Welcome to CrushTheStreet.com’s Weekly Market Wrap-Up!
Our top story for the week is the under-reported developments that are being implemented by major global powers to wrest hegemonic leverage away from the U.S. dollar as the world’s sole reserve currency. With most of the international press focused on geopolitical flashpoints in Eastern Europe and the Middle East, few journalistic resources are dedicated to the documented ramp-up in gold acquisitions by Russia’s central bank, according to William Rhind, CEO of the World Gold Trust Services. The same source reports that the elephant in the room is China’s purchase of bullion, a figure that Beijing refuses to publish but many speculate is accelerating at an alarming pace. Despite the implication of such tactics by the Eurasian financial infrastructure, the real catalyst towards rebalancing Western monetary dominance is Russia’s subtle attack against the SWIFT system.
Founded in 1973, SWIFT is a global provider of secure financial messaging services headquartered in Belgium. Its primary purpose is its maintenance of a secure network that allows financial institutions worldwide to send information regarding various transactions in a confidential and standardized manner. The ability for disparate banks to send critical messages to each other has facilitated and improved the concept of wire transferring, thus exponentially increasing the popularity of the SWIFT system. Today, the majority of international interbank messages use the SWIFT network, which links more than 9,000 financial institutions in 209 countries and territories.
With the combination of a dollar reserve currency and an equally dominant network in which to communicate transactional messages regarding those dollars, being accepted into the SWIFT network can open several doors of opportunity. On the flip-side, a rejection of or by SWIFT can lead to a self-imposed embargo. For example, several Iranian banks were disconnected from the network after international watchdogs discovered that their usage violated sanctions imposed upon Iran due to its nuclear weapons program, according to a 2012 Reuters report. Similar pressure was leveled against SWIFT to terminate relationships with Russian banks, although SWIFT has yet to cave in this matter.
Nevertheless, the Russian government is taking a pro-active approach, announcing an alternative to the SWIFT system just days after it unpegged the rouble from the dollar, effectively free-floating it in the global currency system, according to an article from the Examiner. The announcement is aligned with other attempts by Russia to deleverage itself from Western institutions, stating earlier this year that it will sell oil in both the rouble and the Chinese yuan. With the creation of a new SWIFT system, it is possible that a substantial regional network can be established amongst Russia and major Asian powers due to logistical efficiency, ultimately imposing another layer of complexity in the current geopolitical environment.
Now let’s turn to financial news. After setting new intra-day records earlier in the week, the major indices on Thursday ended slightly above parity against the prior session, with the Dow Jones adding 29 points while the S&P 500 gained point-18 percent. The precious metals complex largely remained range-bound after shooting up last Friday, although the most recent session saw bullish price action, with gold nearing the 1,200 dollar mark while silver continues to build past 16 dollars. Palladium also had a strong showing, adding 7 dollars to close at 774 on the ask. Finally, bitcoin failed to capitalize on last week’s momentum, with the digital currency falling to 365 dollars at last count.