The Dollar's Demise: Gold-Backed BRICS Currencies Spell Trouble

"Bottom line, Gold comes back, both sides know it, and competitiveness aside, they are navigating the dilemma as frenemies."

Authored by GoldFix ZH Edit

Contents:

1. Introduction
2. The Birth of a New Gold-Backed Trade Settlement Currency
3. Challenging Keynesian Misconceptions
4. The Dollar's Dire Situation
5. The BRICS Gold-Backed Trade Currency and the Dollar's Vulnerability
6. Triffin’s Dilemma
7. Triffin’s Crisis
8. Balance of Terror
9. The Bigger Threat to the Euro and Sterling
10. Gold: The Future Anchor
11. The End of the Fiat Currency Era
12. Conclusion

Introduction

In a recent Goldmoney Insight, Alasdair MacLeod delved into the proposal for a new gold-backed trade settlement currency to be discussed at the BRICS summit. This latest missive by him examines the ramifications this could have on the current dollar-based fiat currency regime. Subscribers can also read the original 5300 word missive here in Why The Dollar Is Finished on ZeroHedge.

Here is our summary and analysis of that work.

The Birth of a New Gold-Backed Trade Settlement Currency

Evidence suggests that the concept of a new trade settlement currency, backed by gold, has been carefully considered for some time, as far back as 2017 at least. The upcoming BRICS meeting in Johannesburg aims to take the initial step away from fiat to gold-backed currencies. Unlike welfare-dependent nations, the attendees can back their currencies with gold more easily, which aligns with their commercial interests.

Challenging Keynesian Misconceptions

From our analysis, John Law: The Mississippi Bubble

John Law's audacious monetary experiments faced ignominious failure, casting doubt upon the credibility of paper money and challenging the nascent notion of central banking. France confronted an arduous path of economic recovery, struggling to regain lost trust and restore financial stability.

The Dollar's Dire Situation

The BRICS Gold-Backed Trade Currency and the Dollar's Vulnerability

TRIFFIN’S DILEMMA OVERVIEW

Essentially you create more dollars hoping people hold onto them. Create too many and you lose control of domestic inflation. Create too few and you abrogate your role as GRC.

TRIFFIN'S DILEMMA CRISIS PHASE

For instance, the U.S. dollar, being the primary reserve currency worldwide, faces this dilemma acutely. Persistent trade deficits weaken the dollar's value, eroding its purchasing power over time and eroding confidence in its long-term stability.

As the crisis phase intensifies, foreign holders of the reserve currency may start losing confidence, leading to decreased demand for dollar-denominated assets. Consequently, the value of the dollar may depreciate, causing inflationary pressures and driving interest rates higher. These developments can create economic challenges and disruptions within the country issuing the reserve currency.

That is how a “Triffin’s crisis” is precipitated normally, economic sloppiness causes loss of faith gradually over time. But what happens when the global community that had been reliant on the USD as GRC has lost some faith in the GRC currency from its economic policies, but is forced to act due to Geopolitical event like confiscating Russia’s reserves?

BALANCE OF TERROR

It is this antagonism, an almost prisoners’ dilemma situation, that makes the world tensely cooperative in small steps, even with rhetoric flying to the contrary.

Bottom line, Gold comes back, both sides know it, and competitiveness aside, they are navigating the dilemma as frenemies. They ultimately are not too worried about each other directly. They are likely worried about a smaller country losing their reason to not be aggressive and potentially dragging everyone into a bigger conflict, Serbia and WW1 fro example.

Therefore a balance of terror will likely drive public discourse with the countries most apt to suffer economic pain being the rhetorical ( and real) battlefields. Countries like Taiwan, and Ukraine (as one of a few nations in the security corridor of Europe), and others with large USD debt but no China savior looking after them fit the bill.

The crisis phase may be even worse for Europe however for multiple reasons.

Continues here ...