James Rickards: BRICS “will destroy the Dollar”

The Treasury Secretary Yellen is the greatest threat to the Treasury market through her persistent and illegal efforts to steal $300 billion in U.S. Treasury securities owned by the Central Bank of Russia and held in custody in U.S. and European banks and the Euroclear clearinghouse in Brussels, writes James G. Rickards, an American lawyer, economist, and investment banker with 40 years of experience working in capital markets on Wall Street, the editor of Strategic Intelligence.

That particular threat to steal the Russian securities to be used as backing for a loan to Ukraine has accelerated efforts of the BRICS and the Global South to move toward a new currency linked to gold that would initially compete with the dollar in global payments and eventually rival the dollar as a major global reserve currency.

Those efforts will see major advances made at the BRICS leaders’ summit in Kazan, Russian Federation on Oct. 22-24 hosted by President Putin. The BRICS summit will announce new members. That’s important because expanding the membership is the key predicate to launching a viable payment currency.

The BRICS are part of an emerging Global South that is challenging the Collective West for world economic and geopolitical dominance.

The subject of a BRICS currency is confusing to most observers and is a fraught topic even for many experts. We’ll call the potential currency a BRIC for convenience although no formal name has been announced.

The BRICS currency is very far along in establishing itself as a viable payment currency. The prerequisites are: agreed-upon value (which can be fixed to another currency, floating or pegged to a weight of gold), secure payments channels (basically high-speed, encrypted digital pipes for authenticated message traffic), digital ledgers and an agreed issuer (the NDB based in Shanghai may be suitable for this purpose but another institution could be created).

The single most important element is a sufficiently large membership in the BRICS currency union such that a recipient of BRICS payments can use them for purchases in many jurisdictions for many goods and services.

This last point is where most alternative currency payments arrangements fall down. Russia can sell oil to China for yuan (which they are currently doing) but they are constrained in terms of where they can spend the yuan (basically limited to Chinese manufactured goods and semiconductors). The same issue arises when Russia sells oil to India (for rupees) or weapons to Iran (for rials). The seller is limited in terms of what they can buy with the trading partner’s currency.

This constraint goes away in a currency union with 15 or 20 members or more. If Russia earns BRICs from China, they can buy Embraer aircraft from Brazil or semiconductors from Malaysia. For that matter, use of a payment currency in a multimember currency union is not limited to members.

With access to the payment channels, non-members can nevertheless agree to receive the BRICS currency in payment confident in their ability to spend it among the other BRICS members who are trading partners. The proof of this is the eurozone, which is currently a 20-member currency union with a single central bank and worldwide acceptance of the euro.

That said, there are several interesting developments taking place. The first is that the U.S. is squandering its rule of law advantage with sanctions on Russia, the freezing of the assets of the Central Bank of Russia and efforts to actually steal those assets and convert them into a $50 billion loan to Ukraine using structured finance.

Given this rogue behavior by the U.S., countries are becoming more cautious about large U.S. Treasury note reserves. This may account in part for the recent rally in the price of gold.

The second is that the upcoming BRICS summit in Kazan, Russia will announce significant progress in building out secure payments channels and will admit new members, which will drive the group closer to the critical mass needed to launch a currency union.

Finally, the impact of Yellen’s efforts to steal U.S. Treasury securities from Russia goes beyond the BRICS meeting and the rise of a new payment currency. Yellen’s blatant theft from the Central Bank of Russia is a driving force behind the price of gold reaching new all-time highs recently.

Central banks have been net buyers of gold since 2010, but the tempo of gold buying has increased as the U.S. rule of law under policymakers like Yellen begins to crumble.

Gold is a physical non-digital asset that cannot be stolen, frozen or seized provided it is in safe storage. Until the BRICS currency is ready, gold will be the asset of choice for foreign reserve managers faced with a rogue Treasury Secretary.

This is one more example of short-term, self-defeating thinking by the White House and the U.S. Treasury.

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