The Dream Is Dead
James Rickards

The global desire to move away from the dollar as a medium of exchange for international trade in goods and services has gone from a discussion point to a novelty to a looming reality in a remarkably short period of time.

It’s impossible to check headlines without seeing a new story about major trading partners planning to substitute their local currencies (or in the BRICS case, a newly formed currency) for the U.S. dollar in payment channels supporting world trade.

This plan has recently been re-emphasized as the BRICS have agreed formally to admit six new members to the group, including Saudi Arabia.

The importance of the new members is obvious. By adding Saudi Arabia, the BRICS now have two of the three largest oil producers in the world (Russia and Saudi Arabia; the third member of the trio is the United States) inside their tent.

The inclusion of UAE and Iran alongside Saudi Arabia and Russia makes the BRICS a de facto OPEC+ when it comes to dictating oil output and prices.

The BRICS will now include the second, fifth-, 10th-, 11th-, 18th- and 23rd-largest economies in the world, along with five others. The total GDP of the expanded BRICS membership is approximately 30% of global GDP measured on a nominal basis and over 50% of global GDP when measured based on purchasing power parity.

Many Americans are inclined to lament declines in the dollar’s global role. But should they?

The dollar’s global role has always been a double-edged sword for the United States. A strong dollar makes exports more expensive. And even though it does allow the threat of sanctions to be part of foreign policy, that hasn’t worked out that well for the U.S. under Joe Biden.

You see, in addition to sanctioning oligarchs, banning U.S. investment in Russia, kicking Russia out of the SWIFT international messaging system and freezing and stealing assets, Biden’s sanctions went so far as to freeze and hold the U.S. dollar reserves of the Central Bank of Russia.

I wrote at the time that not only would this move fail to hurt Russia. But it would also boomerang and do extreme damage to the United States. I’m truly sad to say I was right.

When other countries saw the U.S. grab the assets of a major central bank, they asked themselves the obvious question: “What if the U.S. doesn’t like MY policies or actions in international affairs?” “Will Biden then seize my central bank assets too?”

Many countries — including China, India and Brazil decided the answer might be, “Yes.” and they immediately started selling off their holdings of U.S. Treasury debt and began to pay for imports in their own currencies.

But Biden’s blunder created an even more significant threat and the status of the dollar as the world’s global reserve currency is now in question.

So the greatest threat to the dollar comes not from abroad but from the U.S. Treasury.

Specifically, by seizing the assets of the Central Bank of Russia, the U.S. has weaponized the dollar in a way that undermines the rule of law in the United States and causes other countries to seek alternatives.

What if no other currency can easily replace the reserve currency role of the dollar? Is there any alternative at all?

Yes, gold is ready and waiting in the wings. That’s the real danger to the U.S. Treasury market — that sovereign nations turn to gold to escape the dollar.

That trend has also begun. Yet it cannot go very far without exponential increases in the dollar price of gold. Such gains should not be thought of as gold “going up.” They are best understood as the dollar going down. The implications of that are highly inflationary as we saw in the late 1970s.

We will see the results of de-dollarization efforts in the months ahead. For now, get your gold while you still can.

Below, I show you how the BRICS summit is just one more sign that the globalist dream is dead. Read on.

The Globalist Dream Is Dead

What exactly happened at the BRICS Summit in South Africa that concluded on Aug. 24? The answer is a lot happened with momentous consequences for the international monetary system and geopolitics more broadly. Yet the most important details were not widely reported and instead were buried beneath the standard headlines. Here’s the story:

I’ve reviewed the 26-page formal communique emerging from the BRICS Summit. It’s fine for reference purposes, but it’s mostly filled with diplomatic phrases and good intentions. It discusses “mutual respect and understanding, sovereign equality, solidarity, democracy, openness, inclusiveness, strengthened collaboration and consensus.”

That’s just diplomatic boilerplate that you can find in almost any communique from any multilateral meeting. There are some important announcements buried in the 26 pages, but I can get more information from the media and my private sources. The formal document can safely be laid to one side while we dig behind the scenes for the real news.

The News Is Huge

To review, the BRICS (Brazil, Russia, India, China and South Africa) have agreed formally to admit six new members to the group. These countries are Saudi Arabia, Iran, UAE, Ethiopia, Argentina and Egypt. These countries will become BRICS members effective Jan. 1, 2024. This is the first change in the membership since South Africa was admitted to the original BRICs in 2010.

Now that the dam has burst on new members, it’s reasonable to expect that many more on the 20-plus-country waiting list will be admitted in the years ahead, including economically powerful players like Turkey.

There was a lot of back and forth among the members regarding these admissions. China pushed hard for the inclusion of Saudi Arabia since the kingdom is the largest supplier of oil to China. Russia also supported Saudi Arabia.

India was initially opposed, but then agreed in return for China’s support to admit Iran, which is a close ally of India. South Africa lobbied for another sub-Saharan African member, which accounts for the inclusion of Ethiopia.

Brazil wanted to make sure South America was not slighted and pushed for Argentina, which is a major trading partner of Brazil. Egypt seemed an obvious choice, both because of the importance of the Suez Canal and because of Egypt’s historic close ties to Russia going back to the 1950s.

UAE is an important financial center (a key consideration as the de-dollarization effort moves forward) and fits nicely with the oil production portfolio of Saudi Arabia, Iran and Russia. In the end, everyone gained something and a consensus was reached.

The Planned Dominance of BRICS+

By adding Saudi Arabia, the BRICS now have two of the three largest oil producers in the world (Russia and Saudi Arabia; the third member of the trio is the United States) inside their tent. The inclusion of UAE and Iran alongside Saudi Arabia and Russia makes the BRICS a de facto OPEC+ when it comes to dictating oil output and prices.

The combined population of the BRICS+ is 3.6 billion, or 45% of the total population of the earth. The expanded BRICS also dominate a long list of natural resource outputs including grains, soybeans, rare earths, uranium, titanium, aluminum, and gold. The BRICS+ possess two of the three largest nuclear weapons arsenals on earth (Russia and China; the U.S. is the other member of the three).

The power of BRICS+ goes far beyond simple measures of output and population. When you look at a map of the world, you’ll see that the BRICS now control the Persian Gulf and the Straits of Hormuz (Saudi Arabia, UAE and Iran), the Suez Canal (Egypt), the Straits of Magellan (Argentina) and a large portion of the Eurasian landmass (Russia, China, and Iran).

This effort has a long way to go and the U.S. Navy still rules the seas. Transportation links from Shanghai to Rotterdam are still in the works. But the BRICS+ vision with respect to both land and sea global dominance strategies is breathtaking.

In short, whether measured by population, weapons, economic output, energy, natural resources or sheer landmass, the BRICS+ are now in a position to challenge the G7 and other developed economies for a global voice in geopolitics, economics and the global order.

This challenge will become more tangible as the BRICS add even more members in future. The battle lines between the Collective West and the Global South have now been drawn. It’s a multipolar world of a kind last seen in 1991 at the end of the Cold War. The globalist dream is dead.

What About That New Global Currency?

What about plans for a new global BRICS currency to be used first as a trading currency among members and then later as a reserve currency?

The BRICS XV Summit declaration is almost completely silent on this point. There are some positive references to the respective roles of the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA) but these are both existing entities and do not mark new initiatives.

But the fact that a new global currency was not mentioned does not mean it was not discussed privately. It simply means that no consensus was reached.

China still harbors dreams of making the yuan a global trade currency and creating a kind of “petroyuan.” India is still pushing for wider acceptance of their rupee in bilateral trade. South Africa is not a significant global player in this debate. Only Russia and Brazil seem committed to creating a true alternative to the dollar for global trade and reserves.

These issues will have to be resolved.

Importantly, the size of a currency union is the key to its success. The euro is a perfect example. There are currently 20 countries that use the euro as their home currency. The euro also ranks as a global reserve currency (with about a 26% share of reserve assets denominated in euros) because it is freely convertible into U.S. dollars and other reserve currencies such as Swiss francs, sterling and Japanese yen.

This is why the expansion of BRICS membership is integral to the vision of a new global currency. Designing and launching a new currency means little without a large group of trading partners ready to adopt it and use it in day-to-day trading.

The addition of new BRICS members is an important move in the direction of creating that large group and therefore an essential step on the road to a new global currency to rival if not displace the dollar.

The process has begun.

 

James G. Rickards is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He was the principal negotiator of the rescue of Long-Term Capital Management L.P. (LTCM) by the U.S Federal Reserve in 1998. His clients include institutional investors and government directorates. His work is regularly featured in the Financial Times, Evening Standard, New York Times, The Telegraph, and Washington Post, and he is frequently a guest on BBC, RTE Irish National Radio, CNN, NPR, CSPAN, CNBC, Bloomberg, Fox, and The Wall Street Journal. He has contributed as an advisor on capital markets to the U.S. intelligence community, and at the Office of the Secretary of Defense in the Pentagon. Rickards is the author of The New Case for Gold (April 2016), and three New York Times best sellers, The Death of Money (2014), Currency Wars (2011), The Road to Ruin (2016) from Penguin Random House.

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