Home Daily Digests BRICS Gold-Backed Currency Challenges Dollar Dominance

BRICS Gold-Backed Currency Challenges Dollar Dominance

The US dollar faces challenges from rising non-dollar oil trade, China’s de-dollarization, the BRICS’ new currency, and the end of the petrodollar agreement, while domestic and international policies add further complexities.

The User's Profile Ivor June 14, 2024
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The year 2024 is shaping up to be a critical juncture for the US dollar, with significant shifts in global financial dynamics. JP Morgan’s head of global commodities noted that 20% of global oil trade in 2023 used non-dollar currencies, a substantial increase driven by the 16,000 US sanctions against Russia. China is a major player in this transition, with its currency, the RMB, rising to the fourth most-used global currency. Over 13 years, China’s cross-border transactions in RMB have surged from 0.3% to over 50%. Additionally, China sold a record $53 billion in US treasuries in early 2024, signaling a move towards de-dollarization.

The BRICS alliance, comprising Brazil, Russia, India, China, and South Africa, plans to announce a new gold-backed currency for trade at its October summit. This move aims to reduce reliance on the US dollar while preserving the sovereign currencies of its members. China’s diversification away from US dollar assets is evident in its increased gold reserves, now at their highest since 2015. This trend is mirrored by other countries, including Belgium, which sold $22 billion in US bonds. The BRICS alliance is attracting more countries, with Thailand recently announcing its intention to join.

Historically, reserve currencies last about 95 to 100 years, and the US dollar has been the world’s reserve currency for 103 years. The pattern of fiscal irresponsibility in the last 30 years of a reserve currency’s life is evident in the US, with national debt ballooning from $8 trillion in 2008 to $34 trillion today. The rise of digital currencies and ongoing geopolitical conflicts, such as the wars in Ukraine and Israel, further strain the US economy. The US dollar’s purchasing power has already decreased by 24% since 2020, and continued inflation is likely. Jamie Dimon of JP Morgan warns of higher inflation and unemployment due to extraordinary government spending.

The expiration of the 50-year-old petrodollar agreement between the U.S. and Saudi Arabia marks another significant shift. Established in the 1970s, the pact required Saudi Arabia to price its oil exclusively in U.S. dollars and invest surplus revenues in U.S. Treasury bonds. The end of this agreement could weaken the U.S. dollar and financial markets. If oil is priced in other currencies, global demand for the dollar may decline, potentially leading to higher inflation, increased interest rates, and a weaker bond market in the U.S. This development signifies a shift in global power dynamics, highlighting the growing influence of emerging economies and the changing energy landscape.

In domestic policy, the House Farm Bill proposes significant changes to agricultural support programs, including increasing rice reference prices and enhancing the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs. Farm groups like the National Corn Growers Association (NCGA) and the American Soybean Association support these changes, citing enhanced risk protection and increased support levels. However, the bill’s funding is contentious, with $27 billion proposed to be cut from the Supplemental Nutrition Assistance Program (SNAP), which House Democrats oppose. Critics argue that the increased reference prices would lead to unnecessary subsidies, benefiting only a fraction of farmers.

On the political front, President Joe Biden’s re-election campaign faces a potential challenge from Robert F. Kennedy Jr., who is leveraging the Equal Rights Amendment (ERA) to gain support. The ERA, ratified by the necessary 38 states in January 2020, has not been published in the Federal Register, which would give it legal force. Despite Biden’s vocal support for the ERA, he has not directed the U.S. Archivist to publish it. Kennedy has promised to publish the ERA if elected, appealing to ERA activists and potentially drawing votes away from Biden in key battleground states.

In international security, the United States currently has around 100,000 troops in Europe, which is insufficient for a full-scale war with Russia. NATO would need to mobilize a significant number of combat-ready troops, but the 300,000 rapid deployment force is only theoretical at this point. The logistics and infrastructure to move troops from Western Europe to the new NATO frontiers in Eastern Europe are inadequate. NATO recently conducted an exercise to move troops from Norway to Finland, revealing significant infrastructure gaps. The situation is dire, with the potential for nuclear conflict being the highest since the Cuban Missile Crisis. The Doomsday Clock is set at 90 seconds to midnight, underscoring the urgency of addressing these challenges.


The End of Dollar Dominance: How 2024 Could Mark a Global Financial Shift

Dollarization will be a slow process until it isn’t.

Source | Submitted by rhollenb

House Farm Bill Boosts Commodity Support, Sparks Debate Over SNAP Cuts

House Democrats have made it clear they won’t back any cuts to SNAP or move money out of the nutrition programs.

Source | Submitted by Barbara

RFK Jr.’s ERA Push: A Potential Battleground Headache for Biden?

President Joe Biden’s wobbly re-election campaign might have 99 problems, but a group of savvy women championing the Equal Rights Amendment could prove to be a giant one nobody expected.

Source | Submitted by Barbara

NATO’s Paper Tiger: The Illusion of a 300,000 Strong Rapid Deployment Force

This 300,000 rapid deployment force exists only on paper at the moment.

Source | Submitted by rhollenb

End of an Era: U.S.-Saudi Petrodollar Pact Expires After 50 Years

The expiration of the petrodollar agreement represents a significant shift in global power dynamics.

Source | Submitted by miltonsenior

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