Over the weekend, I read several articles that got me to thinking about the future of the US dollar as the world’s reserve currency. The US has now done something that has never been done before, weaponizing the world’s banking system to punish someone we don’t like. We did this of course against Russia by totally cutting them out. Even during WWII when Russia and Germany were at war, the banking system was in tact and in fact both countries were making bond payments to each other.
I think this sends a very big message to China and Saudi Arabia and to some extent India. What is the message, if you do something we (US) doesn’t like, we will punish you with the world’s banking system.
For any currency to be a reserve currency it much have the trust of all the world players. I submit that that trust has now been broken. To that end, I think it is now only a matter of time until something else replaces our dollar as the reserve currency.
China, Russia and Saudi Arabia all have huge reserves of gold. Since Russia has food and oil for sell and China needs both, there is an obvious partnership there and there are many reports that they are working out some kind of payment system. This could very well be the start of a new reserve currency. We can have all the sanctions in place we want, but the transfer of a few kilograms of gold by plane can never be stopped or even detected. One article described how all the Saudi’s are remelting their ounce gold bars into kilogram ones, I wonder why? Gold is totally untraceable.
There was also an article describing the possibility of China and Russia developing a new digital currency that is gold backed in order to facilitate their trade. This makes perfect sense. I would actually support this because it is time the world gets back to a gold backed currency. Just printing money as needed by politicians to buy votes is not the way to run the world as we are all about to find out.
In the end, what is business or an economy? It is one party buying products produced by someone else with products that they produce. Bartering is an awkward way of doing this so over the eons everything from shells, silver and gold have been use as a means of exchange. Today we are just using worthless pieces of paper.
The one big rub in all that I have wrote is that China needs us very badly because they make more finished goods than anyone else in the world and we make nothing. But if they don’t trust our currency and decide they don’t want to trade valuable product for worthless paper, we will be in a world of hurt.
I don’t know if I am seeing this correctly and even if I am, it will take years for it to all happen I would suspect. But one thing for sure in my thinking is that going forward, this country is going to relearn a lost lesson in world economics.
When every homeless person has a cell phone something is wrong. When a homeless person comes on TV and tells us what a great life he has since he gets $600 a month and has no expenses except for drugs and alcohol, something is wrong. When the 21th Century soup lines are people lined up at the food banks driving Suburbans, Escalades, and Mercedes, something is wrong.
Comments welcome.
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