SWORD OF DAMOCLES OVER THE DOLLAR

The United States is not called a global superpower for nothing. And it's not just the presence of military and political leverage and not even the largest GDP. The basis of US power is the US dollar.

By the most conservative estimates, almost 65 per cent of global currency reserves are kept in the US dollar. It is clear that launching the "printing press" and flooding the world with dollars, the United States devalues the currency reserves of other countries.

The need for foreign exchange reserves in US dollars is due to the fact that the US national currency services almost 80 per cent of world trade.

Today the system of trading in oil, grain and even gold in the world is realized through the American dollar.

Getting rid of the dollar

But in recent years, the sword of Damocles has been hanging over the power of the dollar. We are talking about the attempts of some states, in particular Russia and China, to change the current monetary architecture that is based on the leading reserve currency - the US dollar.

An attack on the American dollar by a number of developing countries was undertaken during the global financial crisis in 2008-2009. The programme of quantitative easing adopted by the US Federal Reserve System (FRS) caused a negative reaction among developing countries. The US stance was most harshly criticized by Russian President Vladimir Putin, who accused the White House of "foul play".

Currently, developing countries are taking a number of steps to reduce the weight of the US dollar in trade transactions and strategic reserves.

The Bank of Russia reduced the dollar's share in the structure of strategic currency reserves from 44.8 to 39.6 per cent in 2014. Its place in the reserves was taken by the euro, whose share increased from 41.5 to 46.1 per cent. It is noteworthy that in 2015, the Bank of Russia purchased approximately 30 tonnes of gold, increasing its physical volume to 1,238 tonnes.

Beijing is not disclosing information about the gold accumulated in the structure of strategic currency reserves. Estimates range from 5,000 to 10,000 tonnes of gold reserves. At the same time, China has good financial reserves to increase gold reserves and remains the leading holder of the US debt - 1.26 trillion dollars.

Of course, Beijing is well aware that each launch of "the American financial printing machine" eats up its financial savings and it is already necessary to take extraordinary steps to get away from the power of the US dollar.

However, not only major countries are trying to protect themselves from the vicissitudes of the US dollar.

The State Oil Fund of Azerbaijan (SOFAR) has also taken active steps to diversify its foreign exchange reserves in recent years. If earlier, more than 70 per cent of the reserves were kept in dollars, as of April 2015, the share of the "greenback" decreased to 55.8 per cent. At the same time, 31.6 per cent of SOFAR reserves are kept in euros and 5.1 per cent in pounds. The rest of the reserves are distributed between the Australian dollar (0.5 per cent), Turkish lira (1.1 per cent), the Russian rouble (1.4 per cent), Korean wons (1.2 per cent) and gold (3.3 per cent).

In the near future, the Chinese yuan will be in the investment portfolio, given the permission received from the Chinese national bank for the purchase of securities and bonds worth 500m dollars. Most likely, SOFAR will reduce the portfolio of securities in dollars and euros. In the meantime, the investments of the fund in the Asia-Pacific region will reach 3.14 per cent.

Let's chip in for...

Developing countries are also taking a number of steps to reduce the weight of the dollar in trade transactions.

There are increasing reports on transition to national currencies in trade transactions between two countries: Turkey and Iran, Russia and China, etc.

But a particular danger to the dominance of the dollar may be multilateral agreements on the use of national currencies within organizations and international financial institutions.

And the economic union of Russia, China, India, Brazil and South Africa - BRICS - comes to the foreground here. The organization has already announced the creation of the BRICS Bank with a capital of 100bn dollars and a pool of standard foreign exchange reserves of the BRICS countries. The agreement on their creation was signed in July 2014 in the Brazilian city of Fortaleza.

The agreement provides for the establishment by the BRICS countries of a pool of standard foreign exchange reserves in order to provide financial support if partners in BRICS have problems with dollar liquidity in their domestic financial systems.

In addition, China is carrying out successful work to create the Asian Infrastructure Investment Bank (AIIB), in which almost all countries, except the United States and Japan have expressed the desire to take part.

There is a rapid process of internationalization of the Chinese yuan. Currently, the Chinese yuan is adopted in more than 40 countries as a type of currency reserves. Foreign partners of China have already started to place their sovereign bonds in Chinese yuans.

Doing away with the "discrimination" of national currencies

In order to ensure fair play, the world monetary system should return to the "gold standard". That is to say all national wealth should be calculated not in dollars, euros or the Chinese currency yuan, which is gaining strength, but in gold.

At the head of the new architecture of currency should be not a separate currency or a basket of currencies of the leading countries of the world, but the ratio of denominations of banknotes of individual countries to gold. And, accordingly, the world monetary system shall have to provide information about how much gold there is behind any currency, thus putting an end to currency speculation.

A weakness of gold was cash payments, but many countries have switched to cashless payments. But some countries have already installed ATMs for getting real physical gold instead of paper bills.

Of course, the White House will fight to the very end to prevent a return to the rules of the "gold standard" in order to avert the collapse of the US economy. It must be remembered that in 1965, a French ship carrying dollar bills worth 750m dollars anchored in New York, demanding physical volumes of gold. Later, the French sent another ship with the same amount of dollars to be exchanged for gold. France was followed by Germany, which exchanged its reserve dollars for gold. As a result, the United States abolished the "gold standard" in 1971.

The 21st century will have its own General de Gaulle, who, as president of France, managed to exchange dollars for gold in 1965, who will repeat the words of the famous Frenchman: "In the international exchange, the supreme law, the golden rule is the obligation to provide the balance of payments of different currency areas through valid incomings and the cost of gold."

WAY TO OLYMPUS

The American dollar gained the upper hand in a difficult confrontation with the British pound sterling. The first "printing press" was launched by the Bank of England in 1694, after which the British Empire started to actively impose the pound on the entire world, especially on its colonies.

The pound can be considered the "godfather" of the dollar, which acted as the world currency for four centuries.

The US government adopted its own currency in 1785 and the first dollars began to be minted in 1794. But success came to the US dollar only in 1931 when it was decided not to peg the pound to gold, while the "gold standard" continued to be valid with regard to the dollar despite the panic on the foreign exchange market.

However, the US dollar is losing its "golden glow" every year. How rapidly the dollar "lost weight" can be seen in the price of 1 ounce of gold: in 1792 - 19.3 dollars; 1934 - 35 dollars; 1973 - 42.22 dollars.

In 1976, the Jamaican currency system was created, under which the pegging of the dollar to gold was officially abolished, while the dollar remained the world's reserve currency with a floating exchange ratio.

In early 1980, the price of gold jumped to 850 dollars per troy ounce. In March 2008, the price of gold rose above 1,000 dollars per troy ounce.

On 6 September 2011, the price of gold reached its peak - 1,920 dollars per troy ounce.

Currently, a troy ounce costs over 1,200 dollars. 

But the events of 6 September 2011 are not a limit in the depreciation of the US dollar. For example, in 2030, according to experts, the price of a troy ounce may reach 2,400 dollars.