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Now BRICS Are an Even Bigger Economic Threat to the United States

BRICS failed to announce a gold-backed currency at Durban earlier this year. In a way, the Durban Accords resulted in an even more serious threat to dollar dominance. Here’s why it matters…

Now BRICS Are an Even Bigger Economic Threat to the United States

From Peter Reagan at Birch Gold Group

Now that the Durban Accords meetings are over, we can take a brief look to the future.

Let’s start with the big thing that didn’t happen, at least not yet: BRICS did not announce a new gold-backed currency, despite Russia’s official announcement to the contrary.

What happened?

Apparently there was some dissent amongst BRICS leadership:

Brazil's President called on Wednesday for the BRICS nations to create a common currency for trade and investment between each other, as a means of reducing their vulnerability to dollar exchange rate fluctuations.

South African officials had said a BRICS currency was not on the agenda for the summit.

In July, India's foreign minister said, "there is no idea of a BRICS currency". Its foreign secretary said before departing for the summit that boosting trade in national currencies would be discussed.

China has not commented on the idea.

So it seems like two of the five BRICS charter members, Brazil and Russia, were all for the project – but both India and South Africa pushed back. China, whose opinion carries the most weight, didn’t comment (although the People’s Bank of China officially added to the nation’s gold reserves for the ninth consecutive month).

We don’t really believe the BRICS gold-backed currency project has gone away.

In the meantime, though, let’s explore the purpose of a shared, international gold-backed currency. What’s the point?

To offer a viable alternative to the U.S. dollar.

Even though the shared currency aspect of the Durban Accords failed to materialize, the motive for the currency – dedollarization – is stronger than ever.

Just to be clear, the motive here is to break free of the constraints imposed by the U.S. government’s monopoly on the dollar.

That’s why BRICS expansion is so troublesome…

BRICS “consolidating physical control”

Jim Rickards summarized the major danger for the United States economy and the dollar’s dominance as the global reserve currency:

BRICS are moving closer to the dual visions of Halford Mackinder, the geopolitical theorist whose notion of the World Island and Heartland were both based in Asia — and to Alfred Mahan, the naval strategist whose theory of sea power emphasized control of critical straits and other sea chokepoints.

The BRICS are consolidating physical control of both the land and sea pivots of history.

Expanded BRICS membership also marks the beginning of the end of the petrodollar era. Membership of Saudi Arabia in the BRICS is a large step in that direction. This is why the admission of new members and the launch of a new currency cannot be viewed in isolation.

A rapidly-growing geopolitical bloc on the verge of consolidating resources, as Rickards outlines above, already presents a potential danger to the U.S. economy.

So let’s parse out both the expanded membership and the potential BRICS currency, and briefly explore what they mean in this context.

Six new BRICS named (and 22 more countries standing in line)

A recent Kitco article expanded on the specifics of the “expanded BRICS membership” that Rickards drew attention to:

On January 1, 2024 the existing BRICS nations of Brazil, Russia, India, China and South Africa will be joined by new members Saudi Arabia, Iran, Ethiopia, Egypt, Argentina and the United Arab Emirates (UAE), they told reporters on Thursday.

Ramaphosa said other countries could still be added in the future. “We have consensus on the first phase of this expansion process and other phases will follow,” he said. Over 40 countries have expressed an interest in joining the bloc, and 22 countries have already submitted formal applications.

China's President Xi Jinping added a key insight: “This membership expansion is historic, it shows the determination of BRICS countries for unity and cooperation with the broader developing countries.”

The other thing it shows is just how many nations, worldwide, are frustrated with U.S. “dollar politics.” They’re desperate for a viable alternative to the dollar. Joining BRICS gives them preferred status with major trading partners (especially China) to sidestep the dollar for international transactions.

So far, instead of dedollarizing with a new gold-backed currency, the BRICS bloc is mostly using one another’s currencies. That might not be ideal for them, but it solves their problem of relying on dollars.

Every new BRICS member eliminates one source of global demand for dollars. Instead of delivering a massive deathblow to the dollar with a gold-backed currency, it seems like, for now, BRICS have settled for a “death of a thousand cuts” approach.

Slicing away at dollar demand (and therefore dollar value) a little at a time. Bit by bit.

And no one is more motivated to completely eliminate reliance on the dollar than Russian President Vladimir Putin. And he’s about to assume the role of BRICS chairman…

Russia takes charge of the dedollarization drive

With Putin running the BRICS show, the global dollar-dumping trend is likely to accelerate:

Russian President Vladimir Putin has been the most vocal advocate in favor of de-dollarization at the summit…

Putin has far more incentive to use his position at the head of the bloc to push for a new BRICS currency, as his country has been economically crippled by U.S.-led sanctions which have locked them out of the international banking system and banned them from using the dollar for trade and settlement purposes.

On Tuesday, Putin underlined the bloc’s ongoing move away from the U.S. dollar. “The objective, irreversible process of de-dollarization of our economic ties is gaining momentum, and efforts are being made to work out effective mechanisms for mutual settlements and monetary and financial control,” Putin said. “As a result, the share of the dollar in export-import transactions within the BRICS is declining: last year it amounted to only 28.7 percent.”

Let’s be very clear here: There is a concerted, global effort to dethrone the U.S. dollar’s global reserve currency status.

This isn’t likely to happen overnight. But every new BRICS member saps global dollar demand. We don’t know when we’ll reach the tipping point. All we know is that, every day, it gets closer.

BRICS have already taken one major step toward dedollarization

Rickards finished his note with the main overall point as it pertains to the future of the newly reinforced BRICS nations, the danger to the U.S., and their recent meeting:

They are two parts of a common project. The expanded membership is precisely what makes the new currency more feasible.

This is all happening under the noses of U.S. policymakers who seem ignorant both of history and current events.

Byron King finishes his piece in a similar, but a bit more specific way:

The bottom line is that the geopolitical world is changing hard and fast, and in ways the collective West has not seen in perhaps 200 years. With the rising BRICS-OPEC alliance, vast amounts of energy, mineral resources, food, and certainly the underpinnings of the U.S. dollar in the world are all in play.

What does this mean? Introducing a gold-backed BRICS currency was only one possible means to an end. Dedollarization is the goal!

Ultimately the BRICS probably don’t care how they get there, so long as they do. And they’re well on their way.

The BRICS dedollarization drive poses a major economic threat, with or without a new currency.

What sort of threat, specifically? It’s twofold:

  1. Any exporting nation, at any time, can decide not to sell their products in dollars. They could, for example, accept gold in exchange for oil (as Russia did). That forces trading partners to use a different medium of exchange for transactions, lowering dollar demand.
  2. Even without making a specific pricing decision, BRICS members are increasingly eliminating dollars from their international trading. This also lowers dollar demand.

When you consider that the vast majority of the dollar’s purchasing power is derived from global demand for dollars, the challenge becomes clear.

The very purchasing power, or value, of every U.S. dollar is at stake.

Most of us don’t have the power that BRICS do, to demand payment in a currency other than dollars. Most of us are incredibly dependent on the dollar’s purchasing power for our financial stability. That's why it’s absolutely vital to consider diversifying with non-dollar assets. We think physical gold and silver are ideal choices. After all, every global reserve currency in history was convertible into gold, even the U.S. dollar (until 1971). Both gold and silver are historic safe-haven stores of value, always in demand regardless of geopolitical shifting winds.

Now, you may not be able to get your employer to pay you in Swiss francs. But you can still diversify your savings today, and get ahead of the global dedollarization drive. All the information you need to make an informed decision is available right here, for free.

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