Conquering the World With the Dollar

Source: China Scope

PLA Strategist: The U.S. Uses Its Dollar to Dominate the World

[Editor’s Note: In April, Qiao Liang, a People’s Liberation Army (PLA) Major-General, gave a speech at a book study forum of the Chinese Communist Party’s (CCP’s) Central Committee and government office. Qiao is the PLA strategist who co-authored the book, “Unrestricted War.”

In his speech, Qiao explained that he has been studying finance theories and concluded that the U.S. enforces the dollar as the global currency to preserve its hegemony over the world. The U.S. will try everything, including war, to maintain the dollar’s dominance in global trading. He also discussed China’s strategy, to rise as a super power, amid the U.S.’s containment.

The following are excerpts from his speech.] [1]

I. The Situation Surrounding China and the Secret of the U.S. Dollar Index Cycle

A. The First Financial Empire in History

People working on economics or in the finance field are probably more suited to talk about this topic. I will discuss this topic from the [national] strategy angle.

On August 15, 1971, when the U.S. dollar stopped being pegged to gold, the dollar ship threw away its anchor, which was gold.

Let’s take a step back. In July 1944, to help the U.S. to take over the currency hegemony from the British Empire, President Roosevelt pushed for three world systems: the political system – the United Nations; the trade system – the General Agreement on Tariffs and Trade (GATT), which later became the World Trade Organization (WTO); and the currency financial system – the Bretton Woods system.

The Americans’ desire was to establish the U.S. dollar’s hegemony over the world via the Bretton Woods system. However, from 1944 to 1971, the dollar didn’t gain that power. What blocked the dollar? It was gold.

When the Bretton Woods system was set up, the U.S. promised the world that the U.S. dollar would be pegged to gold while every other country’s currency could peg to the dollar. One ounce of gold was fixed at US$35. With this promise, the U.S. couldn’t do anything according to its own will. In other words, the Americans couldn’t print an unlimited number of dollars. Whenever it printed a dollar bill, it had to add one additional ounce of gold into its treasury as a reserve.

The U.S. made that promise to the world because it held eighty percent of the world’s gold reserve at that time. The Americans thought that, with that much gold in hand, it was enough to support the U.S. dollar’s creditability.

However, it was not that simple. The U.S. stupidly got involved in the Korean War and the Vietnam War, which cost it dearly. The Vietnam War especially cost US$800 billion. The cost became so much that the U.S. couldn’t bear it. Based on the U.S.’s promise, every time it spent US$35, it meant a loss of one ounce of gold.

By August 1971, the Americans had about 8,800 tons of gold left. They knew they were in trouble. Other people continued creating new trouble for them. For example, French President De Gaulle didn’t trust the U.S. dollar. He asked the French Finance Minister and Central Bank President and was told that France had about US$2.3 billion dollars in reserve. He told them to sell all of that for gold. Some other countries followed suit.

Thus, on August 15, 1971, then U.S. President Nixon announced that the U.S. stopped pegging the dollar to gold. It was the beginning of the collapse of the Bretton Woods system, and also a way in which the Americans cheated the world. However, the world didn’t realize it.

People trusted the U.S. dollar because it was supported by gold. The U.S. dollar had been the international currency, the settlement currency, and the reserve currency for over 20 years. People were used to the dollar. When the U.S. dollar suddenly lost its tie to gold, it then, in theory, became a pure piece of green paper. Why did people still use it?

In theory people could stop using it., Bbut in practice what would people use for international settlement? Currency is a measure of value. If people stopped using the U.S. dollar, was there any other currency they trusted?

Thus, the Americans took advantage of people’s inertia and forced the Organization of the Petroleum Exporting Countries (OPEC) to accept the U.S. condition that the world’s oil trade must settle in U.S. dollars. Previously, oil trades were settled in any international currency, but, since October 1973, settlement was limited to the U.S. dollar only.

After unpegging from precious metal, the Americans linked their dollar to oil. Why? The Americans were very clear: people might dislike the U.S. dollar, but they could not live without energy. Every country needed development and thus needed to consume energy. In this way, the need for oil translated into the need for the U.S. dollar. For the U.S., this was a very smart move.

Not many people had a clear understanding of this at the time. People, including economists and financial experts, didn’t realize that the most important thing in the 20th century was not World War I, World War II, or the disintegration of the USSR, but rather the August 15, 1971, disconnection between the U.S. dollar and gold.

Since that day, a true financial empire has emerged, the U.S. dollar’s hegemony has been established, and we have entered a true paper currency era. There is no precious metal behind the U.S. dollar. The government’s credit is the sole support for the U.S. dollar. The U.S. makes a profit from the whole world. This means that the Americans can obtain material wealth from the world by printing a piece of green paper.

This has never happened in the world before. Throughout mankind’s history there have been many ways for people to obtain wealth: an exchange with currency, gold, or silver, or using war to grab things (however, war is very costly). When the U.S. dollar became just a piece of green paper, the cost for the U.S. to make money became extremely low.

Without the restriction of gold, the U.S. can print dollars at will. If they keep a large amount of dollars inside the U.S., it will certainly create inflation. If they export dollars to the world, the whole world is helping the U.S. to deal with its inflation. That’s why inflation is not that high in the U.S.

However, once the U.S. exports its dollar to the world, it doesn’t have much money. If it continues to print money, the U.S. dollar will keep devaluating, which is not good for the Americans. Therefore, the U.S. Federal Reserve is not, as some people have imagined, a central bank that prints money irresponsibly. The Federal Reserve knows what “restriction” means. From its establishment in 1913 through 2013, the Federal Reserve only printed US$10 trillion.

This may lead people to criticize China’s Central Bank, which has printed 120 trillion yuan (around US$20 trillion using an exchange rate of 6.2 yuan per dollar) since 1954. Actually this does not mean China is printing money without any restriction either. Since its opening up, China has earned a lot of U.S. dollars and also a large amount of dollars has flown into China as investments.

China’s foreign currency control prevents the U.S. dollar from circulating in China. When the U.S. dollar comes, for circulation in China, China’s Central Bank has to print a corresponding amount of renminbi instead.

However, a foreign investor can withdraw its money out of China after making money. Also we need to spend our foreign reserves to buy energy, products, and technology. As a result, a large amount of U.S. dollars has flown out of China, but a corresponding amount of renminbi has stayed in China. You can’t destroy those renminbi, so China ends up with more renminbi than its foreign reserve.

China’s Central Bank admitted that it overprinted 20 billion yuan. This huge amount all stayed in China. This is a topic that I will discuss later – why we should make the renminbi an international currency.

Please go to China Scope to read the entire article.
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Source: Zero Hedge

The Dollar Is Collapsing

by Tyler Durden • Monday, January 15, 2018

The last four days have seen the US Dollar plunge 2% – the biggest drop since June 2016…

As the chart suggests, there is a key driver of the dollar’s moves. China’s FX policy!

One might argue that the Renminbi has been a more stable store of value to the Dollar in recent months.

The dollar is now pushing precariously close to its weakest since January 2015.

USDJPY is plunging (as Yen strengthens) which suggests The BoJ better do some more ETF buying…

Please go to Zero Hedge to continue reading these graphs.
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Related reading:

Japanese Purchases Of US Treasurys Tumble

Dollar Tumbles As Euro Soars To 3-Year High; US Markets Closed

 

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