US Response to BRICS: Turning to Gold to Offset Debt and Restore Faith in the Dollar
Bretton Woods I, Bretton Woods II, Bretton Woods III. Now We Enter Bretton Woods IV; Two Global Reserve Currencies and Both Could Require A lot More Gold.
The global financial landscape is undergoing a significant transformation, with the BRICS nations (Brazil, Russia, India, China, and South Africa) challenging the long-standing dominance of the US dollar. This shift, often referred to as "de-dollarization," is forcing the United States to reconsider its monetary policies and potentially turn to gold to maintain its economic influence.
The current situation can be understood through the lens of three distinct Bretton Woods eras. Bretton Woods 1 emerged after World War II, with the US becoming the world's economic leader due to its strong financial position and gold reserves. This led to the establishment of the US dollar as the global reserve currency.
Bretton Woods 2 began with the Nixon Shock of 1971 when the US suspended dollar convertibility to gold, effectively defaulting on its obligations to the rest of the world. This was followed by the petrodollar system, where Saudi Arabia agreed to settle oil transactions in US dollars in exchange for military protection.
Now, we are entering Bretton Woods 3, characterized by a shift towards commodities and gold-backed currencies. The BRICS nations are at the forefront of this change, accumulating gold and other valuable resources to create a new financial order. China, as a leading producer of gold and rare earth metals, and Russia, with its vast natural resources, are particularly well-positioned in this new paradigm.
The BRICS nations are developing alternative financial systems, such as the mBridge digital currency platform and the UNIT already tested and unfurled at the October BRICS summit meeting next month in Russia where we expect to see the fine tuning of their pending gold-backed BRICS currency. These initiatives aim to reduce reliance on the US dollar and create a more multipolar economic world. The strategy of accumulating gold as a means to trade for commodities is gaining traction, with the concept of "gold for oil" becoming increasingly relevant.
This shift poses significant challenges for the US dollar. As BRICS nations sell US Treasuries to buy gold, the influx of dollars back into the US economy will lead to 2nd wave of inflation that some experts believe will be more like a Tsunami.
Additionally, a weaker dollar makes it cheaper for foreign nations to purchase gold, further solidifying the BRICS' leverage over the US currency.
To counter this trend and maintain its economic influence, the United States (much to the Politicians chagrin) will have no choice but to embrace gold more prominently in US monetary policy.
Think of it this way, as more states legalize marijuana this sets a trend towards delivering a mandate. As this legalize snowball gets bigger and bigger pretty soon the USA just legalizes it on national level. Same could happen with Gold, just recently New Jersey became more gold friendly by removing the sales tax on gold. (A huge win for my friend’s Stefan Gleason and Jp Cortez of the Sound Money Defense League and a hat tip for this incredible accomplishment) Once we see more State’s passing Sound Money Legislation the Fed has no choice but to respond to these mandates. So change comes from the bottom before The Fed passes laws from the top going downward.
This could involve increasing its gold reserves, considering a partial return to the gold standard, or incorporating gold-backed elements into its currency system. Such moves could help offset the nation's enormous debt and restore faith in the US dollar.
The emerging scenario could lead to a division between Western and Eastern hemispheres in terms of economic systems. Alternatively, it might result in a more balanced, multipolar world economy, potentially fostering greater global stability compared to the current landscape where the US digs in violently irrationally to maintain US dollar hegemony via military backing.
As these changes unfold, the US faces a critical decision:
adapt to the new reality by incorporating elements of the BRICS gold backed strategy, or
risk losing its economic dominance.
This is classic if you can’t beat ‘em join ‘em
and also a Win Win for Gold and humanity
The coming years will likely see significant shifts in global financial power dynamics, with gold playing a central role in shaping the future of international trade and monetary policy.
In conclusion, the rise of BRICS and their gold-focused strategies are forcing a reevaluation of the global financial system. The US response to this challenge will be crucial in determining the future of the dollar and the broader economic landscape.
By the US potentially turning to gold to offset its debt and restore faith in the dollar, the US could navigate this transition and maintain its economic influence in an increasingly multipolar world.
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Silver Academy’s Jon Little went on Kitco yesterday to discuss the plausible US response to BRICS and a Gold backed multipolar world:
https://www.lowyinstitute.org/the-interpreter/de-dollarisation-shifting-power-between-us-brics
https://asiatimes.com/2024/09/bric-by-bric-de-dollarization-only-a-matter-of-time/
https://metalsedge.com/how-the-new-brics-currency-will-affect-gold-and-silver/
https://www.texastaxpayers.com/the-gold-backed-brics-currency-and-the-danger-to-the-fiat-dollar/
https://foreignpolicy.com/2023/04/24/brics-currency-end-dollar-dominance-united-states-russia-china/
https://www.nasdaq.com/articles/how-would-new-brics-currency-affect-us-dollar-updated-2024
https://www.reuters.com/markets/currencies/us-dollars-dominance-secure-brics-see-no-progress-de-dollarization-report-2024-06-25/