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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