On Aug. 22, about 2½ months from today, the most significant development in international finance since 1971 will be unveiled. It involves the rollout of a major new currency that could weaken the role of the dollar in global payments and ultimately displace the U.S. dollar as the leading payment currency and reserve currency. It could happen in just a few years, predicts James G. Rickards, an editor of Strategic Intelligence, an American lawyer, economist, and investment banker with 40 years of experience working in capital markets on Wall Street.
The process by which this will happen is unprecedented, and the world is unprepared for this geopolitical shock wave.
This monetary shock will be delivered by a group called the BRICS. The acronym BRICS stands for Brazil, Russia, India, China and South Africa.
This play for global reserve currency status by the BRICS will affect world trade, direct foreign investment and investor portfolios in dramatic and unforeseen ways.
The most important development in the BRICS system concerns the expansion of BRICS membership. This has led to the informal adoption of the name BRICS+ for the expanded organization.
There are currently eight nations that have formally applied for membership and 17 others that have expressed interest in joining. The eight formal applicants are: Algeria, Argentina, Bahrain, Egypt, Indonesia, Iran, Saudi Arabia and the United Arab Emirates.
The 17 countries that have expressed interest are: Afghanistan, Bangladesh, Belarus, Kazakhstan, Mexico, Nicaragua, Nigeria, Pakistan, Senegal, Sudan, Syria, Thailand, Tunisia, Turkey, Uruguay, Venezuela and Zimbabwe.
There’s more to this list than just increasing the headcount at future BRICS meetings. If Saudi Arabia and Russia are both members, you have two of the three largest energy producers in the world under one tent (the U.S. is the other member of the energy Big Three). If Russia, China, Brazil and India are all members, you have four of the seven largest countries in the world measured by landmass possessing 30% of the Earth’s dry surface and related natural resources.
Almost 50% of the world’s wheat and rice production as well as 15% of the world’s gold reserves are in the BRICS.
Meanwhile, China, India, Brazil and Russia are four of the nine highest-population countries on the planet with a combined population of 3.2 billion people or 40% of the Earth’s population.
China, India, Brazil, Russia and Saudi Arabia have a combined GDP of $29 trillion or 28% of nominal global GDP. If one uses purchasing power parity to measure GDP, then the BRICS share is over 54%. Russia and China have two of the three largest nuclear arsenals in the world (the other leader is the United States).
By every measure — population, landmass, energy output, GDP, food output and nuclear weapons — BRICS is not just another multilateral debating society. They are a substantial and credible alternative to Western hegemony.
BRICS acting together is one pole of a new multipolar or even bipolar world.
When the new currency launch is announced in August, the currency will not fall on an empty field. It will fall into a sophisticated network of capital and communications. This network will greatly enhance its chances of success.
The BRICS are also developing an optical fiber submarine telecommunications system that would connect its members. It is being developed under the name BRICS Cable. Part of the motivation for BRICS Cable is to foil spying by the U.S. National Security Agency on message traffic carried through existing cable networks.
What’s behind this quest to ditch the dollar? In no small part the answer is U.S. weaponization of the dollar through the use of sanctions.
On numerous occasions from 2007–2014, I warned U.S. officials from the Treasury, Pentagon and intelligence community that overuse or abuse of dollar sanctions would lead adversaries to abandon the dollar to avoid the impact of sanctions. Such abandonment would lead to the diluted potency of sanctions, unforeseen costs imposed on the U.S. and eventually to the collapse of confidence in the dollar itself. These warnings were mostly ignored.
We have now reached the first and second stages of this forecast and are dangerously close to the third.
For years, the U.S. has used sanctions to punish nations like Iran. But the sanctions the U.S. and its allies imposed on Russia after it invaded Ukraine last year went far beyond previous sanctions regimes. They were unprecedented. Many other nations began to conclude that they could be next if they run afoul of the U.S. on certain issues. And that fear has greatly accelerated the push to opt out of the dollar system entirely.
This desire is not limited to current targets such as Russia but is shared by potential targets including China, Iran, Turkey, Saudi Arabia, Argentina and many others. The global desire to move away from the dollar as a medium of exchange for international trade in goods and services is hardly new. The difference today is that it’s gone from a discussion point to a novelty to a looming reality in a remarkably short period of time.
Yet all arrangements may soon be superseded by a new BRICS+ currency, which will be announced in Durban, South Africa, at the annual BRICS Leaders’ Summit Conference on Aug. 22–24.
The currency will be pegged to a basket of commodities for use in trade among members. Initially, the BRICS+ commodity basket would include oil, wheat, copper and other essential goods traded globally in specified quantities.
Based on the impracticality of commodity baskets as uniform stores of value, it appears likely that the new BRICS+ currency will be linked to a weight of gold.
This plays to the strengths of BRICS members Russia and China, who are the two largest gold producers in the world and are ranked sixth and seventh respectively among the 100 nations with gold reserves.
These and related developments are frequently touted as the “end of the dollar as a reserve currency.”
This entire turn of events — introduction of a new gold-backed currency, rapid adoption as a payment currency and gradual use as a reserve asset currency — will begin on Aug. 22, 2023, after years of development.
The result will be an upheaval of the international monetary system coming in a matter of weeks, concludes James Rickards.
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