Is the Gold Standard Coming Back?
International Man: There have long been rumors that Russia or China would create a gold-backed currency, but there was never a formal acknowledgment… until recently.
The Russian government recently stated:
“The BRICS countries are planning to introduce a new trading currency, which will be backed by gold.”
Analysts expect a formal announcement at the next BRICS summit in Johannesburg in the coming weeks.
What is your take?
Doug Casey: Let’s try to parse the words in the statement. In particular, the use of the word “trading.” I’m not sure what the difference between a “trading currency” and an ordinary currency might be. My guess is that it would only be used for settling accounts internationally. Also, if it’s going to be backed by gold, where will that gold be held? Will the amount of this currency—let’s call it the BRIC—that different governments get be based only upon the amount of gold that they have in their treasury? And will the currency be just for governments, or will it be available to companies or the average guy?
It’s unlikely to be of use to the average guy. In the first place, they won’t be printing 100 BRIC (or whatever they’ll call it) notes in this age of CBDCs. Allowing its use by the plebs would give them entirely too much freedom to take their assets across borders. Remember that almost all the countries talking about replacing the dollar now have crappy “blocked “currencies that are essentially worthless outside their home countries. My guess is that the new BRIC will be for international settlement only, just so they don’t have to use the dollar. Citizens will still have to use their crappy national currencies domestically.
There’s a basic question we have to ask ourselves, one that everyone is forgetting: Why is this new currency “backed” by gold in the first place? Why not simply use gold?
In other words, why have a government middleman there to call some amount of gold a “franc,” a “ruble,” a ‘pound,” a “dollar,” or whatever? Who needs some untrustworthy intermediary to give you paper? Why not just allow everybody to use gold itself, the world’s only historically successful money? The only reason for a currency is because they’re planning on manipulating it, which means inflating it at some point.
Of course, it will be nominally backed by gold to start with—it has to be, because none of these governments trust each other. But who among them can be trusted to store and redeem the gold? Nobody. That guarantees that although it might start out well because somebody says it’s redeemable and limited in quantity, it’ll eventually fall apart.
International Man: While the details remain unknown, how do you expect a potential BRICS gold-backed currency to work in practice?
What does this mean for the US dollar?
Doug Casey: I’m all for anything that gets the world off the dollar standard. The fact the dollar is accepted everywhere allows the US government to do all kinds of things—almost all of them stupid and destructive—that it wouldn’t otherwise be able to afford. Roughly $800 billion dollars are exported annually. That trade deficit has been going on for over 40 years. It’s artificially raised the standard of living of Americans. It’s made them think government economic policy is wise. Which it isn’t. Decades of accumulated offshore dollars will someday—soon—come back home. Many trillions of dollars will be traded for real wealth in the US; prices will skyrocket, and the standard of living will collapse.
Since the early ’80s, the major US export has not been Boeings or wheat, or computers. It’s been dollars. Who knows how many scores of trillions of dollars are outside the US now? Foreigners only use the dollar because it’s traditionally accepted and convenient. Americans use it because they must, as “legal tender.” At some point, foreigners will dump the dollar for any number of reasons. It’s a time bomb waiting to go off.
It’s nice to see an alternative currency developing. But none of the governments involved—the Chinese, the Indians, the Russians, and 30 or 40 little players so far—have any reason to trust each other or the BRICS currency. I think it will fall apart.
It might do better than the euro initially. As I’ve often said, if the dollar is an “I owe you nothing,” the euro is a “who owes you nothing,” With the proposed BRIC, at least somebody’s theoretically got some gold available for redemption. But at least the euro is used by individuals and has paper notes. The BRIC won’t be used by tens of millions of individuals to help keep it stable. The BRIC is unlikely to be used for anything but accounting between governments.
They should just use gold itself—honest, uncomplicated, non-political money.
Every currency in the world is a fiat unit, backed by nothing but faith and habit, backed by nothing except the force of a government to make it legal tender.
The dollar is just—for the moment—the most accepted currency.
International Man: “We should expect over time a gradually increased share of other assets in reserve holdings of countries.”
“It’s possible to have more than one reserve currency.”
These are the recent words of Janet Yellen, the Secretary of the Treasury, and Jerome Powell, the Chairman of the Federal Reserve.
Their remarks strongly hint that the current international monetary system based on the US dollar is on its way out… and soon.
Even the elites running this 50+ year-old system can’t go along with the farce of maintaining it anymore.
What is your view?
Doug Casey: Yellen and Powell are said to be economists. In fact, they are not economists. An economist is somebody who describes the way the world works in going about its business of producing and consuming. That’s not what these people attempt to do. They try to prescribe the way they think the world ought to work by creating more dollars.
Perhaps they finally see the writing on the wall. With the annual interest on the US now crossing the $1 trillion level, even they can see that the US government has to borrow money just in order to pay the interest on its debt. That means it’s pretty much “game over.”
So yes, there will soon be more than one reserve currency. The world will have to go back to gold simply because these governments are congenitally irresponsible and unsound. They have no reason to trust each other. They’re all inflating their currencies. They’re all bankrupt. The dollar is on its way out.
What’s going to replace the dollar? I don’t think it’s going to be the BRICs currency. Or the euro. It’s going to be gold itself. The problem is that these governments might try to make gold something that is just used between themselves for trade as opposed to something that the average guy can keep in his pocket. That would give them vastly less control and individuals entirely too much freedom.
International Man: Given everything we’ve discussed, what are the best ways to get positioned for prudence and profit?
Doug Casey: Well, it’s very clear that gold is moving back into the international monetary system after many decades of being viewed as an ancient foible or a pet rock. There’s actually no alternative other than primitive barter for international commerce.
Since there are only six or perhaps seven billion ounces of gold in the world—less than an ounce for every person on the planet—chances are that there’s going to be much more demand for gold both from individuals and from governments and all entities in between as national currencies collapse. So even though, at this moment, gold is now reasonably priced relative to everything else in the world—houses, clothes, food—I nonetheless think it’s likely to go much higher. It’s a refuge from chaos, and chaos is in the cards.
To answer to your question: Buy physical gold coins and keep most of them in your own possession. Also, to speculate on further increases in the price of gold, buy well-selected mining stocks. In past gold bull markets, they have moved upwards 10 to one, with some individual stocks moving up 100 to one or even 1,000 to one over the course of a few years.
Editor’s Note: In this rare message, legendary gold investor Doug Casey shows you the secret to how he invests and the most lucrative “insider” way of multiplying your gold mining stock returns.
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