Money, Money, Money. Ain't it Funny?

It’s interesting to see how Russia is making small gains in its quest to conquer the dollar but failing to make gains at all in areas where many have predicted the dollar’s demise. It is not surprising that, in today’s news, Russia and Iran (longtime allies aligned against the US) have formed a pact to stop trading in dollars and, when trading between each other, to do so in their own currencies. That should be easy since both plainly hate the US government and the dollar’s supremacy. There really isn’t much standing in their way of doing it, and now they announce they have done it.

That is an easy foothold in their battle against US hegemony (at least, financial hegemony), and it’s actually surprising they hadn’t done it a few years ago. After all, Russia began talking seriously about de-dollarizing back in 2019. That it has taken this long for those two allies to make this move just goes to show how favored the dollar is for its ease in trading. The announcement today is particularly unsurprising, given all the military trade Russia will be doing with Iran:

Moscow has lately been cozying up to Tehran, with Iran revealing in November it will provide Russia with Su-35 fighter jets, Mi-28 attack helicopters and Yak-130 pilot training aircraft.

Other dollar ditches

Not long ago, Russia and China were talking about ditching the dollar and hitching to the euro. That never happened because the dollar is far more broadly desired and used and more stable than the euro. Now, Russia would never consider the euro in light of Europe’s wish to punish and cripple Russia anyway they can over Putin’s invasion of Ukraine along their eastern flank, which the EU is now rushing to include as an EU member state.

Here’s is where it gets intriguing: After ruling out the euro and focusing more on the yuan, the yuan fell into trouble all of last year due to China’s Xiro-Covid policy. Probably no one wants the stinking sewer currency called the yuan or renminbi as their way of banking sovereign treasure any more or even as their trade currency because of how much has to be banked in order to function smoothly for massive global trade. It looks too unstable due to Xi’s draconian policies that can have huge impact by the edict of a single communist government dictator.

So, the next big plan was to just nibble away at the dollar by getting all the BRICS nations to throw it aside and form a currency of their own or to do as Russia and Iran have announced and trade between each other just in their own currencies. That has also failed. The big announcement that was touted earlier this year throughout the alternative press about a big announcement to be coming out of the BRICS nations for their own currency launch was all wrong. They didn’t even talk about it! In fact, they actually declared they had no interest in even talking about such a thing. Some nations did not want to alienate the US as a trading partner. Others didn’t want the yuan to be the basis of a new currency because China is, for example, a longtime enemy of India.

So, the BRICS currency was a bust—a total no-show. Except for Russia predictably de-dollarizing, the rest are not:

Russia has declared it will no longer accept the American currency as payment for its energy commodities but will instead switch to Chinese and Emirati currencies. 

However, global de-dollarization efforts have borne little fruit with the vast majority of cross-border transactions involving BRICS members continuing to be invoiced in dollars. Indeed, exchanging BRICS members’ local currencies with each other and with other emerging market currencies frequently requires using the dollar as an intermediary. 

Further, a large share of public and private debt in these economies is dollar denominated. The relative stability of the dollar compared to many local currencies makes it more attractive as a medium of payment in cross-border trade. The dollar’s widespread use in these cases has become self-reinforcing, thus preserving its dominant global role and impeding efforts to de-dollarize.  

That is not to say the dollar will not see continued gradual decline in its use as a trade currency if the US keeps weaponizing it by declaring sanctions on other nations, especially financial sanctions. The US cannot afford to endlessly use the dollar as a cudgel against other nations. It needs to move back to a position of treating its dollar as dependable global money and nothing more. If it does, it can probably rebuild the dollar’s status, which is still vastly higher than any other nation, but lower than it used to be. It’s time to say we’ve gone far enough with using the dollar as a tool of sanctions, which have proven for decades to be only minimally effective anyway.

The US is de-dollarizing within itself.

Another interesting curiosity comes from within: Two states have just put forward bills to make precious metals legal tender in those states as an alternative to the Federal Reserve’s currency … but not a replacement, which they cannot do because the Federal government has declared the dollar legal-tender in all states, but that does not forbid states making other vehicles legal tender so long as the states continue to respect the dollar’s status.

Their legislatures, if the bills pass, may be trying to give the Fed a little competition for its money. This is not political sacrilege. It’s the old normal. For many decades, the US had many currencies issued by various banks in various states and no national currency. So, it is a rebroadening of the money supply with more diversity if the bills pass. It’s a move to make sure the Fed, as dollar dictator, is no longer the only show in town because the Fed is losing respect.

Bills filed in the Oklahoma and Missouri legislatures for the 2024 legislative session would eliminate state capital gains taxes on the sale of gold and silver. The legislation would also take other steps to treat gold and silver as money instead of as commodities.

Obviously, the tax needs to be eliminated in order to make precious metals work as money because you cannot afford to get hit with a 25% tax on the gains you’ve had every time you trade them as money. I’m not sure how that part will integrate with US tax law, though. Probably not well. Taxing money makes the new money cumbersome and too expensive to use. However, this move, if it works, will also make precious metals more valuable and widely used as investments.

I’ll let Ron Paul, the apostle of money, have the last word:

“We ought not to tax money – and that’s a good idea. It makes no sense to tax money,” former U.S. Rep. Ron Paul said during testimony in support of an Arizona bill that repealed capital gains taxes on gold and silver in that state. “Paper is not money, it’s fraud,” he continued.