Saudi Arabia Links with China — Foreign Exchange Explained — Kakistocracy — Egypt Joins BRICS Bank — Russia Ditches Dollar — China Abandons Zero Covid Policy - [12-11-2022]

Direct from BOOM Finance and Economics at the links below - Note - BOOM uses American English whereas AP uses British English.

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THIS WEEK’S EDITORIAL

SAUDI ARABIA LINKS WITH CHINA :  Last week, the Chinese President Xi Jinping visited Saudi Arabia. The Royal Family met him at the airport. He then had a meeting with King Salman and Saudi Crown Prince Mohammed bin Salman. They signed 34 agreements that increased the economic ties between Saudi Arabia and China. The contracts were reportedly worth US$29 Billion, along with pledges to expand military cooperation.

The Wall Street Journal reported that the Saudis were “setting up a Huawei cloud-computing region, building an electric-vehicle manufacturing plant in Saudi Arabia and supplying green hydrogen batteries”. The Journal also referred to “advanced military sales, expansion of 5G and 6G telecommunications networks and pricing some Saudi oil sales in Yuan.”

Other areas of cooperation apparently include urban development, housing construction, high tech complexes, as well as health, environmental, and energy-saving building projects, all related to the Saudi Vision 2030 and Beijing’s Belt and Road initiative.

Saudi Vision 2030 is a strategic framework aimed at reducing Saudi Arabia’s dependence on oil, diversifying its economy and developing its public service sectors in health, education, infrastructure, recreation and tourism. Key goals include the reinforcement of current economic and investment activities, increasing non-oil international trade, boosting manufacturing and promoting a softer and more secular image of the Kingdom. Increased government spending on the military is also part of the plan.

BOOM has reported in many previous editorials on the growing cooperation between Saudi Arabia, Russia and China. This development is just the latest step in the increasing linkages between these nations.

Last week, BOOM reported on the Saudi investment into rescuing the Swiss bank, Credit Suisse. This is clearly part of the 2030 plan — to get a foothold in the world of global banking and especially into the world of EuroDollar loan creation.

On 23rd October, BOOM stated “Saudi Arabia has been moving steadily away from the US and towards China and Russia. The South African President Cyril Ramaphosa has stated that Saudi Arabia wants to join the BRICS. This happened after Ramaphosa visited the nation. He said “the crown prince did express Saudi Arabia’s desire to be part of BRICS, and they are not the only country”.

Some commentators, after learning of last Thursday’s historic meeting, have boldly stated “this is the end of the US Dollar as the global reserve currency”. But BOOM would advise those commentators to moderate their language. The US Dollar dominance in international settlements is not supported by the Saudi – US linkage. It is supported by huge Eurodollar volumes which make the US Dollar the most convenient currency to use as the currency of settlement.

For those who don’t know, Eurodollars are US Dollars outside America. Even if those Dollars are in Japan, France or Taiwan, they are still referred to as “Eurodollars”. Volume dominance is the most overlooked aspect of almost all discussions concerning the “reserve currency” status of the US Dollar. The foreign exchange reserves held by central banks tell the story.

FOREIGN EXCHANGE RESERVES:  The Top 10 nations holding foreign exchange reserves (in order) are China, Japan, Switzerland, Russia, India, Taiwan, Saudi Arabia, Hong Kong, South Korea, and Brazil. China is by far and away the largest holder. It has 4 times the foreign exchange holdings of Switzerland, the third largest nation, and almost 15 times more than the United States (which is 14th on the list).

Most of those reserves are held in currencies and the two most dominant currencies by volume are the US Dollar and the Euro. The data concerning currency composition of foreign exchange holdings is collated by the IMF in COFER — the 'Currency Composition of Official Foreign Exchange Reserves'. It reveals that as at end of June 2022, there was a Total of US$12 Trillion held in such reserves. US Dollars amount to $6.6 Trillion while Euros amount to $2.2 Trillion. Thus, they are 73% of the Total. This is dominance writ large.

·         The Chinese currency amounts to just 2.6%.

·         The Japanese currency amounts to 4.8%.

·         The British Pounds Sterling amounts to 4.5%

·         The Australian Dollar amounts to 1.7%

·         The Canadian Dollar amounts to 2.3%

·         The Swiss Franc amounts to 0.23%

·         And all other currencies combined amount to another 2.9%

The percentage held in US Dollars is 55% with the Euro representing 18%. If you think about this breakup of foreign exchange holdings, it is obvious that the Euro currency represents, by far and away, the greatest threat to the US Dollar Empire. Thus, Western Europe, the “Euro Area”, is in fact America’s greatest enemy, not Russia or China. Only the Euro is in a position where it can possibly grow to exceed US Dollar Reserves.

And this explains US policy in regard to Western Europe. If the US Dollar is to maintain and increase its currency dominance long term, it must destroy global faith in the Euro. This explains US policy in regard to the war in the Ukraine. It is all about destroying the economy of Western Europe, not Russia which is unassailable.

Western European politicians have not yet worked this out. They are not endowed with great intelligence. Europe has become a Kakistocracy.

KAKISTOCRACY:  A Kakistocracy is a government run by the worst, least qualified or most unscrupulous citizens. The word is derived from two Greek words, kakistos (κάκιστος; worst) and kratos (κράτος; rule), with a literal meaning of government by the worst people.

Think of a list that includes Stoltenberg, Von Der Leyen, Draghi, Macron, Rutte, Merkel, Johnson, Truss, Sunak, Zelensky, Tsipras, Scholz. The word clueless springs to mind. They all appear totally unaware of the threat they represent to the US Dollar Empire.

EGYPT JOINS BRICS BANK:  On Wednesday last week, it was reported that Egypt had joined the BRICS bank. The Egyptian government officially announced becoming a member of the 'New Development Bank' of the BRICS group. The Bank was established by the BRICS nations of Brazil, Russia, India, China and South Africa in 2014 to finance infrastructure in member states and other emerging economies.

Egypt, Turkey, Saudi Arabia, Iran and United Arab Emirates have all expressed strong interest in joining BRICS which means that they are all moving steadily away from the US Dollar Empire.

RUSSIA DITCHES DOLLAR:  The central bank of Russia announced last week that the US Dollar and the Euro were now being used to settle 50% of Russia’s external trade and capital settlements. This is a dramatic decrease from 80% just 9 months ago. The use of China’s Yuan by Russian businesses has increased dramatically in that time-frame as Moscow seeks to reduce its reliance on Western currencies.

The share of the Chinese Yuan in the volume of Russian trade settlements surged from 3% in March to 33% in November, according to the Central Bank.

China and Russia are moving rapidly away from using the US Dollar and the Euro as settlement currencies. They prefer to use their own national currencies, the Yuan and the Ruble and they encourage other nations to do the same.

CHINA ABANDONS ZERO COVID POLICIES:  On 30th October, BOOM’s advice to China was to abandon all Zero Covid policies immediately. Five weeks have passed and China has clearly and unambiguously decided to speed the abandonment of those policies. The fact is that the damage being done to the Chinese economy was simply becoming intolerable and the Chinese people had decided to protest against the central government. Non-compliance by the 1.5 Billion people of China is something that the central government simply cannot compete against. Thus, they took BOOM’s advice.

In economics, things work until they don’t.  Until next week.  Make your own conclusions, do your own research.  BOOM does not offer investment advice.

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Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.  EMAIL: gerry{at}boomfinanceandeconomics.com

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