Alasdair MacLeod on Dollar Hegemon Death

The Dollar's Demise: Gold-Backed BRICS Currencies Spell Trouble

"Bottom line, Gold comes back, both sides know it, and competitiveness aside, they are navigating the dilemma as frenemies."

Authored by GoldFix ZH Edit

Contents:

Introduction
The Birth of a New Gold-Backed Trade Settlement Currency
Challenging Keynesian Misconceptions
The Dollar's Dire Situation
The BRICS Gold-Backed Trade Currency and the Dollar's Vulnerability
Triffin’s Dilemma
Triffin’s Crisis
Balance of Terror
The Bigger Threat to the Euro and Sterling
Gold: The Future Anchor
The End of the Fiat Currency Era
Conclusion

Introduction

In a recent Goldmoney Insight, Alasdair MacLeod delved into the proposal for a new gold-backed trade settlement currency to be discussed at the BRICS summit. This latest missive by him examines the ramifications this could have on the current dollar-based fiat currency regime. Subscribers can also read the original 5300 word missive here in Why The Dollar Is Finished on ZeroHedge.

Here is our summary and analysis of that work.

The Birth of a New Gold-Backed Trade Settlement Currency

Evidence suggests that the concept of a new trade settlement currency, backed by gold, has been carefully considered for some time, as far back as 2017 at least. The upcoming BRICS meeting in Johannesburg aims to take the initial step away from fiat to gold-backed currencies. Unlike welfare-dependent nations, the attendees can back their currencies with gold more easily, which aligns with their commercial interests.

Challenging Keynesian Misconceptions

According to Alasdair1, our statist establishments and market participants have been ideologically indoctrinated with Keynesian misconceptions and the state theory of money for so long that they fail to grasp the importance of sound money and the threat it poses to our economies.

From our analysis, John Law: The Mississippi Bubble

John Law's audacious monetary experiments faced ignominious failure, casting doubt upon the credibility of paper money and challenging the nascent notion of central banking. France confronted an arduous path of economic recovery, struggling to regain lost trust and restore financial stability.

The Dollar's Dire Situation

The financial position of the United States is dire, with the Euro also facing potential extinction due to inherent flaws in their own2 system. Moreover, the UK is already embroiled in a deep credit crisis beyond most commentators' comprehension.

The BRICS Gold-Backed Trade Currency and the Dollar's Vulnerability

The announcement of a gold-backed trade currency (currencies really in our opinion, as the Yuan will be partly derived off Gold, and the rest of the BRIC FX may be party derived off the Yuan) by BRICS is likely to expose the nakedness of the dollar and pose challenges to other fiat currencies. As BRICS nations, especially China, move towards gold as a reserve asset, dollar demand and its credibility will likely erode.The crisis phase of Triffin's dilemma is fast approaching, and the US authorities face the risk of a falling off of foreign demand for dollars and outright sales.

TRIFFIN’S DILEMMA OVERVIEW

Named after economist Robert Triffin, reveals a paradox faced by reserve currencies. To meet global demand, a reserve currency must flow abroad, creating trade deficits and economic vulnerabilities at home.

Essentially you create more dollars hoping people hold onto them. Create too many and you lose control of domestic inflation. Create too few and you abrogate your role as GRC.

TRIFFIN'S DILEMMA CRISIS PHASE

The crisis phase arises as the interests of the international community, reliant on the reserve currency for trade and transactions, clash with the domestic objectives of the issuing country. Striking a delicate balance becomes a formidable task. Policymakers must cater to both global demand for the reserve currency while ensuring the stability and purchasing power of their domestic currency.

For instance, the U.S. dollar, being the primary reserve currency worldwide, faces this dilemma acutely. Persistent trade deficits weaken the dollar's value, eroding its purchasing power over time and eroding confidence in its long-term stability.

As the crisis phase intensifies, foreign holders of the reserve currency may start losing confidence, leading to decreased demand for dollar-denominated assets. Consequently, the value of the dollar may depreciate, causing inflationary pressures and driving interest rates higher. These developments can create economic challenges and disruptions within the country issuing the reserve currency.

That is how a “Triffin’s crisis” is precipitated normally, economic sloppiness causes loss of faith gradually over time. But what happens when the global community that had been reliant on the USD as GRC has lost some faith in the GRC currency from its economic policies, but is forced to act due to Geopolitical event like confiscating Russia’s reserves?

BALANCE OF TERROR

The dollar's situation is precarious, and the Fed may face a tough choice between saving the dollar or salvaging government finances. It is our opinion that the crisis, when it comes (if it hasn’t already in slow process form), is meaningless in that, the US will do everything it can to preserve itself first. And, knowing the ROW is interested in demoting it as one of several GRC's, that adversarial relationship makes it easier to choose which side it will come down on as it navigates Triffin’s crisis phase: US over ROW, so long as US TSY is the main reserve asset.

It is this antagonism, an almost prisoners’ dilemma situation, that makes the world tensely cooperative in small steps, even with rhetoric flying to the contrary.

Bottom line, Gold comes back, both sides know it, and competitiveness aside, they are navigating the dilemma as frenemies. They ultimately are not too worried about each other directly. They are likely worried about a smaller country losing their reason to not be aggressive and potentially dragging everyone into a bigger conflict, Serbia and WW1 fro example.

Therefore a balance of terror will likely drive public discourse with the countries most apt to suffer economic pain being the rhetorical ( and real) battlefields. Countries like Taiwan, and Ukraine (as one of a few nations in the security corridor of Europe), and others with large USD debt but no China savior looking after them fit the bill.

The crisis phase may be even worse for Europe however for multiple reasons.

Continues here ...

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