New Delhi has repatriated its gold from England, a sign that a new international monetary order is in the making. Bitcoin in ambush.
India gets its gold back
The Indian central bank (RBI) has just transferred 100 tonnes of gold from its former colonizer. The last gold transfer of this scale was in the opposite direction, in 1991.
India officially wants to save on storage fees currently paid to the Bank of England. Unofficially, geopolitical tensions are worsening.
This gold binge is not contained to India. Gold purchases by central banks are reaching historic highs recently.
According to the World Gold Council, China has got its hands on 225 tonnes of gold in 2023, or around a quarter of the 1,037 tonnes purchased by all central banks. Here are the largest gold holders:
USA: 8,133 tonnes; Germany: 3,352 tonnes; Italy: 2,451 tonnes; France: 2,436 tonnes; Russia: 2,332 tonnes; China: 2,262 tonnes; Switzerland: 1,040 tonnes; Japan: 845 tonnes; India: 822 tonnes; Netherlands: 612 tonnes; Türkiye: 570 tonnes; Taiwan: 423 tonnes; Portugal: 382 tonnes, etc.
Central banks hold 17% of all the world's gold (36,700 tonnes). They have become net buyers again since 2010, in reaction to the Fed's QE.
The RBI has started accumulating gold again since December 2017. Gold represents almost 10% of its total foreign exchange reserves. This is less than the global average which JP Morgan estimates at almost 20%.
Gold Standard
The BIS says it wants to diversify its reserves, protect against inflation and mitigate currency risks. Wise decision when we see what happened to the 250 billion euros and dollars of Russian foreign exchange reserves…
That said, it is an open secret that the BRICS have the ambition to dedollarize their trade. Any country wishing to join the club must show its credentials. For example, the Thai candidate recently signed an agreement to abandon the dollar in his trade with China. Nigeria and India did the same a week earlier.
The ulterior goal is to strip the United States of its exorbitant privilege. The latter is due to the fact that the dollar is the international currency par excellence. This privilege was sealed by the Second World War (Bretton Woods / Gold Standard agreements) and then by the petrodollar.
The end of the gold standard in 1971 could have dug the grave of the dollar. But Washington was able to maintain its monetary hegemony by forcing OPEC nations to sell their oil in dollars. This is the famous “petrodollar system”.
This system reported “10,000 billion dollars fell from the sky” according to Vladimir Putin. The reason being that central banks accumulate reserves of dollars in the form of Treasury bills (US debt). The result is an artificial strength of the dollar which allows the United States to import much more than it exports. This is the “exorbitant privilege”.
Not for long. China dumped another $50 billion worth of Treasury bonds in the first quarter. Saudi Arabia is not left out. Its sovereign wealth fund has just reduced 41% its US equity portfolio.
The twilight of the dollar
The New York FED recently tried to reassure its blog. She points out that the majority of global foreign exchange reserves are still made up of dollars. We can read that the drop in the share of the dollar in global foreign exchange reserves would only be the result of a “small group of countries (China, Russia, India, Türkiye in the lead)”.
Except that this “small” group represents almost 40% of the world population… And not the least. In 1995, Japan's GDP was 15 times that of India. The two countries are now neck and neck. And let's not talk about the thirty or so countries that want to join BRICS.
The dollar probably only represents 54% of global foreign exchange reserves (equivalent to $12,332 billion according to the IMF). This was over 80% during the Gold Standard era.
For Indian Foreign Minister Subrahmanyam Jaishankar, “US dominance, which began after the end of the Cold War, has ended.”
The former head of Singaporean diplomacy George Yeo did not say anything else about the exorbitant privilege: “You can print dollars, but one day you won't be able to do that anymore and you'll have to choose between producing guns or producing butter. The key event will be the breakdown of the primacy of the dollar. And we all know it will happen, because it's an abnormal situation.”
Even the Americans are facing the facts. Former congressman and US presidential candidate Ron Paul think that “the dollar will be rejected as an international reserve currency during the next economic crisis”.
Power Rangers
Stopping financing the US debt will have a strong impact on the standard of living of Americans. The decline in the dollar will result in inflation for all imported products.
But the question is what do BRICS intend to replace the dollar with? It's one thing to keep gold in reserve, it's another to make international payments. The United States has already threatened China with a “disconnection from the dollar” (from the SWIFT network).
Gold obviously cannot oil international trade. We often hear about a currency made up of a basket of currencies circulating via a network of CBDCs. As Saifedean Ammous says, “It doesn’t work like that, we’re not in Power Rangers.”
The United States will also have to accept this currency. However, it is rather a safe bet that they will prefer to reduce their imports from China. We would face a fragmentation of payment systems going hand in hand with deglobalization.
The West will probably only agree to play on equal terms. This will require a currency that acts as a reserve currency AND at the same time as a payment system from which no one could be excluded.
We are talking about Bitcoin, the only currency that exists in absolutely finite quantity and whose transactions cannot be censored as long as there are miners scattered across the four corners of the world.
This is the Bitcoin that BRICS must embrace during the next major economic crisis. Legendary investor Peter Brandt predicts that the price of Bitcoin will rise 340% against gold within 18 months…
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