BRICS and DE-Dollarisation
Following are some thoughts on the current De-Dollarisation process happening around the world especially the BRICS. These are only some thoughts and put forward by extensive research interpreting the news and geopolitical / geofinancial events happenings around the world.
BRICS De-Dollarisation Process
There is ongoing discussion among the BRICS nations (Brazil, Russia, India, China, and South Africa) about introducing a new currency backed by gold. This proposed currency would be pegged to the weight of gold rather than its dollar value and will be a CBDC (Central Bank Digital Currency). This currency will not be redeemable in GOLD. The primary objective of this initiative is to reduce dependence on the U.S. dollar and shift towards a more stable and autonomous financial system.
The concept involves using a fixed weight of gold to back the currency, aiming to insulate it from the volatility and economic policies of any single country, particularly the United States. This approach is seen as a strategic move towards de-dollarization and increasing financial sovereignty among the BRICS nations.
However, implementing a gold-backed currency presents several challenges. These include establishing a unified valuation and exchange framework among the diverse economies of the BRICS countries, ensuring sufficient gold reserves, and managing the complexities of transitioning from fiat currencies to a gold-based system. Additionally, global gold prices are subject to fluctuation, which would require robust mechanisms to manage potential volatility.
If successfully implemented, this currency could significantly impact global finance, potentially diminishing the dominance of the U.S. dollar and altering international trade dynamics. It could also lead to higher global demand for gold, influencing its market price and impacting countries dependent on gold imports and exports.
Europe's De-Dollarisation Process
Europe's move towards de-dollarization and increasing reliance on gold as a reserve asset is influenced by several factors, primarily geopolitical and economic shifts. The motivation stems from concerns over the weaponization of the US dollar through sanctions and the desire for greater financial autonomy. European countries, along with other nations like China and Russia, are exploring alternatives to the US dollar to mitigate these risks.
One significant strategy for de-dollarization involves increasing gold reserves. Central banks in Europe, and globally, have been purchasing gold at record levels. This trend is driven by the need to secure assets that are immune to political and economic sanctions imposed by the US. Gold is seen as a stable and neutral asset that retains value even during crises, making it an attractive option for central banks looking to diversify their reserves away from the US dollar.
Furthermore, the European Union has been working on mechanisms to facilitate trade outside the US dollar framework. For example, the creation of the Instrument in Support of Trade Exchanges (INSTEX) allows European companies to conduct trade with countries like Iran without relying on the US dollar, thus circumventing US sanctions.
The broader context of this shift includes increasing geopolitical tensions and the strategic realignment of global financial systems. With the BRICS nations also accumulating gold and exploring a new currency framework, the global financial landscape is gradually moving towards a more multipolar system where gold plays a crucial role in providing stability and security against economic uncertainties.
In summary, Europe's de-dollarization via gold is part of a broader strategy to enhance financial stability and independence from US influence, reflecting a significant shift in the global economic order.
The freezing of the Bank of Russia's treasury accounts in the U.S. has significantly impacted global perceptions of the U.S. dollar's reliability as a reserve currency. The U.S. and its allies froze approximately $300 billion of Russia's foreign exchange reserves, a move described as unprecedented and akin to using the "nuclear option" in the financial world. This action, combined with cutting Russia off from the SWIFT international transaction system, has prompted many countries to reconsider their reliance on the dollar for international trade and reserves.
Countries like China and Russia have accelerated their efforts to reduce their dependence on the U.S. dollar, turning more towards the yuan and other currencies. For instance, China has increased its yuan reserves and has been facilitating trade agreements in its own currency. This shift is part of a broader trend toward de-dollarization, where nations seek to diversify their reserves and reduce their vulnerability to U.S. financial sanctions.
The move has raised concerns among other countries about the security of their own dollar reserves, potentially leading to a more fragmented and multipolar global financial system. This could ultimately weaken the dollar's dominance as the world's primary reserve currency, although it remains to be seen how quickly and extensively this shift will occur.
Major BRICS countries Dumping US Treasury Bonds
China's holdings of U.S. Treasury bonds have decreased significantly. In 2013, China held approximately $1.3 trillion in U.S. Treasuries. As of the latest data from late 2023, this figure has dropped to around $860 billion. This reduction is part of China's broader strategy to diversify its reserves and reduce dependence on the U.S. dollar .
During the same period, China has been aggressively accumulating gold. From 2013 to early 2024, the People's Bank of China (PBoC) increased its official gold reserves from around 1,054 tonnes to over 2,257 tonnes (Kitco). However, there are estimates that China's actual gold holdings, including undisclosed purchases, could be significantly higher, potentially exceeding 5,000 tonnes (Kitco). This strategic move aligns with China's goal to bolster its financial security and hedge against dollar volatility.
These actions reflect China's ongoing efforts to reduce its reliance on U.S. financial instruments and strengthen its monetary resilience through substantial gold acquisitions.
Russia’s holdings of US Treasury bonds plummeted by a staggering $81 billion, representing 84% of its total US debt holdings1. This sudden debt dump may have contributed to a short-term spike in Treasury rates, which spooked the market. For the first time since 2014, 10-year Treasury yields topped 3% in April1. However, it’s essential to note that there are differing figures regarding the actual selloff. While official US Treasury Department data show an $81 billion decline, other indicators suggest that Russia’s actual selloff was somewhat smaller. Some estimates put the unaccounted-for Treasury sales at around $46 billion2. Gold Purchases: Over the past decade, Russia has consistently increased its gold reserves. Between 2007 and now, Russia added a substantial 570 tons of gold to its holdings3. In September 2014, Russia made its largest gold purchase in over 15 years, acquiring 1.2 million ounces of gold3.
India's holdings of U.S. Treasury securities have seen fluctuations but show a general trend of reduction over the past decade. In 2014, India held approximately $80 billion in U.S. Treasury bonds. By early 2024, this figure had dropped to about $223 billion. The reduction is part of a broader trend among many countries to diversify their reserves away from the U.S. dollar, particularly in light of geopolitical tensions and economic uncertainties.
During the same period, the Reserve Bank of India (RBI) has been on a substantial gold buying spree. Since 2014, India has increased its gold reserves from around 557 tonnes to nearly 794 tonnes by March 2023. This significant accumulation of gold underscores India's strategy to diversify its reserves and hedge against global economic uncertainties and currency fluctuations. The RBI's gold reserves have grown consistently, with notable purchases of 34.22 tonnes in FY 2023 alone.
Argentina pulled out its BRICS membership application
Argentina's recent economic maneuvers, including the discussion around dollarization and its relationship with the BRICS group, have sparked significant interest and speculation. Despite these moves, there's no clear indication that Argentina will become a "dumping ground" for dedollarized U.S. dollars.
Dollarization Discussions: Argentina has been contemplating dollarization as a measure to combat its severe inflation and economic instability. President-elect Javier Milei has proposed adopting the U.S. dollar as the national currency, a move that has been debated extensively by economists (EL PAÍS English) (Geopolitical Economy Report). This plan suggests Argentina's reliance on the dollar rather than acting as a repository for excess U.S. dollars in circulation globally. Despite these strategies, Argentina faces deep economic challenges, including a high level of debt and inflation. The push towards dollarization is seen by some as a desperate measure rather than a structured economic policy that would attract or accumulate dedollarized U.S. dollars
Pegging the new BRICS currency to the weight of GOLD
Pegging a new BRICS currency to the weight of gold instead of its dollar value could lead to increased stability and confidence in the currency, reduce dependence on the U.S. dollar, and introduce new dynamics in global trade and financial markets. However, it would also constrain monetary policy, require significant gold reserves, and introduce volatility tied to gold market fluctuations. The long-term success and impact of such a currency would depend on how well these countries manage these challenges and leverage the benefits.
What options does US have in this scenario.
1) De-Dollarize using the Bitcoin and when the new currency framework has been designed and implemented dump the Bitcoin and implement the new framework, which necessarily will not be the USD. Some of the countries that will serve as dumping grounds for the de-dollarised USD, most of the countries have already officially or unofficially made the USD as its primary national currency.
a) Argentina
b) Venezuela
c) Zimbabwe
d) Lebanon
e) Equador
f) EL Salvador
A blog by the faceless narrator Deepak Paranjape
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