The gold bugs are cheering the idea of a gold back currency by the BRICs. This is something they spent a half century espousing. Unfortunately, what is espoused is a good idea is far from it.
At the root of this is the US dollar and the belief it is going to suddenly end. The discussion is centered around trade among these nations (as well as a few others) outside the USD. Of course, this is based upon the mistaken view that the USD only has value because of the petrodollar.
Before getting into the latest "dollar killer", do you remember the Petroyuan? That was introduced in March of 2018 as an alternative to conducting oil transactions in USD. That was going to really hurt the dollar, or so we were told. How did that work out?
As for the BRICs, it seems like a dream is a euro system type currency that is backed by gold. This will be developed to rival the USD while being more than regional on a geographic basis. It will include countries all over the world who are tired of the United States.
Amazing how these people love to promote poverty, inequality, and a lack of freedom. We will see how this does that.
Economy Killer
For these nations to sign onto a single, gold backed currency would kill their economies.
One of the main reasons for the euro was to eliminate FOREX risk between the EU members. This was pushed by Germany who wanted to sell more to its neighbors. By eliminating this, it made commerce easier.
If the US did not accept the new currency, this would be introduced into every developing economy. What is overlooked is the United States is, by far, the largest consumption economy in the world. It is not only the largest by total GDP, it is also 70% consumption. In other words, countries want to sell to this market.
The USD eliminates foreign exchange risk. Now, every country in this coalition would have it introduced. It is also important to remember many imports like food and energy come from the US. What happens when there there is a 5% swing due to natural market moves? Even worse, what happens when liquidity issues arise, radically altering the exchange rate.
Sovereignty
Then there is the question of sovereignty. Every individual living in the EU should understand this intimately. Brussels is run by a bunch of unelected officials. The population of the EU has no say.
By creating the euro, all countries basically handed their sovereignty over to the ECB. This has not worked out well for most countries, especially those in the south.
Does Brazil, South Africa, and other countries want to hand their sovereignty over to some centralized, bureaucratic entity which they have no say in? Do the populations of these nations want that?
See how this idea is counter to freedom?
Custodian Of The Gold
One of the tenets of Bitcoin was that it eliminated counterparty risk. The present financial system introduces this at every layer. It starts with the banks since they are the ones running the ledger. We have to depend upon them to provide access to our funds, to properly maintain the ledger, and to ensure things go smoothly. As we know, there are major hiccups that happen.
Here is a simple question: who is holding the gold? Is this going to be in Chairman Xi's bedroom?
Cryptocurrency is meant to get rid of counterparty risk and advocates of a gold backed currency are looking at introducing it. The entire system is dependent upon the entity keeping the gold is trustworthy.
Perhaps give it over to the United Nations since they showed themselves to be reliable.
U.S. Destruction In 1 Year
There is a major flaw with a gold backed currency and it is something the US could exploit in 12 months.
How could it do that? Accept payment for all its exports in the gold backed currency. Put on a smile and say the US is joining the global coalition.
One of the features of an asset backed currency is that the units can be redeemed for the asset.
Here is where the U.S. simply acquires the currency for a year and then pulls a Charles de Gaulle, redeem the currency for the gold.
Suddenly, the U.S. just took a large portion of the gold.
Of course, even without the U.S., what is to prevent the Chinese from doing this. They are, after all, still the leading exporter.
So effectively, the rest of the BRICs along with any nations joining it would end up potentially given the gold to China.
Does anyone believe Xi will not one day say he wants the gold for the currency? Do you trust him not to do that?
Debt
The final piece of the equation is the debt of these nations. Is this going to be retired and rolled into one. This is something the Europeans didn't do which bit a lot of countries.
If going to a single currency, the challenge is the debt needs to be issued in that currency or FOREX risk can really hinder the ability to repay. Just look at what China is dealing with regarding the Yuan. The currency is collapsing against the USD affecting not only the economy but also the ability to repay the USD denominated debt.
Just think of all the loans outstanding, in US dollars, these countries have. By engaging in USD trade, they are able to accumulate dollars to make the payments. This is why distribution of a currency is vital.
Of course, when the proverbial you know what hits the fan, where does everyone run? The tendency for the flight to safety is US dollar denominated assets. What happens when you have a currency other than the US dollar?
In Conclusion
The death of the dollar is not going to be collapse.
Instead, it will be the continued strengthening that, at some point, causes businesses to look for alternatives. This is key. Money is not for governments. It is a tool to replace barter. This means businesses are at the core of it. In the end, governments have little control because companies end up doing what is in their own best interest.
If it is beneficial for an importer in Australia to pay for soybeans from Brazil using the USD, that is exactly what those entities will do.
Of course, if a gold backed currency did go through, does anyone think that governments would not go door-to-door taking the gold? Look at what they have done over the past 10 years.
This idea eliminates the idea of gold as a defense against the government. Fortunately for many around the world, the USD serves this purpose.
Sadly, the goal of gold bugs in the US and Europe is to get rid of that too. So much for freedom.
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They seem to forget the whole reason the USA left the gold standard, which you mentioned with Charles De Gaulle. As a world reserve currency, there is so much debt outside of the Federal Reserve's control, such as the Eurodollar. The world was printing more dollars than the USA could back.
If the Gold BRIC were to gain traction, you'd likely see a EuroGB of some sort, which then could use to extract gold from those nations. However, as you mentioned, the USA alone could amass a sizable amount of their gold reserves just by normal commerce.
The Chinese could clean up. They are the world's #1 exporter meaning they would be pulling in a ton of the currency.
Xi simply turns around and says, give me the gold. It is a flaw when you make a currency asset backed instead of building the value on the currency.
I your articles are always great, your knowledge is endless. I would almost trust everything you say. However, newspaper articles a in Italy talk of the end of the dollar and of this new world order that will be created by the BRIC. I find it hard to believe these Italian newspapers.
Simply look a supply and demand. If half of the global debt, roughly $350 trillion, is denominated in USD, doesnt that generate huge demand for dollars. People have to have access to USD to repay the debt or refinance it. Either way, this one item alone means the USD isnt going to die.
Then you factor in derivatives. How much of that is USD. Foreign exchange derivatives, which total $16 trillion, more than $12 trillion are USD. That is a hedge against FOREX risk that companies utilize....$12 TRILLION USD.
By the way, the USD isnt even the reserve currency, it is the eurodollar. That system is far bigger than the Fed and dollar created through the domestic monetary supply.
Thank you for this answer and for this clarification
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Money sometimes make great friends to worst enemies and also the other way around. What I have in mind if this happens how will this affect the poor countries? This is a money game among the big boys of the world. And most likely, when elephants fight, the grass will be thumped. Just wake me up when this nightmare is done. I believe there's still hope in this world. !PGM
The smaller countries do end up as pawns in the game sadly. Their own government actions tend not to help.
To me, the solution, at least for the next 5 years, get USD denominated assets. That is a defense against ones government.
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I will show you something better than gold, check out this protocol proof of useful work (POUW).
I'm a bit of a gold bug but I wouldn't advocate using a piece of paper supposedly backed by gold that sits in a vault somewhere in Russia or China. Most gold bugs in the U.S. simply want to end/change legal tender laws such that physical gold and silver could compete as a currency without additional legal or tax implications.
this is really educative and insightful I must say . This is certainly a food for thought on the dynamics between currencies, governments, businesses, and personal freedoms. It highlights the complex nature of financial systems and the potential challenges that may arise in the pursuit of stability and individual autonomy.
So desperate are the representatives of the centralized economy that they want to make a sad step backwards in the progress of mankind.
Duplicated by system
that "gold" will be Made in China
Of course it’s happening. Literally it’s happening. Maybe it won’t work but it’s factually happening.
Bro this si a great post. I got to learn a lot. And no way do I trust anything Xi. He'll pull the carpet right out of our feet while staring us in the eyes. I think Xi would pull a stunk like the US did wiht it citizens when they made holding gold illegal and just robbed everyone of thier gold.
But I believe in history, especially about empires. Like the roman empire, all those empire in ancient times. They all collapsed aftre so many years. I believe the US is/was the modern empire. Maybe even a modern day Babylon? And maybe its collapsing? All empires collapse sometime.
I could be wrong but nobody can tell the future, but the way your governments run down there and this left socialist BS. My gosh I hope I a wrong. Thye even trying to block movies down there now, yes in left leaning states. It can't be blocked but they can make the experince very uncomfortable?
Bro we need to chat if you got time and don;t mind helping me. It stuck to my mind every since you started talking about posting YT video or even spotify on threads. I got to learn how to do that. I tried to do a thread last night during CTP podcast. I don;t think it worked because after I clicked it to thread it disappeared, and never got to see it again? I'd like to try everything, and stick to things I like in this hive stuff.
Bro i'm at CTP discord chat. Not sure if you hang there or not? Let me know if you can help me with that YT stuff. Do you hav e link so I can see what yours looks like and maybe I can manage from there?
I don't think most people realize how few hands control the vast majority of the world's physical gold supply. In 12 months, like the US, the Vatican could swoop in an further cement their dominance over that market, and there would be little anyone could do to stop them, if they were to make that choice. China isn't the only big buyer of gold, either, so is Russia's central bank, which has been stockpiling the metal for years now, and has largely reduced their USD-denominated debt to negligible levels not seen in generations.
I don't see the Dollar dying, but there will be more supranational internationalists and communists demanding single currencies like for Africa or Mercosur in Latin America.