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August
19
2023

The U.S. Dollar’s Monopoly Is Not Going Well
Peter Reagan

In what is now a ten-year-old interview, Jim Rickards shocked his audience. Sadly, his controversial views then might be considered good news today…

After being pressed about his somewhat extreme economic predictions, he added some context:

The international monetary system has actually collapsed three times in the past 100 years. It collapsed in 1914, again in 1939 and most recently in 1971. And each time it wasn’t the end of the world, it didn’t mean that we all lived in caves and ate canned goods.

Two of those three collapses were caused by what we now call World War I and World War II. You know what that means so I won’t belabor the point.

His 1971 reference is shorthand for the U.S. move off the gold standard, which, granted, “wasn’t the end of the world.” Simply the beginning of a decade of high unemployment, high inflation and permanent damage to the global prestige of the nation.

We may be on the cusp of a fourth revolution in the international monetary system. Before we explore that, let me take a moment and explain exactly why it matters.

Why is the U.S. dollar important?

This may sound like a dumb question. We all care about dollars in the sense that we need them to pay the electric bill.

But the dollar’s much more than that. Jeffrey Garten explains this succinctly in his book Three Days at Camp David:

…in fact, the dollar was, and still is, at the intersection of foreign policy, national security, and international commerce. Our currency is also a major influence on what we care so passionately about at home, including such issues as jobs, prices, retirement security, financial stability, economic opportunity, and even respect in the world. We may not think about the dollar in such all-encompassing terms, but the value of the greenback has had a broad and deep impact on the country and the world as well as on our everyday lives.

Here’s the point: the dollar is the primary mechanism we use to interact with the rest of the world (and vice versa).

Furthermore, the dollar is the world’s global reserve currency. That means nations around the world need dollars just to participate in international trade.

This gives the dollar a monopoly on global commerce transactions. “Monopoly” as in “the exclusive possession or control of supply,” not the board game.

The reason monopolies are illegal in the U.S.? They lead to abuse. Free markets only work when there’s competition – and monopolies are the opposite of competition.

Most nations don’t have an alternative to the dollar, so when they import oil from Saudi Arabia or cotton from Egypt, they pay in dollars. And it works!

In order for a currency to do its job, it needs two things: Liquidity, and trust.

There’s ample dollar liquidity – $21 trillion (and counting).

Trust, though? That’s in shorter supply…

The end of trust in the dollar

Jim Rickards recently explained how the Biden administration and allies shattered the trust of the global economic community.

Here’s a transcript of the relevant section, in case you prefer reading to watching:

Of course, it isn’t the only time the U.S. Government has leveraged the currency market against other countries to get its way, but this time it appears rather egregious.

Here’s what Rickards told the interviewer:

You don’t have to like the United States but you trust the market. The U.S., in response to the war in Ukraine, broke the trust. They froze the U.S. Treasury assets of the Central Bank of Russia – unprecedented…

You know maybe S&P would call it a ‘selective default,’ but Russia… they’re entitled to principal and interest. And we’re saying, ‘No, you can’t have the principal and we’re not paying you.’ Well, that’s the default. I don’t care how Janet Yellen dresses it up. But worse than that, everyone else in the world was watching – Saudi Arabia, India, Brazil, Malaysia and there’s Turkey and others and they’re saying to themselves, ‘Gee, what if the United States doesn’t like what I did? What if they don’t like my policy? What if there’s a war in my neighborhood they’re not in favor of… now the countries are saying, well what good is it to have my savings in dollars if you’re just going to steal them?”

You might say that the U.S. has been building trust in the dollar for over 200 years. And in February 2022, the Biden administration weaponized that trust by seizing Russian dollar assets. 

They tried to break Russia, but instead they shattered the world’s trust in the dollar.

And now, as Rickards points out, the rest of the world is asking whether owning dollars is worth the risk.

Sometimes, monopolies last simply because it’s inconvenient to break them up.

The BRICS nations have decided it’s worth the trouble to de-dollarize their economies by creating an alternative to the dollar.

They’re intent on breaking up the U.S. dollar’s monopoly on global trade – and they aren’t alone…

BRICS+ nations are betting on the dollar’s demise

As has been widely reported, BRICS nations are expected to launch a new, international gold-backed currency on August 22nd.

Even if the new BRICS currency they unveil isn’t wonderful, at least it wouldn’t be a dollar. It wouldn’t be maintained by the U.S. Treasury – so it couldn’t be stolen by the U.S. as a political statement.

Granted, there is a big difference between a currency for payments, for using, and a currency for reserves, for storing value. (Sort of like the difference between your checking account and your savings account.)

Currently, central banks use dollars for payments and gold for storing value. (Because the dollar’s been failing miserably at its store-of-value role, global central bank purchases have been at record levels for the last 18 months.)

What happens if the new BRICS currency serves as both a payments and a reserve currency? After all, the BRICS are already a group of economic powerhouses (and another 40 countries are eager to join the group). They’re major export nations – and we know that sellers get to determine the terms of the sale.

What if they offer discounts for paying in their new currency? Or, even worse, decide only to accept payment in BRICS currency? 

That would truly be the end of the dollar’s role as monopoly money.

We’d see a massive slide in the dollar’s purchasing power, as some $7 trillion in global dollars suddenly flooded back to the U.S.

Don’t wait to see how this unfolds – get the protection you need right now!

Diversify with gold (or BRICS will make you wish you had)

Every American should take this threat seriously because BRICS+ group is already big and getting bigger. What looks like a stable dollar now, could change in a heartbeat.

A weaker dollar sends commodities prices skyrocketing. That’s because all commodities, including precious metals like gold and silver, have intrinsic value based on their utility as well as supply and demand.

As I mentioned previously, global central banks aren’t waiting – they’re buying gold hand over fist. They want to ensure their purchasing power doesn’t vanish at the hands of inflation or political cancellation.

That also means they could help to preserve your buying power no matter how fast the dollar weakens after August 22nd . You can get all the information you need about both gold and silver for free to make an informed decision right here.

Remember, U.S. federal government think they have a monopoly on money, they don’t. Owning dollars is a choice based on trust that we each get to make for ourselves.

Is the government worthy of your trust?

 

 

Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal IRA Specialists, Birch Gold helps Americans protect their retirement savings with physical gold and silver.

 

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