"It's a gigantic snowball all over the world. We cannot even keep up with it,” Pepe Escobar said in an interview with the New Rules podcast. “It's very important what is going to be discussed at the BRICS summit in South Africa. This will probably be the crossroads moment where things are going to then go."
Escobar explained that a growing number of countries in the Global South were doing the math and concluding that the US dollar was not a safe bet. The combination of aggressive US sanctions policy and reckless government spending have dramatically reduced the greenback’s international appeal.
“If you want to analyze the patterns these past two decades, you need to understand the fact that, if you are rich in commodities and if you are a productive capitalist nation and you decide to issue a currency, it will be internationally respected because people will know it's based on facts, actual provenance, actual wealth,” he said. “That’s contrary to the system that we have now, which I have been calling it ‘casino capitalism’ for years. It's futures, it's bets, it's suppositions. It may go right or wrong. If you lose, you lose it all. The house mostly always wins because the house is the one who prints the currency. It's backed by nothing, literally, by a country that owes $30 trillion [in national debt] now and it will never be able to repay it."
To make matters even worse, the US Federal Reserve’s aggressive interest rate hikes has made borrowing in dollars expensive for almost everyone in the world. Prior to the Fed's move, Kristalina Georgieva, managing director of the International Monetary Fund, warned in January 2022 that the US raising interest rates could backfire on the global economy and especially on countries with higher levels of dollar-denominated debt.
The ongoing US banking crisis threatens to further destabilize international financial markets. No country in the world wants to "catch a cold" when the US economy "sneezes," as memories of the 2008 financial crisis linger.
"They say, 'look, why do we have to be subjected to this kind of arrangement?' And of course, before, as we all know, it was ‘the Empire of bases’, over 800 military bases all over the world, 'the power of the financial markets', 'the power of soft culture', 'the power of cancel culture', but the Global South is not intimidated anymore. I think this is the first [time] in this new millennium. We never had this before in the past two and a half centuries, at least," Escobar said.
BRICS Seeking to Establish New Currency
In January 2023, BRICS – an acronym for Brazil, Russia, India, China, and South Africa – made a splash by announcing that it may soon explore the possibility of creating its own currency to by-pass the US dollar. The idea was articulated on both sides of the Atlantic: Russian Foreign Minister Sergey Lavrov touched upon the plan during a presser after his meeting with Angolan President Joao Lourenco on January 25.
On the other side of the pond, President of Brazil Luiz Inacio Lula da Silva discussed the issue of the creation of a common currency for BRICS and the countries of Mercosur, a South American trade bloc, during his meeting with his Argentine counterpart Alberto Fernandez.
According to Escobar, the formation and development of three organizations, namely BRICS, the Shanghai Cooperation Organization (SCO) and the Eurasian Economic Union predetermined the end of the greenback-centered world order. BRICS members are now discussing designing an alternative currency; similar discussions are being held in the Eurasian Economic Union; they should start coordinating and then this will spill over to the SCO, the writer projected.
The trend has already been engulfing other blocs, Escobar continued, referring to the Association of Southeast Asian Nations (ASEAN). On March 28, ASEAN finance ministers and central bank governors held a meeting in Indonesia to discuss how to move to settlements in local currencies by further enhancing an ASEAN cross-border digital payment system.
Initially, the agreement on such transactions was reached between Indonesia, Malaysia, Singapore, the Philippines, and Thailand in November 2022. The association is seeking to reduce dependence not only on the US dollar, but also on euros, yens, and British pounds in financial transactions.
"We have something that was absolutely unbelievable two months ago," Escobar emphasized.
Why is De-Dollarization Gaining Steam?
De-dollarization has been discussed for decades. For instance, Mikhail Khazin, a Russian economist and publicist, who served in the Working Center for Economic Reforms under the Boris Yeltsin government in the 1990s, and his co-author Andrey Kobyakov predicted the demise of the US dollar dominance roughly 20 years ago in their book titled "The Decline of the Dollar Empire and the End of Pax Americana." While the idea has been in the air for quite a while, why is it that this phenomenon has only now started to gain critical mass?
"We can even establish a date for it," responded Escobar. "February last year, with that freezing, confiscation, stealing of Russian foreign reserves. And the Global South as practically as a whole started asking themselves from Latin America to Africa to South East Asia, ‘if they can do this with a nuclear superpower, they can do it with any one of us snapping their fingers’. So that's why the coordination inside these multilateral organizations and in other forums picked up astronomic speed."
To illustrate his point, the journalist referred to the swift development of BRICS with a staggering 19 countries currently on the list to join the organization. Among them the strongest candidates are Iran, Argentina, Algeria, as well as the United Arab Emirates, Turkiye, Egypt, Kazakhstan, and Indonesia, as per the geopolitical analyst.
"So these are all strong middle rank powers from anywhere," Escobar said. "And they're going to start discussing the now notorious BRICS alternative currency. So they have to speed up this conversation and let's hope that they are going to start discussing it in conjunction with the Eurasian Economic Union, which is much more advanced, and the Shanghai Cooperation Organization."
28 January 2023, 13:38 GMT
Escobar believes that nothing short of a breakthrough in this respect could occur as early as next year.
"It's possible, it's a feasible scenario," he insisted. "Until a few months ago, this would be the ultra-far-fetched scenario. Not anymore, because now the speed is unbelievable. Literally every day - Bangladesh, Argentina, Algeria, countries in Southeast Asia."
Last month, Russian Foreign Minister Sergey Lavrov met with his Bolivian counterpart Rogelio Mayta in the Venezuelan capital Caracas and introduced a new trade transaction system to drop the US dollar and the euro and switch to rubles and Bolivianos instead.
Together with Argentina and Chile, Bolivia forms the so-called "Lithium Triangle" which accounts for more than half of the world's deposits of the silvery-white alkali metal. Bolivia's Salar de Uyuni salt flat alone contains 21 million metric tons of lithium, widely used in rechargeable batteries for mobile phones, laptops, digital cameras and electric vehicles.
Petroyuan May Dethrone Petrodollar
The most important element is the coming of the petroyuan, as per Escobar. For decades, crude oil has been traded in US dollars. However, the petrodollar could be soon dethroned: last year, Beijing called on Gulf leaders to settle their gas and oil deals with China in yuan. The US and China remain the world's top two consumers of crude, using 18.7 million and 15.4 million barrels per day, respectively. Energy settlements in yuan could deal a heavy blow to the greenback.
"We are on our way, which is something that even very good American financial analysts who have been following this story could never imagine that this would be literally around the corner," the journalist said. "Now, the only thing that is missing, in fact, is the Chinese delegation going to Riyadh and saying, ‘okay, from now on everything is going to be in yuan, no more Western currencies anymore.’ And we already have a mechanism for it. I did a column about that, basically explaining that it's a very simple mechanism."
"You buy oil futures at the Shanghai Exchange priced in yuan. So from now on you have a new benchmark, an oil benchmark in yuan that you transact in Shanghai. The Chinese say, ‘look, it's linked to gold as well. You want to change yuan into gold? Simple. We have a gold exchange here in Shanghai and we have another one here in Hong Kong. You can trade all you want for gold.’ This is the way. It's extremely simple. But not many people are aware of it. Only a few economists, in fact. And I have not seen this discussion in American media, for that matter," Escobar continued.
That doesn't mean, however, that the dollar will be replaced by the yuan: instead, a whole set of currencies will be used wiping out the greenback's hegemony, according to the geopolitical analyst.
"I think we're going to start with having multiple replacements, and then maybe in the second stage, these multilateral organizations start thinking, okay, why don't we think about a fusion? Because we have different priorities," he said.