Currencies, Geopolitics, Real Estate, Finance 2014: The « Big American Retreat »

 

 

2013 is coming to an end on a world-before totally broken apart; 2014 will be merciless for this world of which only ruins will remain. But “we can also build something good with the stones that block the path” (1) and, in this chaos, the world-after has already taken its first steps as we anticipated in the GEAB N° 70 of December 2012 (2). 

Whether it be the economic or political woes of the United States, Japan and the European Union, the Russian diplomatic victories over Syria, Armenia or the Ukraine, or Chinese ambitions in the East China Sea, tomorrow’s powers are quickly filling the geopolitical void left by yesterday’s powers. 

But 2014 will experience a dramatic acceleration of this profound trend thanks to the convergence of several factors: loss of control of the world by the United States, the end of desperate rescue methods (mainly quantitative easing), a new implosion of the real estate market… Not forgetting the groundswell which is the forced reform of the international monetary system. Using roulette is an example, until recently there has been the phase “place your bets” during which the players have been able to prepare and implement their strategies; we are now rather in the phase “no more bets” where the players will soon be able to see their profits-or losses. 

Layout of the full article: 
1. THE NEW INTERNATIONAL MONETARY SYSTEM AWAITS THE EURO 
2. CHINA’S SINGLE-HANDED TEMPTATION 
3. THE US GEOPOLITICAL VOID 
4. REALITY IS WHISTLING THE END OF EXTRA TIME 

This public announcement contains section 1.

Things are moving very quickly on the monetary front and all the efforts undertaken so far will attempt to crystallise in 2014. The following five examples are indicative of the ongoing developments. 

• Kuwait, Qatar, Bahrain and Saudi Arabia are launching their common currency at the end of December (3). For the moment this will be « pegged » to the Dollar; but these countries’ trade with the United States is increasingly less significant. In this case, why peg it to the Dollar? Simply to avoid the United States putting a spoke in the wheel, in the knowledge that a simple political decision will, in the near future, allow a swaying towards a more robust solution of a basket of currencies unconnected to the American currency (4). Note, moreover, that five African countries (Kenya, Uganda, Tanzania, Rwanda and Burundi) have also agreed on a common currency (5)…

• Bitcoin is attracting the greedy (6), panicking the markets and central banks which are trying to regulate it (7). If its recent moves are mainly due to speculation as we analysed in the GEAB n°79, nevertheless its success is very revealing of current developments: distrust of fiat currencies (primarily the Dollar), the need for a currency which can’t be “manipulated” by central banks, decentralised, not dominated by a country or an entity, dematerialised… This is a first attempt, not perfect, with high volatility (due to low volume and fixed monetary creation), and which comes up against the reluctance of various legislators and, therefore, which risks disappearing or being marginalised in the near future. Nevertheless, the characteristics of this virtual currency should be taken into account in the thinking on the innovation of a new international currency exchange.

• Gold, as we have repeatedly seen, is moving from West to East at a feverish pace (8), gradually supporting the Yuan’s international legitimacy. Even if there is no doubt that a gold standard won’t see the light of day, hardly appropriate to the needs of our time, even if the new international monetary system, whatever it may be, probably won’t be linked to gold (9), its possession remains an important vote of confidence in the current monetary chaos.

• Truly international rating agencies (or « multipolar ») are emerging (10) with the objective of breaking the monopoly of the Anglo-Saxon agencies. This is anything but a trivial development as the agencies influence markets, especially on the assessment of national economies… Of course this isn’t a direct monetary factor but it also contributes in questioning Dollar hegemony. (11)

• The Yuan’s use for import credit payments has just doubled the Euro’s and is now in second place in the world…quite a symbol (12). Swap agreements allowing trade in local currencies have been concluded with almost all regions of the world. As a result, the proportion of trade with China paid in Yuan has gone from 12% to 20% in less than a year (13) and the total of Yuan denominated international trade should increase by 50% in 2014 (14)… This spectacular race is all the more impressive since the Chinese currency still isn’t freely convertible and is the sign of the irresistible attraction of the country’s economy.

Yuan Hong-Kong deposits (in blue, left-hand scale), Yuan denominated international trade (orange, right-hand scale). Source : Reuters.

Nevertheless, if one excludes the United States based on a status quo in their favour (15), a truly international system can’t be created without the Eurozone, whose currency accounts for around 30% of world trade and reserves (16), the number two international currency far ahead of its pursuers. Yet, and we analysed it at length in the last GEAB issue, the Euro remains more a support for the Dollar than an alternative, in particular by its inability to impose itself on its own international trade instead of the Dollar, which leads to this paradox: the huge European trade dynamic directly serves Dollar sustainability (17). The shift towards a multipolar monetary system therefore still depends, for the time being, on Euroland’s decision to abandon the Dollar and join the bandwagon of the inevitable current monetary change, led primarily by China. 

Banking union which is slowly progressing (18) is the opportunity to strengthen the single currency and make it play the true role to which it lays claim when European decision-makers of another era (19) invented it; as well as the beneficial impact of the 2014 European elections which will distance the Eurozone from the EU a little further. The end of 2014 or, at the latest, 2015 is, therefore, the date when the Euro will finally play its part in exiting the international monetary system from the Dollar’s rut. 

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