In a recent post (Someone has a Money Problem) I was saying that the massive U.S. debt refinancing begins in a couple weeks. Now, getting in a bit more data, it looks like that comes due in March. At about the same time, as an additional shock to the U.S. petrodollar, watch for Saudi Arabia to announce future sales to the East will be in BRICS "Units," rather than dollars. Those two shocks should be enough to finish off the U.S. Dollar as the world-reserve currency, a privilege that rogue regime never deserved. Up to now, every foreign exchange transaction involved the US$ as the intermediate in currency default swaps, with a percentage fee going to the U.S. big banks (not to the Treasury). In this and other ways, the wealth of the world was being swept toward the already-wealthy nation and its oligarchs. But the world-reserve currency should have been clawed back from that regime when they initiated wars of aggression and in particular, began weaponizing the currency in situations such as the Biden sanctions. Weaponizing the currency is something that the manager of the world's currency absolutely must not do.
To avoid this situation, the BRICS nations are inventing a new currency for foreign exchange, which they call the "Unit." This is not under the control of one nation, so it can't be weaponized. But these nations don't fully trust each other, so they decided on a system of currency-backing for this new Unit. Part of the backing is a basket of their national currencies and 40% of the Unit's backing is actual gold. Metalists would be excited about this move, but I'll tell you right now it will be a failure. How do you determine the value of their basket of currencies if you no longer have a reference such as the US$? Same issue for the value of those gold bars. They are locked in a vault - how do you determine the value of a non-traded asset? How do they satisfy accounts? Move gold from one vault cage to another like in the old Fort Knox system? That's great for forklift sales, but is just stupid in real life.
Then, as their GDP and volume of trade increases, they have to add more Units to the system. Who pays for that additional gold? And then there is the supply problem. When they initiate the Unit system, they will be vacuuming gold out of all other non-BRICS nations, until reserve supply is exhausted. During the past month, I've been thinking on what two items best represent human stupidity, so the top of the chart for December was wars and central bank vaults full of gold. With all these tonnes of gold in vaults, there should be no further gold mining with all the environmental damage associated with that. It doesn't really have any value unless you make things from it. But for metalists, it is "Gold." To them it is REAL money. But we've run into the constrictions imposed by metalist money theory before, and had to drop metal-backed money because it just doesn't work as well as fiat money. But the ongoing complaint about fiat money is that it has been badly managed. That is a management issue not a backing issue. Remember that commercial banking creates fiat money by an account entry, that is how most money in circulation is created and that money ceases to exist when the loan is paid off. It is not paid off by moving metal or crypto from one account to another, those can't pay loans because they can't disappear.
Certainly the BRICS nations will still have their own stinky central banks, so in their commercial banking system they can still create their own currencies. This reveals more problems. Central banks worldwide depended on the BIS (Bank of International Settlements) and ultimately, the U.S. Federal Reserve as lender-of-last-resort in case of major liquidity problems. What replaces that in the Units system? Again, what is the value of the Unit locked in a vault? And what is the drag on each of their economies tying up a portion of their currency in each BRICS Unit? How does that currency have any value if it isn't in circulation? The economy runs on the turnover in currency from one person (or entity) to another, it grinds to a halt with stored "value."
These measures result in the BRICS nations having a common currency, at least for international trade, but like the big problem in the EU, they don't have a fiscal union. Europe is often in financial trouble from the amount of debt in the PIGS countries (Portugal, Italy, Greece and Spain) and they have to force austerity on them. Such actions would not go over well in the BRICS nations. And often the leading debt-warrior in the EU was Germany, since during the days of cheap (Russian) energy, they were the economic powerhouse. But now, they are running on empty, factories closing, and according to Italy's PM Meloni, quietly going to the EU Bank for a handout.
The BRICS nations have done something truly stupid in inventing the Unit, there are too many constraints on it to function as their reserve currency. Back in June I wrote about A Proposed U.N. Dollar to replace the US$ as world-reserve currency in a system under international management, for the good of all, which also would sweep any profits from that to U.N. operations instead of more wealth flowing to the U.S. military-industrial complex. That would solve the control problem and the management problem and still provide a currency that functions internationally, without resorting to metalist nonsense.
But there remain overall decisions to make – should the world continue to be controlled by the present system of debt financing as represented by the G-SIB (Gobally Significant) banks? The exponentially increasing burden of debt follows (without causality) the decline of U.S. hegemony, we can't continue with this burden of financial and ecological debt, as mentioned in An Economy Devoid of Debt.
Reference:
THE 40%
LOCK: How the New BRICS "Unit" Removes GOLD from the Market
Forever (On YouTube) by Archival Capital
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