Call it “Shadow De-dollarization” or “Backdoor De-dollarization”, but no matter what you call it, this scheme is pure genius. Here’s the details…
Selling their massive hoard of U.S. treasuries is not the only way that China can “dump the dollar”.
Here’s a look at a crude (pun and no pun intended) and clever way the Chinese get rid of their dollars.
First, before somebody says, “but Half Dollar, how do you know that’s dollars we’re talking about?”
Well, I’ll just have to take it at face value.
Besides, it is in China’s interest to make their loans with their excess dollars.
Here’s the face value (USD = U.S. Dollar):
Brilliant front-page of Angolan newspaper "Expansão"… about the country's debt.
"Every Angolan owes 754USD to China, 106USD to Israel, 63USD to Russia, 41USD to Brazil, 21USD to Portugal." pic.twitter.com/MOaVZUoj0N— Zenaida Machado (@zenaidamz) May 11, 2018
Now the background, from Quartz Media: (bold for emphasis):
The Angolan newspaper Expansão had an intriguing front page cover this week. It declared, “Every Angolan owes $745 to China.” It also listed debt to other countries, but debt to China was more than seven times what’s owed to the next creditor, Israel. By some estimates Angola owes some $25 billion to China. Since resuming ties in 1983, Angola has taken $60 billion from China in loans and investments.
The issue for Angola isn’t just that it’s borrowing a lot from China, it’s also the nature of the debt. As Africa’s second largest oil producer, Angola’s agreement with China is such that it uses oil to pay off the debt rather than selling on the open market and generating cash. This is all well and good when oil is $100. But it’s risky when oil prices fall. It has caused a liquidity crisis in the recent past, as well as spikes in inflation.
Meanwhile, as of the end of the first quarter, about 55% of Kenya’s external debt was to China. A remarkable share to be owed to a single country versus a multilateral agency like the World Bank. This comes as Kenya became the latest African nation to join the China-led Asian Infrastructure Investment Bank. The growing interest in the multilateral financial institution in Africa points to China’s emergence as a favored lender, rivaling the World Bank.
Please keep in mind that this isn’t Ol’ Half Dollar seeing the forest for the trees, but Forest for the Trees founder Luke Gromen, who read between the lines to discover the shadow de-dollarization.
Luke explains:
“Angola repays its $25 billion debt to Beijing with crude oil” = Take USD, lend USD to Angola, take payment in oil, then either consume or re-sell oil or refined products in CNY, & voila! USD converted into CNY. https://t.co/99r8lu07qg
— Luke Gromen (@LukeGromen) May 13, 2018
In other words, China is essentially buying oil with dollars (paid with interest) through international lending.
Said differently, China is dumping dollars by lending out dollars then getting paid back in something else (crude oil in this example).
Angola is only one example.
How many other nations are there, subject to the same dumping, to which we’re not privy the information?
Could they be doing it with Djibouti or Nigeria?
Or some place more significant in terms of international trade?
It seems the Chinese have learned something throughout all these years of the U.S. giving China dollars as China gives the U.S. real stuff.
Unfortunately, the U.S. gets cheaply made trinkets and whatnots as stuff, but stuff nonetheless.
The Chinese have caught on, however, and now it’s the Chinese who are giving other nations U.S. dollars in return for those other nations’ stuff.
And actual real stuff. Valuable stuff. There’s a reason they call crude oil “black gold” you know.
You see, the U.S. dollar is quickly becoming a global game of hot potato, only many nations do not yet realize they’re even playing a game.
They’ll learn when they get burned with worthless fiat baked from a rotten potato.
“Backdoor De-dollarization”.
“Shadow De-dollarization”.
Call it what you want, but let’s call it really what it is: Another nail in the U.S. dollar’s coffin that major world economies (China) hammer almost daily.
This ultimately leads to a fiat currency crisis and the U.S. dollar collapse.
Stack accordingly…
– Half Dollar