Page 31 - Bullion World Volume 4 Issue 5 May 2024

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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