Last week, President Trump issued a needed but late warning to the BRICS nations about their attempts to undermine the dollar as the world’s reserve currency. His threat of tariffs is interesting, but I can hardly see how tariffs would affect the thinking and actions of the BRICS group of nations. At least he dares to discuss the issue and understands its implications.
Tariffs will only confirm their suspicion of the dollar’s weaponization and what they feel is abuse of countries outside the G-7 Group. While the G-20 Group of Nations is broader and includes all the BRICS nations, they do not have the same voice as the G-7 Group. In their minds, they are relegated to a second-tier status when they supply a significant portion of the world’s raw materials and goods. The mere existence of the G-7 and G-20 affirms their concerns, and removing Russia from the G-8 (making it the G-7) further reinforces the sense of fiscal and monetary retribution.
“To facilitate market transactions, there must be a medium of exchange whose value is reasonably constant and certain.”
I am an outlier in my concerns about the dollar’s dominance, which is fine. The age group of the central bankers and their ancient thinking about how money is viewed and settled between nations give me confidence in my observations. For sure, the hundreds of economics Ph.D.s at the Fed and the Treasury lend no credence to their positions. For years, they have missed every inflation forecast, lied about every employment number, and sluffed our debt concerns off as a new and different paradigm we need to reconsider as the new normal.
Out of Sight Conflict and Struggle
Most Americans are unaware that we are in a war of conflicting financial ideologies, where there will be competing and coexisting reserve currencies. But if you are like me, I am tired of being gaslighted by the Fed and the Treasury over the dollar’s strength on the world stage. The image above may be all you need to understand. Every time the BRICS group meets, more flags are on the stage, and more countries are lined up to join. The trend line is obvious; we must wake up and get our national finances in order.
Believing the dollar is maintaining a strong position on the world stage is like taking solace in the fact that you only have lung cancer while your neighbor will die of pancreatic cancer first. Our politicians have infected us all with too much debt, too many social programs, and horrible political maneuvering on the world stage. If we wanted to script the dollar’s destruction, the playbook would follow the last four years as the final act in a financial tragedy.
To ignore the BRICS consortium is foolish since the countries involved now represent 37% of global GDP. If Saudi Arabia and the UAE join (both express interest), then the BRICS group will control 35% of worldwide oil production. This is less of an issue for the United States, but it is significant for more dependent nations in Europe.
Misguided Policies and Politics
Joe Biden, Jerome Powell, and Janet Yellen will be remembered as the worst of the worst in a long line of twenty-first-century U.S. politicians who made misguided and politically motivated financial decisions. Each is guilty of making decisions that force an accelerated move away from dollar dominance as the world’s reserve currency.
They are not alone in bad decision-making, and it goes back decades, starting with Lyndon Johnson and continuing until today. Every administration, Democrats and Republicans, has made it a little worse by simultaneously financing wars and social programs. Every administration has tried to have both “guns and butter” by pushing off the difficult financial decisions to retain power. The Biden Administration is the worst and will go down as the regime that pushed us to the brink of world economic collapse. The seizure of Vladimir Putin’s assets to pay for a fraction of the Ukraine War may prove to be the tipping point. Like it or not, our financial system depends in large part on tin pot dictators wanting to hold dollars. The Biden Administration made that undesirable; many nations are now looking for the exit sign.
Yellen and Powell’s repeated assurances that another currency cannot replace the dollar as the world’s reserve is short-sighted and late-twentieth-century logic. Not only can the dollar be replaced, but in a world filled with technological innovation, it is more likely to be replaced than not. There was a time in the not-too-distant past when the British pound was the reserve currency, and it lost its status to the dollar. We were the threat to the pound and won out in the early twentieth century to the detriment of England and the betterment of America. History is riddled with the carcasses of politicians who thought their currency was dominant and irreplaceable.
Reserve Currency Criticality
Few Americans know the dollar is the world’s reserve currency, and fewer understand why it matters. Global finance and trade can be complicated, making it hard for most people to see the complete picture. This complexity gives politicians a smoke screen from which to operate.
Today, all dollars are fiat currencies worth only what others collectively believe they are worth. Our superior consumption markets, military, and taxing power make the U.S. dollar the most desirable fiat currency. When a foreign government keeps our dollars as part of its financial reserves, it loans us money since the U.S. Dollar has no real tangible value. Any physical asset, such as gold or silver no longer underpin the dollar. We can only support our economy with increasing debt levels if all other nations believe in the dollar. The BRICS nations understand this, and it is shaking confidence in the dollar, which is at the core of their mission. Shake confidence in the dollar, and all else will fall into place for them.
In this dystopian monetary world, we print more dollars we, and foreigners, then use to buy more of our debt in bonds. The cycle of printing and purchasing is a circular firing squad where monetization of more debt is the only possible outcome. COVID relief, social programs, wars, and stupid spending by politicians at all levels of our government have other countries questioning whether loaning us money is a good idea. The accumulated weight of these unwise expenditures is our national tragedy. These policies have made us weak and less resilient individually and collectively. When foreign central banks no longer want to hold dollars because of this change in risk, the whole financial system begins to strain and unravel.
President Biden’s disastrous decision to freeze Russian assets may have been a tipping point in global power. Anything that discourages anyone from holding dollars weakens us and threatens our economy and our way of life. We even need support from the world’s most deplorable people to maintain our lifestyle. This is one of the reasons we act so timidly when faced with difficult political decisions. Widely publicized seizures of foreign assets and financial sanctions only weaken our role as the world’s reserve currency. A weak dollar translates into weak diplomacy, leading to wars.
Technology and Reserve Currencies
Today, financial transactions between nations are all done electronically, with the U.S. Dollar as the pivot point in every transaction. This gives us enormous leverage and forces all nations to hold dollars for settlement. Every currency has a value relative to the U.S. dollar because it is the measuring stick that gold was in the past.
The BRICS nations have asked a straightforward question, “Why?” If all financial transactions are settled in dollars because it is the measuring stick, what forces all countries to use that measuring stick? Unfortunately, our politicians have placed us in a position where this question has become valid, and the BRICS nations know it.
The BRICS nations are making several moves that should concern us. First, they cannot challenge the dollar’s dominance individually, but collectively, they might. Second, many are producer nations with medium to large trade surpluses. Third, they are a mixed bag of nations we might consider less friendly, like China and Russia, and countries we are friendly with, like India. However, the recent expansion in the BRICS group leans toward less friendly nations. Every nation that joins BRICS, no matter how small, eats away at the dollar’s dominance. This process is like rust on the hull of the Ship of State; it does not matter until it does, and then it is too late.
China is the 800-pound gorilla in the BRICS room. Its goal is to improve the status of its Renminbi (dollar) to become a reserve currency. China sees and understands the value of having a significant role in the reserve currency game. They are on one end of the spectrum, with countries like India and Brazil less ambitious in their goals.
If all transactions are now electronic, if all currencies are fiat, and if settlement is relative to a stable constant, who says this constant must be the U.S. Dollar? That is the question, and we do not want it to be asked because we have no intelligent answer. With massive debt, the dollar is no longer the stable constant of the financial world. Seventy-one percent of central banks now view gold as a strategic asset, and they primarily purchase and hold physical gold.
With the help of the Bank for International Settlements, the BRICS nations are building an electronic network that will function alongside the current international settlement networks. It is newer, more electronic, and free from sanctions and seizures. They are also building their version of the World Bank to support loans to underdeveloped nations.
Any move away from the U.S. Dollar for trade will be difficult and take time. But we are up against adversaries who think in terms of centuries and are methodical in their thinking and actions. Our thinking is often short-term, a strength only when exchange partners are friendly. The BRICS nations want a settlement system free of tariffs, sanctions, confiscation, and the dollar.
The Role of Gold
Around the world, a logical and systematic, almost glacial movement is taking place with our economic enemies. Major trade surplus nations like China and Russia may have found their stable measuring stick for foreign exchange, and it could be a reversion to gold. When surveyed, 81% of central banks believed they would increase their gold reserves in 2025. The calculus is simple. I have excess dollars; should I buy Treasury Bonds or gold? Increasingly, for central banks worldwide, the answer is fewer dollars and more gold. Every dollar that makes this exchange is swapping something with no intrinsic value for something with a historical and tangible value. Central Banks are increasingly willing to swap the perceived safety and soundness of the U.S. Dollar for safety and potential gains in the price of gold. Confiscating and sanctioning a country’s gold is much more challenging than its dollars.
Central banks worldwide have been net purchasers of gold every month since June 2023. When central banks buy, they buy in tonnes, not ounces. So far in 2024, the countries buying the most gold might sound familiar: many of the BRICS nations.
“An increasingly complex geopolitical and financial environment is making gold reserves management more relevant than ever. In 2023, central banks added 1,037 tonnes of gold – the second highest annual purchase in history – following a record high of 1,082 tonnes in 2022.”
In a June 2024 survey, central banks gave their top four reasons for holding gold as a long-term value store: performance during crisis times, effectiveness as a portfolio diversifier, and no default risk. These should sound familiar. While these same banks ranked sanctions and de-dollarization lower, these issues are linked to the concerns ranked higher. The central banks primarily worry about interest rates, inflation, and geopolitical instability. When asked about the dollar, 62% said their dollar reserves would be significantly to moderately lower in five years.
The trend is there for all to see, except our Congress, Fed, and Treasury. The logic is very straightforward. Many countries have a trade surplus in dollars and have choices about where to hold or invest this surplus. More central banks and countries view our debt as less stable than gold, so they do what is logical and buy gold. The term “flight to safety” was never more appropriate.
The Long Term
The real issue is that world trade primarily depends on a shared belief in the value of the world reserve asset. All nations must believe that the “thing” they hold will have a stable value for the duration of their transactions. Several things must happen for the dollar to remain the world’s reserve currency.
- Our debt must be controlled through cost-cutting (DOGE), more significant revenue (tariffs or income taxes), or both.
- Our military must remain strong as part of the dollar’s underpinnings, but we must avoid trying to be the world’s police force to preserve our human and financial capital.
- We must lead in developing “what comes next,” or our standard of living will drop significantly. If the dollar is to be replaced, we want it replaced with our new “thing,” not someone else’s.
We must get our economic house in order in a new world where quantum computing and artificial intelligence will change many financial norms considered sacrosanct, intransigent, or unsolvable. There may be no reserve currency in that world, with all foreign exchange transactions settled in something unimaginable and reserves defined in gold, other raw materials, or a new, undefined form of shared technology or cryptocurrency. These three challenges must be the focus of the new Trump administration, or our standard of living and the nation’s security is at risk.
Resources and Further Reading
BRICS Intergovernmental Organization, By Miles Kenny, Britannica, britannica.com, December 6, 2024.
BRICS offered Turkey partner country status, Turkish trade minister says, By Reuters, reuters.com, November 14, 2024.
BRICS Sends Out First Invitations For 2024 Summit, Cryptorank, cryptorank.io, May 24, 2024.
BRICS, De-Dollarization, and the US Trade War: What’s at Stake?, By Carolane De Palmas, FXEmpire, fxempire.com, December 2, 2024.
BRICS: Here’s what to know about the international bloc, By Spencer Feingold, World Economic Forum, weform.org, November 20, 2024.
BRICS+ countries are determined to trade in their own currencies – but can it work?, By Lauren Johnston, University of Sydney, The Conversation, theconversation.com, November 25, 2024.
Central Bank Gold Reserves Survey, June 2024, World Gold Council, gold.org, June 18, 2024.
Elon Musk’s DOGE May Cut These Federal Agencies—As CFPB Becomes Latest Target, By Lindsey Choo, Forbes, forbes.com, November 27, 2024.
Exclusive: Russia’s VTB CEO says BRICS summit was a slap in the face for the West, By Reuters, reuters.com, December 2, 2024.
G-7 and G-20: The U.S. Department of the Treasury engages with the Group of 7 (G7) and Group of 20 (G20) on a variety of international economic development and security issues, U.S. Department of the Treasury, treasury.gov, Last accessed December 11, 2024.
Gold Reserves by Country, World Gold Council, gold.org, December 4, 2024.
GOP greets DOGE with excitement but expects ‘friction,’ By Emily Brookes, The Hill, thehill.com, December 5, 2024.
Guns and Butter, By John Feehery, The Hill, thehill.com, December 2, 2009.
Malaysia says any U.S. tariffs on BRICS nations could impact semiconductor supply, By Reuters, reuters.com, December 5, 2024.
Powell calls for ‘change’ in ‘unsustainable’ fiscal path, By Taylor Giorno, The Hill, thehill.com, December 4, 2024.
Reserve currency, Wikipedia, Wikipedia.org, Last accessed December 6, 2024.
Russia official says Trump’s threat will not stop work on BRICS payment system, RIA reports, By Reuters, reuters.com, December 5, 2024.
The BRICS Nations Reach a Crossroads: A major driver of global growth, BRICS GDP overtook the G7 in 2022, By Sanjay Bhattacharyya, Center for International Governance Innovation, cigionline.org, December 13, 2024.
The Economic Principles of America’s Founders: Property Rights, Free Markets, and Sound Money, By Thomas West, The Heritage Foundation, heritage.org, August 30, 2010.
The expansion of BRICS signals shift away from the West, not a turn against it, By Narayanppa Janardhan and Husain Haqqani, The Hill, thehill.com, October 28, 2024.
The underestimated implications of the BRICS Summit in Russia, By Hung Tran, Atlantic Council, atlanticcouncil,.org, November 1, 2024.
Trump threatens ‘100% Tariffs’ on countries that buck US dollar: Find another ‘sucker’, By Ashleigh Fields, The Hill, thehill.com, November 11, 2024.
What happened at the BRICS summit?, By Reuters, reuters.com, October 24, 2024.
What is a BRICS currency and is the U.S. dollar in trouble? By Rachel Savage, Reuters, reuters.com, August 24, 2023.
What’s the difference between the G-7 and G-20?, By J. Scott Wilson and Nick Smith, NewsNation, newsnationnow.com, March 25, 2022.
Why the world is turning away from the US dollar, By Alexandros Mandilaras, The conversation, theconversation.com, January 12, 2024.
World Gold Council, Data, Central Bank Data, gold.org, Last accessed December 11, 2024.
