Monetary Blowback: How U.S. Wars, Sanctions, and Hegemony Are Threatening the Dollar’s Reserve Currency Dominance

This week, strategists at JPMorgan, the biggest U.S. bank, warned there are signs of “de-dollarization” around the world. Dedollarization is the push by countries, including Brazil, Russia, India, China, South Africa, and others, to move away from the U.S. dollar as the world’s primary reserve currency. This move poses a big challenge to U.S. economic hegemony. This week on Intercepted, Canadian businessperson and mining financier Frank Giustra joins Jeremy Scahill and Murtaza Hussain to discuss the prospective move toward nations’ dedollarization. Giustra breaks down the history of how the U.S. dollar became the world’s primary reserve currency. Scahill, Hussain, and Giustra then discuss the different nations and the political and economic motivations to dedollarize and how the U.S. government may respond in order to maintain its economic hegemony.

[Intercepted intro theme music.]

Jeremy Scahill: This is Intercepted.

Welcome to Intercepted. I’m Jeremy Scahill.

Murtaza Hussain: And I’m Murtaza Hussain.

JS: You know, Maz, every time you and I gather for this program, there are definitely developments that have happened in the world, and there are most certainly developments happening in the war in Ukraine, with the U.S. posturing toward China. There’s a lot of diplomatic activity underway in the Middle East, and coming into sharper focus is the relationship that the United States is forging with an increasingly aggressive, assertive China against the backdrop of Russia’s invasion of Ukraine.

There’s a lot of talk now of whether we’re seeing this much-discussed Ukrainian counteroffensive. Lots of questions about how Russia is going to respond to an intensification of military operations by Ukraine.

But hovering over all of this is a theme that has run through several of our episodes over the past few months, and that is that China and a growing coalition of other nations really seem to be making a run for full dismantling of the unipolar power structure that the United States has presided over for many, many decades.

MH: You know, it’s so interesting. I think that all of us or most of us who grew up in a post-World War II world with no prior precedent towards that, what the world’s like, we take for granted a lot of things about what a unipolar or a U.S.-dominated system looks like. And very, very interesting to me for many years has been the currency aspect of it.

Jeremy, you’ve covered – and I’ve covered as well, too – over the years the impact of certain U.S. financial tactics and strategies to pressure, or control, or punish foreign countries. It’s sort of a de facto aspect of the system that, after 1945 when the U.S. created these big institutions, or began creating these big multilateral institutions and put itself at the center, it gave itself a privileged place in the global financial system.

If you want to trade, you need to rely on the U.S. dollar today. If you want to even do the technical aspects of trade, they’re U.S.-built systems which are at the center of that. So, dismantling that or building alternatives to that has always been a very, very difficult and daunting challenge for any country at odds with the U.S.

Even if they didn’t like that system, it’s a bit difficult to get the buy-in, and to replace the legal and institutional structures that the U.S. has built. But now, because of the war with Russia, and several other events in the last decade and a half, I’d say, which have bred increasing dissatisfaction with many countries, with this U.S.-led system, we’re now seeing some momentum towards replacing those structures.

We see the BRICS countries – which we’re going to talk about later – came together, talking about having their own currency. Many, many other countries are doing bilateral trade outside the U.S. dollar or discussing the prospect of that. And we’re seeing the breakdown of something which is even more important than all of these military bases – the 800 military bases the U.S. has around the world – which is the supremacy of the U.S. dollar in global transactions and trade. And that’s something which I think is really interesting that a lot of people in the general public don’t appreciate when they consider the extended breadth of U.S. power.

JS: You know, it’s also interesting, Maz, as I’ve thought about these issues and watched, particularly, China’s moves in recent years. And on this issue of currency and de-dollarization, or confronting the dominance of the dollar as a reserve currency, on a historical level, it kind of has led me to ponder the history of the Non-Aligned Movement.

You know, coming out of World War II, you had very clear lines drawn between the Soviet Union and its sphere of influence, and the United States and its sphere of influence. And both of those nations – but particularly the United States – started to think of conquest in a modern context, and what does it mean to be a dominant superpower.

And you had these nations, and there were key figures. Some of them, like Josip Broz Tito coming out of Yugoslavia who had waged an anti-fascist armed struggle against the Nazis, but also the leaders of many large Asian, and African, Latin American nations coming together, and essentially saying, we’re not going to fall under the domination of the Soviet Union. We don’t want to be behind the iron curtain, literally, but we want to have good relations with the Soviet Union. We want to have economic cooperation with the Soviet Union, we want to have a mutually beneficial relationship with the Soviet Union. And, at the same time, we want to be able to do business and conduct diplomacy and politics with the United States and its allies around the world.

And so, you had this multi-decade experiment of many, many nations of Africa and Asia. In fact, Malcolm X himself in the United States spoke very positively about the Bandung Conference in Indonesia in the 1950s, when leaders of African and Asian nations – the so-called Global South – came together, and tried to determine what is a just way for them to exist in this world that’s going to be dominated by the United States and the Soviet Union.

And I think what’s different now is that you don’t have, necessarily, a kind of revolutionary political mentality among the heads of many nation states in the world, but you have some of those same instincts, even though China, as a massive global power, is sort of at the forefront of it. You do have remnants of that historical strand of non-aligned thinking, and trying to find ways to circumvent the agenda of dominance in this case, specifically by the United States.

MH: I think it’s very true, and I think that what is interesting about this sort of return by many countries, especially in Asia, and Africa, and Latin America, to a sort of independent foreign policy, not aligned with any particular bloc, is that it’s very pragmatic in this case, as you said. Like, in the sixties and fifties, there was the idea of the revolutionary left, and it was mission-driven.

Now, what we’re seeing now is countries saying, look, we don’t believe in this free world nonsense. The propaganda behind [it], you’ve kind of proven that it’s very vacuous, within the invasion of Iraq, and many, many other atrocities committed under the name of, quote-unquote, “the democratic world,” so we don’t really buy that anymore. So, we’re not going be morally blackmailed in supporting X, Y, and Z cause.

But we are going to calculate interest. We’re not going to be at odds with the United States; it’s not really a good path for any small country to pick in the world today. Also, we’re not going to be at odds with China. We’re not going to join a coalition ideologically against China. We’re going to calculate our own interest, what’s best for us in whatever circumstance.

And I think something that’s really interesting and we often take for granted is that, at the end of World War II when the U.S. rose to its position of preeminence, the world was really a different place. Europe was completely laid to waste. Asia, Africa, Latin America were very, very poor, poorer probably than any time they’d been, relatively, in history, especially in the case of Asia.

But now, that world – which is a very abnormal, historically, in terms of the power balance – is returning to something more like a historical norm. We’re seeing. India, China, other countries in blocs and different parts of the world, the ASEAN countries…

JS: Brazil.

MH: Brazil, Brazil returning to a position of greater economic parity. So, when you have a situation with the U.S. not absolutely totally dominant of everyone else, of course they’re going to want to have some level of independence, for their own economic interest, and also as a matter of self-respect, in terms of what geopolitical stances they’re going to want to take.

So, in that situation, the U.S. cannot simply impose its will and demand that everyone follows it into a coalition against Russia over the Ukraine war, or even demand forever that it uses its own financial institutions and its own currency as the only currency for trade. I think it to be very, very difficult to maintain.

And the unipolar moment, you’d have to be really, really talented, and have a lot of foresight, to keep that going for a very long time. And I find our leaders are not that talented, to be honest. They were fortunate, and now that moment’s coming to an end, because history, you could say, is returning.

JS: Yeah. And, really, last year, when the United States responded to Russia’s invasion of Ukraine by implementing just sanctions after sanctions after sanctions, targeting Russia, targeting individual Russians. Then there were the cultural sanctions, of trying to make Russian athletes, and performers, and others, persona non grata. There was an unprecedented level of pushback or just non-cooperation from many, many nation states around the world. And the fact is that the majority of the world’s population live in nations that are certainly not cheerleading the U.S./NATO posture on Russia and on Ukraine.

And when you then look at this in the context of what you’re talking about, about the dollar being the dominant reserve currency – maybe “insurrection” is too sharp of a term – but that sort of non-cooperation or unwillingness to jump on the bandwagon is going to have real world consequences, and the U.S. is going to have to face them.

And it’s part of the reason why we asked our guest today to join us, to shed light on a variety of these, and including the history of the dollar as the dominant reserve currency in the world.

We’re joined now by Frank Giustra, who is the CEO of the Fiore Group, a private firm managing private equity investments; this is an unusual guest for Intercepted. He’s also the former founder of Lionsgate Entertainment. And Frank recently wrote a piece for the Quincy Institute for Responsible Statecraft in which he argued that the days of the U.S. dollar’s global dominance are waning.

And he joins us now. Frank Giustra, it’s really great to have you with us. Thanks for being here on Intercepted.

Frank Giustra: A pleasure to be here.

JS: So, Frank, we just wanted to begin with everything, but to give a brief history of the issues that we’re going to be talking about today and the context of it, maybe you could start with what happened after World War II? What was the Bretton Woods Agreement? Or, if you think it’s better to start even further back than that, the floor is yours.

FG: Thanks, Jeremy. You know, I think it is useful to just talk through the brief history of how we got here, because it is important for people to understand the nature of how reserve currencies are created and what happens to them along the way.

So, with respect to the United States, you have to go back to the end of World War II. Obviously, the U.S. was the greatest power on earth at the end of World War II. The British empire had obviously spent all of its treasury on fighting wars. And so, at that point in time, the U.S. had half of the world’s GDP, and most of the world’s gold.

And, as a result, they organized – the Americans – the Bretton Woods Agreement. And the Bretton Woods Agreement was between the U.S. and 44 countries, and it basically stated that the U.S. dollar would be as good as gold. All other currencies will be pegged to the U.S. dollar, and the U.S. dollar would be pegged to gold, and the U.S. had a full gold backing at that time. So, foreign countries could always exchange their dollars for gold if they chose to.

And that worked well for a couple of decades. And then, as we went into the 1960s, with the Vietnam War, and with Lyndon Johnson’s “Guns and Butter” policy, a lot of the European countries started to look at the U.S. dollar and, realizing that America was running deficits, started to exchange their U.S. dollar for gold, and this was happening at an accelerating pace.

And, in 1971, Richard Nixon — on a temporary basis, he said at the time, which ended up being permanent — decided to close the gold window, make the U.S. dollar a fiat currency, and that was the beginnings of many decades of where the whole world had gone back to fiat currencies, floating exchange rates, etc.

That would’ve been, probably, a disastrous move for the U.S., and obviously it did bring in a lot of inflation, and the U.S. dollar was greatly devalued vis-a-vis the gold price; gold went from $35 an ounce to $850 an ounce ten years later as a result of that move.

But in 1973 or 1974, the Americans came up with an ingenious plan: the petrodollar. And, what was the petrodollar? They did a deal with Saudi Arabia, the world’s largest oil producer at the time. Saudi Arabia would sell its oil only in U.S. dollars, no matter where it was sold, only in U.S. dollars. And, in return, they would take those U.S. dollars and invest in U.S. treasuries, therefore financing America’s economy, and the U.S. provided a security guarantee for Saudi Arabia.

That was the arrangement. And, given that oil is the largest commodity traded in the world, the fact that oil is only priced in U.S. dollars has created an underpinning to the U.S. dollar. A lot of demand for U.S. dollars as a result of that.

Scroll forward. Around the 1990s, two things started to happen that were the precursor of what we are now seeing today. One was China’s rise, economic rise, as it got accepted into the W.T.O., and a lot of investment came in, and China started to grow its economic power very aggressively. And the second part that most people aren’t aware of is that America’s profligacy started to get worse. And America spent more than it earned, it ran huge deficits. It went from being the world’s largest creditor nation to the largest debtor nation. It went from a manufacturing economy to a consumption economy, and that led up to 2008. And as a function of all of that deficit spending, terrible monetary policy by the Fed, in my opinion – I think the Fed really was a prime culprit of creating the mess we’re in today – you had the 2008 crisis.

So, after 2008, China started to voice its opinion about a change that was required. But, for the most part, that was ignored. The world wasn’t ready for it, the Chinese yuan certainly did not have the strength in global trading, as in the central bank reserves, to be able to make that transition. So, for the most part, people treated that desire by China with indifference. You know, they just thought, this is never, never going to happen.

The Ukraine war breaks out, and everything changed overnight. Everything changed. In my opinion, the U.S. miscalculated the reaction to the sanctions that were placed on Russia, freezing its U.S. dollar reserves and, more importantly, cutting it out of the SWIFT Settlement System, which is the global settlement system that relies on U.S. dollars as its mechanism.

And what was surprising to the U.S., I think, was that a lot of the world – the BRICS nations, the middle powers, and even the Global South – decided to sit on the fence with respect to condemning Russia. And they made that decision for a number of reasons. One is of self-interest, because a lot of the food, fertilizer supply, oil supply, weapons sales, come from Russia, and a lot of countries rely on those things from Russia. And, quite rightly, from their perspective, wanted to maintain those trading relationships with Russia, did not want to condemn Russia or participate in any of the sanctions.

Also, in addition, with respect to Africa, you have the Wagner Group out there in I don’t know how many – I think it’s like, almost a dozen or so countries, 20 countries, I think, operating in 20 countries in Africa, fighting insurgents, propping up dictatorships, whatever you want to call it. But there’s a relationship there between Russians and a lot of African countries.

MH: Frank, you’re about to go on a very interesting point, which I want to ask you a question about. Before you go there, because I wanted to [ask] you some more questions about that later on, but very quickly, I wanted to ask you something, just to frame for our listeners this history you talked about.

I think so many people take for granted this post-World War II, Bretton Woods order, where the U.S. has the petrodollar and the dollar is the world’s reserve currency for trade. And so, a lot of Americans, as you know, they’re kind of aloof about global politics or, you know, a monetary system is something which they don’t really understand the implications of the U.S. centrality of it.

Can you tell us very briefly, what benefits do Americans accrue from having their currency as the world reserve currency? If that situation were to degrade or to disappear entirely, what would the implications be for Americans in the American economy?

FG: So, the privilege of having, with what I think Charles De Gaulle called, “the ability to create deficit without tears,” or the exorbitant privilege that America had by having the reserve currency. That privilege allows America to maintain a standard of living it wouldn’t otherwise have.

You know, as I said earlier, America turned into a consumption economy. Seventy percent of America’s GDP is consumption, not production. And so, it’s a consuming nation that imports the value of the U.S. dollar, allows it the higher value, the reserve status, which gives the dollar a value it wouldn’t otherwise have, because of the deficits it’s running and all – and the trade deficits, the fiscal deficits is running – it wouldn’t be at those levels. And, therefore, its purchasing power would be greatly decreased, and that would mean that the standard of living of Americans would drop dramatically. Inflation would be a lot higher because, obviously, with a weaker currency, your imports are going to cost more, so that imports inflation into the economy.

And, most importantly, given the state of fiscal affairs, with a $31, soon-to-be $32 trillion debt pile, servicing the debt, the sovereign debt, would be really expensive, because interest rates would have to go up a lot further to attract foreign capital. And so, you’d have higher interest rates to attract that capital, because it would no longer be a reserve currency that everybody needs, so there’d be a lot less demand for it.

For all those three reasons, I don’t think America is prepared for a sudden change in the global monetary system. It would be extremely painful. And, again, in my opinion, I think it would be a matter of national security.

JS: For people that are not following this at the level or minutiae that you’re following it at, Frank: walk us through what BRICS is, l and what this represents in the scope of modern monetary history.

FG: The BRICS isn’t really, up until now, hasn’t been, really, a formal system. It was a label given to China, Brazil, Russia, India, and South Africa; I think, did I name them all? There are five countries who are sort of the rising economic powers. Outside of Europe, Japan, and the U.S., those are the rising powers.

Now, what’s happened more recently is that they’re trying to come together as a trading bloc, and now there’s conversation that – and they represent about 25 percent, just the BRICS alone, never mind BRICS+, because in a moment I’ll tell you how that group is expanding – but just the BRICS represented about 25 percet of global GDP. So, it’s a powerful group.

And very recently — actually after the Ukraine war started, and the sanctions were put in place against Russia — the BRICS became much more vocal about the creation of a currency for settlement purposes only between that trading bloc. And that’s the first thing that happened.

The second that happened is, a lot of countries now are wanting to join the BRICS group, and there’s a total of 19 countries now, including Saudi Arabia, Egypt, Turkey, Argentina, Yemen, Algeria. There are a whole host of countries that want to join this new BRICS group as a trading bloc, and there’s going to be a meeting in August in South Africa where they’re going to be gathering to talk about the creation of a new currency to allow those countries to choose between trading within the U.S. dollar system or outside the U.S. dollar system.

A year or so [ago], before Russia invaded Ukraine, there was hardly any conversation about this. Now, every day, you pick up a newspaper, and there’s some aspect of this conversation taking place between countries. And that’s just one method by which the world has found mechanisms to trade outside the U.S. dollar system. That’s just a conversation at this stage.

But what’s actually happening is more important and, I think, more relevant to our conversation, and that is that a lot of countries that wanted to continue to trade with Russia have found different ways to not trade through the U.S. dollar system. The most common one being talked about right now, and being done, is bilateral trading between countries using just their local currencies.

Now, I don’t know if you noticed that just a short while ago, Brazil announced that it would only settle trades with China and yuan. It will no longer settle any trading with the U.S. dollar. And a lot of the Southeast Asian countries are talking about creating a mechanism by which to trade just in local currencies between themselves.

You’ve got Latin America, you’ve got Brazil and Argentina starting a conversation about creating a South American currency, much like the Euro, for the South America trading bloc. You’ve got Ghana now saying that they are willing to buy oil for gold. They don’t have oil, but they have lots of gold. So, they’re willing to pay [and] use gold as a currency – which it always was throughout history, gold is a tier one currency, according to the Bank of International Settlements. So, it’s a currency. So, Ghana’s saying, “OK, we’ll buy oil for gold.”

You’ve got China, Thailand, and the U.A.E. testing the Enbridge Project, which is using a digital currency settlement system between the three countries, just for cross-border settlements. And that’s going to be the really interesting one as we progress because, as you may or may not know, there is a lot of conversation taking place around the world about creating central bank digital currencies. One-hundred-fourteen countries right now – including the U.S., by the way, and China’s at the lead – but they’re testing these digital currencies, and my guess is that – and it’s not just my guess, because Russia came out and actually said it – what they’re trying to do is create these digital currencies that are issued by central banks and controlled by central banks, and there’s a conversation about those being backed by tangible assets: commodities or gold.

And this is going to take us to the part of the conversation which I’ve been talking about for a number of years, and now it’s being talked about openly. And that is about any new currency that’s created – whether it’s the BRICS currency, or whether it’s a “petroyuan,” or whether it’s a Latin American trading bloc currency – in my opinion, will have to be backed by something tangible when it’s launched. And that is no different than any other currency in history, including the U.S. dollar, that always had a gold backing at the beginning. Eventually they lose their discipline, decades later, and they all fall off the gold standard, and that’s why all paper currencies eventually go to zero. All of them.

And so, now there’s a conversation about – and there’s two conversations. One [is] about using commodities. I’m not certain how that will work. There’s a fellow named Zoltan Pozsar at Credit Suisse, and he wrote a report called War and Commodity Encumbrance. And, if your listeners want to really dig a lot deeper into this subject, I recommend that they read that report, because it spells out in great detail how this would work.

Now, Mr. Pozsar is thinking it’s going to most likely be a commodity-backed currency. I can’t see it. I find that mechanism too cumbersome. You know, China doesn’t produce oil, for instance. Saudi Arabia and Russia produce a lot of oil. I’m not sure how that’s going to work vis-a-vis those countries. India and China on one side of the ledger, Russia and Saudi Arabia and the Gulf countries on the other side of the ledger. But gold is universally held by all central banks around the world and, what most people don’t know, is that, since 2010, central banks around the world outside of the West have been accumulating gold at an accelerating pace for 13 years now. Last year, 2022, was the largest buying on record of gold by central banks. This last quarter, they’re still buying, still buying. Why are they buying?

They’re de-dollarizing. They’re seeing the writing on the wall that the global financial and economic and trading system is not what it was; it’s falling apart. We’re now going to a multipolar world, instead of a what we had for at least a decade — almost two decades — a unipolar world. And so, they’re all preparing by de-dollarizing.

And what are they buying with the dollars they sell? They’re buying gold. And why are they buying gold? Well, I can’t say for certain, but I believe and many others believe that they’re preparing for participating in – whether it’s just a yuan on its own, or whether it’s the ruble. You know, Putin talked about a golden ruble, which is, you know, a stable coin back by gold. Or whether the BRICS countries create an SDR-type currency backed by gold. But I believe that gold will play a role, and that’s why you’re getting this large accumulation of gold taking place around the world.

Now, the U.S. has 8,000 tons of gold, which is the single largest holder of gold; we assume they still have 8,000 tons. Europe collectively has more gold than the U.S., but China and the rest of the world is quickly catching up. And I think, at some point, when they’re ready – you know, this could take a number of years, it’s not going to probably happen overnight – but if they launch a formal currency, or China does it on its own, because it’s already promised that in the next three to five years you’ll be able to sell your oil to China for yuans, and exchange those yuans on the Shanghai Exchange for gold. And that is a really big move, if it happens, and they’re saying it’s going to happen. There are actually already rumors that Saudi Arabia is accepting yuan for payment, and then quickly just exchanging it for gold; I’m not sure if that rumor is true, but it’s being talked about.

So, what does this all do? All of these mechanisms reduce dollar demand. And, especially if there’s a move out of the petrodollar to other settlement currencies, including yuan or other ways to buy oil, that’s going to really take away demand from U.S. dollars. And it’s coming at a time when America could least afford it, because it’s printed trillions and trillions of dollars of money. It’s accumulated a huge amount of debt: $32 trillion, as soon as the debt ceiling goes into play, it’s already going to jump from 30/31.4 to 32 trillion very quickly. And, more importantly, the U.S. is adding 1 to 2 trillion a year in deficits to that debt pile for as far as the eye can see.

It’s estimated, the CBO said that under the current economic plan, in a decade’s time, by 2033, the U.S. debt pile will be $51 trillion. And you have to ask yourself, how do you finance that unless you have the reserve currency? Because, as I said earlier, if they lose reserve status and dollar demand starts to go away, interest rates are going to go up, inflation’s going to go up. It’ll be the worst possible outcome for Americans.

MH: So, Frank, I wanted to ask you a bit more about the debt aspect but, before we get there, very quickly: you kind of described the system which currently exists, whereby the entire world today is compelled to use not just U.S. dollars for trade, but also U.S.-run or U.S. heavily influenced systems like SWIFT, just to do simple trade with each other. But what you seem to be describing is a world which is much more broken up into different categories, or different regional blocs.

Countries doing trade bilaterally in their own currencies, maybe inventing new currencies like the BRICS currency, which – I believe the BRICS countries have a meeting to discuss later this summer. Me and Jeremy have both written in the past about some of the political implications – not just financial implications, but political implications – of the US-led financial system, including the weaponization of the dollar as a tool of U.S. foreign policy, vis-a-vis countries they [are] at odds with. For instance, Venezuela is under sanctions, Iran’s under sanctions.

And you mentioned, Frank, that Russia is now under sanctions, which really may have been the straw that broke the camel’s back in terms of the rest of the world accepting a neutral financial system. Can you talk about how it might change U.S. power projection if they lose this very important lever that they’ve had to influence the behavior of other countries, short of military force?

FG: Yeah. Here’s a question I would ask you: what do you think is the most powerful tool that America has? Its military or the U.S. dollar? See, I would argue that it’s the U.S. dollar, because without the supreme reserve status of the U.S. dollar, they wouldn’t be able to afford the military complex that they now control with, what is it, 800 bases around the world?

And the geopolitical implications of losing reserve status are really, really important. Because, as I said earlier — and it actually depends how it happens. It could happen over a long period of time, decades, if it’s just slowly chipping away at the demand. Or it could happen more suddenly with a move by China, or a move by the BRICS, to create something distinct and available sooner.

And, as I said, If the U.S. starts to lose its economic strength because it loses the U.S. dollar reserve status, and the chaos that would cause at home with respect to inflation and interest rate costs, I think would have a profound impact on America’s ability to engage with the world. A, to compete with China, B, to provide security guarantees to all of the countries where it’s based. And I think it’s going to be in a very, very difficult position.

Obviously, China sees this. Russia sees this, China sees this. Even the Gulf countries, Saudi Arabia and the Gulf countries see this. And that’s why everybody’s starting to realign their relationships. As an example, we’ve seen very recently China and Saudi Arabia cozying up with their comprehensive energy cooperation agreement.

So, China is establishing relationships with Saudi Arabia and the Gulf countries, whereby it’s buying their oil and trying to force these countries to pay in yuan. Now, it can easily force Iran to pay in yuan, because Iran has very few choices of where to sell its oil because of the sanctions. And did you know, by the way, that 40 percent of the world’s oil reserves are under sanctions? Venezuela, Iran, and Russia? Forty percent are under sanctions. Twenty-nine percent of the world’s GDP is under sanctions.

JS: Surely, U.S. policymakers are well aware of the statistics that you’re citing; I mean, one would hope that they would be aware of it. And it seems like it either needs to be extreme imperial hubris to believe that there isn’t going to be blowback from this, or those policymakers in Washington believe that they’re taking calculated risks in the service of what they think will be a more successful implementation of policy. But you were pointing out some of the economic moves that China is making with regards to Iran and vice versa – or, rather, to Saudi Arabia and vice versa – but, also, China is asserting itself in an unprecedented public way as a diplomatic player in the world.

I mean, China was the crucial definitive player in giving the world the best shot it has had to date to end the genocidal war in Yemen. China is positioning itself to potentially be the broker of the end of the Ukraine war. China is presenting itself as an alternative global leader to the United States, and doing so without firing any shots.

And so, I’m curious what you think the game is here from Washington’s perspective. Because what you’re laying out, it seems like you’re watching a slow-motion train crash, if you’re a defender of the American Empire.

FG: Yeah, that’s a very good point. You know, I found it incredulous. Janet Yellen, Secretary of the Treasury, was being interviewed, and she actually said that she acknowledged that the sanctions that the U.S. is deploying around the world could ultimately make it such that they lose their reserve currency status, but that they apply them very carefully and judiciously. And, you know, certainly with respect to Ukraine and Russia, it was very well worth it.

I found that statement incredulous, and I think that maybe she was told to say those things, who knows? But the fact is, when reality does set in at some point, it will be a matter of national security, because of the profound impact it will have.

Now, with respect to China, yes, you’re absolutely right. So, China has taken this opportunity, and they moved very quickly to cozy up with Saudi Arabia, with Russia, the special relationship with Russia, the comprehensive energy agreement. The strategic agreement with Iran to buy oil over 25 years, and then turn around and invest in Iran to the tune of $400 billion. And courting, obviously, Latin America, Brazil, and others. It’s moved very quickly to find its dance partners, believing that it has this opportunity now.

And the establishment of diplomatic relationships between Iran and Saudi Arabia, which was broken by China, no one saw that coming. I don’t think the U.S. even saw that coming. That was a huge move, and you have to look at that also from the perspective of Saudi Arabia looking at the U.S. having made claims over the last number of years that it was going to slowly exit that region to focus on China, on containing China. So, Saudi Arabia for decades has been protected by the U.S., and always knew that, if anything happened with respect to Iran, the U.S. would come to its defense. It was no longer able to rely on that, and that’s why they turned to the diplomatic route instead of these proxy wars they’ve been having with Saudi Arabia, especially in Yemen.

But China’s going to play it a little bit more carefully, and China’s not going to use the same approach that America used. America used the approach of, “We will trade you oil for arms.” China’s saying, no, we don’t need – I think they have one military base outside of China, and that’s in somewhere in Africa, [while] the U.S. has 800 military bases – China’s approach is “No, we’re not going to sell you oil, buy your oil for arms; we’re going to buy your oil for development.” And that’s why they’re doing these bilateral deals with countries, and they’re offering it to the GCC and Saudi Arabia, and to Iran, and to other countries. We’ll come in and compete by investing in your country, investing in your infrastructure and your technology and whatever is needed.

And that’s also another way that they’re going to be able to recycle the yuans, much like America recycled U.S. dollars by buying their oil for U.S. dollars, the dollars come back into treasury bills. In this scenario, countries would buy their oil, sell their oil in yuan and, in return, those yuans will be recycled by investing in those countries for development. And that is the nature of the Chinese approach – and I personally feel it’s very smart on their part, it’s what the world wants. The Middle East wants to be treated with respect, African countries want to be treated with respect, and China is going to take that approach: “We’ll work together. It’ll be strategically important and beneficial to both.”

[Intercepted mid-show theme music.]

MH: So, Frank, it’s very interesting, you’re describing this effort by China to remake the world order to be more accommodating to its own interest, and shifted it away from a very U.S.-centric order we’ve been used to since Bretton Woods.

One thing I’m very curious about is, you described the potential shift from the U.S. dollar as a national security issue. And I think some of the reasons you mentioned were hyperinflation, which could take place, a very rapid diminution of the U.S. ability to project power abroad.

If we have a situation where the world is moving – not from one currency, as we currently have, for a reserve currency – but many, many different currencies being used in various different ways, by BRICS, and China, and other bilateral relationships in different regions, how could the U.S. respond to a national security threat like that? Because it’s a much more amorphous threat than, oh, we have a problem with Country X, or a terrorist group, or something like that.

Could the U.S. use military force to stop this process you’re describing of a fragmentation of a global monetary order? Because I do agree that the implications would be very, very stark, especially if it happens very abruptly, but how can the U.S. respond effectively, given the nature of this particular challenge to its supremacy?

FG: Well, first of all, going back, I didn’t say hyperinflation [could] cause high inflation. It could end up being hyperinflation. When a country’s citizens lose faith in their own currency, if that happens in America, you have a U.S. dollar crisis internally, then you’ll have hyperinflation. I just said high inflation but, you know, it could, it could be one of both.

But, with respect to what the U.S. can do, should do. Well, I can tell you what they should do, but I doubt they will, and that is, seeing the writing on the wall, this change is going to take place whether America likes it or not. And it may happen very suddenly, or it may happen over a period of time, but it’s happening. The world is de-dollarizing for reasons that they all have, and it’s all in self-interest.

All these countries have a valid reason why they want to trade outside the U.S. dollar system. They’re importing inflation, because U.S. commodities are priced in U.S. dollars. They’re servicing their sovereign debt, which is mostly priced in U.S. dollars, in expensive U.S. dollars, and it’s very difficult when you’re generating income in local currencies and having to service your debt in U.S. dollars. So, I think that’s going to happen, there’s no doubt.

So, what should the U.S. do? It should engage in conversations to restructure the current system. The current system is out of whack, it’s unfair, there’s too much debt in the world. We need a restructuring of the system. It will still be painful, but not as painful as what might be if they don’t do it. And they should, perhaps, engage in a conversation where currencies are once again backed by something tangible, and they should do that in a collective conversation with the BRICS, the Global South, etc.

Do I think they’re going to do that? No. I think, it never ceases to amaze me that systems and countries and empires have to fail before they do anything dramatic, so you’re going to have to see some sort of a crisis before they even consider that.  So, that’s what they should do, is to participate in the restructuring of the global monetary system.

What will probably happen is that they won’t, and, as a result, these things will continue to take away demand from U.S. dollars, and they’re going to have to react. And my guess is they’ll react with carrots and sticks. The carrots are obviously the incentives that they’ll provide through the global system, the IMF and World Bank, which America and its allies control all of these decisions, so it’s a form of bribery, using money to buy off loyalty.

Sticks? Well, they can, as they threatened – I think they threatened Turkey or the U.A.E. recently about cutting them from G7 markets if they continue to work around the Russian sanctions. So, they can make all sorts of trade threats and sanctions threats, and pick on the weaker countries to get desired result. But, again, that’s just going to slow a process that’s eventually going to happen anyway.

So, I guess the worst outcome is a hot war. And it wouldn’t be the first time in history that, when a global economic power is being surpassed by another global power, they get a hot war. It happens a lot, this happens throughout the centuries. There’s no reason why it wouldn’t happen today.

Now, that would be an absolutely worst outcome, and we all should pray that that never happens, because who are going to be the combatants? China and the U.S. Those are the two global powers vying for supremacy. And they’re already – China’s building up its military, its technology’s almost equivalent to that of the U.S. You know, it’s pouring billions into artificial intelligence, into quantum communications, and military, hypersonic missiles, navy. So, it’s building up its military strength. And, eventually, if there’s no peaceful resolution to this problem, it might end up in a hot war. Now, we should all pray that doesn’t happen.

JS: You know, if you go back and you look at the history of the United States — and we can even just zero in on more recent U.S. history since the creation of the CIA in the early 1950s – what we’ve seen is this pattern of the United States going after any nation state that seeks to create an alternative form of government, or a form of government that is perceived to be hostile to U.S. corporate interests, or U.S. geo-strategic interests.

So, you have the overthrow of governments, the assassination of foreign leaders, the use of death squads, the financing of sort of fictitious opposition groups that are then used to try to enact American policy with a thinly veiled, secretive cover over the operation. With regard to the Soviet Union and the so-called Cold War, the U.S. didn’t opt for an overt hot military confrontation with the Soviet Union, but nonetheless was fighting these small wars all over the world that ultimately contributed to the destruction of the Soviet Union.

Of course, there was a financial dimension to it, there was a military or sort of paramilitary dimension to it. And, in the current situation that you’re laying out in very vivid terms, it seems like the kind of – if we’re to use history as a basis to try to analyze or understand the current moment – you see the kind of war caucus, for lack of a better term, in the U.S. Congress, the Democrats and Republican elite banging the drums for a far more aggressive policy toward China at the very moment that China is engaging in the kind of activity that you’re describing on an economic, diplomatic, political level, globally.

But what I feel like you didn’t answer that I actually really am curious about your thoughts on is, given all of that, and given that the United States actually understands quite well how to achieve its objectives in certain spheres of politics or economics in the world, what is the game there, on Washington’s part? Because all-out war with China would be an epic catastrophe for the entire globe that could result in the elimination of human life as we know it.

And this is happening, again, these threats against China are happening against the backdrop, whether the United States wants to admit it or not, at a time when the United States is fighting a proxy war against Russia in Ukraine. I mean, it is true when Russia says that it is not only fighting Ukraine, it is fighting U.S. and NATO infrastructure.

So, surely Washington’s policymakers see some tunnel through which they emerge victorious here; whether they’re right or wrong, that’s a different question. But put yourself in their shoes, Frank. What on earth are they thinking, engaging in this conduct given everything that you’ve laid out?

FG: I often ask myself that same question. I don’t know what they’re thinking. I think there’s a general misconception that the powers in places like D.C. and other capitals actually know what they’re doing, and actually understand the consequences of each move. And you just have to look throughout history to see the miscalculations that – I mean, it’s not just America, it’s other countries, make the same mistakes. They miscalculate, and they don’t think three steps ahead or four steps ahead.

Now, I know that all the intelligence agencies have these research departments that game out all sorts of things, but I’m not sure that anybody listens to that kind of advice. I honestly believe that America miscalculated what would happen with the U.S. dollar sanctions with respect to Russia. I really think they miscalculated how the rest of the world would react. I don’t think they saw that coming.

And, again, I think that the U.S. stumbles along, it’s an empire trying to maintain its hegemony around the world. But it’s like every empire that tries to do too much; eventually it can’t do it, because the world’s a big place. Like I said, 85 percent of the world’s population decided to sit on the fence with respect to condemning Russia and joining in on sanctions.

So I don’t think that they think that far ahead. I think they stumble into problems and then try to solve the problem, you know? And you saw that in Iraq. The invasion of Iraq was a disaster, and what did it achieve? You know, the war in Afghanistan. I mean, how intelligent are these decisions? The bombing of Libya? These are all decisions that are made without a lot of thought about all the consequences of those moves.

So I think that, I don’t believe that policymakers, whether they’re financial — and especially the financial policymakers, I think they’re the most clueless of all. I watched the Central Bank, the Federal Reserve, over the last 20-something years, and I started predicting the outcome over 20 years ago, and I wrote about it. I said, this is what’s going to happen, this is the pattern you’re seeing, and they go down this path. So, either they’re really incompetent, or they’re complicit but, you know, you could see that the moves they were making were a mistake.

And, again, similarly with the invasion of Iraq, I mean, a lot of people around the world knew that was going to be a huge mistake but, somehow, they got it across the line, they convinced the American public that it was the thing to do. So I just don’t believe that there’s that much intelligence with policymakers to see the outcomes of their moves.

But going back to the other question you asked about, you know, how would this play out? Obviously, a direct conflict between China and the U.S. would be threatening for our species. But, as you say, they can, as they have in the past, they can fight proxy wars, as they did during the Cold War. Now, how that would work in today’s world, I’m not sure. It’s a very different world than we had back between 1945 and 1990.

But what is more likely an outcome is that you could have multiple trading and security blocs around the world. Basically, right now, you’ve got the West, you got the BRICS kind of figuring out whether they’re going to work together or not, then you’ve got the Global South. And the Global South is going to sit back now and try and maneuver in this really different environment. And I think that they’re going to have the most difficult time if the U.S. and China engage in using them as proxies for their war.

But I just think that we’re going to end up in a world where it’s going to be different trading blocs, and that might work. That might work until it doesn’t work, but that might work for a while. So, you’ve got the West – which is the U.S,, Europe, Australia, Japan, South Korea – and then you’ve got the BRICS countries trying to figure their thing out, and then the Global South can choose to trade within two different systems. It can trade in the U.S. dollar system, or it can trade in a BRICS- or China-led system with however it pans out. And that might keep the peace.

But, you know, at the end of the day, there’s one thing for certain: America’s going to hurt from this, and Americans are going to hurt from this, and it’s a function of how badly they hurt that will dictate the kind of reaction you’re going to see.

MH: Frank, I wanted to ask you something too about this potential vision of a world which is bifurcated into different blocs. Because, presently, a lot of countries around the world, which is why they’re dissatisfied with the U.S. dollar system, it feels like an albatross on their own development. And, as you mentioned earlier, the U.S. can export its own inflation, it can create the scramble for dollars among countries which are hard pressed to obtain them for their own development needs.

Do you think that a world which is cut into different blocs where countries have different options for which currency they want to use for trade, would that be conducive to a more just global order, or a more equitable one than we see at the moment? And would it remove some of the barriers to development these countries are currently aggravated about?

FG: Yeah, I think it would. If you found a system that would work, that would be an alternative – it wouldn’t replace – but an alternative to the U.S. dollar system, it would surely be more equitable to many of the poorer countries around the world. Because, as I said, they have two major problems right now: commodities are priced in U.S. dollars, and now we’ve had a spike in commodity price, the U.S. dollar is too strong for its worth, and they have to borrow money in U.S. dollars and service those debts in U.S. dollars. And as their home currency is weakened, that hurts a lot. And that’s why you had the U.N. recently screaming at the Fed to stop raising rates. You know, that was a first.

So, I think that if you had a system where you had bilateral trade using local currencies, or some other system that was backed by something tangible like gold or commodities, they would be more equitable for countries around the world, and fair, much fairer to the poorer countries.

MH: Yeah. The way that the dollar or the dollar system is currently set up, it’s very difficult. It’s an albatross or a drag on countries’ development needs, because they need U.S. dollars to develop. If they didn’t need that, would that remove that barrier?

FG: Yes, absolutely. So, you’ve got China now that’s also trying to compete with the IMF and the World Bank. Whereas the IMF loans money based on economic reform, China’s lending money to infrastructure. So, if you’re a country – some country in Africa or Latin America or wherever – and you’re weighing those options, you’re going “Am I going to borrow from where I’m forced to make great economic reform according to somebody else’s rules? Or do I accept money from a country or region that’s going to invest in my infrastructure?” And that’s how China is now beating, in many ways – it’s loaned money to a hundred different countries around the world.

It’s created swap lines similar to U.S. dollar swap lines in the West. It’s created swap lines where countries can tap into yuans when needed, on a currency swap basis. Their development bank based in Shanghai is now bringing in additional partners. I think there’s now nine or ten partners that want to join that development bank, including Saudi Arabia. And it will try and displace the West, the multilateral system that the West created after World War II. It will try and, not replace it, but provide another alternative.

So, for countries around the world, you know, that might look appealing on the surface of it. China operates a little bit differently than the IMF and those institutions operate. It’s less concerned about many, you know, human rights, and all sorts of other things that seem to bother the West. They don’t care. They’re just going to go, “This is a commercial transaction. This is business.” And so, a lot of countries might find that appealing.

So, I think that there will be a desire by much of the world to have an alternative financial system that they can operate in.

JS: Frank, we only have a couple of minutes left, but I want to ask you a question that might be a little bit unusual in the context of our show, and the kinds of things that we talk to guests about, but it’s something I find myself thinking about as I’m listening to you.

For ordinary people – primarily in the U.S. but also around the world – if they’re looking at the facts that you’re presenting, the analysis that you’re presenting, and they’re thinking, I don’t want to stake my entire future on the American dollar, the American economy, the stability of the American Empire. What can ordinary people do to sort of reorient themselves, recognizing all of these developments and the, kind of, rise of alternative systems around the world?

FG: I have found that Americans are very America-centric when it comes to their view of the world, when it comes to investing and currencies and whatever. It’s all about what’s happening in America, and very little attention outside of the major institutions, obviously, that invest around the world. But Americans, in general, look inwards, and I think that’s not going to be the future. I think, in the future, you have to look outwards.

And, in terms of protecting yourself, you’re just a normal investor trying to protect your wealth, I think you just have to diversify, because you don’t know what the outcome’s going to be. I’m making certain assumptions and predictions, but they’re all probabilities. I don’t know how it’s all going to play out in the end, I just know a change is going to take place, and that it’s going to have certain benefits and certain drawbacks, depending on which side of the ledger you’re on. But you don’t know exactly how it’s going to play out.

So, because you don’t know how it’s going to play out. You have to diversify, and that means diversifying geographically and in asset classes. And my preference is that I see a world where you have to own tangible things, as opposed to paper financial assets. I think the days of financial assets reigning supreme are coming to an end, because they’ve been overplayed, overvalued, too much has been printed, there’s too much debt.

So, financial assets might end up being very problematic. So, tangible things including real estate and gold, and things you can touch and feel, as opposed to things that are abstract derivatives, and other things that represent the financial assets of the world today. So, I think that that’s one way.

Geographically, I think you have to invest outside – not just in the U.S. but outside the U.S. – because you don’t know how this is going to play out. But, certainly, you have to be prepared for a day when the U.S. dollar doesn’t have the kind of power and value that it has today. You have to think of the ramifications of that, and then put your money in places accordingly. Because, you know, as I said earlier, there are certain things that are going to happen if the U.S. dollar loses supremacy, and you have to prepare for that.

You’re going to see inflation, so how do you protect yourself against inflation? You’re going to see higher interest rates; how do you protect yourself against higher interest rates? Your standard of living is certainly going to adjust if you’re a salaried worker. It’s going to be a very different world.

MH: Frank, thanks for joining us today.

FG: My pleasure, guys.

MH: That was Frank Giustra, a businessman and CEO of The Fiore Group, a private firm managing private equity investments. You can find his latest piece at responsiblestatecraft.org.

[Intercepted end-show theme music.]

JS: And that does it for this episode of Intercepted.

Intercepted is a production of The Intercept. José Olivares is the lead producer. Our supervising producer is Laura Flynn. Roger Hodge is editor-in-chief of The Intercept. Rick Kwan mixed our show, and this episode was transcribed by Leonardo Faierman. Our theme music, as always, was composed by DJ Spooky.

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Thank you so much for joining us. Until next time, I’m Jeremy Scahill.

MH: And I’m Murtaza Hussain.