Par Meguerdiche Bouldoukian, ancien vice-gouverneur de la Banque du Liban.
Presentation for the ARARAT ACADEMY Conference in Paris.
I have come to the conclusion that bankers in general and central bankers in particular represent the only sector either mercantilist or political that can intervene in the pervasive problem so evident today of confronting the perilous realities that threaten to overwhelm us.
There is one threat that the established order seeks only to evade and which I believe bankers alone have the ability and the sinew to confront.
I refer to the accelerating formation of a new reserve currency and one which its promoters intend to replace the USD.
Politicians since the ostensible end of the Cold War have increasingly become short term in their actions and this in turn has been accelerated by the existence of various forms of electoral mix and matching known as proportional representations.
This since 1990 has favoured the election of populist extremists seeking to mine voguish and fashionable causes for their votes.
If we look at the manager of a trading bank we can draw a comparison with a manager seeking to be everyone’s friend and allocating the bank’s resources accordingly.
My point is that now is the time for central bankers to be sterner than ever and do so by keeping their eyes on the long term rather like an effective trading bank manager. How are these loans going to be repaid? Does the borrower have the ability to service the loan? What are the circumstances of the borrower?
My call is for greater insulation of central bankers from the increasing populism of the political system.
In order to have authority central bankers must demonstrate that they stand apart from the short termism of politics and its practitioners. Let us remind ourselves that the word credit comes from the Latin word credo – I believe.
The strength of the European governmental administrative system had much to do with the existence of the permanent civil service, itself an eroding concept as governments must twist and turn seeking to appease their voters and thus their parties on the political edges.
Even credibility has become devalued and in the last 20 years we have seen the development of an institutionalised transformation based on gullibility – the capability of believing what you want to believe. Otherwise known as hoping for the best.
After the debacle of the evacuation of Kabul, why were we so surprised by the Ukraine invasion? Why until the very last moment was the West at face value more preoccupied with diets to protect the atmosphere and things like electric cars and whether celebrities should use jet planes or simply sail to their desired destinations?
If you seek votes trivia is so much a more agreeable preoccupation than reality. Thus there was this surprise at the operational revival of the Sino Soviet military alliance.
Why is the West so willing to be surprised by the non- military product of this alliance which is a joint reserve currency challenging the USD?
Why are so many in the politico media sphere still seeing what they want to see and believing what they want to believe?
Exactly why has the application of party politics become a kind of morality play in which the exponents neither hear or speak or see evil.
How long is it before central bank practitioners become imbued with the same circumstances which have moulded politicians into this flossy framework becoming vulnerable to every passing fad and illusion?
“Hey! What’s that? A flashy trend? Let’s see where it goes with all its fine publicity!” I can hear them saying to one another in the not too distant future, more preoccupied with their own careers than the fortunes of the banking structure over which they are supposed to exercise custody.
Why is there still this intense urgency in proclaiming a moral superiority instead of a practical and applied regimen to the acknowledged problem?
Let us step back a little. I am not suggesting here that the existing insulation, firewalls installed between central banks and governments needs reinforcing. I am not suggesting that central bankers are required to adhere to a code beyond those that they have already taken as bankers.
I am not suggesting a central banker version of let us say the Hippocratic Oath.
What I do wish to point out is that central banking now exists in an operating and even professional requirement in which ethical issues have taken a fresh turn.
This is one in which economics has taken on a mantle of virtue signalling. In other words economics have become overshadowed by the quantum of perceived virtue attached to policies and transactions.
Until quite recently there was a sharp distinction between mercantilism and the process of being eleemosynary, meaning the condition of being charitable or virtuous.
This distinction began to merge with the fall of the Berlin Wall and you will recall the Summer of Love aura surrounding this best summarised by the notion that we were at The End of History.
In the event we were at the start of an era of mass-hypnotism in which Western nations gained in a new currency of virtuous prestige what they had lost in practical and competitive advantage.
It was now that the seeds began to take form of the Sino-Russo strategy to supplant the USD with their own Reserve Currency
The West under the old Washington Consensus now proceeded to play into this strategy.
Whole areas of the productive, the real economy, now began to be placed in China’s hands and then the fabricated products had to be imported at a premium.
The Rust Belt deepened as real economy jobs began to be replaced by the lower-paying burger flipping service variety. Skills were lost forever. Social security liabilities further eroded the United States economy.
The West was blind to its accumulating and compounding vulnerability to an alternate currency as more and more of its equity found a home in China.
Russia was the poor relation in this alternate reserve currency partnership. It was and is however a necessary partner because of its long established banking connections with the West.
It had no trading economy to speak of beyond its primary sector. It was this sector that was now harnessed in order to give Russia true 50-50 status in launching and participating in the alternate currency partnership.
The partners had seen their opportunity in the West’s determination to radiate purity of intention and this especially applied to Germany. It was now that Russia became Fuel Supplier By Appointment, as it were, to Germany.
It was foolproof. The European “quality” newspapers turned a blind eye for fear of being labelled “deniers.” Broadcasting channels by now colonised by leftists hiding under various moral banners actively encouraged the dependence.
The arrival of the Biden administration in the United States immediately gave the scheme its own Stamp of Good Housekeeping.
Bankers including central bankers kept their heads down for fear of being seen to interfere with a political sacred cow.
This entire process would still be bubbling away however ominously beneath the surface of events rather in the manner of a volcano known to be dangerous – but dangerous at some time as yet unknown in the future.
The ignition came with the evacuation of Kabul. Here as the Russians saw it was their opportunity to demonstrate to China the Russian claim and validity in being equal partners in the reserve currency scheme. The evacuation revealed the West at its most distracted, its weakest.
The Ukraine blitzkrieg plan now evolved. It would be brisk and effective. It would return to the Russian fold its most European-centric realm, the one to be the nosecone of the introductory era of the new reserve currency.
After all Russia was now routinely using its new status as a leading global energy resource to supplant the Petrodollar system. With the acquiescence of China it would be a short step to supplant the reserve currency system too.
Russian oil and gas are now readily available to buyers delighted to settle in currencies other than US Dollars.
United States foreign policy following World War II was to split China off from Russia. The joint venture into the new reserve currency gave both participants the unifying common cause they seek.
Until the beginning of this year the West and its institutions were blind to this because of the self-hypnosis, the End of History one, induced by the end of the Cold War.
So deep was and is this state that still the threat posed by the two countries working in harmony to challenge the international banking system and its underlying correspondent banking network is being routinely dismissed and by the very people who should be striving to avert it.
If you consider the essential ingredients of a reserve currency the Sino – Russian partnership’s objective is attainable whether we like it or not. A reserve currency is in its application straightforward. It is-
· For the settlement of international commercial transactions.
· For financial transactions short & long term borrowings on the one side and for investments and savings purposes on the other:
· As a reserve currency for central banks and other international financial institutions.
Neither should Western institutions drop their guard after Russia’s bungled invasion of Ukraine, the would be showpiece designed to show the China side of the partnership that Russia was more than just a passive exporter of fossil fuels.
Russia and China are conscious that their greatest combined weapon in taking over the reserve currency role is the West’s proven inability to confront, let alone deal with, the partnership and its plans.
Why is this?
The politico media class in the West has become just as doctrinally hidebound as it once accused the old Sino Soviet communist bloc of being. Its doctrines like the old bloc’s are coated with the purest intentions and proclaimed as existing for the general good of mankind.
Their doctrines like the old bloc’s are supercharged by becoming enhanced and reinforced when these doctrines are challenged. Win-win in other words. The more dissenters seek to dispute these doctrines the more these doctrines are enhanced.
In this pseudo religion there is the belief that persecution leads to still greater perfection.
Bankers and central bankers are the last line of resistance I believe to this doctrinally led refusal to face the immense danger barrelling down the global highway toward us in the form of the Sino Russian reserve currency.
It is up to us to point out how once this bloc controls the currency they control everything else and regardless of who is at war and who is at peace.
How did it come to this? How did this get so far?
Because of the cross infection of ideology from politics into economics.
We can be more specific. An ideology from the United States political body was allowed to infect the European political body and also its economic body.
It was this ideology, the climate one, picking up speed on its trans-Atlantic journey, merging with European versions, and gathering weight like the proverbial snowball that smashed into every corner of the EU and flowered like an exotic orchid.
It was now that the economic body that should have identified this cult and placed it in its true perspective as another United States origin belief system began instead acquiescing to it, and even accommodating it.
It was and is a political theory, not a set of economic ones.
Economists failed to realise this, and directed their observations around it as was their habit in dissecting Keynesian economics, those of the Chicago School, or the values or otherwise of let us say the Phillips Curve.
But no. Economists seeing the wide- eyed acceptance amid the political class, or if it was not acceptance, then a state of paralysed fear, decided to give it a passive recognition and in doing so revealed the cult nature of this belief system.
European economists failed to confront this new ideology, failed to predict its eventual outcome and they accepted too the curious cult of modelling which is revealed now as an ideologically infused amalgam of prediction and populist politics.
This allowed Germany to ignore all the laws of both economics and mercantilism and place all its eggs on one basket and rely on a sole supplier for its energy.
This is the reason that I say this to economists, especially those engaged in banking of any form at all-
“Be conscious of prevailing cults and their influence on politicians seeking votes.
“Stay capable of dissecting them so that you can alert your own sector about the ultimate direness of their consequences. Should you have the opportunity then publicise too the threat they carry to your own community at large.
“Above all avoid the self-hypnosis which we have so recently and so horrifyingly experienced in Europe.
“By rigorously standing up to these cults and by publicly analysing them we can in the future seek to sidestep the catastrophic outcome of failing to challenge them.”