Kamala Harris: the US fought wars over Oil

OAKLAND (CBS SF) — For the first time since her election, Vice President Kamala Harris was in her hometown of Oakland Monday, returning to the Bay Area to promote the Biden administration’s American Jobs Plan and the need to rebuild the country’s water delivery infrastructure.

Air Force Two arrived at Oakland International Airport from Los Angeles just before 10 a.m. She was greeted at the airport by Lt. Governor Eleni Kounalakis, Senator Alex Padilla — who filled the Senate seat Harris vacated with her election — and Congresswoman Barbara Lee.

Why The Petro-Dollar Is A Myth, And The Petro-Yuan Mere Fantasy

China’s recent introduction of yuan-denominated oil futures has attracted some fairly extensive press commentary. Partly this is down to a habit of over-interpreting everything happening in China as just more evidence of their unstoppable rise to global superpower status, but it is also due to some profound misconceptions about the importance of oil as a commodity. It is widely thought, for example, that oil somehow underwrites the global financial system and guarantees the U.S. dollar’s hegemonic status.

Inevitably, stories about the toppling of the “Petro-dollar” and the long yearned for rise of an alternative reserve currency, one not dependent on the whims of a capricious political elite in Washington, have proliferated across the alter-net and on the state-backed media platforms of Russia and China.

But we should be clear: the Petro-dollar does not exist, and really hasn’t done in any meaningful way since the 1970s, therefore the “Petro-yuan” has no future. This is not to say that oil will never be traded in yuan, that is likely, but it is to say that trading oil in yuan will not suddenly transform the currency into the global reserve many claim is inevitable. 1

Origins Of The Petro-Dollar

The myth of the Petro-dollar comes from efforts in the 1970s to prevent the U.S. suffering severe negative effects in its balance of payments from rising oil prices.2 Until the late 1960s the U.S. had been an oil-exporter, but by also being an oil consumer they had never sought to maximize the rent from oil production by driving prices upwards. OPEC countries, however, never had such qualms 3 when the opportunity arose as the U.S. became an importer, happily restrained supply to drive prices, and their own national incomes, higher. The U.S. was worried about the resultant trade deficit caused by suddenly having to pay vast amounts for necessary imports, and so secured the agreement of Saudi Arabia to only trade oil in U.S. dollars, meaning the U.S. could pay for oil in their own currency. Saudi Arabia, for their part, accumulated huge reserves of U.S. dollars, investing some of them back into the U.S. economy.

The enormous lake of U.S. dollars this created augmented the role of the dollar as the global reserve currency, being a highly liquid, easily-exchanged claim on the products, services and investment potential generated by the U.S. economy. But this was merely one step in the rise of the greenback as the global reserve. The next step came when other economies–East Asia in particular–followed the lead of the oil producers and also built up huge reserves of U.S. dollars, all of which was made possible by the abandonment of the Bretton Woods fixed exchange rate system in the early 1970s. This practice helped to keep exchange rates for exporters low, and kept a lid on inflation in the U.S., which suited everyone up to a point.

Future Petro-Yuan?

Bringing this up to date, it was a long time ago when the link between oil and the dollar mattered much at all beyond the financial returns of non-dollar based oil companies. Since the 1980s, the dollar has been consolidated as the global reserve currency because of the strength and dynamism of the U.S. economy, and oil exporters have demanded to be paid in U.S. dollars because that’s the currency they prefer to hold on to. To do otherwise is to take on exchange risk. Exporters can, and routinely do, accept payment in whatever exchange medium they wish — tanks, planes and construction services — but their central banks demand dollars for reasons entirely unconnected to oil. Because the U.S. dollar is a hard currency, easily exchangeable, underwritten by the U.S. taxpayer, and founded upon decades of broadly consistent macro-economic policy management.

Those who believe that oil being traded in U.S. dollars gives the U.S. economy a unique advantage in the global economy have it exactly the wrong way around. The U.S. economy is the central economy in the global system because it is the most open, innovative, and productive economy in the world, and because of this, the U.S. dollar is the most convenient, liquid and reliable medium of exchange. 4 One can imagine another currency challenging it at some point in the future, but only on the basis of the openness of its underlying economy, and the depth of the capital markets denominated in it. And if the euro can’t do it yet, why does anyone imagine the yuan is up to the job?

Furthermore, the U.S. dollar’s position as the global reserve currency has been underwritten by Chinese economic policy. China has deliberately built up a huge pile of U.S. dollar-denominated reserves which, contrary to much press coverage and occasional threats of a big selloff from China, confirms rather than undermines the dollar’s status.

Yuan-Denominated Oil Futures?

When China, like any other economy, allows the trading of oil futures in yuan, the contract merely promises dated delivery of oil in exchange for yuan. The contract does not supply the oil, it does not forward the yuan to an oil producer, it is merely a transaction that allows a buyer guaranteed delivery of oil by paying for it in yuan. The counter-party has to supply the oil in exchange for the yuan. Somewhere along the supply-chain someone will be paying in U.S. dollars, unless the ultimate supplier wishes to hold yuan. And despite the fanfare over the last few years, the yuan still comprises a tiny share of foreign exchange reserves held globally. Indeed, at 1.1% of the total, the yuan is significantly behind both the Australian and Canadian dollars, meaning that–with pound sterling–Queen Elizabeth II’s head appears on 7.5 times more foreign currency reserves than Mao’s. If China wants to change that, it will need to open up its economy, liberate its capital account and start living up to, rather than repudiating, its reform promises. Shanghai-traded oil futures in themselves have nothing to do with it.


  1. (It may be true that the Petro-yuan has no future, or that a change won’t be “sudden”, but this doesn’t prove that having oil trade in dollars isn’t still very important to the US)

  2. (Couldn’t it be said that the cause of these deficits was also, in part, cold war military spending and the Vietnam war

  3. (To portray this as financial opportunism by OPEC ignores other factors, such as the US’s significantly increasing the price it charged for wheat and supporting their enemy – Israel).  Whether you approve or disapproval, isn’t it simplistic or misleading to attribute oil price increases to the idea that “OPEC never had such qualms”.

  4. (This is the argument that the US Dollar deserves its dominance and the advantages the petrodollar gives it, not that it is unimportant to the US that oil trade in dollars)

How would the US react to the collapse of the Petro-dollar system?

If the petrodollar collapsed, the entire world would collapse with it into an economic crisis worse than the Great Depression. For a while.

A little history:

In the Bretton Woods conference of 1944, the US dollar was tied to gold at a fixed rate of 35 dollars per troy ounce of gold. This made the dollar very attractive as a reserve currency for many countries and created an artificial demand for dollars that allowed the US to print out money without it resulting in inflation. At one point the US held about 80% of the world’s gold reserves.

However, the US has a history for being bad at balancing budgets. In 1971, near the end of the Vietnam War, the US had a massive fiscal deficit. In the same way you fear for your money if your bank is making bad investments, countries who had their reserves in dollars started to feel uneasy with the way the US was spending (or printing money). They started buying back gold with the dollars they had, the equivalent of a bank run. The US realized it didn’t have enough gold reserves to cover the massive amounts of money they had printed out (like a fractional reserve bank), and so they unilaterally decided to let the dollar float in what is now called the Nixon Shock. It was a virtual default. Since then, the USD has lost more than 30 times its purchasing power relative to gold.

Without gold backing the dollar, demand for dollars would have collapsed. In fact, for a while, the “oil shocks” that resulted from Nixon’s decision caused considerable economic instability and inflation. The US had to figure out a way to stabilize and solidify the dollar.

So, how did they do it?

First, a deal was struck with Saudi Arabia, by far the biggest producer of crude oil in the 70s, that required them to sell their oil exclusively in US dollars. In exchange, the US offered the Saudis weapons and protection, something they readily accepted given the Middle East’s propencity to military conflict (in part exacerbated by the US itself). And thus the petrodollar was born. The idea was to make the global oil trade depend on the dollar, creating the demand needed to prevent too much inflation.

It was certainly easier for everyone (even if you had your differences with the US) to trade oil in US dollars, because it made markets more accessible, competitive and transparent. Soon after the Saudi deal, the entire world was trading oil in dollars, even the USSR. But it gave the US a massive amount of control, and since then the US has defended this fiercely with military force and political scheming. Recently, Gaddafi and Saddam tried to challenge the petrodollar, and the US immediately gave them a good dose of “democracy”. Saddam was falsely accused of having WMDs. They didn’t even bother to make up a good story for Gaddafi, and simply said he was an evil, corrupt despot (which he incidentally was). They’re both dead now. Al Qaeda and ISIS are both the result of the US funding proxy wars to topple governments they wanted to control. Just a few examples.

The US is the middle-man for the most lucrative trade in the world and much of its prosperity depends on keeping it so. With a high demand for dollars, they keep inflation under control, because all countries subsidize the growing money supply when they buy oil. It has worked brilliantly. The US has issued debt like crazy (and let’s not even mention the fact that the FED is a private institution), and despite this has had super cheap debt, because everyone wants those precious dollars to buy oil.

This has gone on for over 40 years now. 40 years of continuous fiscal deficits, military intervention in the Middle East (Iraq 2x, Libya, Syria, etc), artificially cheap debt, and a manufactured demand for dollars. All financed by the entire world’s consumption of oil.

Meanwhile, globalization has made the dollar the cornerstone of not only the oil industry, but virtually everything else, particularly the financial industry.

But make no mistake: the dollar itself is the biggest economic bubble there’s ever been. There is a massively corrupt and greedy element of geopolitical control in the dollar, rotten to the core. That greed is ultimately, I think, the biggest source of hate, sorrow and war in today’s world.

And yes: were it to suddenly collapse, it would be a disaster. The dollar supply would far and away exceed demand, resulting in high inflation. Everyone all around the world would scramble to get rid of their dollar reserves. And since everything, everywhere is connected to the dollar, it would be a catastrophe. It would all have to start with the US losing control of the oil markets.

It’s already happening now, to some extent. We’ve seen many instances where the US just can’t deal with the economic and political threats through military intervention as it did in the past:

  • China and Russia are pushing towards a non-US dollar oil market. China already has plans for a gold-backed oil futures contract in yuan. Basically, China will do what the US was doing pre-Nixon, and that’s what made everyone want to buy dollars at the time. It’s already being called a “game changer” for the oil industry. It is by far the biggest threat to the petro-dollar right now, and the US is powerless to stop it.
  • The Syria affair, one of the biggest screw ups in foreign policy history. Aside from that one, the US has a massive PR issue in the Middle East in general.
  • Venezuela is collapsing and it seems Russia and China are ready for scavenging.

Times have changed. Today, even piss-poor countries like North Korea can force the US into submission, by threatening to fire a ballistic missile across the world and flatten an entire city. The world has become too unstable to use force as an effective foreign policy instrument.

A complete collapse of the petrodollar can’t happen overnight, though, because the dollar is backed by not just oil, but the world’s biggest economy. It also wouldn’t be a complete collapse, because the US itself is one of the biggest oil producers in the world, so a big chunk of trading will always be done in US dollars.

But a decline will gradually happen. The US government is running the biggest ponzi scheme in history and in doing so is keeping the entire world’s economy hostage to the privately owned FED. Since 2008, the US printed about 3 trillion dollars in their “quantitative easing” program, quadrupling the FED’s reserves. But China, Europe and Russia all want a piece of the pie and are fighting for it. In fact, I think the entire world is a little bit fed up with the whole thing too, especially in Europe, where the monumental cluster f**k that is the Middle East has resulted in serious demographic problems that aren’t on some remote corner of the world anymore… They are at their doorstep.

Michael Hudson – Life and Thought 2018-05-07

40:11
One day after we came back, we had to go to the White House for a meeting on oil and the
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balance of payments.
40:20
And who should be the Undersecretary of the Treasury but my old mentor from Standard Oil
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who had explained to me how offshore banking centers worked.
40:32
He explained to Herman and me that he told the Saudi Arabians, “You can charge whatever
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you want for oil.”
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This was right after America quadrupled the price of grain to finance the Vietnam War
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in 1972-73, and OPEC responded by quadrupling the price of oil.
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The Undersecretary of the Treasury explained to me that they could charge whatever they
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wanted for oil.
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He knew that the higher they charged, the more the American companies would be able
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to charge on domestic oil.
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But the Saudis had to recycle all of their dollars into the United States, into Treasury
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bonds or the stock market.
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“You can’t buy American companies, you can only buy stocks or bonds, and you have to
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price your oil in dollars.
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If you don’t, we’ll consider that an act of war.”
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So here I was right in the middle of understanding how imperialism really worked.
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This was not what is in most textbooks.
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Most don’t talk about the balance of payments, but the key to financial imperialism is the
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balance of payments.
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The United States fights to prevent other countries from going back to the gold standard,
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because at the time America went off gold in August 1971, every American dollar bill
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was backed 25% by gold at $35 an ounce.
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Well, finally there was no more surplus gold, and that’s what forced America off gold.
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Its price immediately went way up.
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As an American citizen, I wasn’t allowed to buy gold.
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So I knew it was coming but I couldn’t make any money off it.
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Instead I bought Tibetan and Indian art, Asian art primarily.
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To make a long story short, I became a financial advisor to the Canadian government as a result
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of the stock brokerage work in Montreal.
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They said, “We need somebody who knows the American stock and bond market”.
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I was at that time the highest paid economist per diem in the United States for financial
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analysis.
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So I got a call saying, “They’re going to want to hire you but there’s only one way
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in which they can tell how intelligent you are.
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Do you know about wine?”
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When I grew up at the University of Chicago, the university paid its professors so badly
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that to make more money, their ideal was to be a wine steward at the Pump Room, which
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was the fancy restaurant in Chicago.
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It was featured in the Blues Brothers comedy with John Belushi.
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Anyway, I took a sommelier course, got a license, and brought two bottles, one Richebourg and
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one La Tâche that I bought in the remainder carton at an uptown store.
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I gave them to my host in Ottawa and the government guys said, “That’s the guy we want.”
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So I wrote a study that Canada didn’t have to borrow money abroad for the provinces to
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invest domestically.
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They could create their own money.
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Basically, what I wrote was the first example of what’s now called Modern Monetary Theory,
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that governments can create their own money, their own credit.
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They don’t need a foreign-currency backing for it, and so all basically the same circular
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flow analysis that I’d developed from my history of thought.
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a Physiocratic analysis.
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One of the top investment analysts for the Royal Bank decided to become the head of personnel.
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He said he thought that it’s a personality problem that economists can’t understand how
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the world works, that there’s a particular kind of dumb person that becomes an economist.
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It’s a kind of autism, of thinking abstractly without a sense of economic reality.
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So he got me an appointment with the Secretary of State of Canada.
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In Canada the Secretary of State is in charge of education, films and culture.
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So I became Canada’s cultural adviser, which is what I thought was fine all along, and
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I wrote a report.
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Around that time I also was an economic adviser to the
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United Nations Institute for Training and Research, UNITAR, writing their reports on
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North/South debt, the foreign debt of third world countries, denominated in dollars, and
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how this was deranging their economies.
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They had a meeting in Mexico financed by the Mexican president and I was invited down there.
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I gave a report saying that there was no way that the third-world debts can be paid.
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My first job I worked on at Chase Manhattan was to estimate how much export revenue Argentina,
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Brazil and Chile could make.
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The idea was that all of their export earnings could enable them to pay interest on money
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borrowed from US banks.
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The idea was that the entire trade surplus should be pledged as debt service to the American
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banks.
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My job was to think how much that was, and what should Chase’s share be.
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So, at the Mexican UNITAR conference, I said that these debts cannot be paid, therefore
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they should not be paid, they should be canceled.
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There was quite a stir over that.
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Well at the end of the conference they had the rapporteurs summarizing the papers.
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The US rapporteur said that Dr. Hudson has given a report saying that third-world countries
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should export more in order to pay their debts.
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I stood up slowly and said, “I must insist that the President of Mexico offer a public
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explanation, apology to me and the conference.
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This rapporteur has inverted and reversed everything I said.
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I believe he has a covert purpose.
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I’m pulling out the American delegation and I’m pulling out the Canadian delegation too.
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We cannot be a part of this travesty.”
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Then I walked out, wondering what’s gonna happen!
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The Russian delegate came out laughing and said, “Ah!
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You’ve dominated the whole conference.
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You’ve made chaos out of it.
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You’ve embarrassed the CIA.
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This is fantastic.
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Here’s my card in New York.”
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Later that evening I was told, “You know, they’re looking for you to beat you up.”
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Well as it happened an old girlfriend of mine was in a group who were in Mexico for an
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art exhibition.
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They were surrealist artists from Amherst, and they were also doing a surrealist ballet.
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So I went to the ballet with them and they said, “Look!
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The thugs are there.”
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So I hid out with them on the stage in their ballet.
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The goons were looking in the audience and I was on the stage and we were all just surrealistic.
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Nobody knew how to dance or anything, it was all just surrealistic.
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And they, you know, the goons all went home.
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I learned that if they can’t find you, they usually give up and leave you alone.
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I went back to New York, but I realized that the debt issue was so controversial –
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the idea that debt couldn’t be paid.
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I spent about a year and I’d got through medieval period, Europe, World War One, and then even
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Greece and Rome.
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But then I found — it was about 1980, 1981, at that time I sold my house on the Lower
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Side and moved into a loft near Wall Street which was very low price there at that time,
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(I bought it for $20,000.
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Later I sold it for $580,000 but that’s another story), it shows you the real estate in New
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York, but at that time nobody wanted to live in lofts, and I wanted a big loft because
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I had a big library at that time and a lot of art that I wanted to keep.
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So basically I stopped working.
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I realized that in the Bible there was the Jubilee Year and there were references to
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Sumer and Babylonia and that there was a background of the biblical debt cancellations, almost
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the same word for deror in Hebrew is andurarum in Babylonian.
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I found that there was all this material and that had never been written in anywhere outside
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of the field of assyriology.
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There was no economic history of the ancient Near East, no economic history of Sumer and
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Babylonia.
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It was all about religion and some culture, Gilgamesh and all that, but not what I was
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most interested in, which was the debt cancellations.
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So I wrote a draft of what I could find by 1984.
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And one of my friends was the Ice Age archaeologist Alex Marshak.
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Although he lived in New York, he was connected to Harvard’s Peabody Museum.
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He showed it to the head of the Peabody, Karl Lamberg-Karlovsky, who told me, “This is great!
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Nobody else is working on it.”
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He appointed me a fellow of the Peabody Museum in Babylonian economic archeology.
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I thought, “This is wonderful, this is really what I want to do.”
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So I spent the next maybe three years writing the first draft of what became the book that’s
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being published in a few months, “… and forgive them their debts”: Credit and Redemption
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from Bronze Age Finance to the Jubilee Year.
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I submitted it to the University of California Press.
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They sent it to scholars to referee, who said that it was impossible that debts could be
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cancelled.
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Their argument was that if debts were cancelled, who would lend money?
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That’s what Rabbi Hillel argued in the Judaic tradition.
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I said, “Most debts were not the result of loans.
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Most debts were when the crops would fail and the cultivators could not pay the palace
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for the fees they’d run up, the rental fees for the land, the fees for the water, for
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the draught animals, or the beer lady for the beer that they’d drunk.
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So every ruler, when they would take the throne in Sumer and Babylonia, for a thousand years,
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would start their rule by cancelling the debts with a clean slate, an amnesty.
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It’s the same amnesty of the kind that Egypt’s Rosetta Stone commemorates.
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Everybody knows that the Rosetta Stone has trilingual inscriptions of Greek, Egyptian
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and Coptic.
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But few know that it’s a fiscal debt cancellation.
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That’s what we call cognitive dissonance, people can’t imagine that the debts were cancelled.
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I realized that this was very controversial, and so my Harvard colleague, Karl Lamberg-Karlovsky,
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suggested that we hold a series of meetings, and asked me to organize them.
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He said that we would hold a colloquium for each controversial chapter of my book.
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We decided to have a meeting every two years, and invite every major specialist from early
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Sumer, the Neo-Sumerian period, Babylonia, other Near Eastern realms, and Egypt.
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Their role was to collect everything they had on whatever the meetings’ topic would
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be.
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Since I was in New York, I worked with the leading Hebraic linguist Baruch Levine at
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NYU.
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I needed someone who was respected in the linguistic field to invite people, because
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most Sumerologists, readers of cuneiform, stayed away from economics, because the mainstream
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economic idea of how society developed is as if Margaret Thatcher would have created
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civilization.
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How would she have done it, or Milton Friedman, or what we call vulgar Marxists who think
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that it was the idea that seemed plausible to Engels when he wrote The Origin of the
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Family, Private Property and the State.
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That’s not how early history actually occurred.
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So the Sumerologists wouldn’t talk to economists.
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But because I was now an archaeologist with Harvard in the anthropology department, they
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agreed to come to the conference.
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The first meeting, in 1994, was on privatization in the ancient Near East and classical antiquity.
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Harvard published that.
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Two years later, we moved on to the second volume, which was on land use and real estate
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ownership: How did property ownership come into being.
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Then, we had planned from the very beginning for the third colloquium volume.
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That was on debt and economic renewal in the ancient Near East.
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I asked for everything that people could find about debt cancellations.
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We found that these occurred all the way through the first millennium.
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Herodotus talked about debt cancellations in Babylonia.
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It was a tradition remaining in the Near East for new rulers taking the throne to cancel
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agrarian debts, to start their reign with the economy in balance.
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Already in Hammurabi’s time 1750 BC, scribes would calculate the growth of compound interest,
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and at that time it was 20% interest.
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This growth diagram is the same exponential chart that I’d drawn up in the savings banks
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in the 1960s to trace the growth of American debt.
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So they were quite aware of the fact that debts couldn’t be paid and that, if you
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insisted on them be paid, you would have debtors falling into bondage.
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So they freed the bond servants, or for debtors had sold their means of self-support, the
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land, they returned the land that had been sold under economic distress.
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The word “distress” means the collateral that you’ve pledged to a creditor.
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It’s an Irish term basically.
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So we published that volume.
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By that time I’d got the people Baruch and Karl and I had invited – the leaders of
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their fields – agreeing with my interpretation.
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We then followed it up with another meeting at the British Museum on the origins of money
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and accounting, and the idea that money was created not for barter, not for trade in goods
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and services, but to denominate debts.
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If a cultivator owed a debt, how did he get money?
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So we did the history of money.
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Then, the one thing we hadn’t done finally was the origins of labor and what it was paid.
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That took ten years to complete, and we found that the origins of labor was organized basically
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in the palace economy, the palaces and temples.
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The main use of such organized labor from the Neolithic and Bronze Age to classical
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antiquity was to fight in the army and to work as corvée labor to build public infrastructure.
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So how do you get a supply of labor?
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You assign it land tenure.
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Land rights were created to assign families enough to support themselves so that they
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could perform corvée labor and fight in the army.
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So taxes came first, then came land tenure, based on what labor you had to supply.
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Attempts to substitute someone to work on the corvée became the basis for paying labor.
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So all of the payments came from what today would be called the public sector.
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That’s not really a very good term.
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It was really the palatial sector, the palace and the temples, as opposed to the community-based
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family on the land.
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So we had a new analysis of the origins of property, not just individuals grabbing,
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as Engels had thought.
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Property was created by the public sector, by the palaces, as assignment of land as needed.
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How much land area is needed in order to supply the labor for the public infrastructure, corvée
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work and service in the army?
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This was the reverse of what’s taught in economic textbooks today, which is, as I said, how
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Margaret Thatcher and right-wingers and Donald Trump would have designed an economy if they
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went back in a time machine.
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So after organizing and editing these five volumes, I’m now writing my own popular version,
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starting with a history of debt.
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Then will come Temples of Enterprise, a series of books on classical antiquity.
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I’m now following up with Greece and Rome.
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Throughout early Greece and Rome, the main fight was between creditors and debtors.
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Creditors ended up grabbing the land.
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The same fight occurred all the way down through the Byzantine Empire.
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The most divisive tension throughout history, from 3rd-millennium Sumer to 2nd-millennium
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Babylonia to the 9th and 10th century in the Byzantine Empire is between the palace wanting
59:47
to collect taxes and have labor for the army, and creditors wanting this land and labor
59:56
for themselves.
59:59
This way of getting the economic surplus is not the way that Marx described it as being
60:07
obtained under capitalism, by employing labor to produce goods to sell at a profit.
60:12
It was by debt and taking interest in ultimately foreclosing in land, which was the real objective.
60:21
In the 9th century there was a big
60:36
fight against strong royal power.
60:38
It was sort of like Donald Trump and the Tea Party Republicans are fighting against the
60:45
state, like the privatization in the Soviet Union fighting against the state.
60:51
The Byzantine emperor invited general Bardas to a big meal.
60:57
The general said, “There’s only one thing that you should do if you want to end the
61:03
warfare.
61:04
You have to tax the wealthy families so that they don’t have any surplus at all.
61:08
You have to give them so much burden that they can’t fight against you.
61:12
You have to prevent the polarization of wealth, because if you let the private sector make
61:19
an enormous amount of wealth, they’re going to try to fight against you and keep all the
61:24
wealth for themselves that you and the palace are now getting.”
61:28
This idea was expressed all the way back in the 7th century 6th century BC with Thrasybulus
61:34
and Periander of Corinth.
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When Thrasybulus took Periander’s herald to a field of grain and said, “Here’s what you
61:46
should do.”
61:47
The land was a field of grain and he took a scythe and he cut off the tops, to make
61:53
all the grain of equal height.
61:54
So Periander went back and exiled the wealthy families, seized their property.
62:01
There was probably a bit of fighting there, and that is basically the fight throughout
62:05
history.
62:08
So that’s what I’ve been working on for the last 20 years.
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Question: How did you take up the interest in Chinese economy?
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Hudson: As Samir Amin said at the meeting yesterday, China is the economy that is trying
62:31
to be the exception to the Western economic model.
62:35
That model is forcing a choice between civilization and barbarism.
62:42
The West is moving rapidly into economic barbarism and militarism.
62:47
As you can see, the austerity program of the Euro is destroying the economy there.
62:56
The United States is cutting taxes on the rich, while indebting the working class very
63:04
highly.
63:06
The one country that is independent and not taking the advice of the World Bank and the
63:12
International Monetary Fund is China.
63:14
So we’re hoping to do what we can to make the Chinese economy successfully resistant.
63:21
What that means is how is China going to handle its real estate, how is it going to handle
63:26
its debt, how is it going to handle its tax system.
63:31
What I’m trying to do is what David Harvey was trying to do in the speech he gave yesterday:
63:39
getting Chinese Marxists to read volume 2 and especially volume 3 of Capital, where
63:45
Marx discusses the dynamics of finance.
63:50
Marxism is much more than volume 1 of Capital.
63:53
You have to read volumes 2 and 3, and especially the elaboration that Marx wrote in the drafts
64:00
that he left for volumes 2 and 3, his Theories of Surplus Value where he discusses the history
64:08
of economic thought leading up to him.
64:11
You realize how Marx was the last great economist in the classical tradition.
64:18
He showed that capitalism itself is revolutionary, capitalism itself is driving forward, and
64:24
of course he expected it to lead toward socialism, as indeed it seemed to be doing in the nineteenth
64:31
century.
64:32
But it’s not working out that way.
64:37
Everything changed in World War One.
64:39
Afterward you had an anti-classical economics, which really was an anti-Marxist economics.
64:47
The fight for marginalist theory, for Austrian theory, the fight for junk economics that
64:54
we have today, is basically a fight against Marxism, because Marx showed the logical conclusion
65:01
to which the Physiocrats, Adam Smith, John Stuart Mill, Ricardo and Malthus, the conclusion
65:07
it was all leading was the synthesis that he made.
65:12
It was later developed by people like Thorstein Veblen and Simon Patten in the United States.
65:19
So I’m hoping that I can contribute what I can to help China’s economy to avoid the financialization
65:29
process and dynamic that is destroying the West.

U.S.-China | How will Chinese Digital Currency Help the Yuan vs Dollar

The People’s Bank of China (PBOC) started working on its digital currency (CBDC) in 2014. In April, the PBOC introduced pilot programs in four large cities. In July, China’s ride-hailing company said it was working with the PBOC to test the Chinese digital currency on its platform. In August, China’s Commerce Ministry said it would expand the program to Beijing and Hong Kong. The PBOC also indicated the plan to test the digital yuan’s capabilities and risks in cross-border transactions during the 2022 Beijing Winter Olympics. The digital yuan is known as “DC/EP,” or “digital currency/electronic payment.” Users will not require bank accounts. The digital wallet might allow touch payments without the internet. Unlike Bitcoin, it will be highly centralized. And the central bank seeks “controllable anonymity.” The CCP is will more likely use the digital yuan to replace all renminbi in circulation and increase surveillance on Chinese citizens. On August 7, the Treasury sanctioned 11 Chinese Communist Party and Hong Kong officials. And China’s large state-controlled banks are complying because the US dollar currently holds a dominant position. Apparently, the CCP intends to bypass the dollar system. Once complete, Beijing could share the digital currency technology with other countries and ask the Belt and Road participating countries to accept the digital yuan, creating a digital belt and road. A cheaper, faster payment system that avoids US sanctions would be a challenge to the US dollar dominance. According to the BIS, about 50 countries participated in the Central Bank Digital Currencies (CBDC) projects. The Federal Reserve has been researching on the digital dollar. On August 13, Governor Lael Brainard brought up some obstacles. Trust in the CCP has been deteriorating even among belt and road countries. Some have canceled, downsized, or postponed the projects to avoid debt traps. It is hard to say if they’ll adopt the digital yuan. That doesn’t mean ignoring challenges to the USD. Instead of merely catching the digital trends, the US government and the Fed should focus on responsible fiscal and monetary policies that protect the market’s confidence in the USD.

 

Transcript

China’s digital currency (CBDC) being tested has caught the world’s attention. And a Foreign Affairs article painted a picture as such. In 2022, Iran is purchasing critical components for its nuclear and missile programs. The funds come from selling oil to China and Europe. And all transactions are done with the digital yuan that bypasses U.S.-controlled financial systems. America’s ability to sanction its enemies is significantly weakened. In this video, we’ll discuss whether the digital yuan can challenge the USD dominance. What risks will it bring? And how is it different from the current digital payments and cryptocurrencies? The Leader in Large-Scale Testing The People’s Bank of China, China’s central bank, started working on its own digital currency back in 2014. In May 2019, the BBC revealed Facebook was planning to launch its version of cryptocurrency, Libra, by the first quarter of 2020. This motivated the Chinese Communist Party to speed up the digital yuan’s development. And regardless of whether the Libra would be approved by western governments, the CCP wanted to win the race. In April 2020, the central bank introduced a pilot program in four of China’s large cities. And screenshots of the digital wallet mobile app were circulated on the internet showing functions of making and receiving payments. In Suzhou, a large city west of Shanghai, the government employees would start receiving half of their transport subsidies in digital yuan. In July, China’s ride-hailing company, Didi, said it was working with the People's Bank of China to test the digital yuan on its transportation platform. And in mid-August, China’s Commerce Ministry said it would expand the pilot program to regions that include Beijing and Hong Kong. The central bank also indicated the plan to test the digital yuan system’s capabilities and risks in cross-border transactions, which will take place during the 2022 Beijing Winter Olympics. Under the proposed timeline, a digital yuan-based international payment system will start running in about a year and a half. It will likely be the world’s first government-operated digital currency system. As an authoritarian regime, the Chinese Communist Party might not be concerned about violating people’s privacy when pushing for the digital yuan. Once the tests turn out successful, large scale adoptions might complete very quickly. So how will the digital yuan work? “Controllable Anonymity” The digital yuan doesn’t have an official name but is known internally as “DC/EP,” which is just short for “digital currency/electronic payment,” Unlike the current digital payment systems such as Alipay and WeChat Pay, digital yuan users will not require bank accounts. And according to Mu Changchun, the People’s Bank of China official in charge of digital yuan’s development, the digital wallet will allow some form of touch payments where transactions can occur even without the internet. Compared to Bitcoin, which is believed to be decentralized and anonymous, the digital yuan will be highly centralized. Although the central bank claimed the parties to the transactions will be anonymous, in practice, it seeks quote “controllable anonymity.” It will be able to track the users’ purchases. And therefore, the system could help fight money laundering, gambling, and terror financing. The People’s Bank of China has also claimed the digital currency was intended to replace some physical cash in circulation, also known as M0. That was not very convincing. China already has a very high level of cashless rate. According to the central bank’s report, by the end of 2018, 82.39% of China’s adults used digital payments. There are 900 million people that use Alipay. And, in 2019, cash only accounted for 4% of household financial assets versus 24% in the United States. It would be hard to believe all the resources spent are just to erase the 4%. “Actually, replacing the M0 would be just a start. It will not be limited to M0. Instead, it should replace all the currency and maximize the digital currency’s functionality and value. Otherwise, there will be issues with return on investment,” writes Wang Yongli, former vice president of Bank of China. Therefore, the CCP is will more likely use the digital yuan to replace all the renminbi in circulation and increase its surveillance on China’s economy and every Chinese citizen, especially political dissidents. When the central bank can create and issue money digitally, it can seize the citizens’ money with one push of a button. And will the digital yuan help the CCP challenge the US dollar? “The Digital Belt and Road” On August 7th, the U.S. Treasury Department sanctioned 11 Chinese Communist Party and Hong Kong officials. The targets included the director of the CCP’s liaison office in Hong Kong, Luo Huining, and Hong Kong’s chief executive, Carrie Lam. On August 12th, Bloomberg News reported that China’s largest state-controlled banks are taking steps to comply with U.S. sanctions. This might sound surprising to many people. Why would China’s banks do anything against their government by a foreign country’s order? But the reality is the U.S. dollar currently holds a dominant position in global finance. And in 2019, almost 90% of international transactions were conducted in US dollars. The U.S. government can ask all banks that process US dollar payments to stop providing services to those under sanctions. And, apparently, the CCP does not want to be put in such a position. It intends to bypass the dollar payment system. In the state media CGTN’s words, the digital currency provides quote “a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level.” Aditi Kumar and Eric Rosenbach at Harvard Kennedy School, authors of the Foreign Affairs article, believed once the digital yuan is successfully launched in China. Beijing could simply share this technology to countries with the same motives. For example, Iran could adopt the same technology and build a compatible digital currency system. And the trade between the two countries would technically be no longer trackable by the US government. And what might happen when the People's Bank of China does become the first central bank to introduce a digital currency that works? Matthew Graham is the chief executive officer of Sino Global Capital. He predicted quote: “It’s very possible that other countries adopt the China framework, and then a first-mover advantage turns into a strong network effect…This is the best-case scenario for China.” Beijing could ask the Belt and Road Initiative's participating countries to start accepting the digital yuan. And this might include using the digital yuan to make loan payments. It could pay to install infrastructures such as point-of-sale terminals and lower the transaction fees, effectively create a digital belt and road. As Bank of America’s analysts pointed out, Asian countries like Thailand, Singapore, and South Korea are assessing their digital currencies. Those currencies might be integrated with the yuan-based systems and quote “especially if it entails significantly lower transaction costs and real-time transfers.” In fact, the CCP has already been doing that under current systems. On August 3, China waived transaction fees between the yuan and 12 currencies, including the Russian Rouble, the Singapore dollar, the Korean Won, and the Thai Baht. According to the State Administration of Foreign Exchange, this move was to quote: “actively cooperate with the national belt and road development strategy.” A cheaper, faster payment system that can also avoid US sanctions would be viewed as a challenge to the US dollar’s dominance. Then what should the United States do about it? Obstacles to The Digital Dollar The People’s Bank of China is not the only central bank working on the digital currency. According to the Bank for International Settlement, about 50 countries participated in the Central Bank Digital Currencies projects in 2019. Michael Casey at CoinDesk believes there is a lot at stake. “A China victory in the digital currency race would have profound negative effects for the U.S., and Western capitalism generally,” he said. "If the U.S. doesn’t catch up soon, it’s going to lose.” Kumar and Rosenbach suggested the United States develop the dollar version of digital currency. And they hope it will quote: "combine the strength and stability of the US dollar with the convenience and efficiency of digital technology." The Federal Reserve has indeed been conducting research and tests on hypothetical digital dollars. But, on August 13, Governor Lael Brainard brought up some significant obstacles to having a digital dollar. Among them was whether the Fed can build a digital currency system that can resist cyberattacks. And another would be to settle the legal question of whether the over 100-year old Federal Reserve Act allows issuance of digital currency at all. On top of those, we should expect to see pushbacks from Americans who value privacy and limited government surveillance. It seems a lot of debate will take place before the Fed receives a go-ahead. And the chance the Fed will roll out a digital dollar before the digital yuan would be minimal. The Future of the Dollar “Remember that credit is money.” This was a quote by Benjamin Franklin. And it revealed the essence of modern currencies. Since 1971 when President Richard Nixon declared that the dollar was no longer convertible to gold, we lived in a world with only fiat currencies backed by the faith in their respective governments and economies. More importantly, a fiat currency's fundamentals depend on whether a country has checks and balances, the rule of law, and a market-driven exchange rate. The CCP provides none of those. Therefore, in reality, the Chinese yuan has very low credibility. And although China is the second largest economy, the yuan’s usage falls behind the EURO, the Japanese Yen, and the British Pound. The trust in the CCP has been deteriorating even among belt and road countries. Some of them have canceled, downsized, or postponed the projects to avoid potential debt traps. It is hard to say whether they will gladly adopt a digital yuan issued under the CCP’s control. But that doesn’t mean we can ignore challenges faced by the US dollar. We believe in the long run, the dollar's dominance will have to be secured by the US economy's strength, not the other way around. Therefore, instead of merely catching the digital currency trends, the US government and the Federal Reserve should focus on introducing responsible fiscal and monetary policies that protect the market’s confidence in the dollar. How much international acceptance do you think the digital yuan will receive? Leave your comments below. Thank you for watching Unseen Fortunes. If you enjoyed our content, please click like, subscribe, and share. We’ll see you next time!