Page 31 - Bullion World Volume 4 Issue 5 May 2024
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Bullion World | Volume 4 | Issue 5 | May 2024


           trillion and make up roughly 28 percent of the global   Downey explained it this way.
           economy. BRICS nations also account for about 42   "In such crises (the one in the German Weimar Republic
           percent of global crude oil output.                of the 1920s is the most famous example), the only
                                                              salvation for individuals and governments is ‘hard
           The BRICS countries have expressed a desire to move   money’—gold—that cannot be printed or digitally
           away from dependence on the dollar. During last year’s   created. That is the money being accumulated now by
           BRICS summit, Brazil President Luiz Inacio Lula da Silva   the PBC bank and by Chinese financial industries and
           called on the bloc to create a common currency for   individuals at an unprecedented rate. Possibly the gold
           mutual trade and investment. He said a BRICS currency   market has ‘heard’ this. It is almost certain that although
           would "increase our payment options and reduce our   China is not driving the immediate rally in the gold price,
           vulnerabilities."                                  as the marginal buyer it will step in when there are the
                                                              inevitable corrections or pullbacks in price to the level at
           Recently, Kremlin aide Yury Ushakov announced that   which China is prepared to accumulate gold—and that
           the BRIC nations plan to develop a new payment system   will backstop the corrections."
           based on the blockchain. Gold could underpin a new
           currency to challenge dollar dominance.            This isn’t just about a geopolitical power play. Any further
                                                              erosion of the dollar’s status could have significant
           Downey asks the operative question.                economic ramifications for the average American.
           “Can China wake up the world one morning with      Because the global financial system runs on dollars,
           the announcement that there is a new currency      the world needs a lot of them, and the United States
           now, backed by gold and perhaps even redeemable    depends on this global demand to underpin its profligate
           for gold? Or, alternatively, that the Yuan, backed   borrowing and spending. The only reason the U.S. can
           by gold, is now the official currency of the       borrow, spend, and run massive budget deficits to the
           43(?) BRICS-Plus nations, who will be banking,     extent that it does is the dollar’s role as the world reserve
           denominating their debt, conducting trade, and     currency. It creates a built-in global demand for dollars
           doing other economic and financial business in that   and dollar-denominated assets.
           currency?”
           Most analysts don’t believe the dollar is in imminent   This absorbs the Federal Reserve’s money creation
           danger. Even with aggressive de-dollarization, the   and helps maintain dollar strength despite the Federal
           greenback still dominates global trade. And while its   Reserve’s inflationary policies. But what happens if that
           share has diminished marginally in recent years, the   demand drops? What happens if BRICS nations and
           dollar remains the dominant reserve asset. But as the   other countries decide they don’t want to hold dollars?
           saying goes, things happen slowly and then all at once.   A de-dollarization of the world economy would cause
           Make no mistake, China and other BRIC nations are   the value of the U.S. currency to crash and likely spark
           slowly working to diminish dollar dominance, as Downey   a currency crisis. You and I would feel the impact, with
           notes.                                             more price inflation eating away at the purchasing power
                                                              of the dollar. It could even lead to hyperinflation. In other
           “China and the other BRICs continue to actively convert   words, even if China and BRICs can’t usurp the dollar,
           their central bank reserves into gold bullion, accounting   they could significantly erode Americans' standard of
           for most of the world’s annual gold output. And continue   living.
           to plan and develop their alternative intergovernmental
           financial systems.”                                It’s important to understand that the real risk isn’t from
                                                              China. It comes from American policymakers who
           So, what could hasten the demise of a dollar?      continued to ignore the ramifications of their reckless
           A currency crisis.                                 policies and keep kicking the can down the road.
           The U.S. government seems intent on creating one   Eventually, they are going to run out of road.
           with its relentless borrowing and spending coupled
           with unprecedented money creation. We’re already   Eventually, they are going to run out of road.
           seeing problems created by this two-pronged monetary
           malfeasance rippling through the economy with slowing
           economic growth and sticky price inflation. If the U.S.
                                                              Source: https://www.moneymetals.com/news/2024/04/29/could-
           doesn’t address these issues, the entire system could
                                                              the-shift-of-gold-west-to-east-set-the-stage-for-a-new-gold-backed-
           start to crumble. And China will be ready to step in.
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