Whisperings of a New Gold-Backed Global Currency From the BRIC Countries Could Decimate Both the U.S. Dollar and the Euro

Posted: September 25, 2008 in Your Money
Tags: , ,

With the BRIC (Brazil, Russia, India, China) economies in much stronger shape domestically compared to the sickly U.S. and their respective markets already pricing in much of the coming collapse yet to really hit the U.S. stocks I wonder when these countries will band together to form a new currency of their own? They may as well, since many global financial instruments already treat them as an economic unit (case in point).

And if these countries were to form a new global currency that’s 100% backed by gold (like the U.S. dollar was from 1792 to 1971) then I suspect we would witness a global stampede out of Euros and U.S. Federal Reserve Notes into this new golden currency backed by the strongest economies across the globe. Why not call the new currency a bric? In English, the name alludes to something concrete, sound, stable, and badly needed in these uncertain times. The gold-backing shouldn’t be B.S., though. Any Tom, Dick or Harry needs to know he can go to the bank with a Bric note and know he can walk out with gold.

From Brazil: Although its stock market is beaten up, its domestic economy is still very strong.
Brazil expects the odd sniffle, but nothing serious

  • Brazil has not decoupled itself from the rest of the world: its stock market has fallen fairly much in line with other markets but, unlike in the past, the turmoil elsewhere has not been amplified.
  • Brazil has been able to maintain foreign reserves in excess of $200bn to help it weather the storm.

From Russia: Now a major player in the world energy scene, Russia’s central bank has recently been stockpiling gold.
Time for a gold rouble?

  • The decision by the US government to inject $700 billion into the financial system means that the already gigantic annual budget deficit of the American state (previously some $450 billion a year) will now rise by a factor of three. The total state debt of the USA will rise to well over $11 trillion. It is obvious that such a colossal debt can never be repaid.
  • Russian leaders might also consider making their own currency, the rouble, convertible into gold.

From India: The World Gold Council says that Indian citizens possess the most personally-owned gold in the world. And that love for gold is now stronger than ever.
Indian customers lured by gold’s lower price

  • UBS, one of the largest gold exporters to India, says it has seen a spike in sales. John Reade, UBS metals strategist, says that the near-absence of jewellery demand in India between August 2007 and July left the local market largely de-stocked, “hence the tremendous pickup in demand over the past five weeks.”

From China: Also big gold lovers, the Chinese government is now openly questioning the use of U.S. Dollars as the default world currency.
China paper urges new currency order after “financial tsunami”

  • Threatened by a “financial tsunami,” the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday.
  • “The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States.”
  1. samratkakkar says:

    That’s a very interesting scenario you have shared there of gold backed currency.

    There is little doubt that there would be shift in financial epicenter once the credit crisis has settled and the global economy starts looking up. With huge forex reserves and high domestic consumption, both India & China will be the countries that will stand out.

    Infact your view on gold backed currency will be very interesting to the discussion on emerging markets on unstructure.org. I have myself been posting there.


  2. Ryan says:

    I do not understand your logic. It doesn’t matter if the U.S. debt is 11 trillion or 1 trillion, it still cannot be paid in full without borrowing from the FED. The Central banks of the world account for the biggest, most fraudulent pyramid scheme ever created. All of the money in circulation for any given country on the planet was loaned from the Central banks, however that only accounts for the principal amount loaned out. The countries still have to pay the interest on those loans, which if you added them all up, doesn’t exist. The only place the interest can come from to pay on the original loans, is from the Central banks because they loan all of the currency for each country. So it’s just a continuous loop of debt.

    Add to that the fact that the Central banks are creating the money “out of thin air” since it has no backing, and that every time new money is created, which happens on top of every single deposit made in the banking system, it then creates inflation, driving prices up because goods and services are not increasing at the same rate the money supply is. This creates yet another loop, which cannot be sustained, and is the main cause of the economy collapsing.

    For anyone not following along:

    A Country (let’s say the U.S.) borrows $10 billion from its central bank (the Federal Reserve, which is privately owned). The FED says “no problem” and creates some fancy pieces of paper, or (as is more often the case) types numbers into a computer and assigns those numbers or that paper a value of $10 billion. The U.S. government now draws up its own fancy pieces of paper calling these treasury bonds (agreements to pay this money back with interest) and assigns a value of $10 billion to them. Then the trade is made. The U.S. receives it’s money and deposits that money into it’s bank account.

    As soon as that deposit is made, 10% is immediately taken and placed in a reserve (as is mandatory in the fractional reserve banking system) and the rest….$9 billion is available for new loans. However, this money is not actually used for new loans, an additional $9 billion is created on top of it (out of thin air), and thus the money supply is expanded. That new $9 billion is loaned out and is deposited into someone else’s bank account, whereby the entire process starts over again. 10 % is taken as a reserve, and $8.1 billion is available for new loans, which is again created “out of thin air” on top of the original $8.1 billion. This process can literally go on forever because each new deposit warrants more money being created.

    However, because the goods and services available in the country are not expanding at the same rate the money supply is, inflation occurs, because the only thing that gives all this new money value is the money already in circulation. The new money borrows its value from the old money, thus debasing the currency and driving prices higher.

    Which creates more debt within the nation, which leads to more loans needed in the public, which leads to more money being created to satisfy those loans. Which leads to more inflation, and more debt, and more loans. Do you see the loop here? And that’s not even taking into account the interest that is owed on all that debt, which can never be paid, because it doesn’t exist in the principal amount being loaned out from the Central banks!

    The amount being loaned from the Central banks is always smaller than the amount owed back to them, because the money owed back includes interest on top of it. See what I’m saying?

    Put another way, every dollar in your wallet and in your bank account is owed to someone, by someone. And when you consider that all money in circulation is loaned from the Central banks, and all money that you make through your “slave labor” jobs ends up in a bank, who does everyone really work for?

    So I have an alternative suggestion to this ridiculously stupid way of living out our lives. We drop the monetary system and move to a global resource based economy. Everyone asks “can we afford” to do this or that project? That is not a viable question anymore. Do we have the resources, technology and ingenuity to create this or that project? The answer is Yes. We do.

    Even in Recessions and Depressions, although the money isn’t there to create this thing or that, we still have the means to produce whatever we need. The resources and technology is always there, but our barrier is this paper and credit that has no backing anyways. It’s basically counterfeit.

    Because the monetary and banking system creates more and more debt and inflation every time it creates more money, the system will crash, and we are starting to see the beginning stages of that. We will reach a point, by design I might add, where the money supply will no longer continue to expand because the inflation and debt created by that expansion defeats the purpose, and then the money supply will begin to contract….Massively! And the world WILL go bankrupt. It is a mathematical certainty.

    Food for thought:

    Less than 1% of the population already controls 40% of the earths resources and has military bases in over 120 different countries. 60% of the planet makes less than $2 a day and 34,000 children die every day from hunger and preventable diseases. The economies of the “first world” are collapsing. What happens when the richest 500 individuals and families, who’s combined worth right now exceeds that of the poorest 4 billion people on the earth, outright bankrupt the entire planet?

    We need to move to a viable, abundant, sustainable global system that benefits every soul on the earth, and eliminates poverty, inequality, scarcity, famine, war, terrorism, and all the other things that make our world and our society the sickest it’s ever been.

    The truth of the matter is, every single person on this planet could have a quality of life that exceeds that of the richest people currently living on the earth. We have the resources, we have the technology (renewable non-polluting energy, super computers, robotics, nano technology, automation, communications, fibre optics, artificial intelligence, etc), and we certainly have the ingenuity and technical ability, if we actually apply our minds to the problem instead of creating old ways to patch the system.

    Check out http://www.thevenusproject.com for a very viable, and very operational solution to the problem, and check out the documentary “Zeitgeist – Addendum” for a sobering look at the banking system and what we have collectively allowed to transpire on this planet due to greed and corruption, which is only possible in a monetary based world.

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