Gold To Play A Growing Role In International Trade
Russian news agency TASS reported that foreign ministers from the BRICS nations, meeting in Russia, stressed the importance of using domestic currencies for international trades amongst BRICS member states. The battle lines to reduce the US dollar's dominance in international trade are clear.
Not only do they want to own less US debt, they also want to weaken the US dollar as the world’s reserve currency. To give themselves options to the US dollar as the dominant currency for international trade.
Conspiracy theorists talk about a “New World Order” with a single global government led by global elites. What they and non-conspiracy theorists don’t seem to realize is that there is a new world order coming, but it is an economic battle between the West and the East. Which is happening before our eyes.
The West has enjoyed the economic benefits of the US dollar dominance as the world reserve currency for a very long time. They like the status quo. This has allowed American politicians and other western governments to build the world economy on debt. As they could fire up the printing press of their currencies to keep the debt house of cards from falling down.
As is often the case in economics, the pendulum swings too far and now we have a Death Spiral of Debt.
The East joined the debt party, it is a global crisis. To fix a problem, you have to first recognize the problem. Although the Death Spiral of Debt is a global problem, the West doesn’t see it as a problem, the East does.
The Fed’s solution to the 2008 GFC was to move to the Free Money Era with the same solution for Covid. Other central bankers followed their lead. If you give away free money, the politicians will spend it. Once they opened Pandora's Debt Box, they kept it open for many years until it turned from “transient inflation” to rapid inflation.
The central bankers of the West and their trusty grossly overspending politicians used the Free Money Era to create the Death Spiral of Debt. While central bankers in the East recognized it wasn’t sustainable a long time ago.
The central bankers in the East did something that I didn’t think would happen in my lifetime, they started buying gold shortly after the 2008 GFC and kept on buying gold. Then when the Fed jacked up the interest rates to fight the inflation they and the politicians caused, they started buying it hand over fist.
Making record purchases of gold in 2022 and pretty much the same amount in 2023 and continuing that trend in 2024. They are marching the East toward the Gold Standard.
When Russia invaded Ukraine, the US imposed sanctions on them. The BRICS nations quickly realized that not only was the Death Spiral of Debt a problem, the American dominance of the global economy was as big of an issue to them.
If America didn’t like what their country was doing, they could be removed from the SWIFT payment system and have assets frozen.
Not only Russia, but all the other countries in the BRICS nations have felt for a long time that America has too much power. After the Russian sanctions, plenty of countries lined up to join the BRICS organization, and the line keeps growing. Which is a clear signal they want to take some of the power out of the hands of America.
I’ll leave it up to others to debate whether or not America has too much power and if they wielded it in an irresponsible fashion. I think it is more important to follow actions than words.
I see the actions of the BRICS nations to increase their reserves of gold. Plus, reduce their reserves of US dollars and US debt. While making trade alliances to reduce the power of the US dollar in trade amongst the BRICS nations.
When the actions and words come together, it is a clear sign of where we are going. So the quote below should not be ignored.
TASS also reported, "The Ministers underscored the importance of the enhanced use of local currencies in trade and financial transactions between the BRICS countries," according to the statement published by the Ministry of External Affairs of India.
I certainly believe that trade amongst the BRICS nations will grow, as will those trades increasingly being settled with their domestic currencies. But, I see some issues in this trend.
A lot of the domestic currencies in the BRICS nations are volatile. Plus, not all the countries in those nations will want to take each other's currencies in trade. I don’t think this is a complete deal-breaker, as they increase using their domestic currencies for international trade, it should make their currencies less volatile and stronger.
Nonetheless, it is an issue. They may not trust each other’s currencies, but rest assured, they do trust gold. Which is why I’m certain gold is going to regain a significant role in international trade.
They started increasing their reserves of gold shortly after the 2008 GFC. Another benefit is their gold is also an attractive currency for international trade.
In the not too distant past, gold was the dominant world reserve currency and a major player in international trade. Last week, when gold got smacked down on Friday, many paid attention to the drop. What they didn’t pay nearly as much attention to is the reports out last week that gold has surpassed the Euro in reserves amongst the central banks.
It is clear that the world is on a path to the Gold Standard. The Death Spiral of Debt is forcing it to happen. As are the BRICS nations that want to take some of the economic power out of America’s hands.
As this trend picks up momentum, the West will be forced to join in or be left behind. All politicians need the fiscal discipline that the Gold Standard puts them on. The world can’t continue to be built on debt and money printing that is not backed up by something other than promises to pay the IOUs with heavily diluted currencies.
But, I wouldn’t stop at the Gold Standard. It makes a whole lot of economic sense for countries to increase their reserves of silver, copper and other crucial commodities. At a minimum to levels that meet their domestic needs.
Commodities are what make the modern world go round, it is much better to own them than IOUs and currencies that are treated like Monopoly Money.
Robert Friedland is a maverick of the mining business. His trailblazing efforts to be ahead of the curve in mining has made him very wealthy and a legend in mining. A portion of one of his quotes does a great job of predicting the future, when he said, “People are waking up to the fact that certain elements in the periodic table are going to be huge winners. And so begins the era of the revenge of the miners.”
Mining has been ignored by global investors for much too long. To make all the products that we use in our world takes commodities. It is time for mining to be back in style.
All the best,
Allan Barry Laboucan
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