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June
21
2025
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Basel III Changes the Rules. The Rio Reset Changes the Game
Next month, the global financial system will see two very different updates. Now, this is probably just a coincidence. But still, it's a useful coincidence. Because it showcases two very different approaches to problem-solving. In July, Basel III Endgame protocols go into effect. So does the Rio Reset. Let's take a look at what that means... The current state of the global financial systemSince the Great Financial Crisis of 2007-08, the world has known one thing for certain: The global financial system is broken. Here's how we know. In 2006, a couple in Lake Worth, Florida buys more house than they can afford. Their mortgage (and a thousand others) are transmuted into an innovative financial instrument – a new kind of wealth! Or an economic weapon of mass destruction... When the Lake Worth couple miss their mortgage payment, major Wall Street firms like Lehman Brothers and Bear Sterns go bankrupt. The Royal Bank of Scotland fails. Iceland's financial system collapses. A dozen nations beg for bailouts from the IMF, hundreds and hundreds of banks are wiped out along with half the global economy. A massive chain reaction of debt, deception, and derivatives brought the modern financial system to its knees – and a decade later, it still wasn't back on its feet... That's because the global financial system is unstable by design. It's engineered to exploit. It's both too important and too dangerous to leave untouched. But it's too complicated to really understand...
Image via PlatON Nothing this complicated is meant to be understood. There are too many connections and too many interdependencies. You never know whether a housing bubble in the U.S. might cause a sovereign debt crisis in the Euro Zone, or trigger a Russian invasion of South Ossetia and Abkhazia. Basel III was supposed to be the fix. Basel III Endgame: a dramatic change to risk-based capital framework Basel III comes from the Basel Committee on Banking Supervision (BCBS). Established in 1974 by the central bank heads of the G10 nations. The "Group of 10" or G10 is actually comprised of the 11 leading industrial countries: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States. (Why don't they call it G11? I don't know! That's far from the least puzzling thing I'm going to tell you!) As you might guess from the name, Basel III (sometimes called "Basel 3") is a sequel:
From its 2010 publication, Basel III has been intended to strengthen bank balance sheets and prevent another system-wide collapse. Tighter capital requirements and limits on risk-taking make banking safer for everyone – but less profitable for bankers. In a quiet but profound shift, Basel III elevated physical gold to the highest tier of reserve asset, the safest form of money. Despite the decade of pearl-clutching and shrieks of outrage from global megabank CEOs, Basel III was never radical. There was no plan to a return to sound money. Basel III didn’t challenge the dollar’s global dominance. It simply tried to make the existing system… less fragile. Less dangerous. Basel III simply added a safety to the loaded firearm of finance pointed at our economy. Finally, on July 1, Basel III Endgame will go into effect. With a three-year phase-in period because, let's face it, fifteen years isn't enough time for the world's highest-paid executives to make their institutions a little more responsible. Basel III can't fix the problemBut despite the good intentions, Basel III hasn’t been embraced. Not because it doesn’t work! Rather, because it works too well. See, big banks don’t want stability. They want profit. Every Basel III rule that reduces leverage, that limits exotic derivatives, that elevates gold over paper, is a rule that shrinks bank profits. Like a child told it's bedtime, their response has been predictable: Drag their feet. Plead for delays, for exceptions, for just one more minute. You probably haven't heard much about this in the mainstream media. Let's be fair – it paints mainstream media's corporate owners in a pretty unflattering light! "We can't afford to be safer" isn't something you ever want to hear a bank's CEO say out loud. In fact, the ONLY provision that did get attention? The reclassification of physical gold as a Tier 1 risk-free asset. But with a catch. Gold only qualifies as "risk-free" if it’s both vaulted and owned outright by the bank. Gold loans, leased gold, futures contracts... Nope. Those are assets, but they are not Tier 1 risk-free assets. And even that modest change was met with resistance. Even the World Gold Council lobbied against these new rules! Basel III was an attempt to untie the Gordian Knot of global finance with careful regulatory threading. The Rio Reset is BRICS's answer to the Gordian knotDo you know the story of the Gordian knot? An ancient Phrygian king tied his chariot to a post with a knot so insanely complex no one could untangle it. Legend said whoever solved the knot would rule all of Asia. In 333 BC, when Alexander the Great entered the city at the head of his army, the elders of Phrygia met him and challenged him to untie the knot. They led him to the chariot. He took one look at the tangle of rope, drew his sword and chopped the knot in half. He not only solved the problem in a single stroke, he went on to prove the legend true by becoming ruler of all Asia. That's exactly what BRICS leaders have done. Perhaps they learned the lesson of Basel III, that even minor changes to improve the global financial system would be fought tooth and nail for decades. They aren’t trying to untangle the Western financial system. They've given up on contorting themselves to fit in. They aren't bothering with the regulatory cross-stitch something like Basel III requires. They’re tying their own knot. They don’t need Basel III OR its safeguards. They aren’t interested in pretending debt is money, because (unlike the G10) they don't need to beg for loans! BRICS nations aren't independent. For example, China needs Russia's oil and Brazil's soybeans. But China's offering real value in return: Rare earth elements, heavy machinery, electronics and so on. Most interestingly, BRICS are building a system that enshrines gold as its foundation. Not because bureaucrats in Belgium say gold is a Tier 1 asset, not because a rulebook says so, but because history and common sense say so. Here in the West, we're clinging to a system that's designed to break from time to time. Today it's only barely held together with duct tape and bailing wire. No wonder BRICS think they can do better. Basel III and the Rio Reset have the same goalHere’s the irony no one talks about... Both Basel III and the Rio Reset aim to make the global financial system more stable. More equitable. Less vulnerable to failure, more robust and reliable. The difference is that it's really hard to improve a decaying system from the inside. A mechanic can't fix your engine trouble from the driver's seat. U.S. banks can ignore Basel III. They've done so for over a decade. But they can’t ignore the Rio Reset. Because when global trade settles without dollars... When other nations start using BRICS payments more than SWIFT... When the rest of the world stops playing our game? Our rules don’t matter anymore. If there’s one rule both Basel and BRICS can agree on, it’s this: Gold is the only truly universal currency of last resort – the foundation of international finance and global trade. Of course, that’s been true throughout human history. But in a world obsessed with innovation, we seem destined to keep rediscovering the wisdom of our ancestors.
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