China And Brazil Decide They Don’t Need No Stinking Dollars

One of the most famous movie scenes of all time occurs in The Treasure of the Sierra Madre. Humphrey Bogart plays a gold prospector confronted by a gang of Mexican banditos. Bogart and his co-prospectors are well-armed and have taken up positions behind rocks and trees. The banditos move forward and demand Bogart’s rifle. The banditos pretend to be police officers just trying to inspect the situation. The head bandito says,

“We are the Federales. You know, the Mountain Police.”

To which, Bogart replies:

“If you’re the police, where are your badges?”

Then comes the famous line from the bandito leader in a loud and irate voice:

“Badges? We ain’t got no badges. We don’t need no badges. I don’t have to show you any stinking badges!”

Then the shooting begins.

That’s a pretty good summary of the attitude of major trading nations toward the U.S. dollar today.

After 79 years under the Bretton Woods arrangements, 52 years since Nixon closed the gold window, and 49 years since the petrodollar agreement with Saudi Arabia, the reign of King Dollar as the world’s leading payment currency is rapidly coming to an end.

Announcements of bilateral and multilateral agreements among countries to trade for goods and services in currencies other than the U.S. dollar are coming thick and fast. This article describes one key arrangement in which China and Brazil have agreed to accept each other’s currency for goods and services traded between them.

China is now Brazil’s largest trading partner. China buys enormous amounts of soybeans from Brazil along with aircraft, sugar, beef, and oil. Brazil buys manufactured goods from China as well as rare earths, semiconductors, and solar panels. Both countries offer extensive travel and leisure venues to citizens of the other.

This is one of many such bilateral trading arrangements springing up in which one party or the other will pay or accept currencies other than the U.S. dollar. Dubai has a deal with China whereby it accepts yuan for oil. Saudi Arabia is discussing a similar deal with China.

The BRICS+ (Brazil, Russia, India, China, South Africa, and about 20 other invited countries) are developing a new currency, possibly backed by a basket of commodities to be used on a multilateral basis for trade among participating members.

Russia and China are far down the road in terms of using their respective currencies for bilateral trade. Russia can buy Chinese manufactured goods and technology using rubles, and China can buy Russian oil and natural gas as well as wheat, weapons, and strategic metals using yuan.

It’s important to note that these developments in the use of new payment currencies for trade are not the same as changes in the world of reserve currencies, which perform a different role. Still, the world is saying to the U.S.: “Dollars? We ain’t got no dollars. We don’t need no dollars. I don’t have to show you any stinking dollars.” Indeed.

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