If Russia or China had a gold-backed BRIC, what would that even mean? Would you trust it? Buy it? 
The BRIC acronym stands for Brazil, Russia, India, and China. But there are now 27 nations, that have little in common with each other, that seek participation. Let’s coin a name, GBRIC (gold BRIC), for the name of the currency,
No Details Hype Headlines
- India Times, June 23, 2022: BRICS Working on New Global Reserve Currency
- Fox, Oct 29, 2022: Russia, China May be Preparing New Gold-Backed Currency
- Business Insider January 17, 2023: Russia and Iran are Working on a Gold-Backed Currency
- DC News, April 8, 2023: New World Currency? How BRICS Nations could impact U.S. Dollar
- Foreign Policy, April 24, 2023: A BRICS Currency Could Shake the Dollar’s Dominance
The above reports all have several things in common. They are all proposals, they are mostly to totally sensational hype, and not a one of them have any meaningful details.
There are literally hundreds of similar reports all speculating on the quick demise of the dollar.
Supposedly, It’s Official!
Gold Standard Back!?
The only thing that is official is more hype without any meaningful details.
Russia Confirms BRICS Will Create a Gold-Backed Currency
Kitco reports Russia Confirms BRICS Will Create a Gold-Backed Currency
Friday, according to state-run RT, the Russian government has confirmed that Brazil, Russia, India, China and South Africa, also known as BRICS nations, will introduce a new trading currency backed by gold. The official announcement is expected to be made during the BRICS summit in August in South Africa.
Thorsten Polleit, chief economist at Degussa, said that while the announcement is a step in the right direction, there is still a long way to go to become reality. “At first glance, a new transaction unit, backed by gold, sounds like good money – and it could be, first and foremost, a major challenge to the US dollar’s hegemony,” he said in an exclusive comment to Kitco News.
However, Polleit added that the devil is in the details. “For making the new currency as good as gold, a truly sound currency, it must be convertible into gold on demand. I am not sure whether this is what Brazil, Russia, India, China and South Africa have in mind,” he said. “Using gold as money, the unit of account would be a true game changer, no doubt about it. It could lead to a sharp devaluation of many fiat currencies vis-à-vis the yellow metal (including the BRICS fiat currencies), and it could catapult up goods prices in terms of fiat currencies. It could be a shock to the global fiat money system. I am not sure that this is what the BRICS wish to achieve.”
Polleit added that another option would be for the BRICS nation to create a new bank for financing foreign trade that would require holding gold as capital.
Echo Chamber
My first thought was the announcement was just more bullsheet. My second thought was the same.
Marc Chandler, managing director of Bannockburn Global Forex, provides my third thought: “Talk of BRICS gold backed currency seems like an echo chamber. They do not have the gold to back a currency meaningfully. Have we not learned anything from the EMU experience of monetary union without fiscal union. Color me profoundly skeptical.“
This echo chamber has been reverberating for years.
Polleit also hits the nail squarely: “For making the new currency as good as gold, a truly sound currency, it must be convertible into gold on demand. I am not sure whether this is what Brazil, Russia, India, China and South Africa have in mind.“
I am sure convertible on demand is not what they have on mind. But let’s assume that it is. And let’s call the new currency a BRIC.
Would You Rather Hold GBRIC or Gold?
If you wanted to hold gold, would you buy gold or GBRIC? Would you really going to trust Russia and China have the gold they say they do?
You answered those in less than a second, didn’t you?
The BRIC nations have nothing in common other than a desire to avoid dollars.
Still More Fairy Tales of US Dollar Demise That Didn’t Happen
On April 26, I noted Still More Fairy Tales of US Dollar Demise That Didn’t Happen
“Strategists Joana Freire and Stephen Jen calculated that the greenback accounted for about two-thirds of total global reserves in 2003, then 55% by 2021, and 47% last year.”
Brad Setser blasts that notion in a series of 16 Tweets. See the above link for discussion.
Trade is Between Individuals, Not Nations
For starters, Countries Don’t Trade.
- Only individuals, separately and in voluntarily formed groups such as firms, create or take advantage of economies of scale, of scope, or of both in production; countries, as such, do not.
- Only individuals, separately or in voluntarily formed groups such as firms, spend, save, and invest; countries, as such, don’t.
- Only individuals experience income, wealth, or welfare gains and losses; countries as such experience nothing.
- Of course, we can – and do – talk, for example, about “America trading with China,” about “Germany having a comparative advantage in the brewing of beer,” about “India’s national income rising,” and about “Peru’s trade deficit falling.” But all this talk merely describes the largely unintended, aggregate results of countless choices and actions each made by a particular, flesh-and-blood person.
- And also, of course, governments do perform many of these activities – for example, spend. But no government is a country. Each government is merely a particular organization run by particular, flesh-and-blood persons according to a certain set of formal and informal rules.
Trade Example
- A Brazilian soybean producer sells soybeans to a merchant in China.
- A Brazilian scooter manufacturer buys Lithium batteries from a Chinese merchant.
- The soybean producer buys nothing from Chinese merchants.
- The Chinese battery producer buys nothing from Brazilian merchants.
Why would the Brazilian soybean producer want to hold yuan, especially given that the yuan doesn’t even float?
Why would the Chinese battery producer want to hold the Brazilian Real?
No one is forcing the soybean producer or the battery producer to do anything. By choice they prefer to trade in dollars, which by the way is instantly convertible to any currency the producers may wish to hedge in.
It is only at the government level, where for political reasons, the governments may wish to make agreements in other currencies.
Q: How does a GBRIC change the above points?
A: It doesn’t.
Trading Currency
Let’s return to Kitco for a key observation that everyone seems to have missed.
According to state-run RT, the Russian government has confirmed that Brazil, Russia, India, China and South Africa, also known as BRICS nations, will introduce a new trading currency backed by gold.
To me this implies a currency used between nations, not individuals. It’s a currency not redeemable in gold. The details have not emerged, but I suspect something akin to Bretton Woods II.
If so, the pubic may not even get to buy buy or sell the GBRIC. Moreover, the trade between China and the rest of the BRICS is hardly balanced.
Brazil’s President Calls for End to US Dollar Trade Dominance, So What?
On April 14, I commented Brazil’s President Calls for End to US Dollar Trade Dominance, So What?
Given that trade is not between nations, so what? I used the above trade examples in my explanation.
Dollar Weaponization Expands – FDIC Message to Foreign Depositors Is Don’t Trust the US
I discuss the anti-dollar sentiment in Dollar Weaponization Expands – FDIC Message to Foreign Depositors Is Don’t Trust the US
It’s understandable that nations, especially Russia, want to avoid dollars. There is mistrust for many good reasons.
But is that any reason to trust a GBRIC, “trading currency“?
Let’s see the details on how this will work in practice, whether the GBRIC is convertible on demand, and who gets to use it.
Expect to be underwhelmed, but expect more hype anyway. Hype is sexy. So is predicting the collapse of the dollar.
If it is convertible to gold on demand, ie, it retains its value over time, I might be tempted to hold BRIC. Right now I hold dollars, and I buy from China using dollars, but some of what I buy is priced in CNY so the price fluctuates. If it was priced in BRIC, I would hold BRIC. I wouldn’t convert everything to BRIC, mind you, but I would hold it.
I currently don’t hold CNY, but I don’t see BRIC any less risky than CNY, and I’m already subject to CNY price fluctuations in my business. I would start small for sure. I think a better question is do you trust the United States with your dollars after all this money printing? The dollar is the world reserve currency and will continue to be, but I don’t trust the United States to not continue abusing dollar holders.
If its not truly convertible to gold on demand, then it’s 100% a nothingburger.
russia already is pegged to gold, via barrels of oil. i think you missed this. the amerikan empire is no different than others in past. they tend to bust up physically, politically and monetarily. we haven’t won a war since ww2. the saw buck in my hand is worth squat compared to my youth. will there be a gold backed currency. 100% certainty. mankind still values gold. past 5000 years. will it happen tomorrow. who knows. but russia already pegged the ruble to gold via oil sales since we stole their money at beginning of the recent unpleasantness. go read “this time it’s different, 800 years of financial ruins”. the arrogance of modern amerikan middlebrows is breathtaking. i applaud the idiocy. our military outspent the taliban literally 500,000 to one. and lost. bwaaaahhhhhhh
See: The Gold Cover
link to fraser.stlouisfed.org
russia already is pegged to gold, via barrels of oil. i think you missed this. the amerikan empire is no different than others in past. they tend to bust up physically, politically and monetarily. we haven’t won a war since ww2. the saw buck in my hand is worth squat compared to my youth. will there be a gold backed currency. 100% certainty. mankind still values gold. past 5000 years. will it happen tomorrow. who knows. but russia already pegged the ruble to gold via oil sales since we stole their money at beginning of the recent unpleasantness. go read “this time it’s different, 800 years of financial ruins”. the arrogance of modern amerikan middlebrows is breathtaking. i applaud the idiocy. our military outspent the taliban literally 500,000 to one. and lost. bwaaaahhhhhhh
Thanks Mish for restating the arrogant, elitist, narrative position.
In rebuttal, I only have tow things to say.
The first is that “necessity is the mother of invention.”
And the second is that no matter how ridiculous that it may sound to you and many, many large, established financial houses, each day more and more trade is actually occurring without ever touching US dollars.
Everybody is missing the point. The motivation is not the Dollar, but who the Dollar is controlled by. The BRICS and the 17 others having watched the Dollar’s owner exert dangerous power have finally realized the classic, “Tomorrow it will be You” The SWIFT system, the Sanctions, the still planned Confiscation of Russian assets, to name but a few, make any intelligent leaders realize that they are in danger if they dissent. — Gr
Precisely who does not understand that?
Since nearly everyone does, no one is missing the point. I discussed this with Pettis.
link to mishtalk.com
First questions. Would the BRICs currency be for Central Bank settlements exclusively rather than for private individuals or firms?. This would have similar effect on the utilisation of the USD.
Secondly question. If the choice was between a currency being printed in an uncontrollable fashion USD vs holding a currency backed by gold as a storer of value where would institutions go?
There is no major Western institution that would have any trust in alleged backing of a currency by gold in the BRICs. We will soon see what a trivial announcement this hype really is, how little gold there is, and the miniscule circulatory nature of it all.
There is a need to avoid dollars but the yuan does not even float and China has no bond market to speak of.
Goldbrick, goldbricking ….fertile material for puns. Although ZeroHedge reproduces Mish’s articles this is one they won’t want to as the site has been pushing the end of the dollar, imminent economic and social collapse of the USA (and the west) etc. for years. The BRICS have little in common except a Jim O’neill baptism. Pepe Escobar and others can wax euphoric on the new age the Belt and Road will usher in along with the China-Russia-Iran alliance. Who is paying them to pump out the propaganda and cheerleading is a pertinent question. Ditto for ZH.
China and Russia are demographic time bombs, far worse than the US baby boomer time bomb.
link to foreignpolicy.com
“By 2040, an estimated 402 million people, or 28 percent of China’s population, will be older than 60 years old—the current legal retirement age for most men in the country—more people than the expected 379 million in the United States that same year.”
The China manufacturing giant of the past is over and it won’t be coming back.
The new land of of “milk & honey labor slaves” is in India, parts of Africa and parts of Latin America. Argentina is considering dumping its currency for the US Dollar not BRICS and Ecuador already uses the USD as its own currency.
Yeah, right. Opting for US dollar hegemony has worked out sooooooo well for Argentina over the past many decades!
Why would any country opt for the US dollar when it is clear that its reserves can be stolen if it “disobeys” the US? Like the US did when it stole Russia’s dollar reserves. Hell, they even did it to poor Afghanistan! No self-respecting country would want to be in that position.
I was in that libertarian echo-chamber for a little while where all you hear is the dollar is going down. Appreciate you Mish for the contrarian opinion.
The dollar is backed by the full faith and credit of the US government! What could go wrong?
link to usadebtclock.com
last i looked the benjamins in my wallet buy me bubkiss compared to 5 years ago. forget 10 and 20 years ago. the dollar has lost huge purchasing power.
Petrodollar…oil & gas….blah..blah…blah
What a bunch of nonsense so let me clue you guys in…
Here are the top 6 US oil companies and their market cap
XOM – 410 billion
CVX – 288 billion
COP – 125 billion
SLB – 76 billion
EOG – 68 billion
OXY – 52 billion
Total = 1.019 Trillion
And here are the top 3 US tech companies market cap
AAPL – 3 TRILLION
MSFT – 2.5 TRILLION
GOOG – 1.5 TRILLION
Total = 7 Trillion
The top 6 oil companies don’t even add up to the smallest tech company GOOG.
The entire world is more dependent on software from these companies than they are on oil & gas. Got a computer? it runs either microsoft or apple. Got an cell phone? It runs google or apple. Got a database? It runs Microsoft or Oracle, both US companies. Without US tech, you are nothing but a monkey bashing cymbals. And we haven’t even started talking about AI yet or any other tech just the basic operating system.
The new oil is DATA and has been now for a while now. That’s why Exxon was dropped from the Dow in 2020, That was a key signal that oil & gas is dying fast.
Yes, we’ll use oil and gas for years to come but it’s on the decline so that whole petrodollar argument is total nonsense. For you guys talking about oil & gas you may as well be talking about using whale oil or candles for illumination and worried it will trade in yuan or rubles, that’s how silly you sound. Lol.
Dont take my word for it, look at the chart on this energy page.
link to eia.gov
The world can trade oil in GBRICS and it won’t matter one bit. Once upon a time the world was dependent on oil, that time has passed, it is now dependent on technology for everything from planting crops to managing human populations and luckily the US controls most of it.
Now get out there and focus on profits in tech. Thank you for listening to my drunken rant.
If the tech companies where trading at the same PE I’m sure your conclusion would be different. Your post reminds me of the old say “you know the price of e ve rating but the value of nothing.”
You’re free to believe whatever nonsense you want, I believe the data not hysterics, hyperbole or hysteria.
Powell said last year we were heading to two economies. It doesn’t mean much. One needs stuff. The other needs stuff. They will figure it out. I’m not a fan of gold but a lot of people like it. Fine. Here’s the thing though. I grow food. A decent amount of food. I can also filter a good bit of water. These are my hobbies. If something seriously happened I do not barter in gold. Better bring something I can use and I can’t use gold so..meh. Gasoline, biofuel I would accept before gold. I never understood it going on several decades this thing with gold but to each their own.
No one has mentioned holding bonds in a gold backed currency. I may prefer to buy gold over a Brics gold backed currency. But what if I could buy a bond of that same currency paying 5%?
That’s not a nothing burger.
Will your average person be able to transact in this new currency, maybe not. But I’m sure there will be ways to hold some liquidity in it somehow.
And you are going to trust a Russia or Chinese bond?
Believe it has the gold it says it has?
It pays interest in gold? How?
Unless you can redeem the GBRIC for gold, and willing to hold such a bond when the Yuan does not even float, yes, this is a nothing burger.
Let’s see. Russia defaulted in 1918 with the advent of the Bolshevik revolution and recently in retaliation with to the US ceasing its assets( note the US threw the first punch). The US has been defaulting on its debt through the slow process of inflation. You can expect that to speed up in the not too distant future.
I personally had about $10k stole by the Biden Administration on stocks I owned in Russia.
I am amazed you trust a government that sics the FBI on parents who protest again dragqueen happy hour.
Well Putin invading Ukraine really did a number on the Russian stock market and the Ruble. Who recommended the trade to you?
The Russian government’s strategy of paying a fixed price for gold at $52 a gram (less than the $62 a gram international market rate), helped stabilize the ruble. Since gold is traded in US dollars internationally, linking both gold and the ruble creates a price floor for both assets.
the US defaulted in 1933 and 1971 outright. and since then with extreme inflation. it’s not if, just when some nations go back to gold standard.
“If you wanted to hold gold, would you buy gold or GBRIC? Would you really going to trust Russia and China have the gold they say they do?”
This is 90% of the story.
The whole thing is Russia & China pressing to dethrone the dollar, and if they somehow succeed in creating a BRIC currency that, for some reason I’d want to buy, I’d just buy gold.
As unstable as the U.S. has been in the last decade, the BRICS are far worse, Mish has a point about trust…we at least allow real elections, disallowing dictators and Cleptocracy to their extent.
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The new Bric currency is only China plus some small economies left over so any discussion of it depends on whether China can guarantee the currency or not. China is by far the most indebted country in the world, has no rule of law and has defaulted before on its debt so reputation wise, China isn’t in the same class as the US in relation to its currency.
For the other Brics they see this as an opportunity to be able to issue debt in its own currency instead of having to do it using the dollar. If they are able to do this and if this debt is accepted by investors then they would have eliminated a major problem for them, namely that since they are repaying in their own currency they have no currency risk plus they could in principle create money to repay the debts. That last part wouldn’t be possible if it were truly convertible into gold but I don’t expect it to be. Frankly this looks like a way for the non-Chinese countries to be able to borrow as much as they want with China guaranteeing those loans. China would have to be their central banker though with power to give or withhold liquidity. Look at it as China’ s Road and Belt on cocaine.
I was just enjoying your article on gold baced BRIC currency silliness and your statement that “countries don’t trade” rang that bell in my head “Charlie don’t surf”.
Anyway your articles are so thorough that sometimes my impatient brain tells me OK that was great but I must read other articles to prepare for my trading day. That was a compliment, by the way.
The author may not be aware of the rapid decline in the use of petrodollars for trade in oil, a huge indicator of the path that dedollarization will take, should a gold backed currency be intoduced………….. America is $32 trillion in debt, and nobody can verify how much, if any, gold America controls, but when gold IS the standard, Ameica is broke.
The commentator does not understand the petrodollar theory is total silliness. The US is now almost energy independent. So it does not send $ to Saudi. What’s perceived as weakness is a sign of strength.
And given that currencies are fungible, it makes no difference what oil is priced in just as it makes no difference what gold is priced in. One can buy gold in any major currency easily – no need for dollars. Oil is conceptually no different.
“The US is now almost energy independent.”
The US is currently the largest energy producer in the world but that is about to fall off a cliff. Without a doubt being the largest energy producer supports the dollar. The shale revolution is about to go bust. I expect that the US will be experiencing a European energy moment in the near future and then pivot from the climate change scam back to reality.
link to oilystuffblog.com
“The US Tight Oil Phenomena Is Approaching 14 Years Old. When It Is Depleted It Will Decline Faster Than It Took To Develop.”
US oil production likely peaked in 2018, is now on a plateau and soon to drop like a rock.
What are your thoughts lets say US production drops to 4-5 million barrels from 12ish million barrels in 10 years and its effects on the dollar?
Also my thoughts for what their worth is the dollar will dethrone itself. A recent video by Maneco stated that if the CBO is as wrong as it was in its predictions over the last 10 years on government revenue and spending that within the next 10 years all revenue will not be enough to pay just the interest on the debt.
Is that not the trajectory where we are headed on US oil production and interest payments?
The same silly argument again. If it doesn’t matter what currency the oil is priced in, why are/were countries trying to amass large US dollar reserves?
The Russian government’s strategy of paying a fixed price for gold at $52 a gram (less than the $62 a gram international market rate), helped stabilize the ruble. Since gold is traded in US dollars internationally, linking both gold and the ruble creates a price floor for both assets.
Forget the BRICs, that’s a canard anyway. It’ll be [first] a regional currency limited to adjacent nations that have a trading interest with eachother, and backoffice clearing capabilities, etc. can be effected quickly-confidently, etc….duh, oh! Why like Eurasia! (another Duh-Oh!).
And yes, it already has a nickname: the Chuble.
There has been banter about the petro/yuan; Iran, Venezuela, China, Russia, India, S. Africa uniting and forming a currency; and a constant, almost daily barrage about de-dollarization yet in the end if Russia exporters accumulate too many yuan or rupee what are they going to do with it? The aforementioned currencies don’t track as viable reserve currencies. As Mish also accurately mentions is a Brazilian export trader going to accept gold backed yuan. If I were a Brazilian exporter why would I trust the yuan when currently the PRC doesn’t free float their currency? And if you are foreign direct investor in China good luck trying to get your yuan out without paying exorbitant taxes. All profits remain in China or pay the government.
There is a reason why yankee dollar or more accurately the Eurodollar is king: It is the easiest to convert; the rule of law in the US, (though that is getting shakier by the day due to sanctions, a court case decided against Argentina filing bankruptcy vs a US hedge fund loan denominated in US dollars); The USN sails the 7 seas and there are over 800 US and counting military bases across the globe; no country or bloc of countries have ever set up their reserve currency in advance of the reigning currency hegemon till a glaring military defeat by the current currency hegemon, open financial markets in reserve currency country; the currency hegemon trades with most of the countries of the world; the reserve currency hegemon is a reliable trading partner and pays it debts.
There is reason why starting in the 1950s that the Eurodollar became accepted over shipping gold: ease of transfer. Today it is instantaneous and seamless. China, or consortium of countries will have to set up a system that is as seamless as the current bank cartel that governs the Eurodollar medium of exchange. It took the cartel decades to make as seamless as it is today. Has China’s banks set up correspondent banks across the globe and a plethora of importers and exporters willing to accept the yuan? Has the PBOC tried setting up relationships with banks across the globe? What about the derivatives market? FX turnover are dominated by the Eurodollar to the tune of 88.5% vs the Yuan at 7% per 2022 stats.
Setting aside gBRIC for the time being, I think the bigger question would be will central banks prefer to hold gold or US Treasuries?
Why would you hold US treasuries with negative real interest rates?
Just between you n’ me, little known secret, the U.S. Fed has raised rates…shhhh, don’t tell anyone else.
Potential capital gains.
There is only $10T worth of gold in the world and $32T in Treasuries, so that question has been answered.
Totally agree! Who wouldn’t put all their faith in a dollar backed by nothing except a country that is $32Trillion in debt with another $100 Trillion in unfunded liabilities. But not to worry. We’ll grow out of it! Oh wait! We exported our industrial base, undermine our education system with woke idiocy, and undermine social cohesion by mass immigration. Add to that a wholesale assault on tradional values and putting the biggest perversion on a pedestal and force feeding it to our children. The future for the US and the US dollar sure looks bright!
I bet Elon Musk is fully onboard cuz there are plenty of profits to be made….
link to dailymail.co.uk
“Elon Musk has signed a letter pledging Tesla’s commitment to China’s ‘core socialist values’ as he continues his electric vehicle operations in the country. ”
See guys, it doesn’t matter who is in office or if its a capitalist, socialist or communist system. It’s all about profits! profits! profits!
I hope that there isn’t anyone reading this blog who believes otherwise.
bingo. i argued with idiots for decades, that the chinese communist party were the best capitalists in past 30 years. idiots think commies can’t do business. public schools really produce morons in amerika.
“If you wanted to hold gold, would you buy gold or GBRIC?”
Gold. But for signing a contract to take delivery of something from China ten years from now: Since my “holdings” are then gold; I’d much prefer to sign such contracts in a currency fixed against the Gold I’m holding.
And: Trucking Gold to China, across a Siberia full unemployed ex-Wagnerites, may well seem riskier than electronically transferring a GBRIC.
But yes: This is all assuming convertibility at will. If there’s no convertibility, GBRIC will be nothing more than yet another theft vehicle. Just with Putin and Xi getting a larger cut of the theft, at the expense of Biden’s. Another game of picking favourites among turds, IOW. No different from the rest of l
Life in the Dumbage.
“This is all assuming convertibility at will. If there’s no convertibility, GBRIC will be nothing more than yet another theft vehicle. ”
Yep – we find out next month supposedly. Any bets?
For there to be fixed convertibility, the BRIC Central Banks (or some other repository) will need to have a huge amount of Gold on hand to meet redemption requests.
Of course, to trade with gold as the base,
1) Ideally, the item for sale is priced in gold units (eg grams), not the local currency. Eg. One gram of gold = 1 barrel of North Sea crude.
2) the Mexican buyer of ‘NS crude’ must acquire gold to proceed with a purchase. One gram of ‘real’ gold costs 1,060 pesos. To be convertible to gold, that real gram MUST be purchased (eg at Mexico central bullion bank CBB–either from existing unassigned stock or as new addition). It cannot just be digitally created.
3) One gram of gold is digitally transferred from one CBB to another–eg London, where it is assigned to the seller of NS crude. There, the digital gold is convertible to 1 gram of physical gold, the local currency, or any other medium of exchange, at the going exchange rate.
4) CBB accounts will be physically adjusted for net inflows and outflows.
How much gold is actually needed to run the global BRICS system? If there is not enough for transactions at today’s price, how far does the price increase?
Does any currency need to be singled out for gold convertibility
“..Any bets?”
🙂
The only thing the Xis and Putins of the world is more vehemently against than the Bidens robbing the rest by debasement; is giving up even the tiniest trace of their own opportunity to do the same, even if on a smaller and more local scale. So they’ll fudge whatever “gold-backed” means; straight back to something meaningless. Odds of that, is at least 99.9%.
A few points on this: first, dedollarization creates sovereignty for nations as they trade among themselves without US interference. US soft power evaporates thereby.
Second, governments can demand or coerce trade to be done without dollars involved.
Third, surprisingly, US officials seem almost fanatically determined to trigger a global economic war. There’s Yellin lecturing China today, warmongers in Congress and now, moves to demand that China be held reponsible for 100 year old railroad bonds (The Hill). Blinken talks diplomacy one day and Biden rejects that the next day.
The world is adapting and will leave the US as a broken thrid world nation with a bloated obese, gender fluid, shrinking military. The PPA ss move by Africa looks very interesting, by the way.
“..moves to demand that China be held reSponsible for 100 year old railroad bonds ”
This was during Trump’s admin, granted, a little shaky, but…
It’s a potentially legitimate claim, we bought the bonds to finance their infrastructure over 100 years ago, they never formally denounced them, we may have a right to the bonds & interest, worth $1.6 trillion now.
They did benefit from the money.
“warmongers in Congress” – If you mean Congress funding the defense of a peaceful nation with non-combatent citizens being murdered, raped and kidnapped, yes, warmongers.
.
.
Oh, you mean Donbass, I get it.
The warmongers are desperate to start a war with China. Or past warmongers who started a war with Iraq based on fraud. Or those that bombed Libya because of “compassion” – and left it wrecked, controlled by jihadists. Or those that push for head choppers to take over Syria by building bases there, against international law (recognized by Obama officials as wrong). Or warmongers pushing sanctions on Cuba after 70 years of failure to cause regime change. Or……I can go on…
I don’t think anyone’s “desperate to start a war” aside those getting campaign contributions from defense contractors, that aside, foreign policy’s a lot like high school, let a bully push you around and more bullies come.
That said, Trump was dead wrong starting a trade war with China, he defied his advisors, and now China’s escalating, saber rattling over invading Taiwan for their global semiconductor value.
The Mid East and S America, yeah, we screwed up there with our nation-building, that was decades ago and they still hate us.
Iraq, also a screw up, we had no business there, none.
That said, Ukraine is justified, for aid at least…they’re bombing hospitals, schools, they raped woman and children kidnapped.
..
they were and still are’ bombing hospitals, schools raping russian speaking women and kidnapping children’ ….that s exactly what the Kiev Nazis did in the Donbass since 2014….
Well we don’t help every war torn country that kills innocents. It’s pure propaganda that we’re helping Ukraine for humanitarian reasons. It’s a nice byproduct but still propaganda for the American people.
Yikes! You might want to check your bias, western bias, my friend. You preach of the de-globalization, but not de-dollarization of the global economy. You preach of how the Federal Reserve weaponized the dollar, but must believe SWIFT is desired or somehow appreciated by the majority o nations. You must have ignored the recent comments by the treasury secretary regarding the depreciation of the dollar and how it will continue. How about Saudi Arabia as a key member of BRICS? They have lots of money. Oh wait, you forgot it’s just not gold/precious metals. This new “currency” will also be backed by land/property, rare earth minerals, and “other groups of products”. When, or if and I’m being generous, Saudi Arabia joins this alliance, what if “other products” includes oil or other forms of energy? Ouch.
Let’s not forget the Belt Road initiative which has put middle to lower class countries in severe debt to China. Let’s also forget China’s goal of Taiwan reunification in order to solidify its communist party legitimacy.
Did you miss the $3 trillion of hidden foreign assets, debt, treasuries, gold, and raw currency that Chinese shadow banks have been accumulating for 15 years?
China sees exactly what happened to Russia as we weapon eyes the dollar. They will be able to avoid Western money influence between 2025 and 2028. Have you read their five year plans?
I believe China still owns about $900 billion in US debt. What are we, $31, $32 trillion in debt?
This is an anti-western alliance. It’s not just about the United States. You’ve got to dig deeper. Don’t be so dismissive. Certainly, in August, if they announce and realize such a currency it will be a joke. For now….
“This is an anti-western alliance. It’s not just about the United States. ”
Yep, despite your rant, I understand that.
Given the GBRIC will not exist and given that trade is between individuals, so what?
Where is the GBRIC going.
But yeah, as other countries, especially emerging markets advance, there will be a slow and natural decline in use of US dollars.
I’m a noob in economics, so please be kind…
I think we can both agree that right now, The BRICKS (27 I believe now) nations control most oil reserves. The BRICS are getting into the precious metal and will continue to be huge buyers of gold for the foreseeable future (U.S. Global Investors). China has bought 144 tonnes of gold since November. The central bank’s total stockpiles now sit at about 2,092 tons.
Also Saudi is about to drop the petro dollar for the Yen. I know this sounds crazy but look at the evidence, China is getting cozy with mostly BRIC nations especially China, They are cutting us down own our oil imports. When Biden went crying to Mohammed bin Salman Al Saud for cheaper oil, he wouldn’t even shake his hand. A fist bump to the president of the USA??? On natural resources I think BRICS has us beat.
The entire point of the DE dollarization is to effectively cut out the control of the dollar, circumvent sanctions, get around SWIFT (if they are banned, Russia, Iran) ect…
Explain to me why these issues should not cause any concern within the global economy? I’m trying to look at this from both sides…
The currency oil trades in is meaningless. Currencies are fungible. The Euro and Yen are instantly converted to dollars. One does not need dollars to buy oil.
The entire discussion is ass backward. The diminishing trade of oil for dollars means the US is mostly energy independent. China needs energy and so does Japan. So it makes sense for Saudi to accumulate other currencies, assuming those countries have something Saudi needs. Do they? Remember, trade is between individuals not nations. The petrodollar idea is nonsense.
that’s insane thinking. go read why kissenger set up the protection racket after we defaulted on gold backing. he is a jew who grew up in nazi germany and understood runaway inflation. petrodollar was and is very real. it’s a two sided trade. we threatened them with bombs if they don’t buy dollars with oil. and we gave them fighter jets and construction and modernittion with. those dollars. for phucks sake see why we did a coup in iran in 1953 to install the shah. petro dollar was a cold war weapon after we ran out of gold due to france and others coming to NYC to get there gold. i don’t think you know your currency history.
How does a GBRIC provide sufficient liquidity without the providing nations running sufficient trade deficits?
It doesn’t. It will not be liquid, will not float, and will be backed by a relatively trivial amount of gold that will represent trade between governments of which there is very little.
What precisely does the Brazilian gov’t buy? For that matter the US gov’t? Outside stuff like the strategic oil reserve it’s difficult to come up with anything.
the percentage of silver that backed pound sterling was trivial amount. you miss the point. same with gold backing of USD and countless other currencies in world history. it is a confidence game to keep a currency sound. emphasis on con fidence.
I gave this a lot of thought: “Given the GBRIC will not exist and given that trade is between individuals, so what?
Where is the GBRIC going.”
Speaking in certainty that a GBRIC will not exist is again belief bias. Why do you dismiss the possibility of a foreign nation, (specifically the CCP) in having the capability of being the leader of the global PMESII? While they are lacking, they are advancing and are not inhibited by UN, Western ethics, morals, religions, policies, laws, etc. The UN, western nations like MX and CAN, others in central and South America LOVE how the CCP executed their political, military, economic, social, information control over it’s own people and its partners, adversaries, and frenimies. China is the model. Period
The GBRIC is not going anywhere soon. This is all a mere IO campaign, information op on the West. But, it plants the seed and just like any good lie it becomes the truth- and possibly reality at some point.
Trade between individuals. I’ve read all that I can find on what you have written, and I still disagree. It does not compute for me. Nations, laws, control what people CAN trade, WHO they can trade with, and WHAT currency that product will be traded in. Maybe I need more edu in the position you take…IDK.
I think it’s funny that Russia was promoting “ant-war” sentiment through it’s numerous influencing sites (like Zerohedge) right as it started invading foreign countries.
It’s also Russia that’s trying to dethrone the dollar.
.
Russia won’t last the decade.
What are countries besides lines drawn on paper? How about a collection of people with something in common? As little as living within those lines might be enough to identify by nationality?
Along with people, there are, within each country, businesses, institutions, laws, cultures, values and beliefs, aspirations… Individually, people do not amount to much. Collectively, with leaders, they go to war, allow immigration, guide their economies, and proactively change their cultures. .. People have thoughts and opinions, yet collectively those thoughts can be, and are manipulated. I’d be careful eliminating nationalistic fervor from economics. Like it or not, China (and its people) became ‘wealthy’ because of Clinton’s most-favored-nation trade policy.
Under Trump, and then Bidum, the US is doing a splendid job of upsetting its friends. Thanks to them, four BRICS became 27, enough BRICS to start building an alternative to US hegemony. Will 27 become 54? In a year? Two years? Ten years? What will make it happen faster? At what point does critical mass overpower ‘logic’?
very deep and proper thinking.
I don’t understand why we pretend this is complicated. Dollars and/or any other currency IS CONVERTIBLE to GOLD, instantly.
There’s a gold dealer one mile from my house, and a jewelry store across the street.
I give them cash, and they give me gold. Simple.
Per your definition, everything is convertible to everything else. Random numbers are also convertible to Gold.
The whole point is whether a currency is convertible to Gold at a fixed price over time.
Yes, that is the key point.
“…at a fixed price over time.”
If that is what they have in mind here, it is a true “game changer”.
They would need to have an awful lot of Gold on hand if that were to be the case.
Alternatively, the price of gold (in any currency) is set based on the global demand and supply of gold. NOTE this is relative to the currency units being used to buy it–which I believe is Mish’s point. However, there is a high likelihood that if used as a unit of exchange, the price of gold would go up substantially–the result of a relatively fixed supply and greatly increased demand, plus there’s a powerful speculative component that its use as a medium of exchange increases as faux currencies fail.
The question reduces to what happens if gold is the’ base’, and not the US dollar. With arbitrage and efficient currency markets it should be difficult for any one party to affect the price of gold, unlike the Fed, that devalues the US dollar at the drop of a hat, and manipulates the supply on a ‘sanction’ whim.
Gold-backed currency would create a massive run on miners. Great except USD was gold-backed-until it wasn’t. Does anyone think BRICs are any more ethical than Richard Nixon and the USA
Or fix value at a very high price.
Or both.
One cannot set a fixed “value” to anything. It’s impossible.
One can set a fixed weight.
i.e. One dollar represents a fixed number of ounces of gold. But that requires constraints on money supply.
I believe you mean a currency ($1, 1 BRIC, etc) is convertible for a fixed amount.
link to twitter.com
Mish, I hate your renewed blog ! Why did you actually change something that was perfect ?
I think the currency will only be convertible within the BRICS group, you won’t be able to print a trillion dollars buy some BRICS, convert it to gold and ship it home.
If it works, other countries will want to join, and over time the world will go back to gold.
If you print a trillion dollars then the exchange rate for the dollar-BRICS would skyrocket.
The dollar/Euro etc would end up being destroyed before any significant amount of gold could be obtained and shipped to Western countries using fiat currency.
Have you looked at Chinese debt in yuan? Japan’s debt in Yen?
Who is going to control the GBRIC? Who can trade it? Exchange it for gold?
Assuming it is 100% backed by gold, it’s price in dollars would be the same as the price of gold in dollars …. assuming of course people really believed the gold was there.
I think you are very spot on here. It will be the magnet to join BRICS.
“I don’t understand why we pretend this is complicated. Dollars and/or any other currency IS CONVERTIBLE to GOLD, instantly.”
You clearly do not grasp the situation or the proposal.
No currency is “backed” by gold and that is allegedly the proposal.
are you saying the USD was never exchangeable to gold at the FED? of course it was. and of course it is only a matter of when, not if, that some nations currency will again be worth an amount of gold. this is ancient and up to just the recent past of aug 15, 1971. rickards book currency wars explains how it can be set up. one could argue the russians have PEGGED their ruble to gold via oil price since the amerikans stole their money a year ago. gold backed paper money is nothing complicated or any sort of wishful thinking. it’s currency history 101. sound money 101. of course it will happen again. i would not be surprised if it was the USD which will go back to gold exchange at the fed window in future decades. currency history is extremely slow moving and is littered with many paper currencies that become worthless and many centuries of gold backing. your analysis is very flawed. it’s not if, just when. could be russia, usa, euro, JPY or yuan. for certain i know i don’t know who will do it, and i know you have no clue. the USD went from gold to petro backing which has meant endless warfare to keep countries exchanging oil for USD. read currency wars. and read “this. time it’s different. you’ll change your tune.
This not a rebuttal, just a question. If you issue bonds bearing interest in GBRIC, would that not make the bonds more attractive? Would they require less interest? Not arguing, just wondering.
What currency does a GBRIC pay interest in? How?
The bond would pay interest in GBRIC.
Yeah, but try and take that gold outside the US.
“Would you trust it? Buy it?”
I don’t know ….. If you’ve been “weaponized’ by the USA’s currency,
Would you trust it in the future. ?
Not me.