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Any currency “backed” by Gold (or any other commodity) requires that huge economic resources must be put to work in finding the “precious” commodity (or stealing it). Then more huge economic resources must be used to dig it up, refine it and transport it to an underground bank vault where it must be kept safe by (presumably) a very powerful military force.
Then a very wise and very clever committee of unelected, appointed economists must decide its price in the designated currency. BOOM has yet to find such a committee. Wise and clever economists are not easy to come by. And, with 193 nations in existence, 193 wise, clever committees would have to be found if there was no generally accepted, global “reserve currency”.
The whole concept is economically and financially ridiculous on a first principles basis. Currencies are best backed by:
- General acceptance
- Shared trust
- Contractual agreements, in a region where an intact political and judicial system of governance is well established.
It is a complex mix but, nonetheless, can be understood even for those uneducated in the fine art of banking and finance.
‘BRICS BANK’ AND A “GOLD BACKED CURRENCY” There have been hysterical reports recently on some financial websites and on social media (in particular) that the BRICS Bank is “about to launch” a “new trading currency backed by Gold”. These claims are false, emanating from a poorly constructed statement made in Africa by a foolish bureaucrat. That foolish statement was duly reported unwisely and promoted by the Russian media outlet, RT.com
RT describes itself as “an autonomous, non-profit organisation that is publicly financed from the budget of the Russian Federation.”
The whole saga was a fiasco that spread like wildfire by RT. BOOM expects the Russian government to discipline RT management over such poor reporting. If that doesn’t happen, then readers can assume that the story was spread as part of a deliberate disinformation campaign. Any reputation that RT has developed as a news source will then become mud.
So, what really happened? On 5th July, the BRICS Bank – officially called the ‘New Development Bank’ made a statement announcing that they had no intention of launching any new currency. And specifically, no intention of launching any new currency “backed by Gold”.
In fact, the Chief Financial Officer of the New Development Bank, Leslie Maasdorp, stated categorically, “There is no suggestion right now to create a BRICS currency.” He went on to say that the bank’s chief strategy was currently “the greater use of our own national currencies” in settlements of international trade and in the denomination of bonds issued by member nations.
The New Development Bank has the following nations as founding members: Brazil, Russia, India, China, and South Africa (the BRICS) plus new entrants, the United Arab Emirates, Egypt, and Bangladesh. Uruguay is in the final stages of its application to join and other nations are interested including Saudi Arabia. Currently it’s a rather small institution serving emerging market economies with US$50bn of subscribed capital and with only $10bn of equity.
Before readers get too excited, it is important to understand that Leslie Maasdorp is an ex-Bank of America, Barclays and Goldman Sachs banker. He is also tainted by his association with the unelected and non-representative World Economic Forum (WEF) as a Young Global Leader. Unfortunately, the shadow (and influence) of Klaus Schwab and the self-appointed Davos Billionaires, falls ominously over the New Development BRICS Bank.
The New Development Bank uses the US Dollar as its anchor currency and publishes its accounts denominated in US Dollars. Established in 2015 by the BRICS countries, the New Development Bank defines itself as, “a multilateral development bank aimed at mobilising resources for infrastructure and sustainable development projects in BRICS and other EMDCs” (Emerging Market Developing Countries).
Their policies are stated clearly. The NDB, “supports infrastructure and sustainable development projects in alignment with the development objectives of our members and their commitments under the SDGs (“Sustainable Development Goals”) and the Paris Agreement. We prioritise high-impact operations that are climate-smart, disaster-resilient, technology-integrated and socially-inclusive.”
Sadly, that statement could have easily been written by Klaus Schwab or any of his acolytes at the WEF, the unelected Globalists, who meet in Davos or by any unelected official at the United Nations. It’s Wokeness is possibly surprising to anyone who thinks the BRICS Bank may represent some revolution in money supply.
RUSSIAN EXPORTS, THE US DOLLAR, THE IMF, BOOM’S QUANTITATIVE BOOSTING – NO NEED FOR CBDC’s: Russian exports of grain have hit a record high, despite the Ukraine war and sanctions initiated by the United States. Destinations for the grain include China, Türkiye, Egypt, Bangladesh, Algeria, Pakistan, Iran, Libya, Saudi Arabia, Israel and Mexico. Russia’s wheat exports now amount to 20% of the world’s total with Egypt their biggest customer. Türkiye, Algeria, Iran, and Saudi Arabia are the next largest importers. And a report last week showed that Austria is continuing to buy large amounts of Russian gas under a long term contract that runs through to 2040. Hungary and Slovakia are also dependent upon Russian gas. Russia’s energy exports are going gang busters, especially to India and China.
However, the Russian Central Bank shows that Russian exports in US Dollar total have declined by around 25% in 2023. Sounds bad, doesn’t it? Think again, this is not a simple matter.
Many observers will conclude that such a decline in exports from Russia (measured in US Dollar equivalents) has harmed the Russian economy. However, that analysis is misleading. Such a decline will lower the total GDP in an economy but only if that GDP is measured in US Dollars. There may be no decline in GDP as measured in rubles. In fact, that measure of GDP could increase significantly and overall production of goods and services could rise with the economy performing well and with low levels of unemployment. In fact, Russia’s unemployment rate has been falling steadily for the last 12 months to 3.2% recorded in May which is a record low.
The other rationale for exporting goods and services is to acquire foreign currencies, especially US Dollars. Nations seek US Dollars to use as settlement for most of their imports and to repay US Dollar denominated loans. US Dollars are used because they dominate in availability and convenience globally. This is where the matter becomes even more intriguing. Why? Because Russia has set course to a new paradigm where all currencies will become more freely available and accepted as settlement for trade rather than using the US Dollar as the generally accepted and dominant currency of settlement.
In such a world, trade can continue to flow and grow and be settled with other currencies while the US Dollar value of the trade becomes slowly irrelevant. A future such as that is very different to the past. In fact, a growing Non-US Dollar Trade world could slowly emerge as each year passes and then economic comparisons traditionally made by using the US Dollar as the measurement tool will become meaningless. Such comparisons will then have to be made on actual volumes of goods exchanged or, alternatively and more logically, using a basket of currencies rendered to a single number by an algorithm. The SDR is a similar device and could be used in future to make economic comparisons. However, there is more to consider when looking at the SDR concept.
USING SPECIAL DRAWING RIGHTS TO BOOST GLOBAL MONEY SUPPLY – Special Drawing Rights (SDR) is essentially an artificial accounting instrument, derived from 5 major national currencies by agreement. It is used for accounting purposes and created in 1969 by the IMF (International Monetary Fund). It is not a currency itself. It is built from a basket of national currencies and it was created in response to concerns about the limitations of gold and US Dollars as the sole means of settling international accounts.
The SDR is (currently) made up of the US Dollar, the Euro, the Chinese Yuan, the Japanese Yen and the Pound Sterling. The formula for calculating the SDR is re-considered every 5 years. In March 2021, the IMF re-set the formula to the following weightings:
- US Dollar, 43.38%
- Euro, 29.31%
- Chinese Yuan, 12.28%
- Japanese Yen, 7.59%
- British Pound Sterling, 7.44%
Thus the SDR is a unit of value and could theoretically be used to make comparisons between economies in future instead of using the US Dollar as the measuring stick. But there is much more to know about the SDR concept.
The IMF can “allocate” SDRs to member nations. This is equivalent to an issuance of a currency (although the SDR itself is not a currency). There have been 4 allocations since 1969 with the largest and most recent one being in 2021 when the amount “allocated” was SDR456bn, equivalent to US$650bn (at the time). The aim was to increase global liquidity.
The IMF distributes a general allocation to member countries in proportion to their quota shares at the IMF. That 2022 allocation was the first one for many member nations. In fact, 20% of members had never received an allocation previously. Such allocations are essentially a monetary gift from the IMF and have the effect of boosting overall global liquidity – the global money supply.
In this respect, by using the SDR device, the IMF is effectively acting as a ‘defacto global central bank’ and the member nations can be seen as ‘defacto client commercial banks’.
However, SDRs themselves cannot be used in the real economies of those nations. Why? Because individuals and private entities (such as companies) cannot hold SDRs. Thus, SDRs are effectively defacto banking reserves created at a global level.
SPECIAL DRAWING RIGHTS AND QUANTITATIVE BOOSTING: Boosting the allocations of SDRs to member nations in this fashion is very similar to BOOM’s concept of Quantitative Boosting (QB) for national economies. Both are ways of instantly boosting overall liquidity (volume of money) in the financial sector through mutual agreements between banks and governments.
If QB was to occur, governments would fund their deficits by agreeing to apply for bank loans from their central bank rather than by issuing bonds (securities) to the investment community. This would instantly boost the supply of fresh new money into the real economy as that is where the government expends the resultant funds. Under QB, the central bank would borrow the funds from their commercial bank members, thus creating new assets on the balance sheets of the commercial banks. An equivalent asset (loan) would appear on the balance sheet of the central bank, balanced by an equal liability on the government’s balance sheet (at the Treasury).
This would allow the central bank and the government to increase the volume of funds in circulation in the economy with essentially no time lags. And importantly, without any increase in interest rate settings, which could be kept in reserve as a means of CPI inflation control.
The monetary volume circle would be completed by the funds immediately appearing as customer deposits on the balance sheets of the commercial banking system. Those deposits – a liability to the banks — would be equivalent in value to the loan applied for by the government to the central bank. And they would also be equivalent in value to the new asset created on the balance sheets of the commercial banking sector representing the loans to the central bank. All trial balances across the banking sector and in the real economy would settle almost immediately. Hey presto, in such a system, dangerous CPI (or asset) deflation or dis-inflation could be moderated without any decrease in interest rates.
In such a system, there is also no need for any new fandangle “CBDC” (Central Bank Digital Currency) to boost liquidity.
QB would give governments and central banks an extra tool of monetary policy, one based upon the volume of the money supply rather than the cost (interest rate policy).
If and when a government paid back its QB loan from taxation revenues, it will effectively reduce the volume of money supply. This then becomes a methodology for fighting dangerous CPI (or asset) inflation. This could be done also in agreement with the central bank and the commercial banking sector.
Prudence and cooperation are also needed to institute such a money supply control system. By the way, China is effectively already running a QB system. They do not rely so much on bond issuance, preferring to use bank loans as their prime finance mechanism.
Currently, total Bank Loans in China amount to around US$32tn while the total Bank Loans in the United States amount to approximately US$10tn. This is one very important reason why China’s economy continues to prosper and outgrow America’s economy year on year.
PHYSICAL CASH IS AN ESSENTIAL TOOL OF MONETARY POLICY: As QB agreements are put in place, a buffer of increased physical Cash, issued by the Government Treasury and distributed by the banking sector would also assist greatly in maintaining monetary stability. Physical Cash volume is an important third tool of monetary policy that must be employed as a buffer against excessive creation of credit money (money created as a commercial bank loan to a willing borrower).
BOOM’s QUANTITATIVE BOOSTING EXPLAINED: https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/ AND BOOM’s Perfect Economy: https://boomfinanceandeconomics.wordpress.com/2020/01/18/boom-as-at-19th-january-2020/
In economics, things work until they don’t. Until next week. Make your own conclusions, do your own research. BOOM does not offer investment advice.
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BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY: LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans). https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how global banking systems really work.
AND Watch for 4 minutes, this Bank of England explanation: Money is essential to the workings of a modern economy, but its nature has varied substantially over time. This video describes what money is today.
Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.
On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter — “In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).” Reference: https://www.bundesbank.de/en/tasks/topics/how-money-is-created-667392
The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018…“the vast bulk of broad money consists of bank deposits” “Money can be created…when financial intermediaries make loans“ – “In the first instance, the process of money creation requires a willing borrower.” “It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”
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Did Kang Chuck III have his operatives pour the magic purple drank Kool-Aid in the UK water supply, Peter? So, you declare a sound currency impossible because there can be no trustworthy overseers, but think a global fiat with a “shared trust”, and “Contractural agreements w/ judicial and political systems well established” would be doable? Cheerleading the SDR/NWO ? The USA!USA!USA! is proof positive that your parameters are in the weeds.
I don’t think Peter endorsed anything like the IMF, SDRs, NWO etc but just stated TPTB policies and practices. I believe he is old school “Austrian” Peter Economics himself. PS: The Illuminati Banking System then includes the BRICS Bank; no fresh air there. The whole Damned System supports the Devils Minions with cash infusions, just like our IRS which periodically sends Stimulus Checks to The Chosen but not to people like my wife and me. That violates the 14th Amendment, The Lord’s Golden Rule, etc; but if TPTB are kidnapping and sacrificing babies, giving millions of people CV-19 Genocide Shots, Chem-spraying the World, Sabotaging food and fuel supplies, etc; what’s a few violations of Sacred Documents anyway, what difference does it make, not their concern.
rhs jr- Good to see you. Baskets of various shit paper currency are a joke. Fiats always fail, always. SDR’s have been around a long time , the rotten to the core system and the IMF stink to high heaven. Keep in mind who wants it all, all the land, all the resources, all the gold and assets. These instruments are for their benefit, not ours.
Peter is correct that sound money would limit quantity and that is THE POINT.
Thanks BL – actually the SDR proposal is no different to the ECU (European Currency Unit) which we used in the 1980s for EU trade before the euro appeared. I used it myself and it worked well as a virtual trading settlement mechanism.
https://www.investopedia.com/terms/e/european-currency-unit.asp
Thanks rhs jr, exactly so, I believe Austrian economics is worth trying in a contracting economy – BOOM disagrees – but my book is based on it so we agree to differ!
LOL BL – you are of course right because BOOM’s QB does rely on a central committee of worthy, honest and trustworthy financial whizz-kids to manage the money supply without dipping their sticky mitts into it. Not a lot of these types around and BOOM agrees.
Regrettably any new monetary system will rely on just these characteristics, and given the frailty of the human beast, I suspect it is likely unworkable in its present form. BOOM has a great chart (image) of how a local economy would work but I have no idea how to post it here in the comments – it’s a jpg or png. I will include it next Saturday if I can’t get the tech right here b/c I actually can do it in publishing.
A flexible money supply system is only needed if an economy is expanding, (hence Bretton Woods) which IMHO isn’t likely in the West going forward because: EROEI: https://austrianpeter.substack.com/p/the-financial-jigsaw-part-2-the-end?s=w If my thesis holds true over time then we need only a local currency to manage de-growth: https://austrianpeter.substack.com/p/the-financial-jigsaw-part-2-localisation?s=w and thus my Plan ‘B’ will come into play: https://austrianpeter.substack.com/p/progressing-plan-b-a-quarterly-review?s=w
Any other suggestions are very welcome.
Well I guess you would have to completely dismiss the book and interview done by J. Rickards. As he stated, while it wont be gold-backed, there will be a BRICS currency that is PEGGED to gold.
Reading this author’s articles over the past few months only stresses his extremely limited access to any actual information releases as all of his analysis comes from MSM sources and his opinions are heavily biased by the standard Euro bent that the old world currency system and financial system would still influence the world even if it was all to collapse.
Jim is good – I have read several of his books and recently ordered his latest. I was especially impressed with his “Road to Ruin” which has an exceptional appreciation of complex adaptive system and behavioural economics which us Austrians emphasise. My thesis Chapter 11 – Macroeconomics, compares and contrasts Austrians versus Keynesians.
https://www.researchgate.net/publication/358117070_THE_FINANCIAL_JIGSAW_-_PART_1_-_4th_Edition_2020
So, how is the UK and US abandoning the gold standard working out?
It ‘worked out’ until 1971 when the Bretton Woods fiat system failed:
…but it was given another extended life by using bond purchases, but finally it fell apart in 2008/9. Then China came to the rescue and QE extended the current system’s life once more until the Repo crisis in September 2019: https://austrianpeter.substack.com/p/a-perfect-storm-the-money-crisis?s=w The Covid Scamdemic was used to kill (slow down) economies so they could ‘Go Direct’ as advised by Larry Fink, and inject some $20tn directly into the economies. Look at the extreme effect of lockdown in UK: https://tradingeconomics.com/united-kingdom/gdp-growth
Note: no economic growth in UK since 1998 (and little before that). The Anglo/Saxons are only good for one thing, robbery and looting, which they managed to do by colonialism, conquest and extreme skulduggery. UK has no significant resources of its own – they produce little in the way of value and merely play virtual money games in the City of London. The UK’s days are numbered:
– for now!
A couple of other opinions….
BRICS CURRENCY CANCELLED (OR IS IT?) – DE-DOLLARIZATION UPDATE
The BRICS nations meet for their annual summit next month, and rumors of a new BRICS currency are abundant. But according to some reports from the group, no such currency will be announced. What’s the truth? Let’s talk about it…
NEW BRICS CURRENCY BOOSTS GOLD & DESTROYS DOLLAR – JIM
By Greg Hunter’s USAWatchdog.com (Saturday Night Post)
Seven-time, best-selling financial author James Rickards predicted in his most recent best-seller called “Sold Out” why broken supply chains would cause big inflation. He was right, and he still contends, “Supply chain problems and inflation are not over.” For an example of the supply chain still being in fragile shape, look no further than the failed grain deal between Ukraine and Russia last week. Rickards points out, “Putin has been very patient about this. He had a deal. Ukraine was not living up to their end of the deal. Putin says we are the ones getting attacked, so, screw the deal. What’s that going to do to the price of grain? It’s going to send grain prices up, and it’s already up 10% just in a matter of days.”
This brings us the new BRICS gold-weighted currency (Brazil, Russia, India, China, South Africa) that might be announced in the middle to the end of next month. Rickards calls one unit of currency a “BRIC.” This is a competitor to the U.S. dollar, but Rickards says, “It’s not a reserve currency. . . .I think it may be 8 grams of gold to one “BRIC” (currency), but I don’t know. What I do know is it does not matter. What does matter is they are going to anchor it to a weight of gold. . . . It’s NOT redeemable in gold, it is anchored to it. . . . Let’s says a “BRIC” is worth one ounce of gold. Today that is $1,970 per ounce, except the “BRIC” is NOT anchored to the dollar. It is anchored to gold, which stands in the middle of this equation. So, the dollar price of gold is going to be going up and down all the time, which means the dollar/“BRIC” exchange rate is going to be going up and down all the time. They don’t have to defend the “BRIC.” They have gold, but they don’t have to back it up with gold. . . . They actually don’t need any gold. . . . If you have made your currency anchored to gold . . . do you want the price to go up or down? You want the price of gold to go up because that means the “BRIC” is worth more dollars, and the dollar is crashing. It’s a way to destroy the dollar. You don’t need dollars and you don’t need gold. You just need to be smart enough to anchor your currency to gold, and when dollar inflation starts to go up, your currency is going to be worth more because of how you pegged it, not to dollars, but how you pegged it to gold.”
Rickards goes on to say, “So, if I were a BRICS member, and I were Russia in particular, and I had this currency tied to gold, and I wanted my currency to be more valuable and your currency (U.S. dollar) less valuable, one of the ways to do that is mess with the supply chain and drive up the price of oil, gasoline, grain . . . which drives up pork prices and chicken prices, and the list goes on. That’s one way to do it.”
Rickards also talks about deflation this year and big inflation coming after that. Rickards is predicting big inflation coming for people using dollars, and with his track record, you would be a fool to bet against his analysis.
There is much more in the 52-minute interview.
Does he say the source of his information for “What does matter is they are going to anchor it to a weight of gold”?
Jim has lots of good points, Mark, and thank you for this valuable input but they are only projections. We will know more as events play out. It doesn’t matter who is right or wrong, the important thing is to construct sustainable local economies, perhaps not as extreme as the Amish, but IMHO they are an excellent working model matching UBUNTU in SA:
But I don’t agree with “grain prices up, and it’s already up 10% just in a matter of days.” https://tradingeconomics.com/commodity/wheat. I foresee Great Depression 2 ahead and a likely GFC2 on or around September 16 2023. BUT
“The best way to predict the future is to create it. Those who have knowledge and power, don’t predict. Those who predict, don’t have either knowledge nor power.” So I am living dangerously! 😮
The constraints that a gold backed currency put on government finances are not artificial. They are the reality of a physical world. Fiat currencies always lead , eventually, to excessive debt. That has always happened in history to any nation, or empire, which employed fiat currencies. By opposing gold backed currencies the author indicates he is insincere in his railings against government financial ineptitude. Once you accept fiat currencies you are part of the globalist club, despite exaggerated protests to the contrary.
But by supporting gold-backed currencies you are condemning an economy to marginal growth. However because I believe future economies will be contracting, a gold-backed currency would work IMHO.
https://austrianpeter.substack.com/p/the-financial-jigsaw-part-2-the-end?s=w
Gold-backed is the worst form of currency – except for all the others that have been tried.
LOL ‘m’ like Winston Churchill once said, “Democracy is the worst form of government – except for all the others that have been tried.” His cynicism was perhaps justified after the British people voted him out from his position as Prime Minister within months of winning the Second World War!