BRIC

[Koolau]

Not to mention there are extreme trust issues all around the world.

So far, thankfully.

 

[VFK57]

Cant be a world currency if you wont give the international community access to your capital vehicles/markets. China unwilling to do that. Not to mention there are extreme trust issues all around the world.

They have already trade internally with their own currencies swaps but plan to organize a new common currency backed by Gold, Nat resources and goods. USA GDP =$24 trillions (backed US$), EU GDP=$18.8 Trillions (backed Euro) BRICS GDP= $31.5 Trillions will back new currency. Since 2008 we printed enormous amount of dollars and the world had absorbed it for the trade. However, we had not equally increased production of new goods and services to cover those money, moreover we use US$ as weapon with sanctions on adversaries and everyone understands it. The planned new currency would not be Chinese but common for the BRICS Market and all of other countries who are in the line to join them (see my and others above post) and if it is backed by Gold and Natural Resources it will attract the rest of the world vs current system. Moreover, the return of US$$ currently kept by the world for trade will be chasing whatever goods and services we produce here and it will continue inflation here.

 

[Koolau]

They have already trade internally with their own currencies swaps but plan to organize a new common currency backed by Gold, Nat resources and goods. USA GDP =$24 trillions (backed US$), EU GDP=$18.8 Trillions (backed Euro) BRICS GDP= $31.5 Trillions will back new currency. Since 2008 we printed enormous amount of dollars and the world had absorbed it for the trade. However, we had not equally increased production of new goods and services to cover those money, moreover we use US$ as weapon with sanctions on adversaries and everyone understands it. The planned new currency would not be Chinese but common for the BRICS Market and all of other countries who are in the line to join them (see my and others above post) and if it is backed by Gold and Natural Resources it will attract the rest of the world vs current system. Moreover, the return of US$$ currently kept by the world for trade will be chasing whatever goods and services we produce here and it will continue inflation here.

Thanks for this interesting perspective.


"The planned new currency would not be Chinese but common for the BRICS Market"


Are you suggesting that China would not be the "power" behind the new currency? Would they not be in a position to wield that power as the USA currently does with the dollar?


I can see the appeal of a currency backed by gold (and natural resources) but those things - especially consumable resources such as metals and minerals fluctuate in value depending on local and world cycles. Also, to be "valuable" they have to be "movable." IOW, so China has a gazillion tons of lithium. But if they won't mine it or ship it to you, what good are your BRICs?

Even something as simple as wood (lumber) cycles by hundreds of percent, depending upon the state of an economy. How does that play out in a currency backed by these things? Gold use is trivial compared to the supply so most fluctuations are based on economic issues between holders and those wanting to hold gold. Fluctuations are almost trivial by comparison to say lithium or iron or lumber.

So I don't see how this would w*rk. Of course, dollars backed by, well the USA, seem even worse than something that fluctuates. In essence, dollars are backed by "air" and trust. I suppose you could say the dollars are a "claim" on things held by the USA (like national parks and untapped oil fields) but what is the likelihood of someone showing up on our shores with a barge full of dollars and saying "I want the Statue of Liberty" and having their request granted by the USA? China: Same thing. A scow full of BRICs shows up. Will China say "Take a million tons of Cobalt."

I think it's complicated.

 

[Spock]

Cant be a world currency if you wont give the international community access to your capital vehicles/markets. China unwilling to do that. Not to mention there are extreme trust issues all around the world.

There are a couple of items with this.
First is China appears to be implementing a "have your cake (control) and eat it too" strategy where countries use the yuan for trade and then any surplus yuan can be exchanged via gold in a "free trade zone-like" special trading arrangement with the Shanghai International Gold Exchange. China keeps control of the yuan while still allowing other users a way to convert their extra yuan into anything else via a gold exchange.


The other shoe is that there doesn't need to be a single reserve currency to replace the USD in order to have the same effect. In the so called multi-polar world there can be many means of trade without using USD and in the end the net is the same: Less USDs needed for foreign trade. When fewer USDs are needed the market for US debt shrinks just as the US is planning on selling trillions more into a now smaller market.

 

[Yipper]

By the way, on a wider point. We won't "solve" the BRIC issue a couple of months after it's officially announced. That will be a couple of years (or more) too late to have any influence. IF we solve it, we'll begin solving it now. Of course, we won't, so I see BRIC (or some permutation - change only the letters other than "C") as inevitable.

The Chinese think globally and strategically while much of USA business thinks locally and tactically. ("We'll deal with that when it comes up.") That won't w*rk any more. We're up against a different competitor (adversary.) I have no special insight, but I sense we are ignoring such things here in USA. IOW I've just told you more than I know so YMMV.

This. We're just so occupied with fighting stupid culture wars to ever start thinking strategically.

 

[Koolau]

There are a couple of items with this.
First is China appears to be implementing a "have your cake (control) and eat it too" strategy where countries use the yuan for trade and then any surplus yuan can be exchanged via gold in a "free trade zone-like" special trading arrangement with the Shanghai International Gold Exchange. China keeps control of the yuan while still allowing other users a way to convert their extra yuan into anything else via a gold exchange.


The other shoe is that there doesn't need to be a single reserve currency to replace the USD in order to have the same effect. In the so called multi-polar world there can be many means of trade without using USD and in the end the net is the same: Less USDs needed for foreign trade. When fewer USDs are needed the market for US debt shrinks just as the US is planning on selling trillions more into a now smaller market.

This all sounds like it could get ugly very quickly. Trade wars and embargoes would be used in the "battle" and outright hostilities could erupt over such a shift in world power. Sides will be chosen and old grudges will be "settled." A fundamental shift in world power will not happen without casualties. (Heh, heh, the ultimate under statement.)

 

[Spock]

Thanks for this interesting perspective.


"The planned new currency would not be Chinese but common for the BRICS Market"


Are you suggesting that China would not be the "power" behind the new currency? Would they not be in a position to wield that power as the USA currently does with the dollar?
...

There was a recent article that I found interesting that described China's Belt and Road Initiative (BRI) in extremely favorable terms where China was being extremely accommodating to the other countries... treating them as an equal and respecting their sovereignty. The article contrasted this to what was called the condescending, manipulative carrot-and-stick approach used by the essentially US controlled IMF, World Bank, etc.
Whether or not it was an insincere front by China to get their foot in the door or not remains to be seen. But there is enough "Yankee Go Home" sentiment in the developing countries that the BRI overtures are being well received.
Lastly it goes without saying that the rest of the world can see that the US has past it's peak and is in decline socially, politically, economically, and militarily. Meanwhile China's star is seen as rising and seems to be the horse of choice in which to hitch their wagon to.

 

[Ballhawker]

Ray Dalio did an excellent short video called principles for dealing with the changing world order, which he posted on YouTube. His thesis is that the days of the USA as the dominant world power are numbered. The USA will follow the patterns of all preceding superpower in history. The USA will do whatever it can to retain this world power position (we are currently at the issuing massive debt stage). China will do whatever it can to take over that superpower position. This can take a lot of time, or it can happen abruptly.

I tend to agree that this is a likely outcome, eventually, but I liken this discussion to market timing. China could overtake the USA, but it could take a decade or a century, no one really knows. So what should I do with this information? Possibly diversify my investments more? Or nothing because it is out of my control and likely beyond my life horizon?

All good questions and interesting things to ponder.

 

[Ballhawker]

This. We're just so occupied with fighting stupid culture wars to ever start thinking strategically.

The US government employs lots of strategic thinkers. For example the US Security Council and the Armed Services brass think globally. The USA will not be replaced as the superpower so easily.

Culture wars are designed to distract the electorate for political gain.

 

[Koolau]

Lastly it goes without saying that the rest of the world can see that the US has past it's peak and is in decline socially, politically, economically, and militarily. Meanwhile China's star is seen as rising and seems to be the horse of choice in which to hitch their wagon to.

I agree with this, but believe it is a "choice" we have made. We could change things, but I don't see the will to do so. The population has fundamentally changed in attitude and belief systems over the past 40 years.

Simple things (I think) prove my point. Few people under 40 know any American history. That simple fact spells eventual "also ran" nation status. Hopefully, I'll be gone by then.

Sorry,... Returning you now...

 

[Toocold]

Lastly it goes without saying that the rest of the world can see that the US has past it's peak and is in decline socially, politically, economically, and militarily. Meanwhile China's star is seen as rising and seems to be the horse of choice in which to hitch their wagon to.

This reminds of me what they said about Japan in the 80s, Asian tigers in the 90s.

Who are China's allies? Russia? N. Korea?

I think if you list the US's allies, the list will be longer.

I always scribed to what Buffet said about the US. We'll see what happens. I personally don't think it would be a bad thing to be a multi-polar world.

 

[Koolau]

This reminds of me what they said about Japan in the 80s, Asian tigers in the 90s.

Who are China's allies? Russia? N. Korea?

I think if you list the US's allies, the list will be longer.

I always scribed to what Buffet said about the US. We'll see what happens. I personally don't think it would be a bad thing to be a multi-polar world.

Heh, heh, when you list the USA's allies, do it with a grain of salt. On paper, we're allies. If a better deal came along, many would bolt in a hurry.

I think we've had a multi-polar world for a long time. It's just that the USA pole has had a lot of the power. I see that changing - I sense that would be bad for us. YMMV

 

[indiajust]

Luke Gromen at FFTT.com makes a convincing case of a continuing 20 year decline in use of the dollar in non-US trade.

Much of the world settles trade in dollars. Yet it makes little sense for trade between Pakistan and Malaysian corporations to be conducted in a currency neither use.

As the petrodollar mandate has expired, energy trading is no longer be forced into dollar only transactions.

The future looks decentralized with multiple local currency trading markets displacing the use of the dollar. The best estimate is that dollar denominated and settled trading will decline to the size of the US export/import market and be proportional to GDP.

The next question is: Once the local markets settle trades, what asset do they use to settle with internationally if the dollar is no longer used?

Gold is part of the answer. There are certainly digital asset trading schemes with blockchain that will eventually be part of the solution.

JP Morgan has been buying gold and is now the 14th largest holder. Using blockchain to hypothecate gold holdings and settle international trade balances would be consistent with their business model.

Expect trading centers around EU, US, SEA, LATAM, India, Brics, and various other affiliations. It will certainly be interesting. Might be a good time for a young buck to learn FOREX and get busy settling the worlds commercial transactions.


I realize this is a long-winded journey from asking about BRICS to worldwide Forex. But it is a return to an older version of international trade, without one currency to rule them all.

 

[zippy2020]

The BRICS currency plan developed a big hole in it on July 3rd:

"... The BRICS alliance with Brazil, Russia, India, China & South Africa is planning to float a new currency to settle international trade payments to challenge the global reserve status of the US dollar. The bloc of the five nations is likely to jointly decide on floating a new BRICS currency during its next summit in August, 2023 to be held at Johannesburg in South Africa. Although all other countries constituting BRICS, including Brazil, Russia, China, and South Africa seem to be on the side of issuance of a common BRICS currency, India seems to be the only country that has not shown interest in the plans to launch a new currency.

India’s Stand
India’s External Affairs Minister, S. Jaishankar in a press conference held on Monday, 3rd July, 2023 said that India has no plans for a BRICS currency. He declared a month before the summit that India might back out from creating the new currency. Instead, India is focused on strengthening its national currency, the Rupee, and making Rupee stronger will be the top priority of the Indian government, Jaishankar had stated. "

China is facing stagflation. Brazil is a mess. Russia is Russia. India is the only dynamic, growing, best educated country among them. If they relegate the BRIC currency to a regional level, it will certainly be used for country-to-country trade, but it won't replace the dollar.

The global financial system runs on trust. Simple as that. Odd as it may sound, but anyone who has worked in the financial services industry can attest to that.

Any country can (and does) print currency up the wazoo. What counts is the regulation of the markets and the "open book", i.e., audited financial accounting system.

That's why China and Russia cannot list their stocks on U.S. exchanges. And if you cannot get listed on a U.S. exchange, what that says is that your books - your word, your country's word - cannot be trusted.

Can you make money with those stocks? Sure. Many people do. But the risk is there, out in the open. You take your chances, which is fine. But would you risk your elderly parents' lifetime savings? Ummm.....maybe not.

Same principle applies to the global financial market. That's why countries diversify their cash assets.

And there's a finite amount of gold. We got off the gold standard for specific reasons. Even so, most of the gold in the world is held in....NYC, which holds gold reserves from many countries, not just the US or Europe.

 

[VFK57]

In regard to India, Russia refuses to sell oil in India rupees, while India and China are two major if not only customers. They sell it in Yuan, starting July 2023. Other BRICS countries, including many candidates also do not trade in rupee but easily accept Yuan and also want a new currency, especially Arab oil rich countries. India will be forced to trade in a new currency. BRICS was started to counter weight the G7.

 

[tenant13]

…most of the gold in the world is held in....NYC, which holds gold reserves from many countries, not just the US or Europe.

Really?! Why would any country keep reserves of anything in US? I mean, I’m not questioning it, I’m just surprised.

Interesting thread, I’m somewhat concerned with BRIC but not particularly afraid of China ruling the world. They destroyed themselves demographically during one child policy years and don’t seem to be able to reverse the trend of falling birth rates. How will their massive aging population stay productive? You can’t really be an empire if most of your citizens are more concerned with fighting dementia than the political adversaries.

I also noticed that a few of you vaguely mentioned return to the gold standard when discussing currencies. Maybe, but that’s very B.C. - and we already have a decentralized, digital replacement.

 

[Koolau]

And there's a finite amount of gold. We got off the gold standard for specific reasons. Even so, most of the gold in the world is held in....NYC, which holds gold reserves from many countries, not just the US or Europe.

Really?! Why would any country keep reserves of anything in US? I mean, I’m not questioning it, I’m just surprised.

I saw a whole program around the issue of the USA being in "possession" of much of the world's gold. In essence, when the issues around WWII began brewing and later when hostilities began, IIRC, many countries thought the USA a good place to stash their gold reserves. If you think about it, all the gold ever mined supposedly would fit into a block 60 to at most 90 feet cubed. So, storing it several stories under NYC would not have been impossible, though I'm sure there were plenty of tactical issues.

Also, IIRC, the various gold stashes were segregated and numbered/labeled to keep everyone's gold distinct.

By the way, though everyone thinks of Fort Knox as being the big gold depository, it's actually under the streets of NYC that most of the gold is stored. Knox is just US gold, IIRC.

The gold is just about as safe as you could imagine as it's vaulted but, more importantly, it's down flights of steps. Who is gonna carry much gold up several flights of steps and walk out on NYC streets with it.

SO, anyway, I guess when countries began demanding their stored Gold back from the USA, the USA balked and would typically only send a portion back at a time. This has led to speculation that some of it was siphoned off by the USA IIRC. No idea how it all plays out over time, but that's apparently how the USA ended up with much of the world's gold supply. Realistically, who in the early 40's had the physical ability to take over the USA and thus liberate all that gold?

 

[tenant13]

With the long history of US arbitrarily making decisions about other countries assets (gold or otherwise) and essentially cutting people off at a whim, you’d have to be insane to allow US to custody anything. I’m not being political here - this is not about reasons for doing so.

That’s why I believe digital assets are the future - whether we now think of them as valuable or not.

 

[Koolau]

With the long history of US arbitrarily making decisions about other countries assets (gold or otherwise) and essentially cutting people off at a whim, you’d have to be insane to allow US to custody anything. I’m not being political here - this is not about reasons for doing so.

That’s why I believe digital assets are the future - whether we now think of them as valuable or not.

I don't disagree with you currently, but during WWII era, the "gold thing" was sorta a choice to "trust the Americans to store and return our gold" or "Give it to the Nazis - never to be returned."

Having admitted the issues around the US "today", who WOULD you trust to "store your assets" or accept their currency? China? Russia? India? Brazil?

It probably will come down to the lesser of two (or more) evils.

 

[VFK57]

I don't disagree with you currently, but during WWII era, the "gold thing" was sorta a choice to "trust the Americans to store and return our gold" or "Give it to the Nazis - never to be returned."

Having admitted the issues around the US "today", who WOULD you trust to "store your assets" or accept their currency? China? Russia? India? Brazil?

It probably will come down to the lesser of two (or more) evils.

Most countries, which try to schedule return Gold from USA vaults are trying to do it asap. Also, it is not a news but many Central Banks are increasing purchases of Gold vs the past, when they bought mainly US$ for reserves.

 

[Koolau]

Most countries, which try to schedule return Gold from USA vaults are trying to do it asap. Also, it is not a news but many Central Banks are increasing purchases of Gold vs the past, when they bought mainly US$ for reserves.

Yeah, I think it is wise to enhance a country's gold holdings for stability and also to be able to compete with other countries with large gold holdings. I'm surprised gold hasn't increased in price because of the increased holdings of sovereign countries. I don't keep track if the US has increased (or perhaps decreased) gold holdings. Heh, heh, get rid of some "worthless" green backs for gold - yeah, that makes sense to me.

YMMV

 

[VFK57]

Yeah, I think it is wise to enhance a country's gold holdings for stability and also to be able to compete with other countries with large gold holdings. I'm surprised gold hasn't increased in price because of the increased holdings of sovereign countries. I don't keep track if the US has increased (or perhaps decreased) gold holdings. Heh, heh, get rid of some "worthless" green backs for gold - yeah, that makes sense to me.

YMMV

Agree, that the Gold does not go up. We do have Gold Funds what supposedly should cover an investment by Gold, when requested and in reality they return an investment in Gold only on investment amount of over $1mil., the rest of investors (majority) will get only paper Gold - shares or US$ if needed to sell. This allows to keep the Gold price lower. Gold will not appeal to many people as it does not brings dividends or other way of income, however if a major currency will be backed by Gold, it will give the Gold a strong push.

 

[Koolau]

Agree, that the Gold does not go up. We do have Gold Funds what supposedly should cover an investment by Gold, when requested and in reality they return an investment in Gold only on investment amount of over $1mil., the rest of investors (majority) will get only paper Gold - shares or US$ if needed to sell. This allows to keep the Gold price lower. Gold will not appeal to many people as it does not brings dividends or other way of income, however if a major currency will be backed by Gold, it will give the Gold a strong push.

Realistically, gold IS money. It has been since before historic times. But it's just like dollar bills - if you lock them in a safe, they don't make you any money. BUT unlike dollar bills, if the economy goes wild, folks may well want the gold and not the paper dollars. Of course, it's not always like that so I look at a small holding of physical gold as an insurance policy more than an investment. YMMV

 

[zippy2020]

Gold Held by Countries by Investopedia
https://www.investopedia.com/ask/answers/040715/what-countries-have-largest-gold-reserves.asp

[Fun fact] The U.S. continues to safeguard gold belonging to other countries. The Federal Reserve Bank of New York is the custodian of gold owned by foreign governments, foreign central banks, and official international organizations.

Where Is the World's Largest Known Stockpile of Gold?
In the U.S. within a vault at the Federal Reserve Bank of New York. It is known to contain the largest amount of gold in the world.

Which Countries Have the Largest Gold Reserves in the World?
The holders of the largest gold reserves in the world are the U.S. (with 8,133.5 tons), Germany (with 3,359.1 tons), Italy (with 2,451.8 tons), France (with 2,436.5 tons), and Russia (with 2,301.6 tons).

+++++++++

FYI, there is no limit on repatriating gold stored at the FRBNY. Ft. Knox stores all the U.S. gold reserves. The U.S. does not count gold owned by other countries as an asset.

This was an interesting article off Reuters a few days ago. Note the move by industry to India away from China – both countries have weak pollution laws which favors the bottom lines of corporations:
https://www.reuters.com/business/finance/countries-repatriating-gold-wake-sanctions-against-russia-study-2023-07-10/

 

[Koolau]

Gold Held by Countries by Investopedia
https://www.investopedia.com/ask/answers/040715/what-countries-have-largest-gold-reserves.asp

[Fun fact] The U.S. continues to safeguard gold belonging to other countries. The Federal Reserve Bank of New York is the custodian of gold owned by foreign governments, foreign central banks, and official international organizations.

Where Is the World's Largest Known Stockpile of Gold?
In the U.S. within a vault at the Federal Reserve Bank of New York. It is known to contain the largest amount of gold in the world.

Which Countries Have the Largest Gold Reserves in the World?
The holders of the largest gold reserves in the world are the U.S. (with 8,133.5 tons), Germany (with 3,359.1 tons), Italy (with 2,451.8 tons), France (with 2,436.5 tons), and Russia (with 2,301.6 tons).

+++++++++

FYI, there is no limit on repatriating gold stored at the FRBNY. Ft. Knox stores all the U.S. gold reserves. The U.S. does not count gold owned by other countries as an asset.

This was an interesting article off Reuters a few days ago. Note the move by industry to India away from China – both countries have weak pollution laws which favors the bottom lines of corporations:
https://www.reuters.com/business/finance/countries-repatriating-gold-wake-sanctions-against-russia-study-2023-07-10/

Thanks for the citation. This is roughly what I recalled.

It's difficult to wrap one's mind around so much value stored in one place (especially in the case of the USA.)