What’s fast becoming the largest economic union in the world has just announced a new gold-backed currency aimed deliberately at replacing the US dollar. We are going to find out what’s happening, why it’s happening, and what it all means for a rising and very real new world order.
– The upcoming BRICS summit in South Africa will focus on creating a new gold-backed currency, further accelerating de-dollarization.
– BRICS has emerged as a powerful economic bloc, attracting numerous countries seeking to join.
– De-dollarization may impact US government spending, potentially leading to living within means and prioritizing domestic interests.
Following the end of World War 2, the world outside of the Soviet bloc began to be led by a single super economic and militaristic superpower, namely the United States and most particularly its dollar. This accelerated in the 1970s when the United States struck a deal with Saudi Arabia to standardize oil prices in terms of the US dollar. In many ways, this deal elevated the US dollar to the world’s reserve currency since you could buy oil and gas directly without going through some kind of exchange rate. Moreover, nations buying and selling in US dollars in turn inordinately purchase US Treasury bonds with their surplus dollars to lose money in the exchange process back to their currencies.
This in turn allows the US government to print as much money as they want. They assume that plenty of foreign nations using the US dollar will purchase up all the debt in the form of US Treasuries. All of that changed on Thursday, February 24th, 2022. That’s when Russian forces launched a special military operation into Ukraine. In mere hours, two sanctions were unleashed on Russia from the United States and the European Union, using the US currency against Russia and kicking them off SWIFT, the international financial transaction platform which is inordinately controlled by US banks. Suddenly, in the eyes of many around the world, the dollar transformed from a free international currency into a very powerful and effective weapon that more nations feared would eventually be used against them.
The weaponization of the dollar has escalated the need for many countries to deliberately begin the process of de-dollarization. A few months ago, Brazil and China reached an agreement to ditch the dollar and conduct their cross-border trade with the Yuan, the Chinese currency. Around the same time, China and Saudi Arabia began talks to price Saudi Arabia’s oil sales in the Yuan rather than dollars. Similarly, both the UAE and Qatar have been trading with China using the Yuan in direct payments. Even France just completed their first Yuan-settled liquified natural gas trade with China.
The rise of BRICS is being called the hottest ticket in geopolitics. BRICS stands for Brazil, Russia, India, China, and South Africa, the five foundational nations that have formed a new and powerful economic bloc. Since its formation in the 2000s, the economic bloc has grown exponentially, with dozens of countries seeking to join. Nations such as Saudi Arabia, the UAE, Egypt, Algeria, Argentina, Mexico, and Nigeria are all lining up and applying for membership, making up over 40% of the world’s population. All eyes are fixed on their upcoming summit in August in South Africa because it’s just been announced that the agenda there will center on the creation of a new gold-backed currency that would have at least 20 nations all joining in.
This development is considered by many to be key in accelerating the trend of de-dollarization. More nations are moving away from the US dollar as the dominant global reserve currency. As we saw earlier, de-dollarization is already well underway. The international return to the gold standard appears key here. China, Russia, and India hold substantial gold reserves, with China alone possessing over 50,000 tons. The Shanghai Gold Exchange allows for the conversion of currencies into gold, and this mechanism will likely play a role in the new BRICS currency.
The gold-backed currency used among BRICS nations aims to further erode the dollar and establish a multi-polar world, a world where political and economic power is decentralized away from a single dominant power and shared instead among a variety of political and economic centers. Scholars have argued that the age of a unipolar world, a world with a single superpower, the United States, governing the rules by which all other nations have to live by, is dead. We have already been seeing a multipolar world rising for the last couple of decades.
The gold-backed currency represents a rising new geopolitical world order. It is going to take time before the economics of that world order changes substantially, and that’s because the US dollar remains, by far, the single most dominant currency. There has been significant de-dollarization. In 2001, 73% of global reserves were held in dollars, but that percentage has now decreased to 58%. It is important to distinguish between how much a currency is kept as a share of the reserves of central banks around the globe versus how much it continues to be used in everyday global financial transactions. While nations are seeking alternatives to the dollar, it still overwhelmingly dominates as the currency by which people lend, borrow, and save. It remains the dominant currency by which most nations measure their assets and debt.
The dollar is and will remain very strong for the foreseeable future, even though it’s going to have some major competitors. As more nations de-dollarize, fewer will be buying up US debt, which means that the Treasury can no longer continue to print money at the pace it’s been printing over the last few decades. This means that our government can possibly begin living within our means, stop the endless funding of foreign wars, and prioritize the interests of the people over against the interests of a financial class led by an out-of-control Federal Reserve. If that happens, de-dollarization may not just benefit the international community, it may have extraordinary benefits here at home as well.
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