The U.S. Dollar Faces Its Biggest Challenge Ever (Not Gold)

We Cannot Ignore the BRICS De-Dollarization Drive
Image (CC BY 2.0) by Palácio do Planalto

From Peter Reagan at Birch Gold Group

Today, I want to discuss the global, ongoing “de-dollarization” campaign.

I spend a lot of time educating our Precious Metals Specialists on the geopolitical forces that influence the global economy. (Sometimes I get a little carried away and they call me “Professor Reagan.”)

I’ve become increasingly alarmed by the growing momentum of the de-dollarization movement over the last eighteen months. Please consider everything I’m about to tell you through that lens.

For the first time in the 21st century, the U.S. role as the world’s top financial and economic power is imperiled by a brash group of upstart nations. The current global regime isn’t fair, they argue. They’re paying the price for America’s shoddy fiscal policies. They’re tired of it and they aren’t going to take it anymore.

The sad thing is, they’re right.

Meet the rising stars of the world’s new economic regime: the BRICS.

Who are the BRICS?

In 2001, Goldman Sachs’ Global Investment Research Division published a report profiling four budding economic superpowers: Brazil, Russia, India and China. The author Jim O’Neill referred to these four nations by the acronym BRICs. He predicted they would eclipse the world’s biggest economies (the G7) in the years ahead.

Note: O’Neill’s BRICs were what we used to call “developing nations” or “emerging markets.” Those phrases aren’t really used anymore (they are rather dismissively colonialist) but if you have enough gray in your hair, think emerging markets when you hear “BRICS.”

Back in 2010, the leaders of those four nations (plus South Africa in 2011, hence the capital “S” in BRICS) formed a cooperative economic organization. Their stated mandate is:

restructuring the global political, economic and financial architecture to be more equitable, balanced and representative.

Here’s the thing: in 2001, the date of O’Neill’s report, China had a GDP of $1.34 trillion – roughly equivalent to the GDP of France at the time. Significant, yes, but hardly earth-shattering.

Twenty years later, China’s GDP is $17.7 trillion, or six times France’s current GDP.

While the U.S. GDP grew at the global average pace of 187% during those two decades, China’s surged 1,220%.

Of the five BRICS nations, only one (Brazil) grew at the global average rate over those two decades. In 2020, the five BRICS nations eclipsed the Group of Seven (G7) in share of global GDP:

The G7, by the way, are the largest industrialized economies (“developed nations”) and were, formally, the world’s economic leadership. The G7 consists of the U.S., UK, Germany, France, Japan, Italy, and Canada.

A bit of editorializing:

In other words, 2020 was the year the global economic power dynamic shifted in favour of developing countries, marking a key landmark in the ongoing decline of the developed nations in terms of economic might.

Within that, it also brought to the fore the seemingly inexorable rise of China and, to an extent, India as economic engines for the world.

That’s right – the BRICS nations are now the “economic engines for the world.”

As my colleague Phillip Patrick says, it’s a mistake not to take the BRICS nations seriously. They represent not only a larger share of world GDP than the G7, but also:

  • 40% of the Earth’s population (3.2 billion people)
    • Including both the world’s most populous nation and the world’s biggest democracy
  • 30% of the natural resources on the planet
    • 3 of the top 10 oil-producing nations
    • 62% of the world’s rare earth minerals
  • Nearly half of the world’s wheat and rice production
  • 15% of the world’s gold reserves

Since 1944, the U.S. has relied on its role as issuer of the dollar, the global reserve currency, to finance $32 trillion in deficit spending. Essentially, other nations (including BRICS) have paid the check for our government’s fiscal irresponsibility.

And they’re tired of it.

Forced to use dollars they don’t want just to do business? Brazil’s president Lula put it this way: “Every night,” he said, he asks himself “why all countries have to base their trade on the dollar.”

They don’t have to. BRICS nations as a group have 60% less debt than the G7. That alone gives them a level of economic freedom that more indebted nations just don’t have.

As the Financial Times recently claimed, “The G7 must accept that it cannot run the world.”

That’s why the BRICS nations matter.

Next, I’ll explain why the upcoming August 22nd BRICS summit is worth watching.

2023, brics, central banks, Featured, us dollar