exactly that: de-dollarization.
The dollar currently represents more than 60% of the world’s foreign reserve holdings. Its distribution has allowed the U.S. to enjoy substantial advantage over every nation in the world.
American lenders have been able to use the dollar’s strength to control emerging markets by making loans with strong contingencies to nations who simply can’t afford to ever pay those loans back.
As I mentioned in my Letter, “The Real Reason for War in Syria“:
“Currency manipulation allows developed countries to print and lend to other developing countries at will.
A rich nation might go into a developing nation and lend them millions of dollars to build bridges, schools, housing, and expand their military efforts. The rich nation convinces the developing nation that by borrowing money, their nation will grow and prosper.
However, these deals are often negotiated at a very specific and hefty cost; the lending nation might demand resources or military and political access. Of course, developing nations often take the loans, but never really have the chance to pay it back.
When the developing nations realize they can’t pay back the loans, they’re at the mercy of the lending nations.
The trick here is that the lending nations can print as much money as they want, and in turn, control the resources of developing nations. In other words, the loans come at a hefty cost to the borrower, but at no cost to the lender.”
There’s no doubt that much of this would have never happened if the dollar didn’t rule. And because of its status, the dollar also enables the Fed to limit the growth of emerging markets by contracting the money supply at will.
But that’s rapidly changing.
The dollar in foreign holdings has been on a steady decline over the last decade, and a substantial decline will likely take place in the very near future; thus, affecting everything from our investments and our wealth, to our social well-being.
Countries Fight Back
For many years, the dollar has enjoyed its power.
But with power comes greed, and with greed comes suffering.
And some of the world’s largest economies have suffered enough.
World Bank and IMF – We’re Coming for You
Just last week, five of the biggest major emerging national economies, Brazil, Russia, India, China, and South Africa (BRICS) signed a long-anticipated document to create a $100 billion BRICS Development Bank, with headquarters in Shanghai.
The institution will counter the influence of Western lending firms as well as the dollar, and give way for developing economies to grow without being forced into unfair terms from Western lending firms.
The creation of this bank is not only a direct threat to the dollar, but also a direct threat to the United States and its control over emerging economies.
Recall the Bretton Woods summit in 1944 that became the basis for the modern system of central banking and foreign exchange as well as the creation of both the World Bank and the IMF.
Their creation gave Western powers control of the world through loans to nations that simply could not afford to pay them. In the end, many of these nations are forced to privatize state-owned assets in order to fulfill their debt obligations.
In other words, it’s a politically correct way to seize the assets of a country and hand them over to corporations and bankers for profit.
Just ask Argentina.
With the creation of the BRICS development bank, emerging nations now have a choice outside of Western policies.
China’s official Xinhua news agency said in an editorial that the agreement ushers in a long-awaited alternative to the “Western-dominated institutes in global finance.”
From Russia’s perspective, via RT:
“Nobel Prize-winning economist Joseph Stiglitz has praised the new development bank founded this week by the BRICS countries for creating a financial institution that could counter the Western-dominated IMF and World Bank.
Stiglitz, a professor at Columbia University and former chief economist for the World Bank, said the New Development Bank marks a “fundamental change in global economic and political power.”
He added that the effort by Brazil, Russia, India, China, and South Africa (BRICS) could revitalize the way funds are distributed to developing nations in a changing global economy that the “old institutions” like the International Monetary Fund and the World Bank have not adequately recognized.”
The development of the BRICS Development Bank gives poor developing nations (may I add resource rich) the option to potentially receive better lending terms. In addition, these nations no longer have to rely on the harsh lending terms from Western banks.
In other words, the BRICS are telling the world that it no longer has to rely on the dollar and Western banks to grow.
And they are all unilaterally engaging other economies to do the same.
What do you think of this bank?
Putin just kicked off his Latin America trip to gain further support around the world.
But he’s not only gaining allies, he is pursuing those who have a bone to pick with the West.
Putin has agreed to write off 90% of Cuba’s debt to Russia, which is equal to $32 billion. In exchange, Russia gets to reopen an electronic eavesdropping post in Cuba that closed more than a decade ago.
Earlier, I mentioned Argentina. Argentina has already privatized much of its public infrastructure, such as its water services, to the West in order to meet loan obligations.
It’s no wonder that Putin has made it very clear that Argentina would be one of major focus in Latin America.
“The Russian president had larger-scale meetings with the leaders of Argentina and Brazil.
According to Putin, modern-day Argentina is one of Russia’s top partners in Latin America. “Our countries have similar positions on key international problems, and together they defend the principles of a multi-polar world, equal rights, mutual respect, and the indivisibility of security,” Putin said in Buenos Aires.
Argentinian President Cristina Fernandez de Kirchner is one of the few world leaders to have expressed solidarity with the Russian position on Crimea. Fernandez publicly rebuked the West for what she saw as double standards regarding the referendums in Crimea and the Falkland Islands.
The negotiations in Buenos Aires featured discussions of joint projects in energy, transport, civil aviation, the peaceful use of outer space, and healthcare. Putin and Fernandez signed intergovernmental agreements on nuclear energy and jurisprudence, as well as an interagency contract on mass communications.”
Clearly, Russia and the BRICS nations are on a worldwide hunt for allies…and they’re succeeding.
This is a direct threat to the dollar’s value.
But it doesn’t stop there.
For the past few years, I have given you many examples of how nations are beginning to move away from the dollar in international trade.
As you recall from my past letters, the dollar enjoys its power because of the liquidity it provides to foreign nations when buying or selling goods.
But being the world’s reserve currency also has other benefits. It has the ability to impede the growth of other nations – in particular, the rise of Eastern nations.
Attack Through Sanctions
This week, the U.S. issued another round of sanctions against Russia for its continued role in Ukraine.
“The new sanctions, the first so-called “sectoral sanctions” used by the U.S. against Russia hit two banks, Gazprombank OAO and VEB, and two Russian energy firms, OAO Novatek and Rosneft, limiting their access to the United States’ capital markets.
Also sanctioned by the U.S. Wednesday are the self-proclaimed Donetsk People’s Republic and the Luhansk People’s Republic, as well as the top general in Russia’s FSB security service, reportedly a leading separatist supporter within the FSB. Eight state-owned defense and technology firms dealing in arms or related material sector in Russia are also included.”
These sanctions pose a direct threat to Russia and are an international symbol of “don’t f%# with us” by the U.S.
It also means the U.S. is growing increasingly worried about Russia’s forward progress.
Again, recall that Ukraine is a primary energy corridor of significant importance. I strongly suggest you go back and read my letters to get a better understanding of what the real battle in Ukraine and Syria is all about.
You can do so by clicking the following links:
In American media, the sanctions are about Russia and its “unlawful” stance in Ukraine.
In Russian media, the sanctions are simply about gas sales between Russia and the U.S.
Via RT:“…The connection between the civil war in Ukraine and gas deliveries is far too weak, and the US simply wants Europe to stop buying Russian gas and start buying US gas.”
Its one thing for the U.S. to sanction Russia, but what happens when the U.S. targets Western nations?
What happens when Russia, and the other BRICS nations, gains support from Western powers?
United States Threatens France
By now you’ve likely heard about the record $8.9 billion fine against BNP Paribas, France’s largest bank and one of the largest banks in the world, for working with countries subject to US sanctions.
This was a severe punishment aimed at sending a clear message to other financial institutions around the world that decide to engage with countries sanctioned by the U.S.
In particular, it was likely a direct threat to the French for selling Mistral-class warships to Russia – even after the United States told them not to.
In a few months, France will be handing Russia keys to one of the world’s most advanced warships, at a time when the battle over energy corridors between the U.S. and Russia has never been greater.
“…With two Mistral carriers in its arsenal, the Navy would be able to drop a battalion of marines and armor on any coastline within 10,000 kilometers of its home port without refueling, provide helicopter support for those forces, and orchestrate an entire operation from the ship’s advanced control center.
…Aside from Russia’s new access to technology, the future of the Black Sea Fleet also weighs heavy on Western minds, with the annexation of Crimea sparking fears that Moscow has designs on retaking its lost empire.
…Before the overthrow of Ukrainian President Viktor Yanukovych and his pro-Moscow regime in February, Russia felt that its naval influence has been significantly hindered by Kiev.
…Now, with Crimea under Russian control, the threat to Russia’s strategic presence in the Black Sea has subsided.
Barabanov said the Black Sea is crucial for Moscow because of “major areas of conflict” that exist for Russia in Crimea, Ukraine and Georgia. “Moreover, the Black Sea may be a convenient springboard for Western intervention in these areas, which must be prevented by the Black Sea Fleet,” he said.
“A major development program for the Black Sea Fleet is being planned. … Evidently, a Mistral-class assault ship will be among them,” Admiral Alexander Vitko was quoted as saying by Interfax in mid-May.”
In short, the presence of a Mistral-class assault ship in the Black Sea would represent an incredible stronghold of the region by Russia – giving it distinct advantage over the West and a Western-controlled Ukraine.
That’s why Russian President Vladimir Putin has accused the United States of blackmailing France by timely fining BNP Paribas a record $8.9 billion, over the French contract to sell Mistral-class warships to Russia.
Via Washington Post:
“We know about the pressure which our U.S. partners are applying on France not to supply the Mistrals to Russia,” Putin told Russian diplomats Tuesday. “And we even know they hinted that if the French don’t deliver the Mistrals, they would quietly get rid of the sanctions against the bank, or at least minimize them.
“What is that if not blackmail?” Putin said.”
Whether or not the historical fine was imposed to send a message to France about working with Russia is not the main concern.
The main concern is that this fine is a sign of things to come: The declining role of the dollar in world trade.
High Speed Devaluation
When the U.S. sanctions other nations, it can only do so in U.S. dollars.
For example, under the terms of the sanctions, some parts of BNP Paribas will be banned from conducting U.S. dollar transactions for a year.
Over the past decade, we have seen the U.S. increasingly use sanctions, using the centrality of the US dollar in the global economy to impose its might. It does so because when dollars are used in trade or investment, the transaction generally involves a U.S. bank, which allows American authorities to exercise jurisdiction.
This works great – for now- because the dollar is the main currency used in world trade.
However, because of the sanctions and fines, nations around the world have already begun to lobby for greater use of alternative currencies outside of the dollar.
The recent fine on BNP just accelerated the process of de-dollarization.
“French Finance Minister Michel Sapin said euro area governments need to look at ways of bolstering the use of the euro in international transactions as a matter of “global balance.”
…This is not a fight against dollar imperialism,” Sapin said in an interview with Bloomberg Television in Aix-en-Provence, France. “We sell ourselves aircraft in dollars. Is that really necessary? I don’t think so.”
Euro area finance ministers will discuss ways of increasing the use of the euro tomorrow in Brussels, Sapin said.
The French finance minister received support from Christophe de Margerie, head of French oil company Total SA (FP), who said yesterday that he sees no reason for oil purchases to be made in dollars, adding that it makes sense to expand the use of other currencies in transactions outside the U.S.
“Nothing prevents anyone from paying for oil in euros,” de Margerie said in Aix-en-Provence. “The price of a barrel of oil is quoted in dollars. A refinery can take that price and using the euro-dollar exchange rate on any given day, agree to make the payment in euros.”
And more via Reuters:
“There is no reason to pay for oil in dollars,” Christophe de Margerie (he) said. He said the fact that oil prices are quoted in dollars per barrel did not mean that payments actually had to be made in that currency.
“It would be a way to protect businesses when, outside of U.S. territory, they carry out transactions that are perfectly legal in the country they belong to,” he said.”
In Layman’s term: Stop bullying us with your laws, or we will find ways to do business without you.
While France is the fifth-largest economy in the world, its military and political might are likely to have little influence on the decisions of the United States.
But what happens when the head of the Eurozone joins in the fight?
Over the past year, the United States has increasingly aggravated its allies, while Russia continues to add more.
The U.S. just pissed off France but now it’s picking on one of the world’s largest economies and head of the Eurozone, Germany.
Over the past year, the U.S. has increasingly pushed the wrong German buttons.
First, as I mentioned last week, it seems that the U.S. won’t be returning Germany’s gold back to its rightful owner. But then there’s also spying scandal after spying scandal by the U.S. on Germany’s top officials, and recently a CIA was caught directly soliciting a German double agent.
But now, the U.S. has just pushed Germany closer to the edge by punishing one of Germany’s largest banks for the same kind of money laundering that BNP was allegedly engaged in.
According to the NY Times:
“A trail of illicit money led the American government on a hunt through the European financial system, generating criminal cases against banks in Britain, Switzerland and most recently, France.
Now the crackdown is bound for another European financial center: Germany.
State and federal authorities have begun settlement talks with Commerzbank, Germany’s second-largest lender, over the bank’s dealings with Iran and other countries blacklisted by the United States, according to people briefed on the matter.”
The recent actions by the U.S. on Germany is much more serious than it appears.
Underneath the distraction of the World Cup, Germany has just asked the top US intelligence official to leave country – a signal that the Germans have had enough.
Via the Guardian:
“While not formally amounting to a full expulsion, the move nonetheless sends a dramatic signal: after a year-long dispute triggered by the revelations of NSA whistleblower Edward Snowden, Merkel seems to have finally run out of patience with Washington’s failure to explain itself.
…According to German media reports, such drastic action had previously only been thinkable when dealing with “pariah states like North Korea or Iran”.
Clemens Binninger, a member of Merkel’s Christian Democrats, who chairs the committee that oversees the intelligence services, said at a press conference in Berlin that the action came in response to America’s “failure to cooperate on resolving various allegations, starting with the NSA and up to the latest incidents”.
It follows two reported cases of suspected US espionage in Germany and the year-long spat over reported NSA spying in the country, including claims that Merkel’s phone was tapped.”
So while things appear rosy on the big screen under the guise of Germany’s World Cup victory, things have actually gotten so bad between the two nations that Germany may potentially block American tech companies from implementing equipment in Germany.
According to Bloomberg:
“Germany‘s Interior Ministry is reviewing rules for awarding government contracts for computer and communications equipment and services as a political rift with the U.S. widens, people familiar with the matter said.
The ministry will probably issue new purchasing guidelines in the coming weeks to replace its “no-spy-order” dated April 30, said the people, who asked not to be named because the deliberations are private. Details are being worked out and may require suppliers of components of a bidder’s goods or services to guarantee they don’t hand over confidential data.
Any tightening of procurement procedures could affect U.S. technology companies such as International Business Machines Corp. (IBM), Cisco Systems Inc. (CSCO) and Microsoft Corp. (MSFT) as they vie for government contracts. U.S.-German tensions escalated yesterday after Germany expelled a top intelligence officer from the U.S. embassy in Berlin.”
To sum it up, Germany just told the world that it might sanction American companies from procuring contracts in Germany…without using the word sanction.
At this pace, I am not sure what will happen to the dollar.
Perhaps this is all setting up for gold’s next run.
The Equedia Letter