Thailand Heads for the Door

The China-Russia Joint Communiqué and its discontents

I doubt whether there has ever been a larger and more ambitious set of orientations for the future, in just about every domain you can think of. Of course, not everything that is listed will be done: life’s like that. But this is the most ambitious shopping list I can ever remember two nations agreeing, and that is a political message in itself, irrespective of the content. This document has by any standards taken a massive amount of work. Aurelian.

In a long post, China and Russia Walk Into a Room Aurelian, above, analyzes yesterday’s release of the China-Russia Joint Communiqué and explains how the 90-page document got made. This note focuses on one implication of the communiqué, which endorses settling foreign trades in domestic currencies:

Both sides will promote the enhancement of cooperation among BRICS countries on the international stage, including strengthening cooperation in trade, digital economy, and public health fields among BRICS countries, and effectively promoting dialogue on the use of local currencies, payment instruments, and platforms for BRICS trade transactions. A Joint Statement on Deepening the China-Russia Comprehensive Strategic Partnership of Coordination for the New Era. 2024-05-16

As I wrote recently, Thailand and a dozen countries have been settling trades in their own currencies for 18 months on the mBridge platform, eliminating delays, fees, dollars and US spying. Bangkok buys oil in baht (importers check a box if they want cargo insurance) and our UAE counterparty is immediately paid in dirham, and that's it. No muss, no fuss.

I live down the road from Thailand's central bank's (luxurious) staff quarters, and they're so happy with mBridge that, yesterday, they applied to join BRICS, the global sponsor of domestic currency trading. BRICS members are switching to the new platform as Russia and China have done – but this time in months, not years. Why not? It’s cheaper, faster and safer, and China and Russia use it.

Which is all very well for Thailand and the BRICS, but consider its implications for the United States. As BRICS abandons dollar settlements, their central banks will sell reserved dollars they no longer need – just when Washington needs them to buy.

Silver lining?

In 2023, on top of its existing $90 trillion debt, the Treasury borrowed $3 trillion dollars and will borrow $4 trillion this year and more in 2025. But selling dollars when foreign central banks are offloading them almost guarantees stagflation, where inflation and unemployment remain high while economic growth slows.

Stagflation would weaken Washington’s borrowing¹ power and, a fortiori, its hold over European vassal states struggling to pay for expensive imported energy. Preparation for war with China or Russia would require Washington to double its current borrowing levels for at least five years, an ultimately futile effort, since both countries have defeated the US in battle and have vastly superior manufacturing power. And if there’s one thing the Communiqué makes clear, in detail, is that a war with either will be a war with both.

So there’s that.

Reading

Full communiqué: Geopolitical Economy.

Aurelian:

China And Russia Walk Into A Room.

1. Even with heroic assistance of its European allies, the US was incapable of sustaining its long-planned proxy war in Ukraine. Preparation for war with superior military powers (never a good idea) like Russia and China would require doubling current borrowings for ten years, which even optimistic economists consider unsustainable.