Downgrading the Greenback to Junk Status?


In early 2017, then-President Zuma recalled his Finance Minister from a “road trip” to London. He may have been prodded to do so by a Russian who attended Pravin Gordhan’s briefings? It seems that the Russians were expecting that South Africa would “go Nuclear” and that Russia would get the contract. The indications in London were otherwise – which caused some consternation.

What is behind the shabby way that the ex-President treated his Finance Minister? He was basically set up for the fall. Are there international linkages or agendas that are stronger than a nation’s Cabinet? This week we saw the President of Italy refuse to allow a government to be formed with a proposed Finance Minister who had espoused leaving the Euro. This goes to show that there can be international concerns that are stronger than Cabinets.

One such network is BRICS. The year 2017 heralded opportunities within this close circle of friends that had not existed previously. One wonders about South Africa’s linkages with India when a plane-load of wedding guest is flown in, landing at an airforce base without security clearance, and paid for (it turns out) by looting a dairy project in the Free State. Now that these Guptas are on the run, the state of India does not seem to be in any hurry to repatriate them to South Africa, where they obtained citizenship while curiously retaining their Indian citizenship. Usually, South Africa asks you to renounce your previous citizenship when you apply for a South African passport.

The Guptas’ attorney had used rather strong language to warn the former Public Protector against releasing her State of Capture report. He said that she would do so at her own peril. This lined up with the ex-President’s failed effort to interdict its release. What exactly were they trying to hide?

It is not the first time that South Africa has been caught between two allegiances.  At the outbreak of World War II, when England finally declared war, it put South Africa in a quandary.  Jan Smuts had to walk a tightrope, for South Africa’s whites had divided loyalties. For a while, it was not clear which side we would take. If Smuts had joined Hitler, the advantage that Britain had on the high seas might have been tipped, because of our strategic location between two oceans? That advantage on the high seas was mission-critical to Britain because Hitler had made huge gains on land.

Now we have allegiances within BRICS. Brazil seems a bit shaky and unpredictable after impeaching and imprisoning its President. Brazil is also in “the Americas” – so the least likely to challenge the USA.

Whereas Russia has shot down a passenger jet over the Ukraine, invaded Crimea, bombed the hell out of east Aleppo, and poisoned ex-Russian spies right inside England’s borders.

China’s economic growth rate may have slowed down after decades of phenomenal growth. But throughout that boom, China kept its reserves in US dollars. Only recently has the Yuan been admitted as a convertible currency. 

India’s economy is also growing and it has historical linkages to South Africa. The influence of the Guptas can be seen as an informal effort to secure South Africa joining any future confrontation on the Asian side. Not on the American side.

The next confrontation will not be a military war, certainly not if North Korea de-nuclearizes. Donald Trump’s aspirations there are far bigger than winning a Nobel Peace Prize.  It is to better position the USA for economic warfare.  Adding North Korea to its allies along with Japan, Taiwan and South Korea will help to do that. Why do you think that Russia’s Foreign Minister suddenly appeared in North Korea at the very moment that the Singapore Summit was suspended?

On January 1st, 2017, the BRICS alliance reached the 15% threshold at the IMF. That gave BRICS veto power – a status that only the USA had enjoyed until then. This was a game-changer. Trump’s focus on strengthening the USA’s economy and “making America great again” is strategic in terms of positioning his country for the coming confrontation. He quickly pulled out of the Pacific network, and he is shaking up trade balances as well – to protect American interests.  Essentially, he is bracing the USA for economic war.

Iran is the latest country to dump the Dollar as its convertible currency – last month. Both Iraq and Libya had tried this in the past – to their peril.  Syria switched from the Dollar to the Euro. American wrath rained down on them all, and sure enough, the USA pulled out of the Anti-nuclear pact with Iran just weeks after Iran switched to the Euro.

Last month Turkey took steps to start repatriating its gold reserves (11th largest in the world) in a step that can be read as its move away from using the Dollar as its convertible currency.  Whether it will go to the Euro or to the Yuan remains to be seen, but Turkey has always had one foot in the West and another in the East. It has close ties to Russia and thus to BRICS.

Pakistan already announced in early 2018 its move from the Dollar to the Yuan.  Last year, for the first time, trade deals between Russia and China have dropped the Dollar as the medium of exchange.

South Africa could still go either way in this new polarization.  Soon after becoming President, Ramaphosa raced off to London to the Commonwealth summit, and visited the Queen. But he sent his Deputy President Mabuza to meet with Putin. It is a mild insult for a President to meet a Deputy President – dos Santos in Angola refused to meet with Thabo Mbeki when Mandela sent him to Luanda. Dos Santos delegated the task of meeting Mbeki to a subordinate. He was insulted.

The Nuclear project is of course stinging Russia.  One of those “dangerous NGOs” (as David Mhlobo called them when he was Minister of State Security) scuttled the emerging deal, and then Ramaphosa took over. His Energy Minister has decided to put Renewables in priority position, without ultimately canceling Nuclear from the energy mix. First things first – South Africa has to declare its allegiance.

France may have better nuke technology than Russia, but France is a former colonial power and is in that other bloc, the EU, that is confronting Russia. Some say that the Cold War has returned, with Britain and France bombing Syria together with the USA. While Russia supports Syria.

One can only wonder why boatloads of Africans and Middle-easterners are risking a Mediterranean crossing, when they could just walk into Russia or China? 

The Zumites wanted that austere, frugal Finance Minister out of the way. He had stepped into the gap left by Nene’s departure after Zuma dismissed Nene for refusing to sign off on the Nuclear deal (presumably with Russia). Certainly the immediate concern is not opening another huge tender process that could go the way of the Arms Deal, at the very moment that Ramaphosa is trying to get graft and patronage under control. Better to do that first and look at Nuclear again later on.  It is significant that Ramaphosa called back Nene as Finance Minister. And Pravin Gordhan as Public Enterprises Minister. For the time being at least, it seems that he might also put our swinging BRICS allegiances on hold?

This could be because he is aware of an even bigger BRICS agenda. The new BRICS Development Bank was set up just in time for the new era at the IMF – to become a new finance hub.  Russia will relish using the IMF veto, but it is BRICS together – not Russia alone – that reached the 15% threshold at the IMF. They could vote down the Dollar and choose another convertible currency for BRICS bank trading. Maybe the Yuan? Or maybe one of the new cryptocurrencies?  Anything to devalue the Dollar – and with it, to diminish American hegemony.

This kind of “bank poker” will put South Africa back at the crossroads, like it was with Jan Smuts. This is why Zuma was hell-bent on Nuclear, even switching sycophant David Mahlobo to the Energy ministry in a last desperate attempt to please Russia. Maybe he dreamed of using the Yuan instead of the Dollar as the convertible currency?  That would have pleased China as well.

Zuma owed it to BRICS – because remember we get to host its new financial institution.  Moving away from the Dollar will hammer the US economy and some South Africans would relish that.  The likes of Trevor Manuel, Nene and Gordhan may not choose America automatically over Asia. But they will act in what they regard as a fiscally sound way, not an ideological way. And if the Dollar collapses too quickly, that could imperil the world monetary system. Like bankers, Finance Ministers tend to like stability.

There’s another key factor in this.Take note that the world’s richest men – who all know about this immanent economic war, it is no secret – are selling off a lot of stock and buying gold.  Yep, gold could go sky high as currency loses its value to inflation and maybe even hyper-inflation, driven by a switch of allegiance to other convertible currencies. Countries like Zimbabwe that use the Dollar as their standard will happily opt for any alternative that stiffs the USA. Some say gold will reach $10,000 an ounce, some even say $50,000. It depends how the economic warfare goes, and that depends who takes which side. Smuts chose to side with the Limies not the Krauts. The roots of gold in South Africa are with companies with names like Anglo-American. Go figure. The stakes are high, and BRICS is itching for an economic fight to level the global playing field. But are we ready to switch allegiances?

Seen in this light, the influence of Indian investors in South Africa may be seen as pro-BRICS and a strategic move if the gold forecasts are correct. The Dollar could soon be sinking fast, and economies anchored in gold could suddenly rise to unprecedented levels – finally able to afford imported oil and goods without credit. Will the day come when the USA will feel lucky to get a loan from the IMF? Can you imagine the land of Steve Jobs and Warren Buffet condemned to Junk status? One key question is whether our imports and exports will be traded in Dollars as they are now, or in some other medium?  It is clear that Finance Minister Nene would handle these challenges in a different way than the Guptas would. This illuminates what may have been going on in Zuma’s choices.

The best advice considering the prospect of economic war is to sell off stock and buy gold.  And don’t store it in banks because they are the armouries or battleships in an economic war – they could explode and sink, economically. 

Is the day coming when we can buy $14 with one Rand?


Chuck Stephens is the Executive Director for the Desmond Tutu Centre for Leadership and writes in his personal capacity