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Rickards - >>> The BRICS Go Their Own Way
by James Rickards
May 31, 2025
https://dailyreckoning.com/the-brics-go-their-own-way/
The BRICS Go Their Own Way
It’s that time again.
Time for the annual BRICS+ Leaders Summit. The BRICS have hundreds of meetings over the course of the year on every topic from sports to women’s issues to agriculture. But there is only one Leaders Summit. That’s when the heads of state of the members convene to discuss policy issues and to make announcements of major importance.
For those new to BRICS, it’s an acronym from the names of the founding members of Brazil, Russia, India and China who first met in 2009. That gave us BRICs. South Africa joined in 2010 and the group became BRICS. Iran, Ethiopia, UAE and Egypt joined in 2024 and Indonesia joined in 2025. I refer to this expanded group of ten as BRICS+.
In 2024, a partner category was established for countries that are not full members of BRICS but are invited to join the Leaders’ and Foreign Ministers’ Summits. The current partners are Belarus, Bolivia, Kazakhstan, Cuba, Malaysia, Nigeria, Thailand, Uganda, and Uzbekistan. Some of these partners may become full members in the near future.
In addition, there is an even longer waiting list of potential future members including important economies such as Turkey, Algeria, and Saudi Arabia. Regardless of the specific dates on which particular countries join BRICS or become partner members, the continued expansion of the group seems assured.
Not A Motley Crew
While the Leaders’ Summit is an annual event, it does not occur at the same time each year. The exact date depends on the schedules of the leaders themselves as well as seasonal conditions in the host country. The overall leadership of BRICS+ is a rotating presidency among Brazil, Russia, India, China and South Africa. Last year, the summit was held in Russia in October with President Putin as host.
This year Brazil has the rotating presidency and the summit will be in Rio de Janeiro on July 6 – 7, 2025. Brazilian President Luiz Inácio Lula da Silva is host. All of the founding BRICS leaders are expected to attend including Lula da Silva (Brazil), Vladimir Putin (Russia), Narendra Modi (India), Xi Jinping (China) and Cyril Ramaphosa (South Africa), along with many others.
A brief comparison of the combined resources of the first five BRICS members with the resources of the G7 (U.S., UK, Germany, Italy, France, Japan and Canada) is instructive.
In terms of population, the BRICS have 3.3 billion people compared to 0.8 billion in the G7. The total land area is 39.7 km2 for BRICS versus 21.7kn2 for the G7.
Real annual growth in GDP is about 5% for the BRICS versus 2% in the G7. Nominal GDP for the G7 leads the BRICS by $45.3 trillion (43.7% of global output) compared to $26.7 trillion (28.7% of global output). But when purchasing power parity accounting is used, the BRICS lead G7 $51.6 trillion to $48 trillion.
The point is not that the BRICS are overtaking the G7 across the board – they’re not. The point is that the BRICS are a powerful group demographically and economically and not a motley collection of what were once called third-world countries.
Prepared To Go Their Own Way
The BRICS do far more than gather for summits. They have spent the last sixteen years carefully and methodically building a parallel version of the original Bretton Woods institutions (1944) to suit their own purposes.
The BRICS New Development Bank based in Shanghai functions much like the World Bank as a development lender. The BRICS Contingent Reserve Arrangement (CRA) functions much like the IMF as a swing lender to members experiencing temporary liquidity or foreign exchange distress. The new BRICS payment system (BRICS Pay) functions as a financial payment, settlement and clearance system to displace Western institutions such as SWIFT and Euroclear.
Simply stated, the BRICS are preparing to go their own way and leave the Western financial architecture behind.
What’s NOT Happening This Year
The next BRICS summit in Rio on July 6 promises to be momentous in terms of announcements related to the continued development of this new financial architecture and possible new members. Before considering what these announcements will be, it’s helpful to list what the BRICS will not be doing. BRICs meetings are often surrounded by unfounded conjecture and wild speculation. Let’s dismiss the speculation before turning to the real.
The BRICS will not be announcing a new BRICS currency. There was a lot of speculation about that two years ago at the Leaders’ Summit in South Africa. It didn’t happen then and it’s not happening now. In fact, there may not be a BRICS currency for many years, maybe ever.
The BRICS members have been expanding trade with each other and have been paying with their local currencies and sometimes using the U.S. dollar for convenience. The euro was not created overnight. It took ten years from the Maastricht Treaty in 1991 to the launch of the euro in 2000 to solve all the technical problems. Even the Maastricht Treaty was the result of over twenty-years of experimentation with the European Monetary System (1979-1999), which was an earlier effort to peg exchange rates after the end of the gold standard. So, don’t expect a unified BRICS currency for the foreseeable future.
The BRICS will not be returning to a gold standard. When we use the term “gold standard,” we’re referring to a system in which one or more currencies are pegged to a fixed quantity of gold and the currency is freely convertible into gold at that fixed rate. When more than one currency is on such a gold standard, those currencies are pegged to each other also by the transitive law.
The world was on an ad hoc gold standard from 1870 to 1914 and was on a version of the gold standard by international agreement from 1925 to 1936 and again from 1944 to 1971 under Bretton Woods. There has not been a true gold standard since 1971, and there won’t be one emerging from the BRICS anytime soon.
Finally, there is nothing on the BRICS agenda about abandoning U.S. dollars or ending the role of the U.S. dollar as the unit of account. Today, the dollar accounts for about 60% of global reserves and over 80% of global energy purchases. Despite numerous flaws and complaints, the end of the dollar reserve system and the Petrodollar Accord is not in sight.
What To Expect
With the BRICS currency, a new gold standard and the “end of the dollar” put to one side at least for now, what will the BRICS actually be doing?
The most important initiative will be to admit new members and add new countries to the partner list. The key to creating a BRICS currency (in the long run) and displacing the dollar (in the long run) is to create a large trading area that will accept whatever new currency might be proposed. That was one key to creation of the euro.
The European Monetary Union (EMU) had 11 members in 2000 and has 20 members today with more on a waiting list. The euro is also widely accepted and traded by banks around the world, even outside the EMU. By adding members, the BRICS are making important strides in the direction of a large trading area with mutual payment arrangements.
Another key area for BRICS expansion is the build-out and launch of new systems for payments, settlement and custody. Currently, BRICS members are forced into Western-dominated payment systems such as SWIFT, FedWire, DTCC and Euroclear. These systems are efficient and secure but they are controlled by the U.S. and other G7 governments.
This means that BRICS assets cleared or held in those systems are subject to freezes and seizures by the U.S. and its allies for geopolitical reasons. This has already happened to Russia with regard to $300 billion of its reserves held in the form of U.S. Treasury securities in custody at U.S. banks and Euroclear. Those assets are gradually being stolen by the U.S. to prop-up the neo-Nazi regime in Ukraine. Having alternative systems will weaken U.S. financial sanctions and protect BRICS assets.
The BRICS Golden Currency
While the buzz about a new gold standard is overhyped, gold is still a central part of what the BRICS are all about. Those calling for a new BRICS currency seem not to realize that the BRICS already have a common currency – it’s gold.
If Russia has a trade surplus with China, they will accumulate an excess reserve in yuan. If China builds up a trade surplus with Brazil, they will accumulate an excess reserve in reais. These reserves are not useful beyond a certain point and there are no large liquid bond markets in which they can be invested with liquidity and safety. Conversion to U.S. dollars and the purchase of U.S. Treasury securities is an option, but it leaves the holder subject to U.S. sanctions and outright theft.
The alternative is to convert the BRICS currency reserves into gold. In effect, gold is a leading reserve monetary asset for BRICS central banks. When held in physical form in a safe location, gold cannot be frozen or stolen by the U.S. And gold is freely acceptable by the other BRICS members.
This phenomenon is borne out by hard data. Since 2009, Russia has increased its gold reserves from 531 metric tonnes (mt) to 2,333 mt. China has increased its gold reserves from 600 mt to 2,293 mt. India has increased its gold reserves from 358 mt to 880 mt.
These are official holdings, not including private ownership. It is estimated that citizens of India may have as much as 5,000 mt in the form of jewelry and bullion. There is also good reason to believe that Chinese official gold holdings are significantly larger than the figure reported above. Finally, some countries are acquiring large reserves of gold but are non-transparent about their holdings. BRICS member Iran is in this category.
So, the BRICS already have a common currency in the form of gold.
Geoeconomics Rules
It’s important to emphasize that the BRICS are not a military alliance. There are no mutual defense treaties at the BRICS level. The BRICS are a multilateral organization focused on cooperation in economics and other social and person-to-person issues. Critics who say that the BRICS cannot work because of geopolitical tensions, including those between China and India, are missing the point. Geopolitics does not stand in the way of geoeconomics when there are issues that can be addressed on a win-win basis.
The BRICS summit in Rio may disappoint those who are predicting a “global reset” or the “end of the dollar.” But it will be momentous, nonetheless. The end of the role of sterling as a global reserve currency took thirty years (1914-1944). The rise of the euro as a global reserve currency also took thirty years (1979-2000). These were real monetary resets but they didn’t happen overnight. The key is to watch for important moves in a direction that enables us to see the future of the global monetary system. There will be plenty of that on display in Rio de Janeiro this July.
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>>> Colombia seeks to join China-based development bank as Latin America drifts away from Washington
ASSOCIATED PRESS
by JOSHUA GOODMAN
May 17, 2025
https://finance.yahoo.com/news/colombia-seeks-join-china-based-134115143.html
MIAMI (AP) — Colombia's government has applied to join a China-based development bank, another sign of Latin America's drift away from the U.S. as the Trump administration's foreign aid cuts, trade barriers and crackdown on immigration spurs many leaders in the region to seek closer ties with Washington's geopolitical rival.
Colombian President Gustavo Petro wrapped up a visit to China this week with a stop in Shanghai, where he met with former Brazilian President Dilma Rousseff, the head of the New Development Bank.
The multilateral lender was set up a decade ago as a project of Brazil, Russia, India, China and South Africa — the so-called BRICS nations of major developing markets — as a counter to U.S.-dominated institutions like the World Bank and Inter-American Development Bank.
To date, the New Development Bank has approved loans for 122 infrastructure projects totaling more than $40 billion in areas such as transport, sanitation and clean energy, according to Rousseff.
Petro, speaking to reporters in China on Saturday, said that Colombia is committed to purchasing $512 million worth of shares in the bank. He said that he was especially excited by the possibility of securing the New Development Bank's support for a 120-kilometer (75-mile) canal, or railway, connecting Colombia's Atlantic and Pacific Ocean coastlines that he said would position the country at the “heart” of trade between South America and Asia.
Colombia is the second Latin American country to try and join the bank after tiny Uruguay sought membership in 2021.
But Colombia's traditional role as a staunch U.S. ally and caretaker in the war on drugs is likely to raise eyebrows in Washington. The U.S. State Department this week said that it would “vigorously oppose” financing of projects linked to China's Belt and Road Initiative in Latin America. Petro signed up to the initiative during a summit with fellow leftist leaders from Brazil and China.
Petro, a former leftist guerrilla, said he wouldn't be dissuaded by U.S. pressure and reaffirmed that Colombia seeks to remain neutral in a new era of geopolitical wrangling.
“We made this decision freely,” Petro told reporters from Shanghai. “With the United States we can speak face to face, with China too.”
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BRICS Members -
Brazil
Russia
India
China
South Africa
Egypt
Ethiopia
Iran
United Arab Emirates
Indonesia
Partner Countries -
Belarus
Bolivia
Cuba
Kazakhstan
Malaysia
Nigeria
Thailand
Uganda
Uzbekistan
Vietnam
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>>> Brazil nixes BRICS currency, eyes less reliance on 'mighty' dollar
Reuters
By Marcela Ayres, Bernardo Caram and Lisandra Paraguassu
February 13, 2025
https://www.reuters.com/markets/currencies/brazil-nixes-brics-currency-eyes-less-reliance-mighty-dollar-2025-02-13/#:~:text=BRASILIA%2C%20Feb%2013%20(Reuters),U.S.%20dollar%20in%20global%20trade.
Summary
Brazil's BRICS presidency won't push for common currency
Agenda would ease global payments, reduce dollar reliance
July BRICS summit to discuss cross-border payment systems
BRASILIA, Feb 13 (Reuters) - Brazil's BRICS presidency this year will not advance a common currency for the group of major developing economies this year, four government officials said, but its agenda may pave the way for less reliance on the U.S. dollar in global trade.
That agenda could draw the ire of U.S. President Donald Trump, who has repeatedly warned the BRICS group, founded by Brazil, Russia, India, China, not to challenge the dominance of "the mighty U.S. Dollar."
"There is no chance that BRICS will replace the U.S. Dollar in International Trade, or anywhere else, and any Country that tries should say hello to Tariffs, and goodbye to America!" Trump wrote on social media last month.
On Thursday, he repeated the threat of "100% tariffs" on BRICS nations "if they want to play games with the dollar."
The Brazilian officials, who requested anonymity to discuss plans, said the idea of a shared currency to replace the dollar, floated by President Luiz Inacio Lula da Silva and others at recent BRICS summits, has never entered technical discussions.
Three of the sources said Brazil is instead pushing reforms within BRICS to ease international payments in local currencies, opening the door to less dependence on the dollar for global trade, although they said that is not the main objective.
"It's not directed against anyone," said one source, who stressed the focus was on reducing friction for global trade.
The agenda includes studying technologies such as blockchain and linking payment systems to cut transaction costs, following standards set by multilateral bodies like the Bank for International Settlements (BIS), the three sources said.
"No one wants to create trouble, but BRICS countries also don't want to abandon the idea of exploring this possibility," said another source, adding that no member countries intend to eliminate their dollar reserves.
Even Lula has backed off the idea of a new currency for the bloc, while still defending last week the BRICS nations' "right to discuss establishing forms of trade that do not make us fully dependent on the dollar."
Last week, Brazil's finance ministry and central bank discussed their proposals for the BRICS presidency this year, including cross-border payment initiatives, sources said.
Neither institution responded to a request for comment.
SUMMIT IN SIGHT
BRICS representatives will meet in South Africa this month on the sidelines of the G20 meetings, where Brazil will present its plan for the BRICS summit in July, the sources added.
Founded in 2009 and soon expanded to add South Africa, the BRICS group has recently included Egypt, Ethiopia, Indonesia, Iran, Saudi Arabia and the United Arab Emirates, making it a growing diplomatic counterweight to traditional Western powers.
Brazil has gained prominence in discussions of global payments with the rapid rise of its instant payments system, called Pix, which launched in late 2020 and has already surpassed use of cash, credit and debit cards.
In his first public remarks as Brazil's new central bank chief last week, Gabriel Galipolo said Pix is programmed in a way that it can be easily integrated with other payment systems, although governance challenges remain an important hurdle.
Brazil already operates a Local Currency Payment System (SML), managed by its central bank through agreements with Argentina, Uruguay and Paraguay.
The system allows transactions to be settled directly in Brazilian reais, bypassing the dollar as an intermediary and eliminating the need for foreign exchange contracts.
Although the system lowers intermediation costs, settlements take at least three business days, which have limited adoption.
Argentina was the top trade partner with SML transactions last year, totaling 5.1 billion reais ($878 million) — just a fraction of their overall $27.4 billion in bilateral trade.
"With instant payment technology, these connections could become more secure, faster and cheaper," one of the sources said.
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Rickards - >>> Gold: The Everything Hedge
By James Rickards
April 24, 2025
https://dailyreckoning.com/gold-the-everything-hedge/
Gold: The Everything Hedge
It’s a subject we analyze continually, and we have recommended gold as part of a sound investment portfolio for years. Today the dollar price of gold is hovering near all-time highs over $3,300 per ounce.
Gold has been on a tear lately. It was $1,830 as of October 5, 2023. At today’s prices, that marks a 75% surge in just 18 months. Gold has outperformed stocks by a wide margin this year, but it has also outperformed stocks for the past twenty-five years. Gold was around $250 per ounce in 1999. The gain since then is 1,180% or almost 12 times the starting price.
This is not the first bull market for gold. In the gold bull market of 1971 to 1980, gold rose 2,185%. In the gold bull market of 1999 to 2011, gold rose 670%. There were notable gold bear markets from 1981 to 1999 and again from 2012 to 2015. There were no bull or bear markets before 1971 because the world was on a gold standard and the price was fixed at $35.00 per ounce from 1944 to 1971. Still, the upward trend in gold prices is relentless and undeniable. Taking the entire period from 1971 until today including bull and bear markets gold has risen over 9,000%. Not bad.
Of course, that’s all in the past. What investors want to know is where do we go from here? The short answer is up significantly.
Here’s Why
The most fundamental reason for the rise in gold prices is simple supply and demand. Central banks predominantly from developing markets moved from being net sellers to net buyers of gold in 2010. Total gold reserves of central banks have risen significantly since then from just over 30,000 metric tonnes (mt) to over 35,000mt today.
The top buyers were the central banks of Russia, China, Turkey, Poland and India. Russia increased its reserves by 1,684mt to a total of 2,333mt. China increased its reserves by 1,181mt to a total of 2,235mt. Iran is also a major buyer of gold, but it is non-transparent, and its purchases and reserves are not publicly known.
At the same time gold demand has been growing, gold output is flat. Global mining output of gold was about 130 million ounces in 2018 and was about 120 million ounces in 2024. Output declined slowly from 2018 to 2022 and then recovered slowly over the course of 2023 and 2024 but the change in both directions was slight.
Gold production is projected to grow slightly from today until 2030 but is still not projected to exceed the 2018 high. In short, gold production by miners is flat. This does not mean that we are at “peak gold” or that new discoveries are not being made. They are. What it means is that gold is becoming harder to find and costs of production (especially water and energy) are going up, so the total output trend is flat.
Continually increasing demand with flat output is a recipe for higher gold prices.
The second driver of higher prices is the role of BRICS+. From an original membership of Brazil, Russia, India and China in 2009 (South Africa joined in 2010), the group has expanded to include Egypt, Ethiopia, Indonesia, Iran and the UAE. It’s waiting list of additional members who will be added in the years ahead includes Malaysia, Nigeria, Turkey and Vietnam among others.
There was much discussion in 2023 and 2024 about a new BRICS currency that would displace the U.S. dollar in trade among members and might ultimately prove to be an acceptable reserve currency to rival the dollar. In fact, no such alternative currency is in the works. It might happen in the future but it would take ten years or longer properly to design and implement.
Instead, the BRICS are building a new payments system using proprietary cables, secure servers and highly encrypted message traffic protocols along with a blockchain-type ledger. Payments are in local currencies in the new payment channels that cannot be disrupted by western powers.
This begs the question of how trade imbalances accumulating in local currencies can be settled and converted into more liquid assets. The traditional answer was dollars. In short, the BRICS+ already have a new global currency, which is actually quite old – it’s gold. This is one reason why BRICS+ members are among the largest buyers of gold bullion.
The Everything Hedge
Importantly, gold is not just an inflation hedge, in fact it is an imperfect inflation hedge in terms of strict correlation. Gold prices have skyrocketed in recent years even as inflation has remained relatively tame (despite an inflation surge in 2022). A better model is to think of gold as the “everything hedge.”
The vectors of uncertainty are everywhere. These include tariffs, tax policy, the Department of Government Efficiency (DOGE), the War in Ukraine, the rise of China, a likely recession, left-wing violence, and even the status of Greenland and the Panama Canal among others.
It’s difficult to forecast how any one of these situations will turn out, let alone all of them and their complex interactions. Stocks and bonds can be volatile as a result. Gold is the one safe haven asset that powers through them all and offers investors some peace of mind. It is truly the everything hedge.
These drivers are sending gold prices higher and putting a floor under current price levels so that investors can enjoy potential upside with reduced concern about the downside. That’s what we call an asymmetric trade, which greatly favors investors.
Finally, there’s a simple bit of math combined with behavioral psychology that could propel gold prices to the $10,000 per ounce level in far less time than most analysts believe.
Investors naturally focus on dollar gains in the price of gold. When gold goes from $1,000 per ounce to $2,000 per ounce, investors cheer on the $1,000 gain. The same is true when gold goes from $2,000 per ounce to $3,000 per ounce. Again, investors pat themselves on the back for another $1,000 per ounce gain.
What investors don’t realize at least initially is that each $1,000 per ounce gain is easier than the one before. This phenomena involves the interaction of simple math and more complicated behavioral psychology.
The psychology is a matter of what’s called anchoring. The investor anchors on the number of $1,000 as a fixed gain and treats each such gain as the same. In pure dollars, they are the same. You make $1,000 per ounce as each benchmark is passed.
Because each $1,000 per ounce gain begins from a higher level, the percentage gain associated with each dollar gain is less. The increase from $1,000 to $2,000 per ounce is a heavy lift. The increase from $9,000 to $10,000 per ounce is not much more than a good month. (Gold has been going up 1% to 2% daily with recent volatility).
This math is what gives rise to a gold buying frenzy. We’re not there yet. Gold buying has been limited mostly to central banks and large institutions such as sovereign wealth funds (SWFs). Retail interest in the U.S. has been slight although retail buyers have been more active in India and China. Once the frenzy kicks in those $1,000 benchmarks will be passed quickly. That’s why it’s not too late to become a gold investor. Don’t kick yourself about the gains you’ve missed. Instead, look forward to the gains that are coming.
How To Invest
The two main ways to invest in gold are what I call paper gold and physical gold bullion. Paper gold refers to securities and futures linked to the price of gold such as exchange-traded funds (GLD is the most liquid ticker), COMEX gold futures or unallocated gold purchase agreements available from large banks. Paper gold will give you price exposure and the potential for gains, but you do not own gold bullion. Many things can go wrong with a paper gold strategy including early termination of contracts, closure of futures exchanges or the failure of a dealer bank. You may find that you’re out of the gold market just when you most want to be in it.
Physical bullion is my preferred way to invest in gold. American Gold Eagle coins from the U.S. Mint in one-ounce or one-quarter ounce denominations are practical. For larger amounts you can look at 1-kilo gold bars from a reputable refiner. Do not buy “rare” or “pre-1933” gold coins unless you are a collector or numismatic expert. The premium for such coins is high and they are not worth the extra expense. Gold is gold.
Do not store your bullion in a safe deposit box. Banks are the first place the government will lock down in a crisis. Your gold could be seized. Use a private storage company like Brinks or install a home safe. If you’re using a home safe there are several techniques you can use to protect it. The best protection is not to tell anyone you have gold. That way no one will come looking.
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China's near monopoly in rare earth minerals could be their 'ace in the hole' in the trade negotiations with Trump. For years the US has abused its US dollar reserve system advantage, via sanctions, de-SWIFT-ing, etc, but China has an equally potent weapon. As Chuck Colson of Watergate said --> "When you've got them by the balls, their hearts and minds will follow". It looks like Trump has little choice but to get a trade deal done with China. Their rare earth monopoly will also keep countries in the fold of BRICS, and attract more members -
>>> U.S.' inability to replace rare earths supply from China poses a threat to its defense, warns CSIS
CNBC
https://www.cnbc.com/2025/04/15/us-is-unable-to-replace-rare-earths-supply-from-china-warns-csis-.html
Amid U.S. President Donald Trump’s escalating tariffs on China, Beijing earlier this month imposed export restrictions on seven rare earth elements used in defense, energy and automotive technologies.
The Center for Strategic and International Studies warns the restrictions will likely result in a pause in exports and cause disruptions in supply to some U.S. firms.
“The United States is particularly vulnerable for these supply chains,” CSIS warned, emphasizing that rare earths are crucial for a range of advanced defense technologies.
As China imposes export controls on rare earth elements, the U.S. would be unable to fill a potential shortfall, according to the Center for Strategic and International Studies — and this could threaten Washington’s military capabilities.
Amid U.S. President Donald Trump’s escalating tariffs on China, Beijing earlier this month imposed export restrictions on seven rare earth elements and magnets used in defense, energy and automotive technologies.
The new restrictions — which encompass the medium and heavy rare earth elements samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium — will require Chinese companies to secure special licenses to export the resources.
Though it remains to be seen exactly how China will implement this policy, the CSIS report, published Monday, warns that it will likely result in a pause in exports as Beijing establishes the licensing system, and cause disruptions in supply to some U.S. firms.
The New York Times reported earlier this week that a pause in China’s rare earth element exports was already occurring.
As China effectively holds a monopoly over the supply of global heavy rare earths processing, such restrictions pose a serious threat to the U.S., particularly its defense technology sector.
“The United States is particularly vulnerable for these supply chains,” CSIS warned, emphasizing that rare earths are crucial for a range of advanced defense technologies and are used in types of fighter jets, submarines, missiles, radar systems and drones.
Along with the export controls, Beijing has placed 16 U.S. entities — all but one in the defense and aerospace industries — on its export control list. Placement on the list prevents companies from receiving “dual-use goods,” including the aforementioned rare earth elements.
Not ready to fill gap
According to CSIS’s report, if China’s trade controls result in a complete shutdown of the medium and heavy rare earth element exports, the U.S. will be incapable of filling the gap.
“There is no heavy rare earths separation happening in the United States at present,” CSIS said, though it noted the development of these capabilities is underway.
For example, the Department of Defense set a goal to develop a complete rare earth element supply chain that can meet all U.S. defense needs by 2027 in its 2024 National Defense Industrial Strategy.
Since 2020, the DOD has committed over $439 million toward building domestic supply chains and heavy rare earths processing facilities, according to data collected by CSIS.
However, CSIS said that by the time these facilities are operational, their output will fall well short of China’s, with the U.S. still far from meeting the DOD’s goal of an independent rare earth element supply.
“Developing mining and processing capabilities requires a long-term effort, meaning the United States will be on the back foot for the foreseeable future,” it added.
U.S. President Trump has also been seeking a deal with Ukraine, which would give it access to its deposits of rare earth minerals. However, questions remain about the value and accessibility of such deposits.
Implications
The CSIS report warns that the export controls pose direct threats to U.S. military readiness, highlighting that the country is already lagging behind in its defense manufacturing.
“Even before the latest restrictions, the U.S. defense industrial base struggled with limited capacity and lacked the ability to scale up production to meet defense technology demands,” its authors said.
They cite an estimate that China is acquiring advanced weapons systems and equipment five to six times faster than the U.S., originating from a U.S. Air Force official in 2022.
“Further bans on critical minerals inputs will only widen the gap, enabling China to strengthen its military capabilities more quickly than the United States,” the report concludes.
The U.S. is not alone in its concerns about China’s monopoly on rare earths, with countries like Australia and Brazil also investing in strengthening domestic rare earth elements supply chains.
CSIS recommends that the U.S. provide financial and diplomatic support to ensure the success of these initiatives.
However, China’s new export licensing system for the rare earths could also incentivize countries across the world to cooperate with China to prevent disruptions to their own supply of the elements, CSIS said.
A research report from Neil Shearing, group chief economist at Capital Economics, on Monday also noted how controls on rare earths and critical minerals have become part of Beijing’s playbook in pushing back against Washington.
Shearing notes that in addition to China’s hold on some rare earths, the supply of many other critical minerals, including cobalt and palladium, is concentrated in countries that align with Beijing.
“The weaponising of this control over critical minerals — and the race by other countries to secure alternative supplies — will be a central feature of a fractured global economy,” he said.
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>>> The Global Safe Haven Is Slowly Breaking: Why Central Banks Are Turning To Gold
Zero Hedge
by Tyler Durden
Apr 20, 2025
by Alex Deluce via GoldTelegraph.com
https://www.zerohedge.com/precious-metals/global-safe-haven-slowly-breaking-why-central-banks-are-turning-gold
The global financial system is not just shifting, it is starting to breakdown.
On April 1st, I wrote: “The erosion of trust: the times are changing.”
That warning has since become a headline.
What was once dismissed as contrarian commentary by many is now being echoed by mainstream media across the world: the dollar’s role as the global reserve currency is no longer unquestioned.
For years, I’ve documented the growing dangers of the West’s overreliance on financial warfare:
Sanctions
Reserve freezes
The weaponization of SWIFT
These weren’t strategic tools of diplomacy. They were early signs of something deeper: desperation, fragility, and a crumbling world order.
In just the past year, the U.S. dollar has lost over 35% of its purchasing power against gold, driven by record central bank gold buying. This isn’t a trend, it’s a signal.
Meanwhile, the BRICS nations are growing more coordinated, even as fractures widen among traditional Western allies.
Across Europe and Asia, leaders are reassessing their exposure to a system that no longer feels stable.
Increasingly, nations are recognizing that true sovereignty begins with one principle: zero counterparty risk. That path leads directly to gold.
These developments aren’t isolated, they are symptoms of a deeper monetary fracture.
With trust evaporating, gold is no longer just a hedge. It’s becoming the foundation of a new system.
That’s why my recent conversation with Matthew Piepenburg, Partner at VON GREYERZ, couldn’t have come at a more important time.
His perspective on gold, debt, the BRICS realignment, and the unravelling confidence in U.S. Treasuries offered rare clarity in a world clouded by confusion and revealed what many are only just beginning to understand.
Let’s break it down.
The Treasury Market’s Safe Haven Status is Eroding and Gold is the Refuge
For decades, U.S. Treasuries have functioned as the cornerstone of global finance, seen by investors and institutions as the ultimate safe haven. That narrative is now fraying.
“There is a liquidity crisis,” Piepenburg told me. “There’s simply not enough grease to keep this system going.”
Rather than providing stability during periods of volatility, U.S. government bonds have started to behave more like risk assets. In recent market turmoil, yields rose when they typically would have declined, highlighting the growing fragility of the system.
“Yields have actually been going up, not down, in times of stress,” he explained. “Why isn’t the U.S. Treasury acting like a safe haven anymore?”
The answer, he says, lies in debt, which has buried the American economy.
With over $37 trillion in federal debt and more than $100 trillion when household, corporate, and long-term entitlement obligations are included, the system is buckling under the sheer weight of its own promises.
“Santa Claus can’t solve a liquidity crisis when you’re buried under this much debt,” Piepenburg warned. “There’s not enough grease to keep those debt wheels spinning without bazooka money, without debasing the currency.”
That’s why, he added, gold is being quietly re-monetized by central banks around the world, not as a hedge, but as a foundational reserve asset.
“Gold is now a Tier 1 asset. Central banks are net settling in it. They’re moving away from Treasuries,” he said. “This isn’t about getting rich. It’s about not getting poor.”
The Rise of BRICS and the Global Move Away from the Dollar
The de-dollarization trend, long discussed in policy circles, has become an observable reality in the wake of U.S. sanctions against Russia. What began as an assertion of geopolitical power has accelerated a multipolar financial realignment.
“Since the weaponization of the U.S. dollar in 2022, 45 countries are now trading outside of it,” Piepenburg told me. “Thirty countries have repatriated their physical gold. That’s not a coincidence, it’s a reaction.”
He pointed to the critical shift that occurred when the U.S. froze Russian central bank assets. For many governments, that action shattered the illusion of the dollar as a neutral global reserve. “When you weaponize the world reserve currency,” he said, “you undermine the very trust it depends on.”
Nowhere is this shift more evident than among the BRICS nations, Brazil, Russia, India, China, and South Africa.
While rumors of a BRICS currency circulate around the world, Piepenburg clarified the group’s actual intention: “They don’t trust each other’s fiat currencies either but they trust gold.”
The BRICS plan, he noted, isn’t to launch a single currency, but rather to use a settlement system backed 40% by gold and 60% by local currencies kept in escrow.
“This isn’t about replacing the dollar overnight,” he said. “But it is a definitive move away from it.”
Fort Knox: The Taboo That Exposes the System
No discussion of gold’s resurgence would be complete without addressing America’s own reserves.
The United States claims to hold over 8,100 tonnes of gold largely stored at Fort Knox.
Former Treasury Secretary Steve Mnuchin at Fort Knox in 2017
Yet, a full, independent audit hasn’t been conducted in over six decades. Now, calls for transparency are gaining momentum. The President of the United States Donald Trump and Elon Musk have floated the idea of a livestreamed audit of Fort Knox.
But according to Piepenburg, transparency carries risks. “Be careful what you ask for,” he said. “I wouldn’t go into combat unless I knew how many bullets I had. And I wouldn’t want to show my hand unless I knew what was there.”
He believes the U.S. may not be as dominant in gold holdings as it claims and he suspects that China’s reserves are vastly underreported.
“I’m fairly confident China has at least ten times more gold than the World Gold Council says it does,” he said. “And probably more than the United States unless we’ve been hiding a best-kept secret.”
What’s at stake is more than optics. “Gold is the ultimate BS detector,” Piepenburg told me. “It’s a mirror held up to the system and that’s why they don’t want to talk about it. Because it holds its value while everything else melts.”
A Moment of Reckoning
We are not witnessing the end of the U.S. dollar but we are witnessing the end of its unchallenged supremacy.
The petrodollar framework is fracturing. Gold is being quietly repurposed as a strategic reserve asset. And U.S. Treasuries the once untouchable cornerstone of global markets are being reassessed by the very institutions that once depended on them.
The implications are profound. Central banks are no longer being quiet about what they doing… they are moving quickly and deliberately toward gold.
The real question isn’t whether gold will rise, but whether the public will grasp what’s driving the move.
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China's mega-projects --> Here's why dozens of countries are clamoring to join BRICS (below). The US will have to use this same 'carrot' type approach to have any chance of maintaining its world dominance -
Multi-country CBDC - >>> MBridge
https://en.wikipedia.org/wiki/MBridge
mBridge (a.k.a. Multiple CBDC Bridge) is a multiple central bank digital currency platform developed to support real-time, peer-to-peer, cross-border payments and foreign exchange transactions using CBDCs. Based on a blockchain called the mBridge Ledger, the platform is designed to ensure compliance with jurisdiction-specific policy and legal requirements, regulations, and governance needs.[1]
Currently five entities are jointly developing mBridge. They include the Hong Kong Monetary Authority (HKMA), the Bank of Thailand (BoT), the Central Bank of the United Arab Emirates (CBUAE), the Digital Currency Research Institute of the People's Bank of China (PBC DCI), and the BIS Innovation Hub Hong Kong Centre (BISIH Hong Kong Centre).[1] The Saudi Central Bank joined in June 2024.[2]
Development
A pilot involving real corporate transactions was conducted on the platform among participating central banks, selected commercial banks, and their customers in four jurisdictions. The project focused on developing hypothetical use cases in the Greater Bay Area (GBA) as a way to demonstrate the technology and operational improvements that mBridge can offer.[3]
In September 2021, the Bank for International Settlements (BIS), in collaboration with Thailand, Hong Kong, China, and the UAE, published a report regarding the second phase of the mBridge project, aiming to establish a system involving multiple CBDCs to enable faster, more cost-effective, and efficient methods for conducting cross-border transfers and foreign exchange operations.[4]
The HKMA expressed the intent to collaboratively launch a minimum viable product in 2024, with the effort built on the G20's focus on exploring new technologies to provide more cost-effective and secure real-time cross-border payments and settlements.[5]
In October 2024, BIS was reported to be considering shutting down the pilot mBridge platform, as the 16th BRICS summit had discussed the creation of a BRICS Bridge, based on the mBridge technology. Such a system would allow BRICS countries to become partly independent of the US-supervised financial system and restrictions to SWIFT, which is subject to US pressure, and thus partly evade the US financial sanctions system.[6][7][8]
Related projects
Alongside mBridge, there are also other ongoing projects aiming to improve cross-border transactions with CBDCs.[5]
Project Aurum
A full-stack (front-end and back-end) CBDC system comprising a wholesale interbank system and a retail e-wallet system, bringing to life intermediated CBDC and stablecoins backed by CBDC in the interbank system.[9]
Collaborators: BIS, Hong Kong Monetary Authority, Hong Kong Applied Science and Technology Research Institute
Dunbar
On 22 March 2022, the BIS Innovation Hub, the Reserve Bank of Australia, Bank Negara Malaysia, the Monetary Authority of Singapore, and the South African Reserve Bank announced the completion of prototypes for a shared Dunbar platform, enabling international settlements using multiple CBDCs.[10]
Cedar x Ubin+
The Cedar x Ubin+ project, the flagship venture of the New York Innovation Center (NYIC) in collaboration with the Monetary Authority of Singapore, is a multi-phase technical research initiative that evaluates the potential applications of wholesale CBDCs, built with distributed ledger technology to enhance the efficiency and transparency of cross-border payments.[11][12]
Mariana
In October 2023, the Bank for International Settlements, in partnership with the central banks of France, Singapore, and Switzerland, confirmed the successful completion of the Mariana project, which explored cross-border trading and settlement of wholesale CBDCs among financial institutions while integrating decentralized finance technology on a public blockchain.[13]
Icebreaker
In March 2023, the Bank for International Settlements, in collaboration with the central banks of Israel, Norway, and Sweden, completed the Icebreaker project, which examined the technical feasibility of using retail CBDCs in international payments.[14]
Jura
In November 2021, the consortium responsible for Jura project, comprising the Bank for International Settlements, Banque de France, Swiss National Bank, and various private firms, explored the direct transfer of Euro and Swiss franc wholesale CBDCs between French and Swiss commercial banks on a single distributed ledger platform. The group officially confirmed the experiment's success in a report released on December 8, 2021.[15][16]
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One development to watch is that China, Japan, South Korea are reportedly planning to team up together to jointly respond to Trump's tariffs (excerpt below). If true, it would be ominous to see Japan moving closer to China, and South Korea doing the same. BRICS expansion is bad enough (for the US), but if the US loses Japan to BRICS, we're in deep trouble. Same with Europe. Macron of France has wanted to attend the last several BRICS conferences (2023, 2024), and Trump has been alienating Europe bigtime on multiple levels. Chasing our few remaining allies into the arms of BRICS is extremely dangerous for continued US world dominance, the US dollar reserve system, etc.
>>> Worldwide retaliation to Trump’s plan has already been promised with nations like China, Japan, and South Korea even making plans to team up and jointly respond to Trump’s move. <<<
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=176012059
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Looking at those existing tariff rates against the US (below), Trump is right in saying that we are getting ripped off. These figures reportedly also include other factors in addition to existing tariffs, like the VAT / Value Added Tax in Europe, etc, but should represent a fairly close approximation to what the current barriers are against US exports to those countries.
There are a good number of countries that currently only have 10% imposed on the US (top of list), so those shouldn't be much of a problem. But the others range from 30-60%, and others a ridiculous 60-97%. Beyond the base 10%, Trump is only charging 1/2 of the tariffs % levied against the US, which doesn't sound unreasonable.
Well, now that we know where we stand (the worse case), everything that happens from here on out (tariff-wise) can only be an improvement (ie lower rates than those listed below). So that removes much of the uncertainty. The situation with Mexico and Canada isn't on the list, and presumably will be more fully negotiated in the period ahead (also to lower rates than currently).
I still would have preferred a 1 country at a time approach, but at least we now know the 'worst case', and the rates can only get lower, not any higher than those listed. So once 'digested' by the markets in the days ahead, the main coming news flow driving the financial markets should be -
1) Tariffs - can only get 'better' than the worst case listed below, ie individually negotiated deals producing lower rates.
2) Economic numbers - this is where it gets sticky, since these numbers will likely be deteriorating with each successive monh.
3) Corporate earnings - also dicey as the economy slows.
Country -- Tariff rate against US -- US reciprocal rate
UK ------------------------ 10% - 10%
BRAZIL ------------------ 10% - 10%
CHILE -------------------- 10% - 10%
AUSTRALIA ------------ 10% - 10%
SINGAPORE ----------- 10% - 10%
TURKEY ----------------- 10% - 10%
COLOMBIA ------------- 10% - 10%
ISRAEL ------------------ 33% - 17%
PHILIPPINES ---------- 34% - 17%
EUROPEAN UNION - 39% - 20%
JAPAN ------------------- 46% - 24%
MALAYSIA -------------- 47% - 24%
SOUTH KOREA ------- 50% -- 25%
INDIA --------------------- 52% - 26%
PAKISTAN --------------- 58% - 29%
SOUTH AFRICA ------- 60% - 30%
SWITZERLAND -------- 61% - 31%
INDONESIA ------------- 64% - 32%
TAIWAN ------------------ 64% - 32%
CHINA -------------------- 67% - 34%
THAILAND -------------- 72% - 36%
BANGLADESH -------- 74% - 37%
SRI LANKA ------------- 88% - 44%
VIETNAM --------------- 90% - 46%
CAMBODIA ------------- 97% - 49%
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>>> Trump ends ‘Liberation Day’ suspense with new 10% worldwide tariff and additional tariffs for certain countries
Yahooo Finance
by Ben Werschkul
April 2, 2025
https://finance.yahoo.com/news/trump-announces-sweeping-range-of-reciprocal-tariffs-10-worldwide-tariff-in-liberation-day-proclamation-203505547.html
The White House unveiled a two-step tariff approach as Donald Trump’s long-awaited "Liberation Day" plans were finally released during a Rose Garden event at the White House.
The president will impose a baseline tariff rate of 10% on all countries with additional tariffs to be added on top for some of what the administration considers the worst offenders.
The president said those additional rates were calculated both based on tariffs but also non-tariff barriers that Trump has long bemoaned.
Trump held up a chart at the event with the additional rates he has planned and atop the list was China, which is set to receive a 34% tariff in a list that spanned dozens of countries. The European Union was second in the list and in line for 20% duties.
To the many clamoring for protection, Trump said "I say terminate your own tariffs and drop your barriers."
Additional rates on top of baseline 10% tariffs
Country -- Tariff rate against US -- US reciprocal rate
UK ------------------------ 10% - 10%
BRAZIL ------------------ 10% - 10%
CHILE -------------------- 10% - 10%
AUSTRALIA ------------ 10% - 10%
SINGAPORE ----------- 10% - 10%
TURKEY ----------------- 10% - 10%
COLOMBIA ------------- 10% - 10%
ISRAEL ------------------ 33% - 17%
PHILIPPINES ---------- 34% - 17%
EUROPEAN UNION - 39% - 20%
JAPAN ------------------- 46% - 24%
MALAYSIA -------------- 47% - 24%
SOUTH KOREA ------- 50% -- 25%
INDIA --------------------- 52% - 26%
PAKISTAN --------------- 58% - 29%
SOUTH AFRICA ------- 60% - 30%
SWITZERLAND -------- 61% - 31%
INDONESIA ------------- 64% - 32%
TAIWAN ------------------ 64% - 32%
CHINA -------------------- 67% - 34%
THAILAND -------------- 72% - 36%
BANGLADESH -------- 74% - 37%
SRI LANKA ------------- 88% - 44%
VIETNAM --------------- 90% - 46%
CAMBODIA ------------- 97% - 49%
Trump said the tariff calculations were actually only half of the cheating his team found, saying he could have gone higher. He called his approach "kind reciprocal."
Trump released the details before the vice president, top cabinet officials, congressional leaders as well as workers he said will benefit from his policies.
The dramatic move, if it holds, could reorient the global trading system for decades and represents the climax of Trump’s decades-long focus on tariffs and unfair trading relationship that he says has led to America being ripped off.
"There will be complaints from the globalists," Trump added Wednesday, claiming "every prediction our opponents have made for 30 years have been wrong."
Wednesday’s announcement marks a middle ground of sorts between competing tariff approaches that the president had been weighing and have been debated within the administration in recent weeks.
One early plan had focused on levying differing duties for each country while another focused on a flat universal rate that Trump had pushed on the campaign trail.
"I think the president has two primary objectives," Kelly Ann Shaw, partner at Hogan Lovells and Trump’s deputy assistant for international economic affairs in his first term, said in a Yahoo Finance Live appearance on Wednesday.
The first "is about leveling the playing field," and the second objective is to lessen trade deficits while leaving trading partners "guessing."
Wednesday’s highly anticipated unveiling comes at a delicate moment for the economy and markets, with stocks facing volatility for weeks on ever-changing tariff news and also few indications that this week’s announcement will quickly end the investor uncertainty.
Worldwide retaliation to Trump’s plan has already been promised with nations like China, Japan, and South Korea even making plans to team up and jointly respond to Trump’s move.
Capitol Economics said in a note Wednesday that uncertainty may remain in the stock market even after today ”judging by the president’s mercurial approach to imposing tariffs.”
Wednesday's tariff unveiling comes at a fraught moment for Trump politically following a weaker than expected GOP showing in special elections Tuesday and with the Senate set to vote later this evening on resolution to undo Trump’s Canada tariffs.
The wariness with tariffs is deep enough that at least a handful of Republicans are set to join Democrats in voting for the resolution and against the White House.
"They don’t like the tariffs either," Senate Majority Leader Chuck Schumer said on Wednesday afternoon.
Yet the administration appeared undaunted Wednesday with Trump appearing triumphant as his long awaited announcement finally commenced with the White House saying the president has secured about $5 trillion in new company investments since taking office and the White House pushing out a fact sheet about how "Tariffs Work."
For Trump, as he put it Wednesday, it was "Promises made, promises kept."
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>>> China's CNOOC discovers 100 million-ton oilfield in South China Sea, Xinhua says
Reuters
Mar 30, 2025
https://finance.yahoo.com/news/chinas-cnooc-discovers-100-million-010423210.html
BEIJING (Reuters) - The China National Offshore Oil Corporation (CNOOC) has discovered an oilfield in the South China Sea with proven reserves exceeding 100 million tonnes, Xinhua news agency reported on Monday.
The newly found Huizhou 19-6 oilfield is not in a disputed part of the South China Sea and lies within China's Exclusive Economic Zone, which runs for 200 nautical miles or 370 km from its coast.
The oilfield, around 170 km (106 miles) off the coast of Shenzhen, sits at an average water depth of 100 metres, the report said, adding that test drilling has yielded a daily production of 413 barrels of crude oil and 68,000 cubic metres of natural gas.
Huizhou 19-6 is China's first large-scale integrated clastic oilfield in the deep to ultra-deep layers, the report said.
Such reserves are challenging for oil and gas exploration, given the high temperatures and pressures exerted at these depths.
China wants to reduce its import dependency to bolster its energy security, but its crude oil imports are expected to peak as early as next year as transport fuel demand begins to decline for the world's top oil buyer.
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Panama Canal - >>> BlackRock strikes deal to bring ports on both sides of Panama Canal under American control
AP
by DIDI TANG and ALEX VEIGA
March 4, 2025
https://finance.yahoo.com/news/blackrock-strikes-deal-bring-ports-164721680.html
A Hong Kong-based conglomerate has agreed to sell its controlling stake in a subsidiary that operates ports near the Panama Canal to a consortium including BlackRock Inc., effectively putting the ports under American control after President Donald Trump alleged Chinese interference with the operations of the critical shipping lane.
In a filing, CK Hutchison Holding said Tuesday that it would sell all shares in Hutchison Port Holdings and in Hutchison Port Group Holdings to the consortium in a deal valued at nearly $23 billion, including $5 billion in debt.
The deal will give the BlackRock consortium control over 43 ports in 23 countries, including the ports of Balboa and Cristobal, located at either end of the Panama Canal. Other ports are in Mexico, the Netherlands, Egypt, Australia, Pakistan and elsewhere.
The transaction, which must be approved by Panama's government, does not include any interest in a trust that operates ports in Hong Kong, Shenzhen and South China, or any other ports in China.
Some 70% of the sea traffic that crosses the Panama Canal leaves or goes to U.S. ports. The United States built the canal in the early 1900s as it looked for ways to facilitate the transit of commercial and military vessels between its coasts. Washington relinquished control of the waterway to Panama on Dec. 31, 1999, under a treaty signed in 1977 by President Jimmy Carter. Trump has claimed that Carter “foolishly” gave the canal away.
Trump and his supporters have also complained about the fees that ships are charged to use the waterway and alleged that China has been operating the canal, an assertion denied by Panama's government.
In January, U.S. Sen. Ted Cruz, the Republican chair of the Senate Committee on Commerce, Science and Transportation, raised concerns that China could exploit or block passage through the canal and that the ports “give China ready observation posts” to take action. “This situation, I believe, posts acute risks for U.S. national security,” Cruz said.
U.S. Secretary of State Marco Rubio visited Panama in early February and told President José Raúl Mulino that Panama had to reduce Chinese influence over the canal or face potential retaliation from the United States. Mulino rejected the idea that China had any control over canal operations.
Panama quit China’s Belt and Road Initiative following Rubio’s visit, drawing condemnation from Beijing. Belt and Road is Beijing’s global development strategy to build roads, ports and railways to open up new markets.
But while much attention was focused on Trump’s threat to retake control of the canal, his administration trained its sights on Hutchison Ports, the Hong Kong-based consortium that manages the ports key ports at either end of the canal.
Hutchison Ports had recently been awarded a 25-year no-bid extension to run the ports, but an audit looking at that extension was already underway. Observers believed the audit was a preliminary step toward eventually rebidding the contract, but rumors had swirled in recent weeks that a U.S. firm close to the White House was being lined up to take over.
Frank Sixt, co-managing director of CK Hutchison, said in a statement that the transaction was “the result of a rapid, discrete but competitive process in which numerous bids and expressions of interest were received.”
“I would like to stress that the transaction is purely commercial in nature and wholly unrelated to recent political news reports concerning the Panama Ports," Sixt said.
In addition to BlackRock, a New York-based global investment management company with $11.6 trillion in assets under management as of Dec. 31, the consortium includes BlackRock subsidiary Global Infrastructure Partners and Terminal Investment Limited.
BlackRock declined to comment outside of a press release touting the deal. Shares in BlackRock fell 1.5% in afternoon trading Tuesday.
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Rickards - >>> North American Trade Wars
By James Rickards
February 13, 2025
https://dailyreckoning.com/north-american-trade-wars/
North American Trade Wars
It’s game on for the trade wars.
After months of threatening tariffs on U.S. trading partners during his 2024 presidential campaign, Trump has now taken definitive action on that front. Let’s review.
The Beginning
On Saturday, February 1, Trump announced that the U.S. was imposing 25% tariffs on all goods imported to the U.S. from Mexico and Canada (with the exception of Canadian energy, which was tariffed at 10%) and additional 10% tariffs on all goods imported from China.
These new Chinese tariffs were on top of tariffs Trump imposed on China in 2018, many of which were left in place during the Biden administration. All of these new tariffs were to take effect on Monday, February 3rd.
Boom!
Or was it?
The Mexican Concession
On February 3rd, within hours of the scheduled deadline for the new tariffs, Trump reached an accommodation with Mexico. President Claudia Sheinbaum agreed to surge 10,000 Mexican troops to the U.S./Mexican border both to prevent illegal immigration into the U.S. and to curtail the flow of fentanyl across the border. (Trump had already surged 5,000 U.S. troops to the border for the same purpose. Reportedly illegal border crossings have already declined 96% compared to the Biden administration).
In return, Trump agreed to postpone application of the Mexican tariffs for 30 days while the two sides discussed other actions and accommodations. The new deadline for tariffs is March 3, 2025.
Canada Follows Suit
Trump also spoke with Canadian Prime Minister Justin Trudeau on February 3rd. Trudeau did not initially make any concessions but late in the day on February 3rd he made the same offer as Mexico – 10,000 troops on the border and additional efforts to stop the flow of illegals and fentanyl. Trump accepted the offer and extended imposition of tariffs on Canada by 30 days.
But Trump Raises the Stakes
These delays did not mark the end of the tariff confrontation.
Beijing announced they were imposing retaliation tariffs on U.S. goods, including a 15% border tax on imports of U.S. coal and liquefied natural gas products. There is also a 10% tariff on American crude oil, agricultural machinery and large-engine cars.
Trump answered by imposing a 25% tariff on all steel and aluminum imports into the United States. This will have a major impact on Canadian steel imports as shown in the chart below.
Trade Wars Gone Global
In addition to the Mexican, Canadian and Chinese tariffs, Trump announced that EU tariffs are coming soon. Trump tentatively indicated that the EU tariffs would be 10% across the board. Trump seemed more relaxed about UK tariffs but given UK Prime Minister Keir Starmer’s tilt toward the EU lately, it may be the case that the UK is lumped in with the EU when it comes to tariffs on European trading partners.
Of course, all of these tariffs would come on top of the severe financial sanctions on Russia that have been in place since 2022 as a result of the War in Ukraine. Once retaliation is added to the original tariffs, it’s clear that a full-scale global trade war is now underway.
Let’s look closely at the trade situation with regard to Mexico and Canada.
U.S. Border Tariffs
Canada ($421 billion) and Mexico ($475 billion) account for almost 30% of all goods imported by the United States. Canada and Mexico along with China are the three largest trading partners of the U.S. Obviously, Canada and Mexico are our closest neighbors, and each shares a long border with the U.S. The new trade wars will have many facets but solving problems with regard to Canada and Mexico will be a big part of the global puzzle and establish benchmarks by which other countries will be judged by the U.S.
The extent of Canadian and Mexican trade with the United States is difficult to overstate. Twenty-three of the fifty states rank Canada as their number one trading partner measured by imports. That includes the entire northern tier of U.S. states from Washington to Maine (with the exceptions of Idaho and Michigan) and most of the Midwest.
Ten of the fifty states rank Mexico as their number one trading partner measured by imports. That includes the entire southern tier of U.S. states (with the exceptions of California and Florida) plus the states of Missouri, Kentucky and Michigan. From automobiles to avocados, Canadian and Mexican imports are everywhere.
Trump cited three reasons for imposing tariffs on Mexico and Canada: illegal immigration, fentanyl and unfair trade practices. The issues of illegal immigration and fentanyl are closely linked because they both involve securing the border. Mexico’s and Canada’s deployment of 10,000 troops to their borders with the U.S. goes a long way toward addressing Trump’s concerns so that was the basis for the one-month delay on imposing tariffs.
A bigger issue lurking behind the U.S.-Mexico negotiations is the extent to which Chinese companies have taken over Mexican companies or built their own factories in Mexico to do an end-run around direct tariffs on China. The Chinese are putting automobile assembly plants in Mexico and exporting the cars to the U.S. free of tariffs under the U.S.-Mexico-Canada Trade Agreement (USMCA, the successor treaty to NAFTA). It may be the case that U.S. auto companies (Ford, GM) will be able to continue bringing in cars to the U.S. without duties while the Chinese-owned companies in Mexico get whacked.
That leaves open the issue of European car makers with plants in Mexico. I spoke to a well-informed source at Audi recently. They’re frantic. They just built a multi-billion-dollar plant in Mexico to do final assembly on the Q5 SUV (their most popular model). They expect that new Mexican tariffs will price it out of the market (compared to Toyotas and Nissans that are built in the USA).
Volkswagen, which owns Audi, may be in financial distress as a result of Audi’s mistake. It was clearly a major blunder on Volkswagen’s part not to locate their Audi factory in Tennessee or South Carolina as other foreign car manufacturers have. Trump and Mexico may be able to reduce tariffs on European firms in Mexico from 25% to 10% to align with tariffs that will be imposed on the EU anyway.
Subject to smoothing out exemptions or special treatment for Chinese and EU factories in Mexico, the Mexican-U.S. trade disputes seem to on their way to resolution. Problems may arise down the road with respect to Mexican cartel attacks on U.S. Immigration and Customs Enforcement personnel (ICE) but that falls more into the category of national security and military affairs than trade policy.
Canada Is a Problem
Even with the one-month delay in imposing tariffs on Canada, the substantive policy issues remain. Trudeau is not in a strong position to negotiate anything because he has already agreed to step down as party leader and prime minister. The fight to replace him as party leader is being led by former Deputy Prime Minister Chrystia Freeland, a trade-hawk and neo-fascist sympathizer.
National elections in Canada are scheduled for October 20, 2025, but could be held sooner. The national election could come down to Chrystia Freeland as the Liberal Party Leader and Pierre Poilievre as Conservative Party Leader. Poilievre is far more reasonable on trade issues than Freeland.
The Freeland Plan to fight Trump includes dollar-for-dollar tariff retaliation, an international anti-Trump trade coalition including Mexico, Denmark, Panama and the EU, a ban on purchases of U.S. goods by all Canadian federal government agencies, a ban on American companies bidding on Canadian government contracts, a ban on American firms participating in projects funded by Canada, and support for Canada’s cultural sector against “Donald Trump’s billionaire buddies.”
The even more radical Ottawa Premier Doug Ford has proposed halting Canadian energy exports to the U.S. and “ripping up” Ottawa’s contract with Elon Musk’s Starlink company.
Canadian exports to the U.S. are dominated by energy products (about $165 billion) followed by automobiles and parts (about $83 billion), and consumer goods (about $70 billion). Electronics, food, fish and aircraft make up a relatively small part of the total.
Hopefully, cooler heads will prevail. Freeland’s plan is radical, but her chances of victory are slim. Poilievre is a clear favorite to form the new government and lead as prime minister. The lower initial tariff on Canadian energy (10% versus 25% or other imports) is a good sign.
It may be the case that agreement to increase border surveillance on the Canadian side, cut down on fentanyl and to buy more U.S. goods (especially wine, dairy and beef) may be enough to get Trump to back down on Canadian tariffs. As with Mexico, higher tariffs might remain on Canadian companies being used by China to end-run U.S. tariffs. It will be impossible to maintain tariffs on the U.S.-Canada automotive trade. Cars and trucks are too big to tariff when it comes to Canada.
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>>> Analysis-Chinese exporters brace for 'rat race' in shift away from US
Reuters
February 13, 2025
https://finance.yahoo.com/news/analysis-chinese-exporters-brace-rat-230351699.html
BEIJING/HONG KONG (Reuters) - Jeremy Fang, a sales officer at a Chinese aluminium products maker, is trying to export more to markets in Asia, Africa and Latin America to offset the U.S. tariffs' impact. The problem, he says, is that his competitors have the same idea.
"It will only result in a mad rat race," said Fang, expecting his firm will have to reduce prices and accept lower profit margins. "The cake is only that big. We all want to grab a piece so the competition will get intense."
The trade war between Washington and Beijing, which escalated this month with U.S. President Donald Trump imposing additional 10% tariffs on Chinese goods as an "opening salvo," could deal a new supply shock to the rest of the world.
Chinese producers, facing weak demand at home and harsher conditions in the United States, where they sell more than $400 billion worth of goods annually, have no choice but to rush to alternative export markets all at the same time.
But no other country comes even close to U.S. consumption power, significantly limiting the production the rest of the world could absorb from its second-largest economy.
This will intensify price wars among Chinese exporters, squeezing their profitability, while also risking further political backlash in the new markets and fanning deflationary forces, if smaller margins result in job losses, wage cuts and reduced investment.
Frederic Neumann, chief Asia economist at HSBC, says market diversification is an understandable but unsustainable strategy.
"One risk is that suddenly every Chinese exporter will look to develop the same other markets," said Neumann, adding it would weigh on profits.
"But the real risk is that the receiving countries might ultimately then be forced to raise restrictive measures on China, because their own producers are coming under pressure."
Tensions are already high. Over the past year, the European Union has increased tariffs on Chinese electric vehicles while India, Indonesia and other emerging markets have raised their own trade barriers on certain Chinese products.
China is a formidable competitor in some sectors. Major electric vehicle makers such as BYD or DeepSeek's AI platform have already made a mark on the global stage.
"We have very strong supply chain systems," said Dave Fong, who manufactures school bags, talking teddy bears, stationery and consumer electronics in China and is investing 30-40% more on advertising and business development in Europe and Asia.
"From one idea to mass production, everything is very fast."
But smaller firms worry about survival.
Richard Chen, who owns a Christmas decorations factory in southern China, says he operates on almost no profit margins and is unsure whether he can keep all of his 80 staff this year.
"We tried to go into Poland, but they simply don't buy things like customers in the U.S. do," said Chen. "This is the worst things have ever been."
RIPPLES AT HOME
The price wars abroad risk accelerating deflationary forces at home.
A manager at a bathtub factory in Shijiazhuang, some 300km (190 miles) south of Beijing, says he is trying to sell more in Brazil and Argentina to cushion the impact of the 35% tariffs he now faces in the U.S. after the latest hike.
He said American retailers pressure him to cut prices by 10%, but he hesitates, having already slashed wages by 10-15% to stay competitive.
"There are many Chinese foreign traders in the same industry. For everyone it's so difficult," said the manager, who asked not to be named because of the sensitivity of the topic.
Li Yongqi, manager at Jialifu Electric Vehicle Company, which makes electric scooters and tricycles, sells mostly domestically, but expects that wage cuts and job losses at other factories, and the ongoing property crisis in China, will shrink demand at home and shave 20%-30% of his profits.
"Chinese firms in every industry are going abroad and rushing into overseas markets, then foreign governments all place tariffs and sanctions," Li said. "Most of these factories are laying off workers to reduce costs."
The Politburo, the Communist Party's top decision-making body, called on industries last year to avoid destructive competition. Chinese solar panel producers have urged the government to intervene to curb overcapacity.
Alicia Garcia-Herrero, chief Asia Pacific economist at Natixis, said the only way out for China is to produce less.
"It will be very painful," she added. "Nobody is going to take your products forever. So it's just a choice: if you want to create more welfare, more growth, then you need to consume more."
Neumann at HSBC says policies that boost household consumption may benefit China internationally as well.
"Ultimately, to lower trade frictions with the rest of the world ... it's also about developing domestic demand to help absorb some of the production," Neumann said.
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>>> Second top agency warns of Trump threat to World Bank's triple-A rating
Reuters
February 11, 2025
https://finance.yahoo.com/news/second-top-agency-warns-trump-131204942.html
LONDON (Reuters) - Fitch has become the second top rating agency to warn that the prized triple-A credit scores of the World Bank and other top multilateral lenders will be hit if Donald Trump withdraws U.S. support for them.
The U.S. president signed an Executive Order last week for a six-month review of government support to all international intergovernmental organisations to decide whether it should withdraw from them or seek reform.
"Any signal that a withdrawal from an MDB (multilateral development bank) has become a real possibility could lead to negative rating action," Fitch said, a day after Moody's delivered the same warning.
Fitch said it still viewed withdrawals by the U.S. as "unlikely" but said the impact - if it were to do so - would be considerable, causing financial damage, and that it could also "set a precedent and affect the cohesion of remaining shareholders".
The rating firm added that the immediate reaction would likely be to put the impacted MDBs' rating on a downgrade warning - or "Rating Watch Negative" in rating agency terminology.
Whether they were then stripped of their triple-A scores, "would depend on the conditions of the withdrawal and the response by other shareholders", Fitch said.
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>>> Trump reiterates threat to retake Panama Canal ‘or something very powerful’ will happen
by Samantha Waldenberg and Michael Rios
CNN
2-3-25
https://www.msn.com/en-us/money/companies/panama-president-says-he-won-t-renew-belt-and-road-deal-with-china-as-us-demands-less-chinese-influence-over-canal/ar-AA1yikco?cvid=4317415dfe1f478ca54a2a9f739b82a2&ei=40
President Donald Trump reiterated his vow to “take back” the Panama Canal on Sunday, warning of “powerful” US action in an escalating diplomatic dispute with the Central American country over China’s presence around the vital waterway.
“China is running the Panama Canal that was not given to China, that was given to Panama foolishly, but they violated the agreement, and we’re going to take it back, or something very powerful is going to happen,” Trump told reporters.
Hours earlier, the diplomatic stir caused by Trump’s repeated and publicly stated desire for the US to retake control of the canal had appeared to ease after Secretary of State Marco Rubio, making his first overseas trip as the top US diplomat, met with Panama’s President Raúl Mulino.
Though Mulino told Rubio that Panama’s sovereignty over the canal was not up for debate, he also said he had addressed Washington’s concerns over Beijing’s purported influence around the waterway.
Panama would not renew a 2017 memorandum of understanding to join China’s overseas development initiative, known as the Belt and Road initiative, Mulino said, also suggesting that the deal with Beijing could end early.
Mulino told reporters that Panama will seek to work with the US on new investments, including infrastructure projects. “I think this visit opens the door to build new relations … and try to increase as much as possible US investments in Panama,” he said.
During the meeting, Rubio told Panama’s president and Foreign Minister Javier Martínez-Acha that concerns over China’s “control” of the Panama Canal may mean the US has to “take measures necessary to protect its rights” per a longstanding treaty on the neutrality and operation of the canal.
The canal was returned to Panama under a 1977 treaty, which allows the US to intervene militarily if the waterway’s operations are disrupted by internal conflict or a foreign power. Today, more cargo than ever runs through the canal than it did during the years of US control.
Mulino said Sunday he doesn’t think there is a real risk that the US would use military force to retake the canal.
‘Panama won’t invest a single dollar in it’
Mulino also said Panamanian authorities are carrying out an audit on a company linked to China that operates two terminals around the canal.
“We have to wait until that audit ends before we can reach our legal conclusions and act accordingly,” Mulino said.
The company in question is the Panama Ports Company, part of a subsidiary of the Hong Kong-based conglomerate CK Hutchison Holdings. Hutchinson Ports is one of the world’s largest port operators, overseeing 53 ports in 24 countries, including for other US allies such as the United Kingdom, Australia and Canada.
As CNN has previously reported, Hutchison does not control access to the Panama Canal. Workers at their two ports only load and unload containers onto ships and supply them with fuel. Three other ports in the vicinity of the canal are operated by competing companies providing similar services.
Mulino also said Panamanian authorities spoke with Rubio about the possibility of expanding a migrant repatriation flight program to remove foreign nationals who don’t have the legal basis to be in Panama, insisting that the US would have to shoulder the costs.
Asked to clarify if migrants would come to Panama and subsequently be transferred to their respective countries, Mulio said, “Yes. Exactly … We can do that, without a problem, under the total cost of the US. Panama won’t invest a single dollar in it.”
The program, signed in July, is aimed at reducing irregular migration through the Darien Gap, a mountainous rainforest region connecting South and Central America. The 66-mile (106-kilometer) hike through the Darien brings migrants from Colombia to Panama and is a crucial passage for those hoping to reach the United States and Canada.
Mulino said Sunday that those repatriated could include migrants from Venezuela, Colombia, Ecuador and other countries.
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>>> China builds $3.5 billion mega-port in Peru; US responds offering 40-year-old trains
US politicians and media outlets complain about China’s growing global influence, but offer no alternatives to help countries develop. Beijing is building the $3.5 billion Port of Chancay in Peru, while Washington was only willing to sell Lima used trains built in the 1980s.
Geopolitical Economy
ByBen Norton
11-21-24
https://geopoliticaleconomy.com/2024/11/21/china-builds-port-peru-us-old-trains/
China has invested billions of dollars in building a historic “mega-port” in Peru, which has the potential to transform trade in Latin America and kickstart regional economic development.
The United States has demonized this port and portrayed it as a threat, but Washington has not offered Peru any alternatives.
Instead of helping Peru construct a comparable infrastructure project, the US government was only willing to sell it used diesel trains from the 1980s.
Adding insult to injury, the Joe Biden administration falsely told the public that it “donated” these 40-year-old trains, but in reality Lima had to pay millions of dollars.
Chinese President Xi Jinping traveled to Peru in November to attend the annual APEC summit. There, he inaugurated the massive Port of Chancay, on Peru’s Pacific coast.
The Port of Chancay will significantly reduce shipping time between Asia and Latin America from 35 days to just 23. It is also estimated to cut costs by 20%.
$1.3 billion has already been invested in the project, with plans to continue expanding and adding an industrial park, at a cost of $3.5 billion in total. It is projected to generate $4.5 billion in annual revenue.
US “alternative” for Lima: used diesel trains from 1985
Washington has shown outrage at the growing relationship between China and Peru.
US Secretary of State Antony Blinken also traveled to the South American nation in November. There, in an attempt to steal Xi’s thunder, he held a press conference.
Standing in front of 40-year-old trains bearing the US flag, Blinken announced that “the United States will support the city of Lima as it develops a new passenger train line”.
The White House published a fact sheet on “advancing the United States – Peru partnership” in which the Biden administration wrote that “California commuter rail line Caltrain will donate 90 passenger cars and 19 locomotives to the city of Lima”.
There was a major problem with this claim, however: it was false. The used trains were not a donation.
The local California press revealed that Caltrain had sold the trains to Lima for $6.32 million, after Caltrain had replaced its old diesel trains, which were built in 1985, with a more modern electric fleet.
On Twitter, video of Blinken’s Peru press conference received a community note that fact-checked his misleading statement.
US media claims Peru is its colonial “backyard”; Trump advisor threatens tariffs
This incident was a striking symbol of the big differences between the foreign policy of China and that of the United States.
In fact, instead of offering to help Peru develop its infrastructure, US officials have responded by threatening the South American nation.
A top Latin America advisor to President-elect Donald Trump who served in his first administration and is now assisting his transition team, Mauricio Claver-Carone, suggested that the US government will impose 60% tariffs on goods that travel through the Port of Chancay.
Using colonial language, US media outlets like Newsweek depicted the Chinese-built port in Peru as a supposed threat “in America’s backyard”.
This condescending rhetoric is based on the 200-year-old colonial Monroe Doctrine, which top officials in the Trump administration invoked as part of an effort to reimpose US imperial hegemony in the region.
Political leaders in Latin America have long emphasized that their countries are not the “backyard” or territory of any foreign power; they are sovereign, independent nations.
Moreover, Peru is not even close geographically to the United States. The distance between US capital Washington, DC and Peru’s capital Lima is a staggering 5700 kilometers (more than 3500 miles).
The irony is that, while the US press demonizes China, Washington has a long history of meddling in Peru’s internal affairs and violating its sovereignty.
In 2022, the United States sponsored a coup that overthrew Peru’s democratically elected left-wing President Pedro Castillo.
Peru’s current right-wing leader, Dina Boluarte, was never elected, and is so despised by her people that she has consistently had a single-digit approval rating.
Boluarte has also shown herself to be extremely pro-US. But China is Peru’s largest trading partner, with which it does 32% of its trade.
Moreover, this port has been planned for well over a decade. Construction started years before Boluarte came to power, and would have been inaugurated regardless of who was president.
The fact of the matter is that the Port of Chancay can economically transform the country. Any Peruvian leader would have tried to take credit for it. Boluarte simply got lucky that it happened when she was able to (undemocratically) seize power.
More deeply, what this situation demonstrates is that, despite the political sympathies of the local comprador ruling elites, the US is losing influence simply because it is not offering anything that will actually benefit Peru’s economy.
Washington expects countries like Peru, and their Westernized ruling classes, to sacrifice their own economic interests on behalf of the United States. Increasingly, however, even pro-US elites are no longer willing to do so, because they have other options.
China’s state-led Belt and Road Initiative vs G7’s BlackRock-funded private infrastructure
China is already the largest trading partner of most countries in South America.
New infrastructure projects in the region like the Port of Chancay will help Asia and Latin America deepen their economic integration, in what Beijing refers to as South-South cooperation.
Bolivia’s President Luis Arce revealed that he spoke with Chinese President Xi on the sidelines of the G20 summit in Brazil in November, and they discussed plans to potentially create an inter-oceanic train connecting the Pacific to the Atlantic, starting from Peru’s Port of Chancay and then crossing through BRICS partners Bolivia and Brazil.
The mega-port is an important part of what China calls the 21st Century Maritime Silk Road.
Beijing considers the Port of Chancay to be a “flagship” project in its Belt and Road Initiative (BRI), a decade-long campaign in which China has spent more than $1 trillion building infrastructure around the world.
With the BRI, China has sought to diversify its international economic relations and reduce its reliance on Western markets.
In 2011, the Barack Obama administration announced a “pivot to Asia”, making plans to send more US troops to the Asia-Pacific region to militarily encircle China.
The Donald Trump administration upped the ante by launching an aggressive trade war on China, which was further escalated by Joe Biden.
By building new infrastructure and trade networks in the Global South, China hopes to reduce its dependence on trade with an increasingly hostile United States that seeks to contain it.
The projects in China’s BRI are largely built by state-owned enterprises (SOEs), which are not driven by profits, and thus can invest in infrastructure that may not earn much money, but will be strategic. SOEs make up more than one-third of China’s economy.
60% of the Port of Chancay was funded by China’s state-owned firm COSCO Shipping, whereas the other 40% was financed by a private Peruvian mining company.
Meanwhile, as China has become the world leader in constructing high-quality infrastructure, the United States has failed to invest in basic infrastructure at home, where its own bridges are collapsing.
The Biden administration made a last-ditch effort to compete with Beijing by announcing in 2021 a G7 initiative called Build Back Better World (B3W). US state propaganda outlet VOA bluntly described this as Washington’s “counter to China’s Belt and Road”.
To date, however, B3W has accomplished very little. One of the main reasons is that, instead of relying on the state, like China has done in the BRI, the G7 campaign relies on private, for-profit companies.
From the very beginning, the US government made it clear that B3W is a neoliberal campaign based on “public-private partnerships”, in which investment funds on Wall Street will gain returns for their wealthy clients by buying up privatized infrastructure.
The White House press release announcing the initiative stressed that, “Through B3W, the G7 and other like-minded partners will coordinate in mobilizing private-sector capital”; adding that B3W aims “to support and catalyze a significant increase in private capital to address infrastructure needs”, by relying on a “market-driven private sector”.
B3W was later rebranded as the Partnership for Global Infrastructure and Investment (PGII).
At the G7 summit in Italy in June 2024, the White House announced that BlackRock would help oversee the PGII, by mobilizing “private capital for projects” and using the “private sector” to build infrastructure.
BlackRock is the world’s largest investment company, with $11.5 trillion in assets under management.
The billionaire oligarch chairman and CEO of BlackRock, Larry Fink, spoke as a guest of honor at the G7 summit, where he insisted that “building new infrastructure is critical, especially through public-private partnerships”.
Fink outlined the plans of Wall Street investment firms to enrich their clients by building privatized infrastructure in the Global South, explaining the strategy as he sat at a table alongside the G7 heads of state:
The IMF and the World Bank were created 80 years ago, when banks, not markets, financed most things. Today the financial world has flipped. The capital markets are the biggest source of private sector financing, and unlocking that money requires a different approach than the bank balance sheet model of yesterday.
There is still a lot of work to be done, but reform over the past eight months have resulted in billions of new dollars for developing countries’ infrastructure. That is what you saw last week with the announcement of the investor coalition. BlackRock, GIP [Global Infrastructure Partners], KKR, and other major firms will deploy $25 billion in Asia’s emerging economies.
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BRICS membership update -
BRICS is growing fast, with dozens of countries waiting to join (link below). As Jim Rickards points out, the key to the rollout of the new BRICS gold-linked currency is having a big enough group of countries using it, so the focus will be to admit as many new BRICS members as possible. Each country that joins BRICS is one less country within the US orbit, using the US dollar for trade and central bank reserves, etc, so it's obvious where this leads -
>>> China is building half of the world’s new nuclear power despite inland plants pause
Global Energy Monitor
by Joe Bernardi and Ye Huang
August 2024
https://globalenergymonitor.org/report/china-is-building-half-of-the-worlds-new-nuclear-power-despite-inland-plants-pause/
China has expanded its nuclear power capacity at the fastest rate of any country in the 21st century, according to new data from Global Energy Monitor. Despite a moratorium on inland nuclear plants imposed after the Fukushima disaster, China is building enough capacity to overtake France within the next few years and hold the world’s second-largest nuclear fleet. Nearly half of the world’s nuclear power under construction is located in China. Its government has promoted nuclear power to shore up baseload capacity in the electricity sector and to help achieve its targets for carbon peaking before 2030 and carbon neutrality by 2060. But not all of the proposed buildout may come to fruition. Less than one-third of China’s planned nuclear capacity has begun construction, and China already has more cancelled nuclear capacity than any other country as a result of its pivot away from inland nuclear plants. By contrast, China has about two-thirds of the world’s utility-scale solar and wind power under construction, which, along with promising advancements in utility-scale battery technology, may reduce the need for continued additions of nuclear power.
China is approaching France in operational nuclear power capacity
China is emerging as a world leader in nuclear power, according to research from GEM’s Global Nuclear Power Tracker, which includes over 1,405 gigawatts (GW) of nuclear capacity from over 1,540 units worldwide. China’s total operational capacity of 58.1 GW is a close third behind France’s at 64.0 GW. Those two countries, plus the United States with its 102.5 GW in operation, account for well over half of the world’s operational nuclear capacity.
China surpasses France by count of operational nuclear power units, with 58 to France’s 56. (However, the difference may be negligible as two of the 58 units in China are very small power-generating reactors whose purpose is primarily experimental.) China has consistently ranked above France in annual electricity generation from nuclear sources for four consecutive years.
Comparing the nuclear power fleets of China, France, and the United States — the top three countries by nuclear generation in 2023 — helps illustrate the different roles that nuclear plays in these countries’ energy profiles. The United States generated 775 terawatt hours (TWh) from nuclear, accounting for just over 18% of its 4,249 TWh total power generation. France’s 336 TWh of generation from nuclear made up 65%, or just under two-thirds, of its 514 TWh total generation. But China’s 435 TWh of nuclear generation made up only 5% of its 9,462 TWh of total generation. (The global average is 9% of electricity from nuclear power.)
China is the largest generator of electricity in the world by far, with more than double the generation of the second-ranked country, the United States. So despite nuclear’s growth within China, its percentage share of generation is still much smaller than the corresponding global average, in large part because the “denominator” in the equation, total Chinese electricity demand, is so substantial. In addition, coal-fired power still accounts for well over half of all Chinese power generation.
The United States still leads the world by a sizable margin in terms of total operating nuclear capacity. While China’s nuclear power growth is perhaps the most notable among the world leaders in nuclear power, it is not alone in expanding capacity in recent decades. Several of the other top ten countries by operating nuclear power have added capacity in the last ten to fifteen years, including Russia, South Korea, and India.
China's prospective nuclear capacity ambitions
GEM data on prospective facilities — that is, announced, pre-construction, and under construction — indicate which countries intend to continue expanding nuclear power in the coming years. Although the United States currently leads all countries with 94 operational nuclear power units and a total capacity of 102 GW, China's ongoing construction progress is positioning it to shrink the U.S.-China difference over the next decade. China has 118 GW of prospective capacity, which puts the country not only first worldwide for this metric, but also surpasses the second through eighth place countries combined. India, the country with the second-largest prospective nuclear capacity, has a substantial 31.7 GW of prospective nuclear power, but China’s current plans call for additions of over four times that amount.
This growth reflects a targeted effort by the Chinese government to rapidly expand nuclear capacity. The 14th Five-Year Plan (2021-2025) aims to increase the size of the country’s total operational fleet to 70 GW by 2025. In each of the first three completed years of this plan, there have been between four and six nuclear units starting construction, and two to three units entering commercial operation. China had 50 GW of active capacity at the beginning of 2021, meaning that additions of 20 GW would be needed in five years’ time. Currently, it is a little under half of the way there, with 58.1 GW as of early Q3 2024.
China may fall just short of its goal. Currently, the expected start date data would translate to China having 63 GW online by the end of 2025. But 2026 would then see a further 8 GW added, putting China at 71 GW — not only above the 70 GW mark from the 14th Five Year Plan, but also overtaking France’s 66 GW for the second-largest nation by operating nuclear capacity.
China would need more than 100 GW of operational capacity to surpass the U.S. as the country with the largest nuclear power fleet. Some predictions have this happening as early as the end of the decade, but GEM data at the project level do not currently show this rapid of a change. GEM data only show start years for Chinese nuclear units through 2029, meaning that projections for 2030 or beyond are still indistinct. Only about 25% of China’s 118 GW of prospective capacity has a target start year, which would bring the country to a total of 88 GW in operation. Most of the rest of this prospective capacity represents facilities that are not yet under construction, having only been announced or entering pre-construction stages.
In a scenario where all prospective capacity enters operation, and assuming no retirements before that point, China would easily surpass the United States for the world’s largest operational nuclear fleet, 177 GW to 110 GW. Of course, not all prospective facilities will actualize, and real-world scenarios may include retirements or other temporary but prolonged shutdowns. But at face value, current GEM start year data would also suggest that no further additions to the Chinese nuclear fleet will occur after 2029, which should not be expected either.
Drivers for these changes include the Chinese government’s goals of meeting continued increases in energy demand while also decreasing reliance on coal, a key contributor to emissions and air pollution. The “Action Plan for Carbon Dioxide Peaking Before 2030,” a pivotal policy document, discusses these objectives and the overarching strategy to ensure that the country reaches peak carbon emissions before 2030 and achieves carbon neutrality by 2060. Nuclear is not the only power sector undergoing a Chinese buildout. As detailed in a recent GEM briefing, China is home to almost two-thirds of the world’s utility-scale solar and wind power under construction.
Although Chinese provincial governments are involved in site selection and local approvals, the central government ultimately plays a critical role in the strategic direction of China’s nuclear power program. It has had the effect of both promoting and restraining nuclear power development across different parts of the country. As discussed further below, the central government slowed the pace of overall Chinese nuclear capacity additions with a moratorium on new projects and tighter safety regulations that deprioritized new inland nuclear plants.
China's nuclear buildout shows a shift to a new generations and technological advancements
China is playing a significant role in the development and deployment of new technologies in nuclear power, specifically Generation III and Generation IV reactors. There are four generations of nuclear power plants, categorizations determined by the time of their development and by specific groupings of technological design. Generation II plants account for the majority of operational capacity worldwide. The nuclear fleets of the United States and France fit this pattern, with most of their reactors classified as Generation II. In addition, some Generation III reactors are operational in these and other countries. Generation III reactors generally have modifications on Generation II reactors, including additional safety design elements that are intended to reduce the need for active controls or operational intervention to prevent accidents in the event of a malfunction.
Like that of the United States and France, China’s operational nuclear fleet is still majority Generation II in terms of total capacities, but this balance is shifting as more Generation III reactors come online. In 2006, China initially announced plans for the AP1000 to serve a foundational role in its fleet — a Generation III reactor designed by the U.S.-based company Westinghouse. The AP1000 has since entered operation at four Chinese nuclear units, the first of which was Unit 1 of the Sanmen nuclear power plant in September 2018. However, China has since also designed and implemented its own Generation III reactors: One notable example is the HPR1000, also named the Hualong One. This design is operational at four Chinese nuclear units and under construction at an additional thirteen, with its increasing use promoted in the 14th Five-Year Plan. China is also deploying the Hualong One internationally, with two operational units in Pakistan and a prospective unit in Argentina. With this reactor design and others, China is not only aiming to meet more of its domestic nuclear energy needs with its own technology, but is also seeking to establish itself as a technological leader and supplier for the international nuclear power market.
China is also involved in advancing nuclear technology with Generation IV designs, the next evolutionary stage in reactor design. In December 2023, the world’s first Generation IV nuclear unit officially entered commercial operation at the Huaneng Shandong Shidao Bay nuclear power plant. Called the HTR-PM (High-Temperature Reactor Pebble-bed Module), it relies on two small reactors that drive one steam turbine with an overall output capacity of 211 MW. This capacity is less than one-fifth of the average capacity of currently operational Generation III reactors in China, which is around 1150 MW according to GEM data. As an example of a small modular reactor (SMR) — a classification often discussed as part of the future of the nuclear power industry — this reactor is designed with intentions of more flexible deployment and quicker construction. China has also proposed a scaled-up version of this design which would yield a larger nameplate capacity of 650 MW.
Frosty outlook: China's inland plant ice persists
As ambitious as China’s nuclear buildout has been and may continue to be, capacities would have been even higher if not for the indefinite suspension of all plans for inland nuclear power plant construction following the Fukushima nuclear accident in 2011. After Fukushima, the Chinese government imposed a moratorium on the approval process for inland nuclear power plants, and development has continued to stagnate for over a decade, prompted by concerns about safety and environmental impacts. Nuclear power plants need sufficient water sources for cooling purposes, and they discharge trace amounts of radioactive wastewater. Coastal nuclear power plants benefit from access to seawater for cooling, facilitating absorption of trace amounts of pollution by the ocean. But inland nuclear plants must rely on nearby rivers or lakes for cooling water, a fact which, alongside general safety reviews, has been cited as a central concern leading to the moratorium.
China’s 14th Five-Year Plan, covering the years 2021 to 2025, omitted any mention of inland nuclear power, instead emphasizing the deployment of nuclear facilities in coastal regions. GEM data corroborate the lack of construction or pre-construction activities at any inland Chinese nuclear power plants. The Global Nuclear Power Tracker reveals that China had 185 inland nuclear units cancelled. With a combined capacity of 201 GW, this cohort of cancelled Chinese units is larger than either the currently operational U.S. fleet (102 GW) or the total amount of nuclear capacity ever cancelled in the United States (172 GW). The Chinese units affected by the moratorium are shown with a GEM-assigned status of “cancelled - inferred 4 y” as consistent with GEM’s Methodology, because after their initial announcement, they fell out of more recent planning documents, and no progress has been observed for over four years.
However, the classification of “cancelled” for these plants carries some nuance. In the abstract, any of these facilities could re-enter official plans and progress forward to completion. While it appears extremely unlikely that all of them will do so, the idea of lifting the moratorium has been a subject of discussion in light of China’s ambitious goals of carbon peaking by 2030 and carbon neutrality by 2060. For example, the topic of initiating construction on inland nuclear power plants was proposed during the 14th Chinese People's Political Consultative Conference (CPPCC) National Committee First Session in spring 2023.
Among the projects affected by the moratorium, some may be more likely candidates to eventually move forward than others. The following three projects may have a relatively smoother pathway toward eventual construction and operation: the Taohuajiang nuclear power plant in Hunan province, the Xianning Dafan nuclear power plant in Hubei Province, and the Jiangxi Pengze nuclear power plant in Jiangxi province. These three had already commenced pre-construction preparations with initial investments.
Owners of cancelled inland nuclear projects were encouraged to preserve the site for energy generation purposes. For instance, Jiangxi Nuclear Power CO LTD, the owner of the Jiangxi Pengze facility, has used the site for developing wind and solar renewable energy projects. This approach has resulted in the commissioning of a solar farm in 2020 and a wind farm in 2021.
This situation also highlights some central questions regarding nuclear’s place in the energy transition, including how it compares to wind and solar in terms of nameplate capacity and risks for delays or cancellations. While the original project plans called for a total nuclear capacity of 4000 MW, less than 5% of that capacity is now operational via wind and solar facilities on the same site. But country-wide, the relationship is essentially inverted, as China has added significantly more wind and large utility-scale solar capacity than nuclear capacity. China’s currently operational nuclear capacity is only about 14% that of its wind capacity and 16% of its large utility-scale solar capacity, according to GEM data.
Nuclear has historically performed differently than wind and solar within the generation stack, serving a baseload role with a much higher capacity factor while wind and solar are intermittent. However, the roles of wind and solar are expected to shift with continued advancements in utility-scale battery technology. China’s once-envisioned inland nuclear fleet also underscores risks for nuclear power which are not nearly as prevalent for wind and solar: postponements and cancellations. GEM data show that China’s total cancelled nuclear capacity of 201 GW is more than 30 times that of its cancelled wind facilities, and more than 40 times that of its cancelled large-scale utility solar facilities. With China’s ambitious nuclear buildout ongoing, it will be important to continue to monitor the rate of cancellations compared to additions.
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>>> Central Banks Back Up the Bullion Trucks
by Adam Sharp
Daily Reckoning
December 12, 2024
https://dailyreckoning.com/central-banks-back-up-the-bullion-trucks/
Central Banks Back Up the Bullion Trucks
Beep–beep–beep. Central bankers are once again “backing up the truck” to buy gold.
The World Gold Council (WGC) recently released its central bank gold statistics for October 2024.
The chart below shows purchases (blue) and sales (purple):
Source: World Gold Council
October was the highest net purchase month in 2024, with central banks purchasing a sizable 60 tonnes.
It’s worth noting that there were almost zero sales during the month. Up until October, every month in 2024 had substantial buys and sells.
Through Q3, central banks have reported an impressive 694 tonnes of gold purchases. And that’s almost certainly an understatement because we don’t truly know how much gold China, Russia, and other countries from that bloc are purchasing. The true number for 2024 could easily be near 1,400 tonnes or higher.
Annual gold production from mines is around 3,000 tonnes, so this is a substantial percentage of new supply. At this rate, central banks alone could be buying up to 45% of newly mined gold this year.
Here’s another chart from the WGC’s recent central bank report, showing updated year-to-date net purchases and sales.
Once we consider that China and Russia are likely buying far more gold than reported here, this is a very interesting chart indeed.
The largest BRICS countries are gobbling up gold like we’re on the verge of something major.
Poland, Turkey, Czech Republic, and Hungary stand out as the only NATO countries on gold-buying sprees. They happen to be the most nationalist members of NATO. No coincidence there.
And the largest gold sellers, the Philippines and Thailand happen to be major U.S. allies in Asia. These two countries are clearly still in the “king dollar” camp and are not yet buying into gold mania. Either that, or they desperately need the cash.
Confiscating Russian Assets
U.S. and EU leaders have long discussed the possibility of using more than $300 billion of frozen Russian assets to support Ukraine.
Well, it’s finally happening. On December 11th, UPI reported that the first $20 billion has been transferred to a Ukrainian account.
The United States has given Kyiv a $20 billion loan funded by Russian assets frozen since the Kremlin invaded Ukraine nearly three years ago.
The disbursement was announced Tuesday by the U.S. Treasury, whose secretary, Janet Yellen, said in a statement that the funds “will provide Ukraine a critical infusion of support as it defends its country against an unprovoked war of aggression.”
This action, while seemingly small in scope, is a primary driver of central bank gold demand. The trend of de-dollarization truly picked up steam in 2022 after Russia invaded Ukraine, which prompted the confiscation of more than $300 billion of Russian reserve assets.
As we have discussed extensively, this was a key turning point for the world monetary system. All of a sudden, central banks no longer saw their dollar reserves as risk-free assets. Overnight they became risk-laden.
At the time Russia invaded Ukraine, gold was trading around $1,860/oz. It is now up 44% from that point. An absolutely massive move in such a short period.
As we discussed in Metal Mania Starts Soon, this move has almost exclusively been driven by central bank demand.
“There’s rich irony in the fact that the primary gold bulls today aren’t individual investors, it’s the guys running the fiat printers. This is an insider buy signal at a global scale. And these aren’t fickle day traders in for a quick flip. These central banks have a new reserve policy, and it appears to heavily favor gold.”
I don’t see central banks slowing their buying pace anytime soon. The world’s monetary order is shifting, and at times like these, the safest thing to buy is an apolitical hard currency: gold.
Eventually, retail and professional investors will catch on to the trend, and then we’ll be off to the races. At that point, I believe silver will set for a big move-up.
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Atlantic Council / IMF - >>> Going for gold: Does the dollar’s declining share in global reserves matter?
Econographics
By Hung Tran
August 27, 2024
https://www.atlanticcouncil.org/blogs/econographics/going-for-gold-does-the-dollars-declining-share-in-global-reserves-matter/#:~:text=Its%20latest%20COFER%20report%20shows,been%20reported%20to%20the%20IMF.
Going for gold: Does the dollar’s declining share in global reserves matter?
Over the past twenty-three years, the US dollar (USD) has declined gradually as a share of global foreign exchange reserves, according to the International Monetary Fund (IMF). The shift has not benefited any other major currency viewed as a potential competitor to the USD, like the Euro, the Great British pound (GBP), or the yen. It has instead favored a group of lesser-used currencies, including the Canadian dollar, the Australian dollar, the Renminbi, the South Korean won, the Singaporean dollar, and the Nordic currencies. If gold—which has recently experienced a surge in purchases by many central banks, as well as the general public—is included in reserve asset portfolios, the share of the USD is smaller than what the IMF has highlighted. As geopolitical confrontations deepen, the share of the USD in global reserves is likely to continue declining in the future, eventually diminishing the dominant role of the dollar and the US in the international financial system.
The declining share of the USD in global reserves
The IMF conducts a regular survey of Currency Composition of Official Foreign Exchange Reserves (COFER). Its latest COFER report shows that in the first quarter of 2024, the share of USD sits at $6.77 trillion—54.8 percent of the total official foreign exchange (FX) reserves of $12.35 trillion, or 58.9 percent of allocated FX reserves where currency breakdowns having been reported to the IMF. This is a noticeable fall from the 71 percent share for USD in 2001. Basically, the decline in the USD share has been driven by efforts by central banks to diversify their reserves into a wider range of currencies—a move facilitated by improvements in financial markets and payment infrastructures in many countries. It is important to note that the share of USD would be lower if gold were included in global reserves.
Since the global financial crisis in 2008, the world’s central banks have increased their gold purchases in an attempt to manage heightened financial system uncertainty. Doing so has pushed gold prices up by 138 percent over the past sixteen years to reach the current record highs of over $2,600 per ounce. Gold buying has accelerated further in recent years as part of a growing popular demand. In 2022 and 2023, central banks purchased more than one thousand tons of gold per year, more than doubling the annual volume of the previous ten years. Purchases have been spearheaded by the central banks of China and Russia, followed by several emerging market countries including Turkey, India, Kazakhstan, Uzbekistan, and Thailand. In particular, the People’s Bank of China has raised the share of gold in its reserves from 1.8 percent in 2015 to a record 4.9 percent at present. At the same time, it has cut its holding of US Treasuries from $1.3 trillion in the early 2010s to $780 billion in June 2024.
Gold holdings, valued at market prices, account for 15 percent of global reserves. As a consequence, the share of the USD in total global reserves including gold would fall to 48.2 percent—instead of 54.8 percent of global foreign exchange reserves. The declining USD share suggests that while the USD is still the preferred currency most used by central banks for their reserves, it has been losing market share. It is not as dominant in the global reserves arrangement as it still is in trade invoicing, international financing, and FX transactions, according to the Atlantic Council’s Dollar Dominance Monitor.
Implications of the declining share of the USD in global reserves
Several reasons have been advanced to explain the growing demand for gold. For the general public, factors including hedging against inflation and/or against political and geopolitical risks, as well as positioning for expected US Federal Reserve rates cuts, appear reasonable. The central banks buying gold have also mentioned their desires to diversify their reserves portfolios, de-risking from vulnerability to sanctions risk from the United States and Europe. This sense of vulnerability has become acute for some countries in conflict or potential conflict with the US/Europe, after the West imposed substantial sanctions on Russia following its invasion of Ukraine. Decisions to immobilize overseas reserve assets of the Bank of Russia, subsequently appropriate the interest earnings of those assets, and threats to seize assets outright to help pay compensation to Ukraine proved especially unsettling.
In response, central banks have moved into gold in a way to diminish sanction risks. They can take physical possession of the gold they have bought and kept it in domestic vaults—instead of leaving it at Western financial institutions such as the US Federal Reserve, the Swiss National Bank, or the Bank for International Settlements, where gold is subject to Western jurisdiction. If the likelihood of geopolitical confrontation heightens, it follows that the declining trend in the share of the USD in global reserves will persist. This is consistent with the de-dollarization trend whereby a growing number of countries have developed ways to settle their cross-border trade and investment transactions in local currencies. Doing so chips away at the USD’s dominant role in the international payment system, as well as motivating countries to hold some reserves in each other’s currencies.
While the declining share of the USD in global reserves could continue to unfold gradually, as in the past two decades, central banks’ demand for USD for their reserves would eventually fall to a critical threshold. The US national saving rate is also likely to stay low and remain insufficient to cover domestic investment, leading to persistent US current account deficits. The combined effect of these trends in addition to falling foreign central bank demand for USD would constrain the US government’s ability to issue debt to finance its budgetary needs.
This constraint could become binding, a turning point heralded by sharp reductions in foreign official demand for US Treasuries. In that case, USD exchange rates would have to fall and interest rates to rise, simultaneously and in sufficient magnitude, to improve the risk-return prospects of US government debt and attract international investors. Any increase in US interest rates would be very problematic as interest payments on government debt have already become a burden, and are estimated to take up more than 20 percent of government revenue by 2025. They are threatening to crowd out other necessary public priorities including national defense, dealing with climate change, infrastructure, and human services. These developments would make the political fight over budgetary resources for competing needs even more antagonistic, and the important task of getting government deficits and debt under control more intractable. Both factors would ultimately put the US fiscal trajectory on an unsustainable path and threaten global financial stability—a risk not easily addressed given the deepening geopolitical contention.
Hung Tran is a nonresident senior fellow at the Atlantic Council GeoEconomics Center, a former executive managing director at the Institute of International Finance and former deputy director at the International Monetary Fund.
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>>> How an upstart global payment system led to Trump's latest tariff threat
Yahoo Finance
by Ben Werschkul
December 3, 2024
https://finance.yahoo.com/news/how-an-upstart-global-payment-system-led-to-trumps-latest-tariff-threat-185527589.html
Donald Trump's latest tariff threat appears to have stemmed at least in part from a nascent blockchain-based entrant into the influential world of global financial messaging.
The president-elect's move came in a Saturday afternoon post in which he promised 100% tariffs on countries looking to move away from the dollar.
"Any Country that tries should wave goodbye to America," he wrote.
The target was an organization called BRICS, which currently boasts 10 nations and is led by the Western adversaries of China and Russia.
One new product offering appears to be a key stumbling block.
"The proximate cause of Trump's threat is the development of BRICS Pay," Douglas Holtz-Eakin, the president of the American Action Forum, wrote in a Monday morning note.
BRICS Pay is a new attempt by the group to use digital payment and QR code technology to provide an alternative to dollar-dominated networks — specifically the Society for Worldwide Interbank Financial Telecommunication (SWIFT).
Trump's post immediately raised fears of a complicated trade war that would potentially span five continents and is set to be another active front for negotiations between Trump's transition team and overseas leaders in the months ahead.
A Kremlin spokesman quickly responded on Monday that Trump's move would backfire, adding that the dollar is already in decline.
What 'BRICS Pay' aims to accomplish
"Today, we begin building a new, fair, and decentralized financial system for the future," the BRICS pay website promises as it touts its new effort to be "a new global financial and payments architecture."
The group aims to offer traditional bank-to-bank connections as well as newer digital means to move money as part of an overall effort to allow more cross-border payments without involving dollars.
The still-unfolding goal is to provide a comprehensive online wallet that would allow citizens and businesses in these countries to make payments around the globe using their national currencies.
It was formally launched this October as a direct counter to SWIFT, a Belgium-based system that currently dominates the connections of banks around the world and is dominated by dollars.
The SWIFT system is largely the reason that 88% of foreign exchange transactions currently involve the dollar — even if there's not an American on one side of the transaction.
The recent announcement of a rival came after a BRICS Business Forum in Russia and could have outsized effects on Vladimir Putin and his countrymen, who have been largely banned from the SWIFT system since their invasion of Ukraine in 2022.
The SWIFT network has indeed gained a measure of prominence in recent years as a lever for the West to impose economic sanctions — not just on Russia but other adversaries of the West.
A press release announcing the BRICS Pay effort contained a notable early goal: allowing foreigners to use their Visa and Mastercards inside Russia.
Other nations in the coalition have long been critical of the dollar for other reasons, with the Chinese government saying that the dollar's dominance is "the main source of instability and uncertainty in the world economy."
BRICS was founded in 2009 by Brazil, Russia, India, China, and South Africa. It has recently expanded to include Iran, Egypt, Ethiopia, and the United Arab Emirates. Saudi Arabia has also been invited to join.
The group has been rechristened BRICS+ and says it now represents over one-third of the earth's area, nearly a quarter of its export volume, and 45.2% of its population.
Turkey, Azerbaijan, and Malaysia have also reportedly applied to become members.
What Trump hopes to accomplish with his threat
A larger threat from BRICS is that this informal coalition will establish its own currency, much like the euro, to directly challenge the dollar.
But it's a notion that experts say is fuzzier.
It's still just an idea, with Capital Economics writing earlier this year that whether or not they "make an explicit pledge, a BRICS currency is not a viable challenger to the dollar."
An Atlantic Council model that tracks the dollar's place and analyzes BRICS efforts concluded that "the dollar's role as the primary global reserve currency is secure in the near and medium term."
And the idea of an entirely new currency appears to be downplayed for now, with Kremlin spokesman Dmitry Peskov telling reporters Monday in response to Trump's threat that "more and more countries are switching to the use of national currencies in their trade and foreign economic activities."
The perhaps more immediate question is whether BRICS Pay can get a foothold in the years ahead and help push forward the larger "de-dollarization" trend, a possibility that President-elect Trump is clearly trying to forestall.
"We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy," Trump wrote in his post.
What remains to be seen is whether Trump — as he appears to have successfully done with recent tariff threats against Mexico and Canada — can jumpstart talks with these nations and then create a path to possibly head off the need to make the threats a reality.
He recently promised to put 25% tariffs on everything imported from Mexico and Canada in order to spur the countries to do more to halt the flow of illegal immigration and drugs.
It had an immediate effect, with Trump shortly thereafter holding a call with Mexican President Claudia Sheinbaum and visiting with Canadian Prime Minister Justin Trudeau over dinner at Mar-a-Lago in Florida to start talks.
But whether this latest threat against a much broader array of nations will lead to similar results remains to be seen.
"What exactly constitutes a satisfactory 'commitment' remains unclear, as is the authority under which such tariffs would be levied," Holtz-Eakin noted Monday.
"So, for now, it is just talk."
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Looking at that BRICS tariff article (last post), this is not looking like the backdrop for a robust stock market. Could be wrong, but these tariffs could end up a disaster. Not only the instant inflation aspect, but now Trump threatens 100% tariffs on all BRICS countries if they try to move away from the US dollar. This can very easily backfire, and just convince these countries they need an alternative financial system.
BRICS membership is expanding at a fast clip, with dozens of countries clamoring to join (list below), so increasingly they won't need to export to the US, but can do perfectly well trading among themselves. To the world, the US tariffs are just a continuation of the sanctions and de-Swift-ing approach the US has increasingly used, and merely pushes these countries further into the arms of BRICS.
The real wake up call will come when Europe is forced to decide between the US and BRICS, and they go with BRICS since it will soon represent most of the world's population. Here's the current BRICS membership by population (below) --> approx 3.5 billion people, so 43% of the world's population. Also, here is the list of the countries expressing interest in joining BRICS, or who have already applied for membership. It's basically the whole world except for Europe and Japan. So when does Europe begin to peel off and also leave the US orbit in favor of BRICS? Macron of France wanted to attend the BRICS meeting in last Oct, but China and Russia said they didn't want him there.
The world has basically left the US orbit already, but the US leadership continues to arrogantly think we have the upper hand. The world has been de-dollarizing their trade for some years, and moving central bank reserves into alternates and gold. The dollar's share of global reserves is now under 55%, down from 71% in 2001.
Current BRICS members -
China -- 1.4 billion
India ---- 1.4 billion
Brazil --- 210 mil
Russia - 145 mil
Ethiopia - 125 mil
Egypt ---- 112 mil
Iran ------- 89 mil
S. Sfrica - 62 mil
UAE ------ 4 mil
Countries that have either expressed interest or have already applied for BRICS membership -
Africa
Algeria
Angola
Burkina Faso
Cameroon
Central African Republic
Congo
DR Congo
Equatorial Guinea
Ghana
Kenya
Libya
Mali
Namibia
Nigeria
Senegal
South Sudan
Sudan
Tunisia
Uganda
Zimbabwe
Americas
Bolivia
Colombia
Cuba
El Salvador
Nicaragua
Peru
Venezuela
Asia
Afghanistan
Bahrain
Bangladesh
Indonesia
Iraq
Kazakhstan
Kuwait
Laos
Malaysia
Myanmar
North Korea
Pakistan
Palestine
Saudi Arabia
Sri Lanka
Syria
Thailand
Uzbekistan
Vietnam
Yemen
Europe
Azerbaijan
Belarus
Serbia
Turkey
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>>> Donald Trump warns BRICS countries of "100% tariff" over new currency plans
Yahoo Finance
by Malcolm Trapp
December 1, 2024
https://www.yahoo.com/news/donald-trump-warns-brics-countries-120059132.html
On Saturday (Nov. 30), Donald Trump warned of 100% tariffs on BRICS nations — composed of Brazil, Russia, India, China and South Africa — should they develop a new currency to compete with the U.S. dollar.
“The idea that the BRICS countries are trying to move away from the dollar while we stand by and watch is over,” the president-elect wrote via Truth Social, his social media platform.
He added, “We require a commitment from these countries that they will neither create a new BRICS currency, nor back any other currency to replace the mighty U.S. dollar or, they will face 100% tariffs, and should expect to say goodbye to selling into the wonderful U.S. economy.”
The warning came just days after Trump announced plans to impose tariffs on Canada, Mexico and China once he takes office as president. As REVOLT previously reported, the three countries make up 40% of the United States’ $3.2 trillion annual imports.
“On Jan. 20, as one of my many first executive orders, I will sign all necessary documents to charge Mexico and Canada a 25% tariff on all products coming into the United States and its ridiculous open borders,” he explained on Truth Social. “This tariff will remain in effect until such time as drugs, in particular fentanyl, and all illegal aliens stop this invasion of our country!”
China responded by telling the BBC that “no one will win a trade war or a tariff war.” At the same time, Canada’s prime minister, Justin Trudeau, emphasized the importance of maintaining “intense and effective” ties with the United States. Claudia Sheinbaum, who was elected as the president of Mexico in October, offered up a more firm rebuttal: “One tariff would be followed by another in response, and so on until we put common businesses at risk.”
Trump will be inaugurated on Jan. 20 at the U.S. Capitol Building, which is slated to mark his second term as U.S. president.
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Rickards - >>> The Golden Rule Is Real
By James Rickards
October 28, 2024
https://dailyreckoning.com/the-golden-rule-is-real/
The Golden Rule Is Real
There’s so much to discuss right now, from the upcoming election to geopolitical instability. But today I want to talk about gold. I call it the once — and future — money.
The use of gold as money existed from antiquity until gold backing broke down entirely in 1971. Still, central banks and finance ministries hold over 37,000 metric tonnes of gold in reserve.
Why? The answer is that gold is still at the base of global monetary systems. It’s simply the case that no government wants to admit this because the shortage of gold relative to bank notes would be exposed if they did.
But gold is coming to the fore of the monetary system again. Central banks are buying gold as fast as they can. Let’s look at some pertinent data before turning to the key geo-economic trends that will drive the dollar price of gold much higher in the near future.
The dollar price of gold today is $2,754 per ounce (subject to the usual daily fluctuations). As recently as Nov. 3, 2022, gold was $1,630. That’s a 69% gain in under two years. Gold was $1,375 per ounce in early June 2019.
That means the dollar price of gold has doubled in just over five years.
Most of the gains over that period have occurred in the past year. Gold was still $1,845 in October 2023. Whether we consider a multiyear trend or a more recent trend, gold has moved steadily higher with dramatic momentum lately.
There’s a simple but important bit of math behind these price moves that investors should understand. It’s the key to making huge profits in gold in the months ahead.
Investors tend to focus on the dollar price of gold and to analyze the price in round numbers. That makes sense.
If gold goes up $100 per ounce and you own 500 ounces, that’s a $50,000 profit. Another $100 per ounce gain means another $50,000 profit. That’s real money for you.
What investors may not realize at first is that each $100 gain (and $50,000 profit) is easier than the one before.
That’s because each gain is measured in constant $100 increments, but the measurement begins from a higher base. A constant dollar gain is a smaller percentage of an expanding base so it’s easier to achieve in percentage terms.
For example, if the price goes from $2,500 to $2,600 per ounce, that’s a 4% gain. But if the price goes from $2,900 to $3,000 per ounce (same $100 gain), that’s a 3.5% gain. Obviously, a 3.5% gain is easier to pick up than a 4.0% gain, but it’s the same $100 gain and $50,000 profit in your pocket.
This dynamic is even more dramatic if we look at $1,000 price increases. (That means $500,000 in profits if you own 500 ounces). When the price moves from $2,000 per ounce to $3,000 per ounce, that’s a 50% gain.
But when the price moves from $9,000 per ounce to $10,000, that’s only an 11% gain. Same $1,000 per ounce gain and same $500,000 in profit, but a much easier hurdle to move 11% compared with 50%.
The math is obvious, but the psychology is not. And investor psychology is the engine that will drive gold prices to much higher levels faster than most investors can imagine.
Below, I show you why gold is poised to blast off. Read on.
Gold Is on the Launchpad
By Jim Rickards
The last time gold was taken seriously as a monetary asset was in the mid-1970s. The last time that retail investors had much appetite for gold investing was in the early 1980s. Gold hit $800 in January 1980. That was the all-time high at the time. Gold was flat to down from 1981–1999, hitting $250 per ounce in 1999 at the end of a 20-year bear market.
From there, gold reached a new high of $1,900 per ounce in August 2011, a 670% gain in 12 years. Then gold fell into a second bear market, falling $850 to $1,050 per ounce in December 2015. That was a 45% crash from the 2011 high.
If you treat the 1999 low of $250 per ounce as a baseline, the 2011–2015 crash was actually 51.5%: (850 / 1650 = 51.5%). That calculation is important. Jim Rogers, the greatest commodity trader of all time, told me that no commodity goes to the moon without a 50% correction along the way. Gold had its 50% correction in 2015. Now it’s off to the moon.
The point is that despite two bull markets (1971–1980 and 1999–2011) and two bear markets (1981–1999 and 2011–2015), gold investing never captured the popular imagination in the way that housing did in the early 2000s or that stocks have today.
Individual investors have been in and out of the market and investors from the early 2000s have done quite well. Hedge funds trade momentum but get out at the first speed bump. They don’t think of gold any differently than they do soybeans or oil. It’s just a trade.
The institutional investor footprint in the gold market is almost non-existent. From an investment perspective, gold has been an orphan asset with a few supporters but not many. That’s all about to change radically. Here’s why:
The first key to gold’s coming surge is the role of central banks. Retail and institutional investors may not be that interested in gold, but central banks definitely are. In recent years, central bank holdings of gold have surged from 33,000 metric tonnes to over 37,000 metric tonnes, a 12.0% gain measured by weight.
This increase has been heavily concentrated in two countries — Russia and China. Russian gold reserves have risen from 600 metric tonnes in 2008 to 2,335 metric tonnes today, a gain of 1,735 metric tonnes or nearly 200% from the 2008 base.
China also had about 600 metric tonnes in 2008 and today has 2,264 metric tonnes, a 275% gain. (There is good reason to conclude that China has undisclosed gold reserves, which would make those total and percentage gains ever higher).
The Big 10 holders of gold include the usual suspects — The U.S., Germany, Italy, France, Switzerland and Japan. But the list also includes some newcomers such as Russia, China and India.
Other important countries are vying for a place in the global gold club. In the second quarter of 2024 (most recent available data), Poland added 18.7 tonnes, India added 18.7 tonnes, Turkey added 14.7 tonnes, Uzbekistan added 7.5 tonnes and the Czech Republic added 5.89 tonnes.
Why the large gold holdings and why the rapid additions to gold reserves if gold is not a monetary asset? The question answers itself. Gold is a monetary asset.
Central bank net buying is equivalent to about 20% of annual gold mining output. That doesn’t indicate a gold shortage, but it does put a firm floor under the dollar price of gold. That creates what we call an asymmetric trade.
On the upside, the sky’s the limit, but on the downside, the central banks have your back to some extent because they will definitely buy the dips to increase their gold hoards. That’s the best type of trade to be in.
So the stage is set. The simple math of easier percentage gains for constant dollar gains is the dynamic that can set off a buying frenzy and lead to super-spikes in the dollar price of gold. Central bank buying causes a relentless increase in the dollar price of gold and offers limited downside because they will buy the dips. All that is needed to set off the super-spike is an unexpected development that is not already priced in.
Now we have it. The BRICS met in Kazan, Russian Federation last week. The BRICS have a rotating presidency and this year Putin is president of the BRICS. The world is waiting for the announcement of a new BRICS currency. That may come in time, but not yet. The new currency may be 10 years away.
What happened instead was that Putin and the BRICS announced a new blockchain-based digital ledger to record trade payments using existing currencies of the BRICS members. The significance of this system (tentatively named “BRICS Clear”) is that there are no dollars involved and the secure payment channels are relatively safe from U.S. and EU sanctions.
Russia will sell oil to China for rubles, Brazil will sell aircraft to China for reais and India will sell technology to China for rupees and so on. (Alternatively, any BRICS member can elect to take the currency of any other BRICS member, all to be recorded on BRICS Clear).
Payments can be settled on a net basis instead of a gross basis. This means, for example, that Russia and China can trade goods and record payments. There will be “due to” and “due from” on the ledgers.
Those can be netted out with only the net amount changing hands. And this does not have to be done in real-time; it can be done monthly or quarterly. This greatly reduces the amount of payments and message traffic.
The central bank or commercial banks in each country can provide payments to local sellers in local currency while recording a due from the BRICS Clear ledger on its books.
That system can work well, but it leaves two issues unresolved compared to a single currency system. The first is stability in exchange rates while balances are left unsettled. The second is the overaccumulation of a certain currency by one party that may have limited use for that currency.
If you don’t want to take exchange rate risk, you can take your counterparty currency balances and buy gold. And if you have too much of a certain currency standing on your accounts, you can reduce the balance by buying gold.
The implications of this have not yet sunk into market pricing. It’s tantamount to an informal gold standard without fixed exchange rates. It relies on market forces (mostly denominated in U.S. dollars for now) and does not rely on huge hoards of freely convertible gold in central banks.
Still, it works. It positions gold as an anchor in a new international monetary system without the strictures of the classical gold standard.
The picture is now complete. Gold is on an upward path driven by central bank buying. Gold is poised to go much higher because the BRICS will use physical gold as their anchor instead of U.S. dollars. And investor psychology will cause a super-spike once the big dollar gains become a daily occurrence.
It’s a powder keg and the BRICS have just struck a match. The smartest move for everyday investors is to buy gold now before the fun really begins.
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>>> Iran, Saudi Plan Joint Military Exercises: Iranian Media
Barron's
AFP
October 22, 2024
https://www.barrons.com/news/iran-saudi-plan-joint-military-exercises-iranian-media-f5df328a
Iran and Saudi Arabia are planning to conduct joint military exercises in the Red Sea, according to an Iranian report not confirmed by Riyadh, in what would be a first for the regional heavyweights.
The two Middle East rivals, which have long backed opposing sides in conflict zones across the region, severed diplomatic ties in 2016.
However Shiite Muslim-dominated Iran and Sunni-majority Saudi Arabia resumed relations last year under a surprise China-brokered deal.
"Saudi Arabia has asked that we organise joint exercises in the Red Sea," the commander of Iran's navy, Admiral Shahram Irani, was quoted as saying by the Iranian news agency ISNA.
"Coordination is underway and delegations from both countries will hold the necessary consultations on how to conduct the exercise," he added, without providing details including a timeline.
Saudi Arabia did not immediately confirm whether it would hold joint military exercises with Iran.
Since November, Yemen's Iran-backed Huthi rebels have waged a campaign of attacks against ships in the Red Sea and the Gulf of Aden in what they say is a show of solidarity with Palestinians during the Israel-Hamas war in Gaza.
The Huthis have been fighting a Saudi-led coalition since 2015, months after they seized the capital Sanaa and most of Yemen's population centres, forcing the internationally recognised government south to Aden.
Saudi Arabia, which has backed the Aden government, has engaged in a delicate balancing act as the world's biggest oil exporter tries to extricate itself from the war on its doorstep.
It did not join a US-led naval coalition to deter Huthi attacks.
Efforts by the kingdom to broker a Yemen peace deal also faltered in the wake of the Huthi attacks on ships.
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>>> BRICS adds 13 partners as UN chief offers surprise praise at Russian summit
by Timothy Nerozzi
Washington Examiner
10-24-24
https://gazette.com/brics-adds-13-partners-as-un-chief-offers-surprise-praise-at-russian-summit/article_bc337986-f8f1-574a-b4af-34168ed0c557.html
More than a dozen countries from around the world joined the BRICS bloc this week — a major augmentation of the most powerful international alliance opposing Western powers.
The summit, held in Kazan, Russia, gathered 20 heads of state, over a dozen other diplomatic envoys, and even the secretary-general of the United Nations for a conference that further solidified President Vladimir Putin's network of influence.
Thirteen nations were adopted as "partners" of the alliance on Thursday, the final day of the summit. The designation is short of complete membership but comes with the prospect of full admission in the future.
The following nations were announced as partner countries within the alliance: Algeria, Belarus, Bolivia, Cuba, Indonesia, Kazakhstan, Malaysia, Nigeria, Thailand, Turkey, Uganda, Uzbekistan, and Vietnam.
Partner countries are allowed representation at select BRICS events and participation in some of the bloc's international initiatives. Full membership in the alliance grants voting rights on BRICS affairs and full rights to participate in all BRICS events.
The following nations are already full members of the BRICS bloc: Brazil, Russia, India, China, South Africa, the United Arab Emirates, Iran, Egypt, and Ethiopia.
Belarus, Russia's closest geopolitical ally and a quasi-satellite state, is among the countries that have expressed enthusiasm for gaining full membership as soon as possible.
“We fully share the BRICS philosophy,” Belarusian President Aleksandr Lukashenko said, according to a translation from the Moscow Times. “Belarus is coming to you with specific ideas and projects. We’re ready to become an active member of the union.”
Saudi Arabia, while represented at the summit, was not adopted as a member or a partner. The Middle Eastern kingdom was extended an invitation alongside Egypt, Ethiopia, Iran, and the UAE earlier this year but declined to accept.
If Saudi Arabia were to join BRICS, member nations would control close to half of the world's oil supplies.
United Nations Secretary-General Antonio Guterres delivered remarks at the BRICS summit on Thursday — a decision that raised eyebrows as the head of the U.N. was photographed smiling in conversation with Putin.
Guterres praised the summit for fostering greater international cooperation on global issues, saying, "No single group and no single country can act alone or in isolation. It takes a community of nations, working as one global family, to address global challenges."
The U.N. chief only briefly mentioned Russia's invasion of Ukraine in passing, saying "We need peace in Ukraine. A just peace in line with the U.N. Charter, international law, and General Assembly resolutions."
In the same speech, he similarly advocated peace in Gaza, Lebanon, Sudan, and elsewhere.
Putin preemptively undercut Guterres's remarks, acknowledging in a speech earlier in the day that nations opposed to Russia "aim to deal our country a strategic defeat."
"I will say directly that these are illusory calculations that can be made only by those who do not know Russia's history," the Russian president said.
Ukrainian President Volodymyr Zelensky alluded to the U.N. chief's BRICS speech in Kazan during an address at the International Crimea Platform summit on the same day, pointing out that Oct. 24 is recognized as United Nations Day.
“I would like to remind the entire international bureaucracy and political leaders that today is U.N. Day worldwide, not somewhere in Kazan," Zelensky said.
The Ukrainian Foreign Ministry previously criticized Guterres's attendance at the BRICS summit, pointing out that the secretary-general had declined its invitation to the Global Peace Summit in Switzerland.
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Rickards - >>> This Will Destroy the Dollar
By James Rickards
October 14, 2024
https://dailyreckoning.com/this-will-destroy-the-dollar/
This Will Destroy the Dollar
Janet Yellen gave a speech on Sept. 26 at the 2024 U.S. Treasury Market Conference in New York. The speech was largely about risks in the banking system and the market for U.S. Treasury debt.
In a pre-speech interview with Politico, Yellen was asked about risks related to a smooth presidential transition in this election cycle. While that may seem like a straightforward question, it contained a particular bias that somehow Donald Trump, win or lose, might make the presidential transition difficult.
Difficulties could arise if Trump loses and claims the election was “rigged” or if Trump wins and radical groups like antifa commence violent protests. My estimate is that the former is unlikely, and the latter is far more likely but Trump haters in the media will take the opposite view.
Yellen replied, “It really is essential to our having a democratic system and a democratic government, and one of the tremendous strengths of our financial system is that it is based on strong institutions and the rule of law.”
While this statement may seem reasonable on its face, it was Yellen’s thinly disguised way of saying that Donald Trump’s actions on Jan. 6, 2021, and possible similar acts on Jan. 6, 2025, are a threat to the “rule of law” and therefore a danger to the stability of the financial system.
There are many forces at work in this statement by Yellen. In the first instance, this is an example of the Biden-Harris administration “all of government” approach.
What this means is that when the White House has a top priority (open borders, climate change, defeat Trump), every department and agency is expected to advance that goal even if the role of that agency has nothing to do with the issue at hand.
The White House says, in effect, “Find a way.”
So here is Yellen dragging the Treasury Department into the effort to discredit Trump by suggesting he is a threat to the financial system and the Treasury market. This political twist has almost nothing to do with the Treasury’s role in the executive branch except at a stretch.
The irony is that Yellen herself is the greatest threat to the Treasury market through her persistent and illegal efforts to steal $300 billion in U.S. Treasury securities owned by the Central Bank of Russia and held in custody in U.S. and European banks and the Euroclear clearinghouse in Brussels.
That particular threat to steal the Russian securities to be used as backing for a loan to Ukraine has accelerated efforts of the BRICS and the Global South to move toward a new currency linked to gold that would initially compete with the dollar in global payments and eventually rival the dollar as a major global reserve currency.
Those efforts will see major advances made at the BRICS leaders’ summit in Kazan, Russian Federation on Oct. 22–24 hosted by President Putin. The BRICS summit will announce new members. That’s important because expanding the membership is the key predicate to launching a viable payment currency.
Will a new BRICS currency instantly displace the dollar in its role as leading reserve currency? How much of a threat would it be? Read on.
BRICS Currency Won’t Displace Dollar Overnight
By Jim Rickards
The original BRICs membership from 2009 consisted of Brazil, Russia, India and China. South Africa was added in 2010 when the group’s name was changed to BRICS. That group expanded significantly at the 2023 Leaders’ Summit in South Africa when Egypt, Ethiopia, Iran and the United Arab Emirates (UAE) were added.
(Argentina and Saudi Arabia were also permitted to enter but Argentina withdrew its application, and Saudi Arabia deferred its membership saying it was still considering the matter.)
The BRICS has been active over the years in institutionalizing its initiatives. In 2014, the BRICS created the New Development Bank (NDB), which functions along the lines of the World Bank to promote infrastructure development in emerging economies. The NDB was capitalized with over $100 billion from its members and currently has 53 projects underway with commitments of over $15 billion to those projects.
In 2015, the BRICS established the Contingent Reserve Arrangement (CRA), which acts as a swing lender to members experiencing temporary balance of payments difficulties. In this regard, the CRA functions somewhat like the International Monetary Fund. Between the NDB and the CRA, it is clear that BRICS are intentionally constructing their own version of the Bretton Woods institutions but with their own controls and membership.
Beyond the nine current members, there’s a waiting list of over 20 aspiring members including economic powers such as Nigeria, Venezuela, Indonesia, Malaysia, Turkey, Thailand and Vietnam. Current members Russia, UAE and Iran make BRICS an oil output heavyweight.
Russia, China and South Africa are among the world’s largest gold producers. India and China alone have a combined population of 2.8 billion or 35% of the entire population of the globe.
The BRICS are part of an emerging Global South that is challenging the Collective West for world economic and geopolitical dominance.
The subject of a BRICS currency is confusing to most observers and is a fraught topic even for many experts. We’ll call the potential currency a BRIC for convenience although no formal name has been announced.
The starting point is to distinguish between a payment currency and a reserve currency. A payment currency is used to settle purchases and sales of tradable goods and services. A reserve currency is the denomination of the currency in which national savings are invested, typically in U.S. Treasury securities or gold.
Some currencies perform both functions as reserve and payment currencies especially U.S. dollars and euros. A finance minister or central banker can move from one to the other; currencies earned can be invested as reserves or reserves can be sold to finance purchases.
Still, it’s important to bear the distinction in mind when evaluating the use case for each currency, especially BRICs. Put differently, a flaw or deficiency in one usage does not preclude the other.
The BRICS currency is very far along in establishing itself as a viable payment currency. The prerequisites are: agreed-upon value (which can be fixed to another currency, floating or pegged to a weight of gold), secure payments channels (basically high-speed, encrypted digital pipes for authenticated message traffic), digital ledgers and an agreed issuer (the NDB based in Shanghai may be suitable for this purpose but another institution could be created).
The single most important element is a sufficiently large membership in the BRICS currency union such that a recipient of BRICS payments can use them for purchases in many jurisdictions for many goods and services.
This last point is where most alternative currency payments arrangements fall down. Russia can sell oil to China for yuan (which they are currently doing) but they are constrained in terms of where they can spend the yuan (basically limited to Chinese manufactured goods and semiconductors). The same issue arises when Russia sells oil to India (for rupees) or weapons to Iran (for rials). The seller is limited in terms of what they can buy with the trading partner’s currency.
This constraint goes away in a currency union with 15 or 20 members or more. If Russia earns BRICs from China, they can buy Embraer aircraft from Brazil or semiconductors from Malaysia. For that matter, use of a payment currency in a multimember currency union is not limited to members.
With access to the payment channels, non-members can nevertheless agree to receive the BRICS currency in payment confident in their ability to spend it among the other BRICS members who are trading partners. The proof of this is the eurozone, which is currently a 20-member currency union with a single central bank and worldwide acceptance of the euro.
Moving from a payment currency to a reserve currency is more difficult. The prerequisite here is a large, liquid bond market. That bond market has to be surrounded by extensive transactional and legal infrastructure including: securities at all maturities (30 days to 30 years), an underwriting system (primary dealers in the U.S.), an auction system for sales of new issues, a repo market to finance inventories, futures, options, other derivatives (swaps), settlement channels, custodians (DTCC, others), etc.
Above all, holders need a good rule of law regime on which to rely in the case of disputes or defaults. All of these elements exist in the reserve currency bond market nonpareil — the U.S. Treasury securities market. None of it exists in the form of a putative BRICS bond market. It would likely take 10 years or longer to create reserve currency infrastructure with the biggest single impediment being the rule of law.
That said, there are several interesting developments taking place. The first is that the U.S. is squandering its rule of law advantage with sanctions on Russia, the freezing of the assets of the Central Bank of Russia and efforts to actually steal those assets and convert them into a $50 billion loan to Ukraine using structured finance.
Given this rogue behavior by the U.S., countries are becoming more cautious about large U.S. Treasury note reserves. This may account in part for the recent rally in the price of gold.
The second is that the upcoming BRICS summit in Kazan, Russia will announce significant progress in building out secure payments channels and will admit new members, which will drive the group closer to the critical mass needed to launch a currency union.
Finally, the impact of Yellen’s efforts to steal U.S. Treasury securities from Russia goes beyond the BRICS meeting and the rise of a new payment currency. Yellen’s blatant theft from the Central Bank of Russia is a driving force behind the price of gold reaching new all-time highs recently.
Central banks have been net buyers of gold since 2010, but the tempo of gold buying has increased as the U.S. rule of law under policymakers like Yellen begins to crumble.
Gold is a physical non-digital asset that cannot be stolen, frozen or seized provided it is in safe storage. Until the BRICS currency is ready, gold will be the asset of choice for foreign reserve managers faced with a rogue Treasury Secretary.
What began as a political hack (to beat Trump) has turned into another driver in the downfall of the dollar and the U.S. Treasury market. This is one more example of short-term, self-defeating thinking by the White House and the U.S. Treasury.
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Rickards - >>> Gradually, Then Suddenly
By James Rickards
October 10, 2024
https://dailyreckoning.com/gradually-then-suddenly/
Gradually, Then Suddenly
Over the past century, monetary systems change about every 30–40 years on average. Before 1914, the global monetary system was based on the classical gold standard.
Then in 1944, a new monetary system emerged at Bretton Woods. Under that system, the dollar became the global reserve currency, linked to gold at $35 per ounce. In 1971 Nixon ended the direct convertibility of the dollar to gold. For the first time, the monetary system had no gold backing.
Today, the existing monetary system is over 50 years old, so the world is long overdue for a change.
I’ve written for years about different nations’ persistent efforts to dethrone the U.S. dollar as the leading global reserve currency and the main medium of exchange.
At the same time, I’ve said that such processes don’t happen overnight; instead, they happen slowly and incrementally over decades.
While that’s true, the process is accelerating in ways no one could have anticipated before the Russian invasion of Ukraine in February 2022. In response, the U.S. initiated the most aggressive sanctions regime ever in its efforts to punish Russia for invading Ukraine.
The first round of financial targets included obvious attacks such as freezing the U.S. dollar accounts of Russian banks and oligarchs. The second round raised the ante by freezing the dollar accounts of the Central Bank of Russia itself. This was unprecedented except in the case of rogue states such as Iran, North Korea and Syria.
Suddenly the central bank of the world’s ninth-largest economy and third-largest oil producer with over $2.1 trillion in GDP found itself shut out of the global payments and banking systems.
The sanctions went beyond finance and banking to include bans on Russian exports, freezing Russia out of insurance markets (as a way to effectively prohibit oil shipments) and bans on critical exports to Russia including high-tech equipment, semiconductors and popular consumer goods.
Major U.S. and other Western companies from Shell Oil to McDonald’s were pressured to shut down operations in Russia, and many did.
But a large part of the world refused to join the U.S./EU/NATO financial sanctions. It’s not that countries around the world necessarily supported Russia’s invasion. It’s just that they didn’t want U.S. sanctions to disrupt their trading relationships with Russia, which they depend on.
They weren’t willing to harm their economies over a conflict that has no bearing on them, on the other side of the world in many instances.
Look at India and China. They’re the biggest buyers of the oil that Russia might otherwise have sold to Europe. China itself is selling automobiles, semiconductors and machinery to Russia.
Meanwhile, Turkey has greatly expanded its exports to Russia, while Iran is selling weapons to Russia including “kamikaze” drones that act like slow-motion cruise missiles that can linger over targets.
And importantly, the more other economies trade with Russia, the less any of them will need U.S. dollars as a medium of exchange. So the U.S. sanctions have not only failed, they’ve contributed to the long-term decline of the dollar as the world’s leading payment currency.
They’re also driving countries away from using dollars in international transactions for fear that they could become the next target of U.S. displeasure.
I’ve been warning about this for years. Almost 10 years ago, I sat in a secure conference room at the Pentagon and explained to a group of U.S. national security officials from the military, CIA, Treasury and other agencies that the overuse of the U.S. dollar in financial warfare would eventually compel nations to seek dollar alternatives.
Some took note, some ignored the warning and one Treasury official slammed the table and said, “The dollar has been the global reserve currency, it is the global reserve currency now and it always will be the global reserve currency!”
I told him I felt like I was in Whitehall in London in 1913 listening to John Bull say the same thing about sterling. Sterling would begin to be pushed aside by the dollar just one year later with the start of World War I.
More recently, I taught a seminar at the U.S. Army War College on financial warfare in which I explained that U.S. financial sanctions would not have a material impact on Russia, that Russia would not change its behavior in Ukraine based on the sanctions and that the U.S. would suffer more from its own sanctions than Russia because adversaries and neutral countries would create alternative payment platforms that did not use dollars.
I’ve also said to the military and intelligence community, “I don’t think other countries can destroy the dollar, but we can do it ourselves. We are our own worst enemy.”
As I warned, we’re destroying the dollar with the sanctions (and through other misguided policies). The U.S. is doing more to destroy the dollar than our enemies.
Efforts to establish a dollar alternative will see major advances made at the BRICS leaders’ summit in Kazan, Russian Federation on Oct. 22–24. The BRICS summit will announce new members, which is important because expanding membership is the key predicate to launching a viable payment currency. It’ll drive the group closer to the critical mass needed to launch a currency union.
The process will unfold over time, and the dollar won’t be displaced in the immediate future. But the trend away from the dollar is definitely underway. The building de-dollarization movement represents a global sea change, which will only accelerate in the coming years.
But as I said at the outset, it’s long overdue. If you want a historical parallel to how the dollar will fall, look to the U.K. pound sterling.
Many observers assume the 1944 Bretton Woods conference was the moment the U.S. dollar replaced sterling as the world’s leading reserve currency. But that replacement of sterling by the dollar as the world’s leading reserve currency was a process that took 30 years, from 1914–1944.
The 1944 Bretton Woods conference was merely recognition of a process of dollar reserve dominance that was decades in the making.
As with the pound sterling, slippage in the dollar’s role as the leading global reserve currency is not necessarily something that will happen overnight.
But the unprecedented dollar sanctions against Russia have hastened the process. So after 80 years under the Bretton Woods arrangements, 53 years since Nixon closed the gold window and 50 years since the petrodollar agreement with Saudi Arabia, the reign of King Dollar as the world’s leading payment currency is coming to an end.
And although the process will likely be relatively gradual, no investor should be surprised if it happens sooner rather than later.
It’s like the quote from Ernest Hemingway’s 1926 novel The Sun Also Rises. One of the characters asks, “How did you go bankrupt?”
“Two ways,” the other character says. “Gradually and then suddenly.” The dollar could lose its reserve status gradually — then suddenly.
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>>> Top BRICS economic officials stay away from Moscow meeting
Reuters
by Gleb Bryanski
October 11, 2024
https://news.yahoo.com/news/top-brics-economic-officials-stay-124456089.html
MOSCOW (Reuters) - Most finance ministers and central bank chiefs from the BRICS group of countries did not attend a high-level meeting in Moscow on Friday ahead of a BRICS summit later this month, sending more junior officials instead, official documents showed.
Finance ministers from Egypt and the United Arab Emirates and the head of Iran's central bank were present as Russian Finance Minister Anton Siluanov called for the creation of an alternative to the Western-dominated global financial system.
But finance ministers and bank chiefs from China, India and South Africa stayed away, sending deputies or more junior officials instead, a day after Kremlin aide Yuri Ushakov accused the West of pressuring countries not to attend the BRICS summit.
BRICS, originally comprising Brazil, Russia, India, and China, has expanded to include South Africa, Egypt, Ethiopia, Iran, the UAE, and Saudi Arabia (?)
The Moscow meeting is modeled on the Group of 20 schedule, where summits are preceded by meetings of top economic policy officials who outline proposals to be reviewed by leaders at the summit.
Russia, heavily sanctioned by the West over its war in Ukraine and cut off from international capital markets, is trying to woo BRICS partners with initiatives such as the creation of the BRICS Bridge international payment system.
"The creation of a cross-border payment initiative is our main task," Siluanov told the officials. Russia is also pushing for the creation of a BRICS clearing centre, a rating agency, a reinsurance company, and a commodities exchange.
Siluanov has also proposed setting up a joint investment platform based on the group's New Development Bank, its only functioning financial institution. The platform will use a new digital form of transactions, he said, without elaborating.
TRANSACTION DELAYS
Russia has recently experienced delays in international transactions with its trading partners, including BRICS member countries, as banks in these countries fear punitive actions from Western regulators.
The payment problems have forced Russian companies to use barter deals and cryptocurrencies to facilitate payments.
China was represented in Moscow by Deputy Finance Minister Liao Min and Deputy Central Bank Governor Changneng Xuan, and India by Finance Ministry Secretary Ajay Seth.
The summit is scheduled for Oct. 22-24 in Kazan, capital of Russia's Tatarstan region.
President Vladimir Putin's foreign policy aide, Yuri Ushakov, said nine of the 10 BRICS states would send their leaders, though Saudi Arabia would send its foreign minister, Prince Faisal bin Farhan Al Saud. The Saudi delegation was absent from the Friday meeting.
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BRICS currency - >>> Biggest Monetary Shock in 50 Years
By James Rickards
September 30, 2024
https://dailyreckoning.com/biggest-monetary-shock-in-50-years/
Biggest Monetary Shock in 50 Years
I’d like to start today’s issue by extending my thoughts and prayers to those impacted by Hurricane Helene, which has devastated significant portions of the southeast with massive flooding.
The death toll is over 100 and may increase significantly. Let’s all hope the affected areas will recover.
Moving on, with so much attention focused on the U.S. presidential election, the war in Ukraine and the war in Gaza, which is spreading to Lebanon, it’s easy to lose sight of other geopolitical developments that may be even more significant in the long run.
One of these developments is the rise of the new BRICS currency and its potential role in the global monetary system.
I’ve been warning readers about the collapse of the dollar for years and I was one of the first people to alert you to the rise of BRICS.
It’s a monetary shock about to hit the global financial system, and something I consider the most significant development in international finance in over half a century.
The annual leaders’ summit of BRICS nations is being held in Kazan, Russia from Oct. 22–24, and will include announcements moving the BRICS currency plans forward in material ways.
The Power of BRICS
The original BRICs membership from 2009 consisted of Brazil, Russia, India and China. South Africa was added in 2010 when the group’s name was changed to BRICS.
That group expanded significantly at the 2023 leaders’ summit in South Africa when Egypt, Ethiopia, Iran and the United Arab Emirates (UAE) were added. (Argentina and Saudi Arabia were also permitted to enter but Argentina withdrew its application, and Saudi Arabia deferred its membership saying it was still considering the matter.)
BRICS has been active over the years in institutionalizing its initiatives. In 2014, the BRICS created the New Development Bank (NDB), which functions along the lines of the World Bank to promote infrastructure development in emerging economies.
The NDB was capitalized with over $100 billion from its members and currently has 53 projects underway with commitments of over $15 billion to those projects.
Beyond the nine current members, there is a waiting list of over 20 aspiring members including economic powers such as Nigeria, Venezuela, Indonesia, Malaysia, Turkey, Thailand and Vietnam.
The BRICS are part of an emerging Global South that is challenging the Collective West for world economic and geopolitical dominance.
The BRICS Currency Defined
The subject of a BRICS currency is confusing to most observers and is a fraught topic even for many experts. We’ll call the potential currency a BRIC for convenience, although no formal name has been announced.
The BRICS currency is very far along in establishing itself as a viable payment currency. The prerequisites are: agreed-upon value (which can be fixed to another currency, floating or pegged to a weight of gold), secure payments channels (basically high-speed, encrypted digital pipes for authenticated message traffic), digital ledgers and an agreed issuer (the NDB based in Shanghai may be suitable for this purpose, but another institution could be created).
The single most important element is a sufficiently large membership in the BRICS currency union such that a recipient of BRICS payments can use them for purchases in many jurisdictions for many goods and services.
This last point is where most alternative currency payment arrangements fall down. Russia can sell oil to China for CNY (which they are currently doing), but they are constrained in terms of where they can spend the CNY (basically limited to Chinese manufactured goods and semiconductors).
The same issue arises when Russia sells oil to India (for rupees) or weapons to Iran (for rials). The seller is limited in terms of what they can buy with the trading partner’s currency.
This constraint goes away in a currency union with 15 or 20 members or more. If Russia earns BRICs from China, they can buy Embraer aircrafts from Brazil or semiconductors from Malaysia.
For that matter, the use of a payment currency in a multi-member currency union is not limited to members. With access to the payment channels, non-members can nevertheless agree to receive the BRICS currency in payment, confident in their ability to spend it among the other BRICS members who are trading partners.
The proof of this is the eurozone, which is currently a 20-member currency union with a single central bank and worldwide acceptance of the euro.
New Developments to Watch
There are several interesting developments taking place. The first is that the U.S. is squandering its rule-of-law advantage with sanctions on Russia, the freezing of the assets of the Central Bank of Russia and efforts to actually steal those assets and convert them into a $50 billion loan to Ukraine using structured finance.
Given this rogue behavior by the U.S., countries are becoming more cautious about large U.S. Treasury note reserves. This may account in part for the recent rally in the price of gold.
The second is that the BRICS summit in Kazan, Russia in late October will announce significant progress in building out secure payment channels and will admit new members, which will drive the group closer to the critical mass needed to launch a currency union.
None of this happens overnight. It’s helpful to recall that the euro took almost 10 years to launch from the Maastricht Treaty in 1992 to the actual creation of the euro in 2000.
I worked closely with Alberto Giovannini in the late 1990s. He was one of the leading economists and scholars who helped create the euro. I was quite familiar with the technical hurdles to creating a new currency, especially the determination of the exchange rates at which Deutsche marks, lira, francs and other member currencies would be converted to euros.
A Linkage to Gold
It will take years to develop a BRICs-denominated bond market, although the process could be accelerated if BRICS members offered bonds directly to their own citizens as retail investors.
There is a short path to making the BRICs a viable reserve currency — gold. Members of the BRICS currency union could use surplus BRICs to buy gold bullion to hold in their reserves.
Russia, China and South Africa are all major gold producers and China has an extensive network of refineries so there should be ample gold available for purchase. When needed for purchases or settlements, the gold could be easily sold for BRICS currency. The common thread in these and other solutions is that they obviate U.S. dollar transactions.
It will still take a few years to add members, build out the infrastructure and firm up some valuation issues. Still, this currency is coming.
Even as a payment currency, the BRICS unit could be used in a material percentage of global trade giving the dollar a run for its money. The BRICS unit does not mark the end of the dollar as a widely accepted currency.
Still, in conjunction with the badly misguided weaponization of the dollar, it could mark the beginning of the end.
Slowly, then suddenly, said Hemingway about how men go bankrupt. The same could apply to the dollar.
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>>> Turkey's 'balancing act' with BRICS may stoke NATO fears, but the West needn't be too worried, analysts say
Business Insider
by Rebecca Rommen
https://www.msn.com/en-us/news/world/turkey-s-balancing-act-with-brics-may-stoke-nato-fears-but-the-west-needn-t-be-too-worried-analysts-say/ar-AA1qBXAC?ocid=BingHp01&cvid=92911539566d4f97bdef8bdcb3b2987a&ei=25
A spokesperson for Turkey's ruling party said that a process was "underway" for Turkey to join BRICS.
The current BRICS bloc of emerging-market nations includes countries such as Russia, China, and Iran.
Turkey would be the first NATO country to join the group.
Earlier this month, a spokesperson for Turkey's ruling AK Party said that a process was "underway" for Turkey to join the BRICS group of emerging-market nations.
"Our president has stated at various times that we want to be a member (of BRICS)... Our request on this issue is clear. This process is underway in this framework, but there is no concrete development on this," Omer Celik told reporters in Ankara, the Turkish capital, per Reuters.
The BRICS group, named after members Brazil, Russia, India, China, and South Africa, was formed to challenge the political and economic power of developed Western nations.
Since its first informal meetings in 2006, when it was known as just BRIC, the bloc has grown to include Ethiopia, Iran, Egypt, and the United Arab Emirates. Saudi Arabia was also invited to join, but a Saudi official said in January it had yet to do so.
Should Turkey now join the bloc, it would become its first NATO member and EU candidate, potentially complicating ties with the West and raising questions over Turkey's commitment to the military alliance.
Turkey's relationship with NATO has already come under strain due to the country's continued ties with Russia in the wake of the latter's invasion of Ukraine, as well as its efforts to seek improved relations with China.
Such moves seem to reflect Turkish President Tayyip Erdogan's desire to establish the country's independence through shifting foreign policy. He now appears to be seeking to maintain what experts have dubbed a "balancing act" between its relations with the West, Russia, and China.
"Turkey is seeking alternatives. It does not want to leave its NATO membership. It does not want to shed its European aspirations. But it wants to diversify its set of alliances, hedge its bets, so to speak," Asli Aydintasbas, a visiting fellow in the Center on the United States and Europe at the Brookings Institution, told France 24. "It no longer sees its NATO membership to be the sole identity, its sole foreign policy orientation."
Aydintasbas said that Erdogan saw successful strategy as having "a foot in different camps," adding that he wanted to "be able to play off the West against Russia, the West against China."
"I think that he has come to skillfully play this geopolitical act," she said, but noted that he had sometimes pushed his "geopolitical balancing" too far.
One particular flash point came when Turkey acquired the Russian S-400 air-defense system in 2019, instead of NATO-made equivalents.
In 2020, the US said it had repeatedly made it clear to Turkey that the purchase of the S-400 system "would endanger the security of U.S. military technology and personnel and provide substantial funds to Russia's defense sector, as well as Russian access to the Turkish armed forces and defense industry."
Turkey's decision to push ahead with the deal eventually led to it being kicked out of the US's F-35 program, as well as a number of US sanctions.
Nevertheless, Bulent Aliriza, a senior associate of the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies (CSIS), told BI that he did not think that BRICS was "going to compete with NATO and with Turkey's other Western links."
"But it is a statement of, I would say, unhappiness with some aspects of their relationship with the West," he said. "Even if Turkey does join BRICS, I do not believe it is going to lead to a fundamental redefinition of Turkey's relationship with the West."
Yusuf Can, the Coordinator for the Middle East Program at the Wilson Center, has also argued that Turkey's "strategic diversification should not alarm NATO allies," saying that they "could benefit from a partner" in such circles.
"Understanding and collaborating with Turkey's perspective can enhance US and NATO relations with Turkey, irrespective of potential administrative changes in Ankara," Can wrote in an article for the Wilson Center.
Can noted that an improved US-Turkey partnership could also help secure crucial strategic regions, such as the Black Sea — which has been at the center of the Russia-Ukraine war.
"Economically, strengthened US-Turkey relations can benefit the EU by fostering investments in new trade routes," Can added.
Aliriza agreed that the West could find a way to benefit from the situation.
Speaking about Turkey's potential BRICS membership, Aliriza told BI: "It doesn't necessarily have to become a problem for the West, but it can, in fact, benefit the West if Turkey and its Western partners can have an open and honest dialogue about how to move forward."
"It still remains a member of the Council of Europe. Most of its trade is still with the West. And in terms of investment, although there's been a lot of speculation that there might be Chinese investment in Turkey, most of the foreign investment in Turkey, either FDI or short-term funds coming in seeking profit from high interest rates, has come from the West," he said.
For its part, the US has remained relatively quiet following the news that Turkey's BRICS ambitions may be inching forward, which Aydintasbas said was likely a savvy move aimed at avoiding a public dispute.
"Washington is keeping quiet," she told France 24. "It does not want a public, high-profile spat with Turkey, and it knows that President Erdogan is unpredictable."
The BRICS group is set to hold a summit in Kazan, Russia, from October 22 to 24.
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>>> Sino-French satellite launched into orbit, China's CCTV says
by Reuters
6-22-24
https://www.msn.com/en-us/news/world/sino-french-satellite-launched-into-orbit-china-s-cctv-says/ar-BB1oHazN?OCID=ansmsnnews11
SHANGHAI/BEIJING (Reuters) - A satellite developed by China and France, the most powerful yet for studying the farthest explosion of stars, was launched into orbit on Saturday, Chinese state broadcaster CCTV reported.
The satellite to study phenomena including gamma-ray bursts was lifted into orbit by a Chinese carrier rocket launched from the Xichang Satellite Launch Center in the southwestern province of Sichuan, CCTV said.
The launch of the Space Variable Objects Monitor will play an important role in astronomical discoveries, the broadcaster said, citing the China National Space Administration.
It is the first astronomy satellite developed by China and France, although they developed the China-France Oceanography Satellite, launched in 2018, China Daily reported in April.
China's advances in space and lunar exploration are rapidly outpacing those of the United States, attracting partners from European and Asian countries as a result.
China's Chang'e-6 lunar probe this month carried to the far side of the moon payloads from the European Space Agency, as well as from Pakistani, French and Italian research institutes.
China is working with countries including Brazil, Egypt and Thailand to develop and launch satellites.
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Rickards - >>> Dollar Takes a “Pounding”
BY JAMES RICKARDS
JUNE 24, 2024
https://dailyreckoning.com/dollar-takes-a-pounding/
Dollar Takes a “Pounding”
You’ve probably heard that the U.S. economy is heavily “financialized.” What does that really mean? What is financialization?
It’s a big topic and not very well defined. It can refer to the dominance of financial activity over traditional business activity in goods and services. It can refer to market bubbles. It can refer to the use of financial instruments in non-traditional arenas such as warfare or political witch hunts.
In fact, it refers to all the above and more. Investors need to understand financialization in order not to be blindsided by market activity that defies fundamental analysis.
We can begin our review of financialization with a look at the role of the U.S. dollar in global transactions.
This is not a technical article detailing the plumbing of the financial system. But in considering the role of currencies in global finance, it’s important to distinguish between reserves (basically a nation’s savings account) and payments (transactions, trade, etc.).
The Dollar Still Dominates
The denomination of global reserves today is approximately:
58% U.S. dollars and 20% euros
The remaining 22% is divided among yen (6%), sterling (5%), Canadian dollars or CAD (2.5%)
And other currencies are each less than 2% (AUD, CNY, CHF).
In payments (measured in SWIFT message traffic), the U.S. dollar is about 59% of payments, with the euro at 13%, yen at 6%, sterling at 5% and yuan and CAD at about 3% each. All other currencies are less than 3% each.
The relatively larger role of the dollar in payments is due to higher oil prices and oil being denominated in dollars. SWIFT message traffic is almost exclusively interbank payments among large banks. There are many bilateral payments (for example, Russian payments to India in local currencies) that do not go via SWIFT.
There is no immediate threat to the role of the U.S. dollar in either reserves or payments.I recently debunked the fake news that Saudi Arabia has just ended the petrodollar deal that’s been in place since 1974.
Instead there’s a slow, steady erosion in the role of the dollar that could accelerate in the future. A good case study is the decline of sterling. In 1914, it was the dominant reserve and trade currency. By 1944, it had largely been displaced by the U.S. dollar as a result of Bretton Woods.
Slow Death
Today, sterling is barely a footnote in global reserves and payments. Still, that decline took 30 years (1914–1944) and continued for another 80 years (1944–2024). Major currencies don’t simply disappear overnight, but they are subject to these types of declines and gradual displacement by alternatives.
Contrary to what you hear from a lot of fringe analysts, the Russian ruble and Chinese yuan will not displace the U.S. dollar. Neither currency is widely accepted outside its home country. Those currencies have limited uses and lack large liquid bond markets, and their source countries lack a rule of law. Notions of a “gold-backed yuan” are nonsense. China simply doesn’t have enough gold.
A BRICS currency is a more likely alternative to the dollar for global payments. It won’t be issued for several more years. The BRICS are currently expanding their membership and will expand it further at their summit in Kazan, Russia in October.
That’s critical because a larger membership increases the trading zone where the currency can be used. Non-BRICS members can also agree to accept the new BRICS currency if they wish.
If you receive the BRICS currency in trade, it’s more useful if you can spend it or invest it in 20 or 30 other countries rather than just one trading partner as is the case with rubles, yuan and rupees.
This process of expanding the currency zone with new members will take a few more years, but the infrastructure is being put in place now. The development of the euro (which took eight years from the 1992 Maastricht Treaty to launch in 2000) is a good model for this.
The Great Leap to Reserve Status
While a BRICS currency will be used in trade in a few years, it will take longer to develop as a reserve currency. That requires the creation of a large, liquid bond market, which takes a legal code, issuers, dealers, settlement channels, hedging tools and much more. That process can take 10 years or longer.
What we should expect is not a sudden collapse of the U.S. dollar and the U.S. Treasury market in payments and reserves, but rather a slow, steady diminution in the role of the dollar similar to what happened with sterling after World War I.
In the short run, the main alternative to the U.S. dollar in reserve positions is not another currency, but gold. Central banks have been net purchasers of gold since 2010, reversing their status as net sellers that had prevailed since 1970.
These net purchases of gold are reflected in increases in gold as a percentage of total reserves. Gold now represents over 70% of U.S. reserves, 25% of Russian reserves and 8% of Chinese reserves.
Curiously, gold isn’t even reported in the IMF’s official reserve asset reports, despite the fact that the IMF itself owns over 1,000 metric tonnes of gold. Gold has the added attraction of being a physical, non-digital asset that cannot be frozen or seized by the United States.
The Weaponized Dollar
The most conspicuous example of financialization is the use of financial sanctions in warfare. This might better be called the weaponization of the dollar. U.S. sanctions against Russia have failed badly (as I predicted in 2022) to the point that the Russian economy is now outperforming the U.S. economy by every important metric. The U.S. hasn’t learned its lesson and is moving to more dangerous methods.
The U.S. froze Russian assets (about $300 billion in U.S. Treasury securities) at the start of the war in Ukraine. Now the U.S. is moving to steal those assets. This plan was recently unveiled on June 13 at the G7 summit in Apulia, Italy.
Russia will retaliate by seizing over $300 billion of Western assets still in Russia. Since the Russian assets are mostly in custody at Euroclear (about $200 billion), Russia can sue Euroclear for wrongful conversion in Russia-friendly jurisdictions where Euroclear has offices including Dubai and Hong Kong.
Euroclear has about $40 trillion in assets under custody. With a court judgment in hand, Russia could proceed to freeze and seize Euroclear assets on a global basis. This could throw the global financial system into complete chaos.
Financialization in its many forms is no longer a sideshow. It has become the main event in many arenas. Investors need to follow developments closely in order not to get caught in the political and military crossfire.
You need to take cover.
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>>> Russia’s Richest Woman Gets Putin’s Nod to Build Payments System
Bloomberg News
Jun 21, 2024
https://finance.yahoo.com/news/russia-richest-woman-gets-putin-101057770.html
(Bloomberg) -- Tatyana Bakalchuk made billions selling everything from brooms to bridal gowns on her online marketplace. Now Russia’s richest woman is making a surprise pivot: to helping insulate the economy from sanctions by building an alternative to the global payment system major Russian banks were excluded from.
Bakalchuk’s Wildberries — Russia’s answer to Amazon — is starting a venture with Russ Group, the nation’s biggest outdoor advertiser, to build a digital market to help small and medium-sized businesses promote and export their products, the company said this week. They also plan to create a payments platform that may offer a substitute for the dominant cross-border network, known as Swift, according to two people close to the Kremlin who declined to be identified.
The effort has been personally approved by President Vladimir Putin, who chose Maxim Oreshkin, deputy head of the Kremlin’s administration, to supervise it, the people said, asking not to be identified. There are no guarantees that the payment system will be successful, one of them said. Putin spokesman Dmitry Peskov said by text message that the president has ordered officials to consider Wildberries’ and Russ’s digital platform project, but that there aren’t any details yet.
Swift is the main messaging network through which international payments are initiated. Created in the 1970s, it links some 11,000 institutions across more than 200 countries and territories. The US and European Union sanctioned Russia’s key lenders after the Ukraine invasion, cutting them off from Swift and forcing Russia to use other payment options for imports and exports.
Wildberries declined to comment on its plan for a payments system.
Bakalchuk — who isn’t viewed as close to the Russian president — spoke at his flagship economic forum in St. Petersburg earlier this month and said she believed that private business in Russia has a future and is developing, although state support is required.
“Bakalchuk understands very well that the crisis is the time of opportunities,” said Alexandra Prokopenko, a fellow at Carnegie Russia Eurasia Center. “She’s seeking to expand the business to protect it, to become too big to fail and more visible to the Kremlin.”
Her own wealth has grown in the wake of the Ukraine invasion, swelling by around 40% to $8.1 billion, according to the Bloomberg Billionaires Index, as fiscal stimulus boosted consumer spending.
The value of products sold on Wildberries rose 50% to 2.5 trillion rubles ($28 billion) last year, with a growing ratio of domestic goods. In emailed comments, Wildberries’ press office credited the popularity of online shopping as well as the development of its platform, including its expanding infrastructure and discounting.
Western Exodus
The exodus of western retailers like Ikea, H&M and Levi’s also helped. While Russian producers stepped in, Wildberries and its rival Ozon also helped shoppers access US and European brands that had officially left. Moscow introduced legislation permitting products to be imported into Russia without the trademark holder’s agreement, enabling Wildberries and Ozon to sell nearly everything they could before the war.
“I often have no idea if a brand has left Russia or not,” said Elena, 35, an interior designer based in the Moscow region who asked that her last name not be used to protect her identity. “If I need something, I simply search for it on Wildberries and buy it.”
She can still find Ikea items on Wildberries, even though the company abandoned the market and its plants in 2022. Even her 79-year-old grandmother uses the service, she said.
The war has helped bolster consumer spending, as well. The Russian government’s annual budget outlays, including military and social, rose by a third last year compared with 2021, while mobilization, the flight of many Russians abroad and a drop in foreign workers have created a massive labor shortage.
That has spurred growth in wages at a pace last seen before the 2008 financial crisis, and increased consumers’ capacity to shop, said Sofya Donets, an economist at T-Investments. “This brought entire groups of people into a higher category of wealth and consumption.”
Online shopping has extended its Covid-era expansion, growing 45% last year to 8.3 trillion rubles, according to INFOLine research. Controlling more than half of the market, Wildberries and Ozon have been the winners.
“Wildberries was one of the pioneers of the Russian e-commerce market,” said Marat Ibragimov, an analyst at Gazprombank, adding that its strength was in offering good terms for suppliers and a wide range of products at low prices for customers.
Bakalchuk started the company in 2004 as a place for people on a limited budget with little time for shopping. She ordered clothes in bulk from a German mail-order catalog, scanned the pictures, and posted them on her website. She delivered products herself rather than using the postal service, which was unreliable.
Sanctioned by Ukraine
Unlike billionaires who made their fortunes in the chaotic privatizations of the nineties or flourished in the early 2000s under Putin, Bakalchuk has never had a one-on-one meeting with the Russian president, and hasn’t been sanctioned by Washington or Brussels.
She was sanctioned by Ukraine, however, before the Kremlin’s 2022 invasion, because Wildberries sold an array of Russian nationalist-themed products, such as military uniforms and t-shirts praising Putin. That forced her to wind down the Ukrainian business.
Bakalchuk’s project with Russ Group aims to widen her outreach to Russia-friendly neighbors and countries of the so-called Global South, including China and India, according to the statement from Wildberries. It may help boost Russian GDP by 1.5% a year, RBC media reported, citing unidentified people familiar with the plan.
Still, creating a payments system may increase Bakalchuk’s risk of coming under US or European sanctions as Ukraine’s western allies have targeted other Russian financial services, including the Mir payment system and the central bank’s Swift-equivalent, called SPFS.
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Rickards - >>> Did the Saudis Just Kill the Dollar?
BY JAMES RICKARDS
JUNE 17, 2024
https://dailyreckoning.com/did-the-saudis-just-kill-the-dollar/
Did the Saudis Just Kill the Dollar?
There’s been a lot of talk over the past several days that Saudi Arabia is ending the petrodollar deal it’s had with the U.S. for 50 years. This story has been highly exaggerated. Today I want to address the misinformation you’re seeing right now, and show you what really happened.
News services of dubious accuracy reported that Saudi Arabia had ended the petrodollar deal on June 9, after 50 years. This report was quickly followed by claims that oil would now be priced in everything from Chinese yuan to Indian rupees, Russian rubles and other currencies without strong claims to being reserve currencies.
The implication of these stories was that the U.S. dollar’s long reign as the leading global reserve currency was over. New reserve currencies would come to the fore, most prominently the BRICS planned currency.
The crypto crowd wasn’t far behind shouting that the demise of the dollar proved that cryptocurrencies were the way of the future. The internet was on fire with these and other histrionic claims.
Don’t Buy It
In fact, almost everything you just read is nonsense. There have been some very important developments in international finance and monetary policy in recent days but they’re far more nuanced and ultimately more important than stories grabbing the headlines.
As the saying goes, it’s complicated. Let’s deconstruct what’s actually going on.
The petrodollar deal was concluded in June 1974 under the Nixon administration. It was a tense time following the 1973 Yom Kippur War and the Saudi oil embargo of exports to the U.S.
I played a role in the run-up to the deal when I went to the White House to meet with Helmut Sonnenfeldt, Henry Kissinger’s most trusted aide. We discussed a plan to invade Saudi Arabia in case the Saudis didn’t agree to what the Nixon administration had put on the table.
The deal had four main parts.
The Petrodollar Deal
Saudi Arabia would price oil in U.S. dollars. Saudi Arabia would take the dollars it earned through oil sales and invest them in U.S. Treasury securities or in large bank CDs. The Treasury and the banks would lend those dollars to developing economies that would purchase equipment and agricultural products from the U.S. Finally, the U.S. offered Saudi Arabia military protections against the Soviets and regional rivals. The security agreements and the financial agreements were put into writing but have never been revealed.
The petrodollar deal was a win-win for the participants and the world. The U.S. found a reliable prop for the dollar’s reserve currency status (since other countries would need dollars to buy their own oil) and Saudi Arabia enhanced its national security.
Recycling the Saudi dollars to developing country buyers was a boost to world trade and commodity prices and helped pull the world out of the severe 1974 recession. At the Saudi’s request, the U.S. kept a veil of secrecy over the exact amount of Treasuries owned by Saudi Arabia; their holdings were lumped in with other OPEC members from the region and were not reported separately.
Did the Saudis just end the petrodollar deal as reported? Not exactly.
Less Than Meets the Eye
The deal was never a formal treaty ratified by the Senate, which would rise to the level of law. It was a non-binding executive agreement; not much more than a written handshake. It contained annual renewal provisions and could be terminated at any time by either party.
The Saudis held up their end by pricing oil in dollars and buying U.S. Treasuries. The U.S. held up its end by sending troops and repelling Iraq’s invasion of Kuwait in Operations Desert Shield and Desert Storm in 1990–91. The agreement suited both sides and so it continued.
The agreement never had an explicit “expiration date” so reports that the deal has expired are overstated. The Saudis have notified the U.S. that they’re not extending the deal, but that decision has to be put in the context of other U.S.-Saudi discussions.
The U.S. and Saudi Arabia are currently in negotiations on a new financial and security arrangement that would supersede the old petrodollar deal. The new agreement will provide that Saudi Arabia will recognize Israel as part of the broader Abraham Accords initiated during the Trump administration.
The U.S. will continue to offer security protections to the Saudis, but those will be expanded to include uranium enrichment technology. Ostensibly this technology would be used to fuel nuclear reactors but might later be used to build nuclear weapons. Saudi Arabia wants this technology because it feels threatened by Iran’s own uranium enrichment capability.
Not Much Is Different
On the financial side, Saudi Arabia would continue to price oil in dollars but could agree to be paid in other currencies, primarily euros, as is the case today. The Saudis would continue to purchase Treasury securities alongside its holdings of gold.
In short, not much would change from the current petrodollar deal except for the enhanced security guarantees.
The reason Saudi Arabia allowed the existing deal to lapse was to gain leverage in the new negotiations and because the old deal would be replaced by the new deal in all events.
The new deal will not be completed for six months, perhaps longer. It’ll be handed off from the Biden administration to the new Trump administration in January 2025 if Trump wins the election, which I believe he will.
The reason for the delay is that Saudi Arabia cannot recognize Israel until the Gaza War is over. That’ll take a few more months at least. There’s an irony there because the Trump administration created the Abraham Accords and may be the one to complete the process by including Saudi Arabia under that umbrella.
That’s a summary of what’s going on. Here’s what’s not going on…
Not a Dollar Death Blow
Oil will not be priced in rupees, rubles, yuan or other emerging-market currencies except in very small quantities. About 20% of oil purchases today are in euros and that can be expected to continue.
The new arrangement between Saudi Arabia and the U.S. doesn’t mark the end of the dollar as the world’s leading reserve currency. It doesn’t imply the collapse of the global market in U.S. Treasury securities, which a lot of people have been claiming in recent days.
The oil and dollar markets will be business as usual. Ties between the Saudis and the U.S. will be even closer because of the nuclear enrichment aspect of the new deal.
None of which is to say that there have not been important developments in international financial and monetary markets away from the Saudi situation. There have.
In particular, there were major policy initiatives announced at the St. Petersburg International Economic Forum (SPIEF) hosted by Vladimir Putin from June 5–8.
Incremental Steps
Russia announced they were working with other BRICS+ members to develop a global payments system completely independent of existing Western systems including SWIFT, Fedwire and other clearinghouses.
That’s critical because payments through Western systems are subject to seizure and interdiction, whereas payments through an independent system should be safe from Western interference.
Putin also met with Dilma Rousseff, former president of Brazil and current president of the New Development Bank, which is a de facto central bank and development lender to the BRICS+ and associated members.
That meeting was to discuss the roll-out of the new BRICS currency. It will be called the Unit and its value will be based on a weight of gold (40%) and a basket of BRICS+ currencies (60%).
The key to implementation of the BRICS currency plan is an expansion of the membership. A bilateral currency arrangement between two weak emerging markets will never be successful because there’s not much for the seller of goods to buy once it receives the currency.
But a currency union with 20 members or more using the Unit can be successful because the seller of goods can “go shopping” in many other markets and is likely to find goods or services that meet its needs. The success of the euro with 20 members and worldwide acceptance is the model for this.
The Unit won’t be launched for another year or longer although some formal announcements may come at the BRICS leaders’ summit in Kazan, Russia, this October. It’ll still take a few years to add members, build out the infrastructure and firm up some valuation issues. Still, this currency is coming.
Not a Reserve Currency
Importantly, the BRICS Unit will initially be a payment currency, not a reserve currency. Payment currency arrangements are fairly straightforward. Reserve currency status is far more difficult because it requires a large, liquid bond market; good rule of law; and an infrastructure of dealers, hedging tools, repurchase agreements, auctions and settlement procedures.
That can take 10 years or longer to put in place with rule of law perhaps being the most difficult element.
Even as a payment currency, the BRICS Unit could be used in a material percentage of global trade, giving the dollar a run for its money. The BRICS Unit doesn’t mark the end of the dollar as a widely accepted currency.
Still, in conjunction with the badly misguided weaponization of the dollar by Joe Biden and Janet Yellen it could mark the beginning of the end.
The latest Saudi action won’t destroy the dollar. The Biden administration seems determined to accomplish that all by itself.
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>>> BRICS Making Good Progress On Their Golden Path
Forbes
by Nathan Lewis
Jan 24, 2024
https://www.forbes.com/sites/nathanlewis/2024/01/24/brics-making-good-progress-on-their-golden-path/?sh=65db623c549b
After tossing around a few bad ideas, the BRICS countries have settled on using gold as the basis for international exchange, a role previously taken by dollars and euros. This does not mean today’s floating fiat ruble, real, or rand is going anywhere soon. Rather, just as the US dollar was used alongside those domestic currencies in the past, today and in the future gold will be more commonly used.
There would not be very much trade in actual gold coins — just as there is not much trade in actual dollar bills. Indeed, gold doesn’t work very well for this hand-to-hand exchange at all, since even small coins tend to be of very high denomination, worth $200 or more. Rather, it means that people around the world will increasingly use various vehicles — such as bank accounts, bonds, loans and cryptocurrencies — denominated in gold, just as they use the very same set of tools today, but denominated in dollars.
Already, some BRICS members — including Russia and newcomer Iran — have been basically banned from the dollar system. They literally cannot hold a “dollar.” They have no dollar “wallet.” For example, they cannot have a bank account, with a bank in the Federal Reserve clearing system. Other countries, including China, are eager to set up alternative systems, because they suspect that what happened to Russia and Iran could be done to them too. More countries, seeing where this is going, are making sure they have a seat at the table, for business opportunities alone. This could include former US allies such as Saudi Arabia, which joined the BRICS in January.
The most fundamental international role that the USD (or EUR) takes today is as a “currency of currencies” in foreign exchange. For example, let’s say that someone in Peru wants to buy some wool from New Zealand. There is no “bilateral exchange” between the currencies of Peru and New Zealand. Rather, there is a market between Peruvian soles and USD; and USD and New Zealand dollars. The same thing is seen on cryptocurrency exchanges, where there is no direct market between DogecoinDOGE 0.0% and Shiba Inu. Rather, there is a DOGE/USD (or USDTUSDT 0.0%, or maybe BitcoinBTC 0.0%) market, and a SHIBSHIB 0.0%/USD market. On the stock market, it might be MSFT and NVDA. Obviously, if you are unable to hold and make payments in this intermediary currency, in this case the USD, then you can’t exchange your PEN and NZD; or DOGE and SHIB.
There have been some steps toward “bilateral exchanges,” for example between Russian rubles and the Indian rupee. However, with 25 currencies, you end up with (N)(N-1)/2 = 300 bilateral exchange markets. Basically, it is currency barter. Also, most markets would have very little liquidity. Someone wanting to exchange PEN and NZD would have to wait for someone else to who wants to exchange NZD and PEN; and in the same size. Not going to work.
Already, major Russian banks including Sberbank have taken steps to provide such a universal currency, based on gold. A Sberbank launched a cryptocurrency stablecoin based on gold in December 2022. A more promising development, to my mind, has been the introduction of “gold checking accounts” in Russia. You can send digital grams of gold to various accounts — accomplishing what GoldMoney set out to do in 2001. The advantage here is that banks already have all the necessary infrastructure for checking accounts; adding a gold denomination is a minor extra step.
The next step would be to set up a foreign exchange market — that is, bids, asks, and some way to transact — using these gold checking accounts as the central unit, the role the USD usually takes today. Instead of RUB/USD and USD/INR, you would have RUB/BGD (”BRICS Gold”), and BGD/INR, probably hosted by an institution like Sberbank, here taking the role that Coinbase performs for cryptos. It seems, however, that Russians, Indians and so forth are not very good at financial engineering. They are awesomely good at aerospace and defense engineering, but this seems to leave them stumbling and bewildered. But, it’s not really that hard. If Sam Bankman-Fried can do it, one of those ace Chinese, Indian or Russian engineers can manage to set up a simple currency exchange market.
This basic plumbing of payments serves as a foundation for more interesting developments. Around the world, major companies, and even governments, finance in USD and EUR. They issue USD and EUR bonds, for the simple reason that there are a lot of people that want to buy USD bonds, but not RUB bonds, or BRL bonds — even in Russia and Brazil. Major Russian companies like Gazprom and Mobile Telesystems issued billions of dollars of USD and EUR bonds. In 2Q23 alone, $615 billion of USD bonds, and 443 billion of EUR bonds, were issued by international issuers worldwide. Plus, bank loans in USD and EUR. If companies like these are unable to issue USD or EUR bonds in the future, how will they finance themselves?
The obvious solution is gold bonds. In 2023, the government of India began experimenting with gold-based government bonds. These would probably be very popular with investors worldwide. From the start of the Floating Fiat era in 1971, to the present, a gold bond paying 4% would have outperformed all stock and bond markets worldwide. That outperformance would probably only get larger going forward.
A gold bond of this sort might be administered in Indian Rupee. Basically, a bond for “100 kilograms” would be purchased for the INR equivalent of 100 kilograms of gold at the time of issue. Interest and principal would be paid in INR equivalents to gold at that time. Brazil issues such “dollar-linked bonds” today. But, it would be better just to use gold itself as the payments basis. Payments related to the bonds would be made using something like the “checking accounts in gold” described earlier.
I would guess that not until long after a system of the “international use of gold” has been established, for example including gold-bond-based financing in large size, would we see movements toward getting rid of today’s floating fiat domestic currencies. Once a company, or government, is liable to pay bonds in gold, it makes sense to also denominate revenue in gold, or there could be a disastrous liabilities mismatch. Then, we might see a broad movement to organize all BRICS currencies on gold, much as the United States organized at Bretton Woods in 1944.
A lot of progress has been made down this path since the beginning of 2022. But, it has been clumsy, halting and hesitant. These things are not really that hard; and the benefits are great. There doesn’t seem to be much “financial engineering” talent in China or Russia. But, if they took some of those exemplary aerospace or electronics engineers, and applied them to the task, I think they would figure it out pretty quickly
Nathan Lewis
Fellow of the Wealth and Poverty program at the Discovery Institute.
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>>> India is drawing lessons from Ukraine to counter China's military might
Business Insider
by Michael Peck
4-29-24
https://www.msn.com/en-us/news/world/india-is-drawing-lessons-from-ukraine-to-counter-china-s-military-might/ar-AA1nSzBK?ocid=ansmsnnews11&cvid=d374c3387ce34639982d44801979bd95&ei=3
India is trying to modernize its military of 1.5 million people with lessons from Ukraine.
Until recent years, Russia supplied India with many weapons such as tanks and jets.
India is upgrading its artillery and switching to 155mm howitzers, the NATO standard.
As India boosts defense spending amid tensions with China and Pakistan, it is closely studying the Ukraine conflict for clues to the future of warfare and how to thwart its neighbors.
Some lessons that Indian experts have already drawn: India needs lots of artillery, drones and cyberwarfare capabilities.
Comparing Ukraine to India is tricky. Ukraine faces one major enemy — Russia — while India must contend with its old enemy Pakistan to the west, and an increasingly powerful China on its northwest frontier. The Russo-Ukraine war is mostly being fought over an Eastern European landscape of plains and forest, with a moderately good road network suitable for mechanized warfare. India must prepare for combat in a variety of terrain and climate conditions, including desert, jungle and some of the tallest mountains on Earth.
India is also trying to modernize and standardize equipment for its armed forces, which comprise about 1.5 million personnel armed with a potpourri of equipment from several nations, as well as indigenous Indian gear. Until recent years, Russia supplied many weapons such as tanks and jets, but India is increasingly acquiring arms from Western nations, including American howitzers, French jet fighters, and Israeli drones.
The Indian Army's artillery, for example, includes more than 3,000 weapons and multiple rocket launchers, including Russian, American, Swedish and South Korean designs. Indian observers believe Ukraine shows the importance of having plentiful and modern artillery. Artillery has arguably become the decisive combat arm in that war, with Russian firing 10,000 shells per day and advancing, while a munitions shortage has limited Ukraine to around 2,000 shells per day. This deluge of firepower has forced both armies to dig in, and turned the conflict into trench warfare.
"Looking at the demonstration of artillery fire in the ongoing Russia-Ukraine war, two lessons are available to the Indian Army," wrote Amrita Jash, an assistant professor at the Manipal Academy of Higher Education, in a report for the Observer Research Foundation, an Indian think tank. "First, that firepower can be a 'battle-winning factor,' and second, that the time between acquiring the target to shooting has drastically reduced: where it once took five to 10 minutes, it now takes only a minute or two."
Indeed, India already planning to modernize its artillery arsenal, including switching to 155-mm howitzers — the standard NATO caliber — and developing longer-range shells and rockets.
The air war over Ukraine has proven to be a surprise, especially given Russian superiority in numbers of aircraft and technology. Anti-aircraft missiles have deterred the air forces of both sides from venturing into enemy airspace, with Russian aircraft limited to firing stand-off missiles at Ukrainian cities rather than providing air support for its ground troops. Drones have become the stars and workhorses of the air war, with both sides deploying — and losing — drones in the hundreds of thousands.
There are lessons here for Indian airpower, according to Arjun Subramaniam, a retired Indian Air Force air vice marshal who helped write the ORF report. India must prepare for "gaining control of the air in limited time and space conditions in a short, high-intensity limited conflict as well as in a longer, protracted conflict." The Air Force must also ensure that its plans are synchronized with ground and naval forces. India should also continue to focus on suppressing enemy air defenses, "particularly against an adversary that is more interested in denying rather than controlling the airspace."
Not surprisingly, Subramaniam wants the Indian military to increase drone development and production. But he is also concerned about the possibility of a mass drone attack on India. "Of greater importance is the need to rapidly develop counter-drone capabilities that would be essential in responding to large-scale surprise attacks and retain effective second-strike capabilities," he wrote.
Cyberwarfare has also emerged in Ukraine as a crucial tool in everything from hacking into military computers and critical infrastructure to purveying propaganda and deepfakes in global media. ORF researcher Shimona Mohan noted "the increasing role of largely civilian organizations like big tech in conflict situations and the deepening interplay of civil-military partnerships around dual-use technologies like AI."
Mohan recommends that India invest in cyberwarfare, as other nations are doing. "However, if this is not feasible for socio-political or economic reasons, it should be a priority for countries to ensure that their strategic geopolitical allies are formidable tech powers—for instance in this war, Ukraine received much support from its more tech-savvy partners like the US and private tech companies."
Michael Peck is a defense writer whose work has appeared in Forbes, Defense News, Foreign Policy magazine, and other publications. He holds an MA in political science from Rutgers Univ. Follow him on Twitter and LinkedIn.
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BRICS members -
https://en.wikipedia.org/wiki/BRICS
Brazil
Russia
India
China
South Africa
Newest members (Jan 2024) -
Egypt
Ethiopia
Iran
United Arab Emirates
Countries that have applied for BRICS membership -
Algeria
Bahrain
Bangladesh
Belarus
Bolivia
Cuba
Kazakhstan
Kuwait
Pakistan
Palestine
Senegal
Thailan
Venezuela
Vietnam
Nigeria
Countries considering applying for BRICS membership -
Afghanistan
Angola
Comoros
DR Congo
Gabon
Guinea-Bissau
Libya
Myanmar
Nicaragua
South Sudan
Sudan
Syria
Tunisia
Turkey
Somalia
Uganda
Zimbabwe
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>>> How Xi Jinping is challenging dollar dominance with landmark Saudi deal
The Telegraph
by Melissa Lawford
December 24, 2023
https://finance.yahoo.com/news/xi-jinping-challenging-dollar-dominance-120000057.html
When Xi Jinping visited Riyadh, Saudi officials rolled out not a red but a purple carpet.
The Chinese president’s plane was escorted by Saudi jets spurting green and white smoke to symbolise the colours on the Gulf nation’s flag. Celebratory cannons were fired. A royal guard on Arabian horses escorted President Xi to the Royal Palace.
The warm reception during the visit last December was symbolic of deepening ties between China and Saudi Arabia. Long one of the US’s closest allies in the Middle East, Beijing is trying to woo the Kingdom towards the East – and Saudi leader Mohammed bin Salman appears open.
President Xi has ambitions to challenge the global dominance of the dollar. One way to do that would be to start trading oil and gas in renminbi.
Saudi Arabia, the world’s largest crude oil exporter, has traded oil entirely in dollars since 1974. But talks about pricing sales to China, Saudi’s largest trading partner, in renminbi have been accelerating. In November, China made a breakthrough.
China and Saudi Arabia signed an agreement to set up a currency swap line worth 50bn yuan (£5.5bn). The landmark deal means Saudi Arabia has free access to a supply of Chinese currency at a set exchange rate, and vice versa for Beijing and the Saudi riyal.
Swap lines in themselves are uncontroversial. China has one with the UK, and the deal with Saudi Arabia is small in scale, worth only a fraction of Saudi Arabia’s total trade with China. But the deal is a significant turning point.
If China’s oil and gas trade operates in renminbi, it will be outside the Western financial system and effectively unsanctionable.
Establishing the framework of a swap deal also allows it to be scaled up relatively easily. While 50bn yuan is small, the total size may well grow.
“It’s mostly a signal that Saudi is willing to use renminbi,” says Alicia Garci´a-Herrero, chief economist for Asia Pacific at French investment bank Natixis and a senior fellow at European think tank Bruegel.
Saudi Arabia is under pressure to accept the renminbi because Russia, China’s largest oil trading partner, already does.
The idea of China seriously challenging the dollar’s dominance has been dismissed by many economists as far-fetched. The dollar is still in a different league globally because such a large share of public and private debt worldwide is held in dollars.
The US currency is used in nearly half of all payments worldwide, while the renminbi is used in less than 4pc, according to Swift data. The dollar is freely convertible, the renminbi is not and China has restrictions on capital flows.
But the number of transactions involving the renminbi is rising at breakneck speed. In the last three years, global use of the Chinese currency in trade finance has tripled. In September, it overtook the euro as the second-most used currency in global trade. Data from the People’s Bank of China shows that, globally, central banks’ use of Chinese swap lines has roughly quadrupled since 2020.
“It is making exponential gains in the share of trade finance,” says Phyllis Papadavid, senior research advisor at Asia House. “It is making gains in its use as a reserve currency. The overall share is still quite low, but the trajectory is very rapid.”
In several decades’ time, it is feasible that the renminbi could challenge the dollar, says Julia Gurol-Haller, lecturer at the Chair for International Relations at Freiburg University.
“I think in the very, very long run this could be something that manifests.”
In the more immediate future, China may be able to protect its energy security as tension with the US intensifies.
“It takes the dollar out of the loop,” says Christopher Vassallo, a researcher at the Asia Society Policy Institute’s Center for China Analysis. “If China wants to pay Saudi Arabia for a certain amount of oil imports, they can use their currency.”
This has become a mounting concern for Beijing since the onset of the war in Ukraine.
“Beijing watched Washington impose sanctions on Russia’s dollar reserves that simply made the dollar not useful for Russia,” Vassallo says.
President Xi is more vulnerable to financial sanctions than Vladimir Putin because China’s economy is much more dependent on imports and exports. Boosting renminbi trade with allies helps to insulate China from any US intervention.
“In the short-term, it’s about the security of energy needs,” says Gurol-Haller.
The lynchpin of this strategy is the Middle East – and Saudi Arabia knows it.
“I was in Riyadh when the war broke out in Ukraine and you could immediately see this new self-consciousness rising, this sense that this is our moment,” says Gurol-Haller. “Countries in the region realised they can leverage relations with other big players in a different way.”
Before the war, Saudi Arabia operated a hedging strategy of keeping both the US and China in balance, says Gurol-Haller. “Since February 2022, we have seen quite a pivotal shift towards China as an economic partner.”
China is the number-one destination for Saudi exports by value and the Kingdom is China’s second-largest oil supplier, after Russia.
In addition to oil, the two nations have deepened their ties in the tech and science sectors, and Saudi Arabia is turning towards China for security.
In March, China brokered a reconciliation deal between Saudi Arabia and Iran, leaving the US on the sidelines.
“That shows that China is no longer viewed by regional players as just an economic partner but also as a rising political or security force,” says Gurol-Haller. “That is a paradigm shift.”
In the same month, Saudi Arabia agreed to join the Shanghai Cooperation Organisation, a security union that includes China and India. This summer, Saudi Arabia was invited to join the Brics alliance of Brazil, Russia, India, China and South Africa.
Brics members have been discussing how to make a common currency that can be used in emerging markets.
Gurol-Haller says: “It is discussed so much among this growing, non-Western or anti-US, bloc. It is the finance side to a larger geopolitical phenomenon, which is to reduce dependency from the United States in terms of security and the economy, and then also in terms of currency.”
The next step for China and Saudi Arabia could be potential stock exchange partnerships. In February, Hong Kong chief executive John Lee travelled to Saudi Arabia in a bid to encourage the national oil giant, Saudi Aramco, to pursue a secondary listing in Hong Kong.
“The overall momentum of this building of an anti-Western bloc will create geopolitical implications for the US,” says Gurol-Haller. “In the Middle East, we already see a diminishing role of the US. That is exactly the phenomenon that such swap lines make stronger.”
While dollar dominance persists for now, the Beijing-Riyadh alliance shows its primacy will not continue unchallenged.
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Rickards - >>> Another Bank Bites the Dust!
BY JAMES RICKARDS
NOVEMBER 6, 2023
Another Bank Bites the Dust!
Citizens Bank was a small bank in Iowa with about $66 million in assets. Its loan portfolio consisted largely of commercial and industrial loans.
Well, this past Friday the Federal Deposit Insurance Corporation (FDIC) announced that Citizens Bank had failed due to significant hidden loan losses totaling about $15 million.
Because Citizens Bank was not a member of FDIC, the bank’s losses will be the responsibility of the state of Iowa.
This is the sixth notable bank failure this year. As you might recall, the first five were Silicon Valley Bank (back in March), Silvergate Bank (a bridge from the crypto world), Signature Bank (another crypto conduit to the regular banking world), First Republic Bank and the giant Credit Suisse.
I warned in March that the failure of Silicon Valley Bank would be just the start. Now we’ve had five additional bank failures.
And this latest failure won’t be the last.
Veterans of such crises (and I include myself in that category) know that once the dominoes start falling, they keep falling until some government intervention of a particularly draconian kind is imposed.
We’ve seen some significant regulatory actions from the Federal Reserve, the FDIC, the U.S. Treasury and the Swiss National Bank, but the fixes have been temporary and followed quickly by new failures.
The FDIC abandoned its $250,000 deposit insurance limit and effectively guaranteed all the depositors in Silicon Valley Bank and Signature Bank, a guarantee of over $200 billion in deposits. This has impacted the FDIC insurance fund and required higher insurance premiums from solvent banks, the cost of which is ultimately borne by consumers (you).
The Federal Reserve went further and offered to lend money at par for any government securities tendered as collateral by member banks even if the collateral was worth only 80% or 90% of par. These collateralized loans are financed with newly printed money, which might exceed $1 trillion.
These actions have thrown the U.S. banking system and bank depositors into utter confusion. Are all bank deposits now insured or just the ones Janet Yellen decides are “systemically important”? What’s the basis for that decision? What about the fact that unrealized losses on U.S. bank portfolios of government securities now exceed $700 billion?
If those losses are realized to provide cash to fleeing depositors, it could wipe out much of the capital of the banking system.
Unrealized losses on securities held by FDIC-insured banks exceed $620 billion. That’s the amount of bank capital that would be wiped out if the banks were forced to sell those securities to meet demands from depositors who wanted their money back.
That would cause additional bank failures and continue the panic that began in March indefinitely.
We’re not out of the woods, and the confusion will continue.
What’s important to bear in mind is that crises of this type are not over in days or weeks.
A slow-motion rolling panic that takes a year or longer is more typical.
The 1998 crisis reached the acute stage on Sept. 28, 1998, just before the rescue of LTCM. We were hours away from the sequential shutdown of every stock and bond exchange in the world.
But that crisis began in June 1997 with the devaluation of the Thai baht and massive capital flight from Asia and then Russia. It took 15 months to go from a serious crisis to an existential threat.
Likewise, the 2008 crisis reached the acute stage on Sept. 15, 2008, with the bankruptcy filing of Lehman Bros. But that crisis began in the spring of 2007 when HSBC surprised markets with an announcement that mortgage losses had exceeded expectations.
It then continued through the summer of 2007 with the failures of two Bear Steans high-yield mortgage funds, and the closure of a Société Générale money market fund. The panic then caused the failures of Bear Stearns (March 2008), Fannie Mae and Freddie Mac (June 2008) and other institutions before reaching Lehman Bros.
For that matter, the panic continued after Lehman to include AIG, General Electric, the commercial paper market and General Motors before finally subsiding on March 9, 2009. Starting with the HSBC announcement, the subprime mortgage panic and domino effects lasted 24 months from March 2007 to March 2009.
Averaging our two examples (1998, 2008) the average duration of these financial crises is about 20 months. Since this crisis began in March (eight months ago), it could have a long way to run.
In other words, crises can unfold for a long time before they’re finally squashed by massive regulatory intervention.
Get ready for more bank failures.
I’ve written a lot about what I call Biden Bucks. That’s my term for the central bank digital currency (CBDC) the government is currently preparing.
What does the ongoing banking crisis have to do with Biden Bucks? Well, plenty, as it turns out.
Read on to see why…
Bank Runs, Biden Bucks and Money Jail
By Jim Rickards
Whether an account is in CBDC or a regular checking account doesn’t make that much difference. Bank runs today are no different than in the 1930s from a behavioral perspective.
It’s all about lost confidence, fear, not wanting to be the last person out of a burning building, rumors, word of mouth and a host of psychological factors that are part of human nature.
That part hasn’t changed since at least the 14th century with the failure of the Bardi and Peruzzi banks around 1345. What has changed is technology. Marshall McLuhan said in the 1960s that in the global village, everyone knows everything at the same time. He was right. That means when a bank run begins, there’s an immediate reaction.
The difference with the 1930s is that you don’t line up around the corner and wait for the chance to demand cash from the teller. You take out your iPhone, make a few taps and, whether it’s Venmo or a wire transfer, the money is on its way out the door.
Whether you’re a retail depositor with $1,000 or a maven with $8 billion, everyone was online moving money all at once. In that sense, CBDCs don’t matter much. Whether it’s CBDC, Venmo, wire transfer or cash from an ATM, everyone is cashing out at the same time via digital channels. But there is one huge impact of CBDCs that is entirely new and sets them apart from what’s described above…
CBDCs are programmable and controlled by the government.
This means when a run develops, the government can stop the run just by freezing CBDC account transfers. They can even claw back earlier transfers. Since the government controls the CBDC ledger, they can see where the early withdrawals went and simply reinstate them on the account of the failing bank and debit them from the accounts of the transferees. The government can do this with a few keystrokes because they see everything.
This means that once Biden Bucks is implemented, you’re locked into a system controlled by the government. You’re in a money jail.
There’s no point even starting a bank run because the government can track your movements and put the money back where it started. It’s one of many ways that Biden Bucks gives the government total control of your money and can monitor your thoughts and movements.
Cash is likely to be eliminated sooner rather than later in order to pave the way for the dominance of central bank digital currencies. A U.S. dollar CBDC is coming soon. Cash will have to be eliminated to force individuals into the CBDC world. For better or worse, the only way citizens will be able to avoid the mandatory use of CBDCs will be to use gold, silver or cryptocurrencies.
I put comparisons of gold (and silver) and Bitcoin in the same category as comparing fish and bicycles. You can do it, but what’s the point? Gold is money and Bitcoin is a hallucinogen;(or more precisely an acoustic hypnotic spell).
The idea that the U.S. Treasury, Fed and other mainstream monetary institutions are hostile to crypto is absolutely correct. For 10 years they have taken the view that they don’t like it but don’t know what to do about it. Now they know.
The solution is to kill it.
Of course, Bitcoin and other cryptos have their own ecosystem of exchanges, derivatives, custodians, payment channels, tickers, etc., etc. But so what? Cryptos are like chips in a casino.
You can make money or lose money gambling with the chips. But if you walk outside with chips in your pocket, they’re worthless.
You can change tables at the casino but you can’t leave the casino. Chips only have value inside. If you want to spend money outside, you have to visit the cashier first to cash in your chips. The cashier is the portal from the crypto world to the real world of money.
That’s why the FDIC took over Signature Bank on Sunday, March 12, when they shut down Silicon Valley Bank. Signature Bank was no worse off than a lot of other banks. If it had survived until Monday, March 13, it would have been rescued by the Federal Reserve’s Bank Term Funding Program (BTFP) along with the entire U.S. banking system. Why did Signature Bank get whacked under those circumstances?
Signature Bank got whacked because it was offering a portal to the crypto world called Signet. Once the FDIC announced a blanket deposit guarantee and the Fed offered an unlimited ability to swap bonds for cash at par, Signature would have been fine like any other bank.
Yellen used a panicked weekend to wipe out the Signet portal. As Rahm Emanuel said, never let a crisis go to waste. This is one example of how crypto is getting strangled globally. CBDCs are being set up to replace cryptos as a digital currency.
As for gold, you can manipulate the price for short periods of time by dumping gold, painting the tape, acting in concert, etc. But those techniques are not sustainable (unless you want to sell all your gold, in which case you end up with no gold and the market still goes its way).
The London Gold Pool price rigging agreement collapsed in 1968. British Chancellor of the Exchequer Gordon Brown sold almost half of the U.K.’s gold in 1999 at a near 50-year low, a notorious effort at price manipulation known as Brown’s Bottom.
Both are good examples of how manipulation always fails in the end. The government could try a replay of FDR’s gold confiscation from 1933, but it won’t work this time because there’s no trust in the government’s promises.
There are many reasons for this. No one trusts the government today, whereas in 1933 there was a belief that FDR knew what he was doing and was trying to end the Great Depression. COVID is a good example of how people were lied to about vaccines, masks, etc.
The rule today is “Don’t get fooled again.’ No one will surrender their gold except perhaps the people still wearing masks. But they probably don’t have any gold to begin with.
The other reason gold confiscation won’t work is that gold is not fixed in price as it was in 1933. Very few saw the dollar devaluation from $20/oz to $35/oz of gold coming that FDR orchestrated in 1933.
That gold price increase (really a dollar devaluation) wasn’t announced until months after the confiscation. It was the ultimate in insider trading organized by FDR. Informed citizens won’t fall for that a second time.
In a non-pegged market as we have today, the crisis will come first and gold will go to $5,000 or $10,000 per ounce or higher before the government gets around to an attempted confiscation. By that point the damage is done and gold owners have their winnings.
How should everyday Americans evaluate the crisis choice between gold and cryptos as alternatives to the dollar? Ask the following questions:
Can crypto get whacked by governments? Yes. Can gold be manipulated in the long-run? No.
Those questions and answers really answer the bigger question of how to survive the collapse of the dollar.
Gold works. Crypto doesn’t. ‘Nuff said.
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>>> Leaders from emerging economies are visiting China for the 'Belt and Road' forum
Associated Press
10-15-23
https://www.msn.com/en-us/money/companies/leaders-from-emerging-economies-are-visiting-china-for-the-belt-and-road-forum/ar-AA1igDcm?OCID=ansmsnnews11
BEIJING (AP) — Leaders of emerging market countries are arriving in Beijing for a meeting organized by the Chinese government that will mark the 10th anniversary of its Belt and Road Initiative.
More than a dozen leaders from Africa, Asia and the Mideast were flying into Beijing on Monday, following the arrivals of Chilean President Gabriel Boric and Hungarian Prime Minister Viktor Orbán on Sunday. Others are coming on Tuesday.
Under the Belt and Road Initiative, a signature policy of President Xi Jinping, Chinese companies have built ports, roads, railways, power plants and other infrastructure around the world in a bid to boost trade and economic growth.
But the massive Chinese development loans that funded the projects have also burdened some poorer countries with heavy debts.
A flurry of diplomacy is expected on the sidelines of the third Belt and Road Forum, whose main events are on Wednesday. Orbán met with Xi and Premier Li Qiang, Hungary's state news agency MTI said. The forums also were held in 2017 and 2019.
Kenyan President William Ruto will be seeking additional loans for stalled road projects despite the country's already high public debt, and an easing of the repayment of a Chinese loan for a railway project that has not proven commercially viable.
Russian President Vladimir Putin is expected to attend the forum, as are representatives of the Taliban government in Afghanistan.
Putin downplayed the idea that China, through its Belt and Road projects in Central Asia, is competing for influence in a region that Russia has long considered its backyard.
"Our own ideas on the development of the Eurasian Economic Union, for example, on the construction of a Greater Eurasia, fully coincide with the Chinese ideas proposed within the framework of the Belt and Road Initiative,” he told Chinese state broadcaster CCTV, according to a transcript posted on the Kremlin website.
The leaders who arrived on Monday included Ethiopian Prime Minister Abiy Ahmed, Sri Lankan President Ranil Wickremesinghe, Republic of Congo President Denis Sassou Nguesso, Papua New Guinean Prime Minister James Marape and Cambodian Prime Minister Hun Manet.
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Rickards - >>> The Dream Is Dead
BY JAMES RICKARDS
SEPTEMBER 6, 2023
https://dailyreckoning.com/the-dream-is-dead/
The Dream Is Dead
The global desire to move away from the dollar as a medium of exchange for international trade in goods and services has gone from a discussion point to a novelty to a looming reality in a remarkably short period of time.
It’s impossible to check headlines without seeing a new story about major trading partners planning to substitute their local currencies (or in the BRICS case, a newly formed currency) for the U.S. dollar in payment channels supporting world trade.
This plan has recently been re-emphasized as the BRICS have agreed formally to admit six new members to the group, including Saudi Arabia.
The importance of the new members is obvious. By adding Saudi Arabia, the BRICS now have two of the three largest oil producers in the world (Russia and Saudi Arabia; the third member of the trio is the United States) inside their tent.
The inclusion of UAE and Iran alongside Saudi Arabia and Russia makes the BRICS a de facto OPEC+ when it comes to dictating oil output and prices.
The BRICS will now include the second, fifth-, 10th-, 11th-, 18th- and 23rd-largest economies in the world, along with five others. The total GDP of the expanded BRICS membership is approximately 30% of global GDP measured on a nominal basis and over 50% of global GDP when measured based on purchasing power parity.
Many Americans are inclined to lament declines in the dollar’s global role. But should they?
The dollar’s global role has always been a double-edged sword for the United States. A strong dollar makes exports more expensive. And even though it does allow the threat of sanctions to be part of foreign policy, that hasn’t worked out that well for the U.S. under Joe Biden.
You see, in addition to sanctioning oligarchs, banning U.S. investment in Russia, kicking Russia out of the SWIFT international messaging system and freezing and stealing assets, Biden’s sanctions went so far as to freeze and hold the U.S. dollar reserves of the Central Bank of Russia.
I wrote at the time that not only would this move fail to hurt Russia. But it would also boomerang and do extreme damage to the United States. I’m truly sad to say I was right.
When other countries saw the U.S. grab the assets of a major central bank, they asked themselves the obvious question: “What if the U.S. doesn’t like MY policies or actions in international affairs?” “Will Biden then seize my central bank assets too?”
Many countries — including China, India and Brazil decided the answer might be, “Yes.” and they immediately started selling off their holdings of U.S. Treasury debt and began to pay for imports in their own currencies.
But Biden’s blunder created an even more significant threat and the status of the dollar as the world’s global reserve currency is now in question.
So the greatest threat to the dollar comes not from abroad but from the U.S. Treasury.
Specifically, by seizing the assets of the Central Bank of Russia, the U.S. has weaponized the dollar in a way that undermines the rule of law in the United States and causes other countries to seek alternatives.
What if no other currency can easily replace the reserve currency role of the dollar? Is there any alternative at all?
Yes, gold is ready and waiting in the wings. That’s the real danger to the U.S. Treasury market — that sovereign nations turn to gold to escape the dollar.
That trend has also begun. Yet it cannot go very far without exponential increases in the dollar price of gold. Such gains should not be thought of as gold “going up.” They are best understood as the dollar going down. The implications of that are highly inflationary as we saw in the late 1970s.
We will see the results of de-dollarization efforts in the months ahead. For now, get your gold while you still can.
Below, I show you how the BRICS summit is just one more sign that the globalist dream is dead. Read on.
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Rickards - >>> The Globalist Dream Is Dead
By Jim Rickards
https://dailyreckoning.com/the-dream-is-dead/
What exactly happened at the BRICS Summit in South Africa that concluded on Aug. 24? The answer is a lot happened with momentous consequences for the international monetary system and geopolitics more broadly. Yet the most important details were not widely reported and instead were buried beneath the standard headlines. Here’s the story:
I’ve reviewed the 26-page formal communique emerging from the BRICS Summit. It’s fine for reference purposes, but it’s mostly filled with diplomatic phrases and good intentions. It discusses “mutual respect and understanding, sovereign equality, solidarity, democracy, openness, inclusiveness, strengthened collaboration and consensus.”
That’s just diplomatic boilerplate that you can find in almost any communique from any multilateral meeting. There are some important announcements buried in the 26 pages, but I can get more information from the media and my private sources. The formal document can safely be laid to one side while we dig behind the scenes for the real news.
The News Is Huge
To review, the BRICS (Brazil, Russia, India, China and South Africa) have agreed formally to admit six new members to the group. These countries are Saudi Arabia, Iran, UAE, Ethiopia, Argentina and Egypt. These countries will become BRICS members effective Jan. 1, 2024. This is the first change in the membership since South Africa was admitted to the original BRICs in 2010.
Now that the dam has burst on new members, it’s reasonable to expect that many more on the 20-plus-country waiting list will be admitted in the years ahead, including economically powerful players like Turkey.
There was a lot of back and forth among the members regarding these admissions. China pushed hard for the inclusion of Saudi Arabia since the kingdom is the largest supplier of oil to China. Russia also supported Saudi Arabia.
India was initially opposed, but then agreed in return for China’s support to admit Iran, which is a close ally of India. South Africa lobbied for another sub-Saharan African member, which accounts for the inclusion of Ethiopia.
Brazil wanted to make sure South America was not slighted and pushed for Argentina, which is a major trading partner of Brazil. Egypt seemed an obvious choice, both because of the importance of the Suez Canal and because of Egypt’s historic close ties to Russia going back to the 1950s.
UAE is an important financial center (a key consideration as the de-dollarization effort moves forward) and fits nicely with the oil production portfolio of Saudi Arabia, Iran and Russia. In the end, everyone gained something and a consensus was reached.
The Planned Dominance of BRICS+
By adding Saudi Arabia, the BRICS now have two of the three largest oil producers in the world (Russia and Saudi Arabia; the third member of the trio is the United States) inside their tent. The inclusion of UAE and Iran alongside Saudi Arabia and Russia makes the BRICS a de facto OPEC+ when it comes to dictating oil output and prices.
The combined population of the BRICS+ is 3.6 billion, or 45% of the total population of the earth. The expanded BRICS also dominate a long list of natural resource outputs including grains, soybeans, rare earths, uranium, titanium, aluminum, and gold. The BRICS+ possess two of the three largest nuclear weapons arsenals on earth (Russia and China; the U.S. is the other member of the three).
The power of BRICS+ goes far beyond simple measures of output and population. When you look at a map of the world, you’ll see that the BRICS now control the Persian Gulf and the Straits of Hormuz (Saudi Arabia, UAE and Iran), the Suez Canal (Egypt), the Straits of Magellan (Argentina) and a large portion of the Eurasian landmass (Russia, China, and Iran).
This effort has a long way to go and the U.S. Navy still rules the seas. Transportation links from Shanghai to Rotterdam are still in the works. But the BRICS+ vision with respect to both land and sea global dominance strategies is breathtaking.
In short, whether measured by population, weapons, economic output, energy, natural resources or sheer landmass, the BRICS+ are now in a position to challenge the G7 and other developed economies for a global voice in geopolitics, economics and the global order.
This challenge will become more tangible as the BRICS add even more members in future. The battle lines between the Collective West and the Global South have now been drawn. It’s a multipolar world of a kind last seen in 1991 at the end of the Cold War. The globalist dream is dead.
What About That New Global Currency?
What about plans for a new global BRICS currency to be used first as a trading currency among members and then later as a reserve currency?
The BRICS XV Summit declaration is almost completely silent on this point. There are some positive references to the respective roles of the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA) but these are both existing entities and do not mark new initiatives.
But the fact that a new global currency was not mentioned does not mean it was not discussed privately. It simply means that no consensus was reached.
China still harbors dreams of making the yuan a global trade currency and creating a kind of “petroyuan.” India is still pushing for wider acceptance of their rupee in bilateral trade. South Africa is not a significant global player in this debate. Only Russia and Brazil seem committed to creating a true alternative to the dollar for global trade and reserves.
These issues will have to be resolved.
Importantly, the size of a currency union is the key to its success. The euro is a perfect example. There are currently 20 countries that use the euro as their home currency. The euro also ranks as a global reserve currency (with about a 26% share of reserve assets denominated in euros) because it is freely convertible into U.S. dollars and other reserve currencies such as Swiss francs, sterling and Japanese yen.
This is why the expansion of BRICS membership is integral to the vision of a new global currency. Designing and launching a new currency means little without a large group of trading partners ready to adopt it and use it in day-to-day trading.
The addition of new BRICS members is an important move in the direction of creating that large group and therefore an essential step on the road to a new global currency to rival if not displace the dollar.
The process has begun.
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Rickards - >>> BRICS Seize World’s Commanding Heights
BY JAMES RICKARDS
AUGUST 28, 2023
https://dailyreckoning.com/brics-seize-worlds-commanding-heights/
BRICS Seize World’s Commanding Heights
The BRICS Leader’s Summit ended on August 24 with a momentous decision to expand the membership of BRICS for the first time since 2010.
Saudi Arabia, the United Arab Emirates, Egypt, Argentina, Ethiopia, and Iran were all admitted to membership effective January 1, 2024. Both Brazil and India have some reservations about this move.
But in the end, Russia and China used their muscle to push through the new members despite objections. The BRICS are now BRICS+ with eleven full members and on their way to greater political power and a new currency union.
This is a momentous development, though its effects will take time to fully manifest themselves.
As a result of this expanded membership, the new BRICS currency will emerge in the year ahead.
This is because all current and prospective BRICS members and the entire Global South (including members of the Shanghai Cooperation Organization and the Eurasian Economic Union) are suffering from the weaponization of the U.S. dollar.
They fear that their dollar-denominated reserves may be frozen by the U.S., as recently happened to Russia.
Their solution is to start a new currency union big enough to offer a diverse range of goods and services (and eventually bonds) that bypasses the dollar.
It won’t happen overnight and the new currency will face challenges, but the process is getting underway.
The implications of expanded BRICS membership actually go far beyond the currency union.
With the additions of Saudi Arabia, Iran and UAE, the BRICS have now effectively surrounded the Persian Gulf. With the addition of Egypt and Saudi Arabia, they now effectively control the Red Sea and the Suez Canal.
Meanwhile, the addition of Argentina gives BRICS control of the Straits of Magellan for transit from the Atlantic to the Pacific Oceans (good luck in the Drake Passage; I’ve been there. It’s a daunting body of water).
BRICS are moving closer to the dual visions of Halford Mackinder, the geopolitical theorist whose notion of the World Island and Heartland were both based in Asia — and to Alfred Mahan, the naval strategist whose theory of sea power emphasized control of critical straits and other sea chokepoints.
The BRICS are consolidating physical control of both the land and sea pivots of history.
Expanded BRICS membership also marks the beginning of the end of the petrodollar era. Membership of Saudi Arabia in the BRICS is a large step in that direction. This is why the admission of new members and the launch of a new currency cannot be viewed in isolation.
They are two parts of a common project. The expanded membership is precisely what makes the new currency more feasible.
This is all happening under the noses of U.S. policymakers who seem ignorant both of history and current events.
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Latest from Rickards - >>> BRIC by BRIC
BY JAMES RICKARDS
AUGUST 22, 2023
https://dailyreckoning.com/bric-by-bric/
BRIC by BRIC
It’s finally here…
Today, Aug. 22, is a date I’ve been warning readers about for months.
It’s the date when a great monetary shock is set to hit the global financial system.
That’s because the BRICS nations are now meeting in South Africa, where they’ll take steps to create a new gold-backed currency as a dollar alternative.
The meeting wraps up on the 24th.
By understanding what is about to hit the global monetary system, you can better prepare to protect and even grow your wealth.
A big part of that strategy centers on my proprietary IMPACT system that I created specifically to profit from the ongoing currency wars.
Information is key, so let’s get into some common questions readers have about this crucial development.
QUESTION: Will this announcement from BRICS have a crucial impact on American citizens and international citizens on the home front in a negative way? How can we prepare?
ANSWER: The short answer is yes. If what I’m predicting takes place, Saudi Arabia will be accepted into the BRICS alliance (Brazil, Russia, India, China, South Africa). This in itself is a major power grab by the BRICS challenging the G7 countries. But if Saudi Arabia chooses to break the petrodollar agreement with America and sell its oil in currencies other than dollars…
It will be a MASSIVE blow to America and could be what leads to the dollar losing its reign as the global reserve currency of the world, weakening America’s power even more.
QUESTION: Jim, how sure are you of this event happening over the next few days? 50%? Or 90%?
ANSWER: I am 99.99% sure. This meeting is by far the most important BRICS meeting since the founding of the organization in 2006. Now I don’t know for certain if Saudi Arabia will be accepted into the BRICS or not; only the leaders of the BRICS nation know that.
But if the Saudis are accepted, I believe it will trigger a currency war unlike anything we’ve ever seen… creating a massive profit opportunity in the currency markets. My proprietary IMPACT system has already identified THREE currency trades I believe are set to be the BIGGEST WINNERS of this new currency war.
QUESTION: If the U.S. loses the distinction of having the dollar as the global currency, who will take its place? And what will happen to the dollar?
ANSWER: There is currently no alternative to the dollar in terms of its reserve currency status because of the absence of a sovereign bond market of sufficient size and operational capacity. That role will be very difficult to dislodge, perhaps taking 10 to 20 years to establish the necessary infrastructure and gain the trust of market participants.
If no other currency can easily replace the reserve currency role of the dollar, is there any alternative at all? Yes, gold is ready and waiting in the wings. That’s the real danger to the U.S. Treasury market — that sovereign nations turn to gold to escape the dollar. The impediment to another currency as a reserve currency is the absence of a bond market where reserves are actually invested.
With gold, there’s no need for a bond market to absorb reserves because you have the physical gold as the resulting asset. If this came to fruition, the dollar would become another regional currency, such as pesos are to Mexico or the pound is to the U.K.
QUESTION: Do you expect stock markets to be impacted in the U.S. as a reaction to the BRICS summit announcements during the summit on Aug. 22–24?
ANSWER: The market as a whole will not significantly be impacted since this is a gradual rollout of the new BRICS currency. All of the pieces are now in place. Since the BRICS+ currency will be gold-linked, and since participants in the scheme will continue to buy gold in order to maintain the needed backing support for the new currency, the price of gold will remain strong and steadily grow. This will be good for gold stocks as gold will effectively hitch a ride on the BRICS+ currency train and be part of the future of international finance.
QUESTION: Do you believe the Saudis will price their oil in the new BRICS currency in the future?
ANSWER: I do believe this is part of the bigger plan the Saudis have for joining the BRICS. First and foremost, joining the BRICS allows the Saudis to get away from being dependent on the U.S. This will allow them to sell their oil in other currencies (helping cause a worldwide currency war around the globe).
In the end, I believe the plan for the BRICS is to be able to trade amongst themselves with their own currency, but I believe we are still a ways away from that. In the near term, we can use this new currency war to profit from currency trading.
QUESTION: Should we take most of our money out of the stock market and put more in gold? What will the price of gold be at the end of 2023?
ANSWER: As I have often said, the key to a financially sound portfolio is diversification. That’s why I always recommend just a 10% allocation to physical gold. I would stay light in equities and put 30% in cash until the volatility of the markets subsides after the BRICS announcement. The eventual collapse of the dollar really means higher inflation and a much higher dollar price for gold. That means other commodity prices will rise in lockstep.
A commodity boom favors BRICS and emerging markets generally (as it did in the late 1970s and early 1980s). When gold goes from $2,000 to $10,000, that is better understood as an 80% devaluation of the dollar. That’s a collapse of confidence, but you’ll miss it if you’re looking at euros or yen.
Those currencies will be collapsing at the same time creating a unique opportunity to profit from their falls. After a gold-linked currency is announced, gold will rise in price, and I expect a new floor of $2,000 per ounce by the end of the year and then a sharp rise from there.
QUESTION: How much money do I need to get started?
ANSWER: I believe a $5–10K trading portfolio is a great place to start, but the truth of the matter is you can get into these currency trades with as little as a few hundred dollars. That’s because IMPACT trades have built-in leverage. This means you get the exact right amount of leverage in each trade.
And consider this: IMPACT trades also have built-in protection. This means you can’t lose more than you put in. So while there’s always the possibility a trade could turn against you, your risk is always known and strictly limited by design.
QUESTION: If your BRICS hypothesis happens, how do I protect my wealth?
ANSWER: Over time, the dynamic is the BRICS are going to be anchored to gold and the U.S. is going to be anchored to nothing, and the dollar price of gold is going to go up, which is the dollar valuation, resulting in a highly inflationary environment. So it’s not too soon to think about inflation hedges.
As mentioned above, gold and silver are excellent safe-haven investments to have with higher inflation. Other investments to preserve wealth include cash, land, energy, agriculture and U.S. Treasury notes. Investments to stay away from are stocks, corporate bonds and commercial real estate.
QUESTION: What sectors will be negatively impacted, and which sector opportunities will come from this change?
ANSWER: First and foremost, trading currencies will be far and away the most exciting opportunity over the coming weeks as the BRICS begin to make their moves. I also see the gold mining sector benefiting from the BRICS changes, as any rise in the price of gold benefits the miner’s bottom line.
The energy sector will benefit as the new changes allow broader trade in oil and gas between BRICS countries. Oil and natural gas aren’t going anywhere. We’re going to need them for the foreseeable future, and those stocks have been beaten down. I also like real estate, agriculture and particularly defense with more aggression by U.S. adversaries as de-dollarization illustrates.
In terms of sectors that’ll suffer, the technology sector could suffer by not only being in a major bubble, but the BRICS nations trading technology among themselves with the U.S. on the outside could spell trouble for many tech stocks. You’ve got huge bubble dynamics. It doesn’t mean it’s over tomorrow. It doesn’t mean you run right out today and short the Nasdaq. That might be a good way to lose money. But as these changes kick in, the tech sector could be the one that suffers the most.
I hope I’ve answered some of your most pressing questions.
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Rickards - >>> The Earthquake Starts Tomorrow
BY JAMES RICKARDS
AUGUST 21, 2023
https://dailyreckoning.com/the-earthquake-starts-tomorrow/
The Earthquake Starts Tomorrow
The BRICS Leaders’ Summit is scheduled to begin tomorrow, Aug. 22 in South Africa, which will run through the 24th.
As I’ve been warning, this meeting is the most significant development in international finance in the last 50 years.
It has the potential to displace the U.S. dollar as the leading payment currency and reserve currency from a standing start in just a few years.
This latest monetary change will be delivered by the BRICS, and the world is unprepared for this geopolitical shock to the global financial system. Of course, BRICS is an acronym for Brazil, Russia, India, China and South Africa.
Among the leaders attending the summit are President Xi Jinping of China, President Lula da Silva of Brazil and Prime Minister Modi of India. President Vladimir Putin of Russia cannot attend in person because there’s an outstanding warrant for his arrest on war crimes charges issued by the corrupt International Criminal Court (ICC) in The Hague.
South Africa is a member of the ICC and might have been required to arrest Putin on arrival. The in-person delegate for Russia will be Sergey Lavrov, Russia’s foreign minister.
Shrouded in Mystery
Even at this late date, the official agenda is shrouded in mystery. That’s not unusual considering that the members themselves, especially Russia and China, are accustomed to decision-making behind closed doors.
It’s also not an unusual feature where top leaders are involved. Negotiations tend to go down to the wire; indeed, key decisions will not even be made until the leaders actually get together in one room.
That said, we do know the top two issues that have been discussed by the leaders behind the scenes (often through so-called Sherpas, who are seasoned diplomats working in private to advance the agendas of their respective leaders and to obtain feedback from the other leaders about where points of agreement might actually lie).
What We Know
The first big issue involves new membership. The BRICS may be a five-member group, but over 67 countries have been invited to attend. Among those 67 countries, more than 20 have expressed interest in joining the BRICS, and seven have formally applied for membership.
If any new members are admitted, first on this list will be Saudi Arabia. As of now, both Russia and China favor Saudi Arabia for membership. China is the largest purchaser of Saudi Arabian oil, so a formal alliance including both countries makes sense, especially as they and others move forward on a common currency other than the U.S. dollar. (More about that in a second).
Also, Russia and Saudi Arabia are two of the three largest oil producers in the world (the other being the U.S.), so including both countries in the same group creates a forum that may be more powerful than OPEC when it comes to setting oil prices.
Brazil has been the BRICS member most opposed to admitting new members. That might be understandable in terms of not diluting Brazil’s power within the group. But Russia and China may simply force Brazil’s hand on the issue of Saudi Arabian membership.
We’ll see what happens. As of now, Saudi Arabian admission is a likely result at the summit, but it’s not a sure thing.
Here’s the Important Part
The other major issue is the launch of a new multilateral BRICS currency that might be used to settle trade balances in the short run and then evolve into a reserve currency over a longer period of time.
We know a lot about the potential shape of this new currency based on statements made over the past six months by BRICS leaders themselves as well as their foreign ministers or finance ministers.
Russia is one of the original BRICS and has the largest gold hoard of any BRICS member. The new BRICS currency to be announced is likely to be gold-linked. This will position Russia to be one of the leading backers of the new currency and the de facto BRICS banker to the world.
The BRICS currency will not involve the yuan, ruble, rupee or other national currency of the members. Those currencies will continue to exist for domestic consumption and contracts, but they will gradually be replaced by the new BRICS currency for international settlements.
How It’ll Work
The value of each unit of BRICS currency will not be tied to another currency or basket. Instead, it will be tied either to a basket of commodities (oil, gold, copper, wheat, iron ore, etc.) or simply to gold.
The commodity basket idea is unwieldy (as John Maynard Keynes discovered when he explored a similar approach in 1944), so a non-currency valuation metric is likely to end up with gold (as Keynes also discovered).
However, this may be a two-step process as Brazil and South Africa both place some weight on the role as top commodity producers.
The other key element in the launch of the currency is the expansion of the BRICS membership beyond the current five. This is important not only for the geopolitical reasons noted above but because the larger the membership in a currency union, the more valuable the currency becomes.
The success of the euro is a good example; that currency union has expanded to 19 active members with several more on the waiting list.
When you receive a multilateral currency such as the new BRICS unit in payment for your own goods and services, it’s valuable to be able to spend it in 10 or 20 countries instead of just three or four.
This new currency would be issued by a multilateral central bank controlled by the BRICS members, possibly the New Development Bank created by the BRICS in 2014.
What We Don’t Know
While the outline of the new currency is clear, it’s not clear how much actual progress will be made at this meeting. Russia and China are clearly on board. Brazil is strongly in favor also because of its dislike for the United States and desire to get away from the U.S. dollar.
The reluctant member on this issue is India. This may be due to the fact that Russia has been selling oil to India for rupees and it suits India to be able to print its own currency to buy oil. That’s a privilege that heretofore has been reserved exclusively to the United States.
India’s mini exorbitant privilege may be ending as soon as it began. Russia has put India on notice that it will soon refuse to accept rupees for further oil shipments. This means India will either have to come up with dollars (or gold) or perhaps sign on to the new BRICS currency.
These are issues that will be hashed out behind closed doors over the next few days. It’s unclear what the outcome will be. My expectation is that some announcement will be made about progress toward the new BRICS currency, but it’s premature to announce the currency itself.
Such an announcement is no less momentous to investors than the actual issue of the currency.
The Fact That It’s Happening at All Is Important
Multilateral organizations with disparate views often take a piecemeal approach to agreements of this kind. What’s important is not that everything be done at once, but that something be done at all.
That sets the wheels in motion for the biggest change in the international monetary system since 1971.
We may get some leaks or comments over the next few days, but perhaps not. If there are any, I’ll alert my readers.
Other than any other leaks, the next big news development on the BRICS summit will be the Leaders’ Final Communiqué that will be issued late Thursday. These communiqués are typically 10 pages or so, listing all the matters agreed upon and the next steps.
This formidable grouping of not just the BRICS, but a united Global South is challenging the Western rules-based order and the U.S. dollar.
It will be a busy and critical week. Stay tuned.
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According to this Reuters article, it sounds like the BRICS currency won't be on the agenda for the meeting. If true, that would be a welcome reprieve, albeit probably temporary. On the BRICS expansion side, they say that Brazil and India would prefer a slower timeline, compared to China and Russia who want a more rapid expansion. We know over 20 countries have already formally applied for BRICS membership (including Saudi Arabia), and dozens more have expressed interest. Anyway, if the timeline for all these changes is fairly slow, the financial markets might just yawn (for now) and concern themselves with other factors this Fall (Fed policy, inflation, economy, banking and commercial real estate problems, etc.)
>>> BRICS leaders meet in South Africa as bloc weighs expansion <<<
Excerpt -Boosting the use of member states' local currencies is also on the agenda. South African summit organisers, however, say there will be no discussions of a BRICS currency, an idea floated by Brazil earlier this year as an alternative to dollar-dependence.
Excerpt - Over 40 countries have expressed interest in joining BRICS, say South African officials. Of them, nearly two dozen have formally asked to be admitted.
https://www.msn.com/en-us/news/world/brics-leaders-meet-in-south-africa-as-bloc-weighs-expansion/ar-AA1fBBVF?OCID=ansmsnnews11
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