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August 15, 2023 | The BRICS Currency: We’ll Know Soon

John Rubino is a former Wall Street financial analyst and author or co-author of five books, including The Money Bubble: What To Do Before It Pops and Clean Money: Picking Winners in the Green-Tech Boom. He founded the popular financial website DollarCollapse.com in 2004 and sold it in 2022.

When a Russian spokesman announced that the BRICS (Brazil, Russia, India, China, and South Africa) countries were going to introduce a gold-backed currency at their August 22 – 24 Johannesburg meeting, that prospect — coupled with a complete absence of details — set off a frenzy of speculation about what exactly was coming.

Will it be a new gold standard or a new Bretton Woods? Will the currency be convertible into gold, and if so, by whom and under what conditions? Will it be a reserve currency to rival the dollar or an exchange mechanism limited to bilateral trade within the coalition? Will it signal the end of dollar hegemony? Will it constitute an act of war against “the West”? Will it even show up on the conference agenda?

We’ll get the answers during the three-day meeting. But in the meantime, a lot of smart people have weighed in on the subject, sometimes with mutually exclusive predictions. Here are some of the more interesting takes:

Jim Rickards: A BRICS currency will be defined as a certain weight of gold.

In an interview with Wealthion’s Stephanie Pomboy (see below) Rickards as usual covers a lot of interesting ground. Definitely watch the whole thing, but for now, here’s a paraphrased summary of his BRICS thoughts:

The BRICS countries have been planning a break with the dollar for a couple of decades. They’ve created their own versions of the World Bank, IMF, and SWIFT bank settlement system. They’ve bought a lot of gold, and they’ve cut bilateral trade deals that use local currencies rather than the dollar.

These trade deals are imperfect, however. To take Russia and India as an example, Russia sells lots of oil to India for rupees but doesn’t buy enough from India to use up those rupees, so they’re just accumulating, saddling Russia with an unwanted asset.

But by creating a bilateral trade currency defined as a certain weight of gold, this problem is solved. BRICS countries can trade in that currency, which is always worth the same amount of gold while continuing to use their own currencies internally. Because the dollar price of gold is calculated continuously by metals exchanges, the dollar exchange rate of the BRICS currency would be instantly available. And as gold rises versus the dollar, the BRICS gold-backed currency becomes more valuable without the difficulties caused by a too-strong national currency. Eventually, such a currency will spawn bond markets in member countries.

 

Alasdair Macleod, research director at GoldMoney: The BRICS will use a currency board.

Excerpted from recent writings and the video below:

The majority of the world measured by population and GDP is becoming confident enough to throw off the yoke of American imperialism, and with it will go the hegemonic power of the fiat dollar. Because the other Western fiat currencies remain tied to the dollar, it would appear that their days are similarly numbered.

The position of the current BRICS countries and the group’s future members is far stronger [than the West’s]. None of them are burdened with the social and socialist responsibilities of the so-called advanced nations. They are in a position to operate currency boards to secure the value of their credit systems. But instead of a currency board attached to the dollar, it must be attached directly or indirectly to gold. A gold standard can be regarded as a type of currency board — indeed, it was its forerunner.

A BRICS currency would require a separate issuer of a currency backed by gold. Not a central bank, just purely a bank of issuance. According to the IMF,

“A currency board combines three elements: an exchange rate that is fixed to an anchor currency, automatic convertibility (that is the right to exchange domestic currency at this fixed rate whenever desired), and a long-term commitment to the system, which is often set out directly in the central bank law.”

This is the moment for which the Chinese have been preparing since 1983, and the Russians more recently sparked by western sanctions. They at least have sufficient bullion available to cover their narrow money supply with ample margins and are the two largest nations by goldmine output. A move towards gold backing of other currencies is likely to prove more difficult, because of the shortage of monetary gold. The only solution for many of the BRICS attendees in Johannesburg later this month will be to piggy-back on China’s yuan though a currency board relationship. The rest of the world faces the grim prospect of being ensnared in a widespread fiat currency collapse with no visible escape.

Andy Schectman, president of gold dealer Miles Franklin: Expect a commodity-based blockchain currency.

Excerpted from the video below:

This all boils down to the fact that Saudi Arabia and most of the rest of OPEC are joining. 80% of the world’s population will be outside the dollar-based system. We’re entering a Bretton Woods III period of time dominated by commodities and transparency instead of opaque debt-based currencies.

[The BRICS countries] can pledge commodities to a distributed leger central bank digital currency. They can use the the digital yuan to back the new currency. Every country will have an equal say because they’ve donated commodities that back the currency. It won’t be redeemable but it will be backed. And the blockchain will allow everyone to see what’s there.

If they take the opportunity to build a bond market the way the US did during WWII with war bonds, they very quickly go from just an interesting idea to a serious challenge to the dollar.

Why did the BIS reclassify gold in 2019? Why did so many central banks repatriate their gold from the Bank of England and NY Fed? Why have central banks bought more gold in the last 18 months than any time in history? Look at the exports out of Switzerland: China, India, Saudi Arabia are massively accumulating gold.

 

Peter Earle, economist, American Institute for Economic Research. Excerpted from his recent article: A World Dedollarized is Gold Remonetized.

Saudi Arabia, not a particular fan of the current Presidential administration, has indicated that it will invest billions of dollars into its expanding gold sector over the remainder of this decade. India recently launched an international gold bullion exchange. At the end of last year, central banks were buying gold at the fastest rate since 1967As of May, 70 percent of central banks indicated believing that gold reserves would increase over the next year. Experimentation with using gold alongside dollarsand as money, including in some innovative, familiar formats here in the US, has been growing in just the last few years.

The form and function of the BRICS+ financial institution, if any is indeed forthcoming, is of secondary importance. What matters is that the slow creep of de-dollarization is, on its flip side, an inexorable push toward the re-monetization of gold. And whether that means sound money through innovation or pressuring global central banks to reform their practices, those outcomes are welcome to say the least.

Commodities analyst Lobo Tiggre: It’s not even on the agenda.

Excerpted from the following video:

If the people hosting the conference are telling you that it’s not on the agenda, we can take it at face value. Russia is in a financial war with the West, and propaganda has value. Words are cheap, it’s easy to talk.

What gives this idea so much power is that it does make sense, and the gold-backed part even makes sense. It’s clearly an idea they’re considering even if it’s not on the meeting agenda.

Part of the problem with a BRICS currency is that if you’re Russia do you really trust the Chinese? With gold, you don’t have to trust each other. You can trust but verify. So it makes sense and I think this will happen and it makes sense for the BRICS as the frontrunner to do it.

But even if they did announce it in August it would be years before anything happens. So it doesn’t tell us anything about how we should invest today.

 

Rick Rule: It’s propaganda.

Excerpted from the video below.

The right way to describe the announcement is the way you would describe an announcement from the European central bank or our central bank: propaganda.

If you look at the amount of gold that China and Russia have to back a gold-backed currency, assuming they would like to use their gold to back the currencies of South Africa and that serial defaulter Argentina, where that currency would be liquid enough to serve the needs of the citizens let alone the world, they don’t have anywhere near enough gold.

So you have a new quasi-currency where the constituent countries all have their own political and politically expedient domestic governance. The chance that this currency would ever be liquid in a retail sense is nil.

The reason that the BRICS are attempting to create a medium of exchange outside the US dollar is precisely because Washington has weaponized the dollar. The purchasing power deterioration that owners of US dollars are experiencing is greater than the yield they’re receiving on their Treasury securities.

The circumstance that causes countries to try to put together a mechanism as clumsy and ill-suited as the BRICS is precisely the weakness in the US dollar and precisely why someone should own gold.

Will a mechanism evolve to allow Russia, China, and Iran to trade with each other outside of the SWIFT banking system and the dollar? Yes. But ironically, that trading mechanism, while it’s denominated in some other currency will end up being tethered to the US dollar and it will not be backed by gold. If it is backed by gold it will be in a fractional reserve system with something like 10% and not redeemable.

People need to understand it for what it is: An artificial mechanism to avoid the hostile US dollar financial system.

 

Let’s end with a bit of comic relief from Treasury Secretary Janet Yellen:

Because of the role of the dollar and its ability to enable us to implement sanctions, there is certainly motivation around the world to find an alternative. The United States can rest assured that the dollar is going to play the dominant role in international transactions and as a reserve currency in the years ahead. I don’t see that role being threatened by any development, including the [BRICS currency].

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August 15th, 2023

Posted In: John Rubino Substack

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