The Real Russian Threat

It’s Not Military Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] The Real Russian Threat - To learn the dollar’s fate, look across the pond… - Russia dumps the dollar… - Then Jim Rickards shows you why the world will have to return to a gold standard, one way or the other… Recommended Link [WEDNESDAY: Confirmation Needed]( [Read more here...]( You are invited to attend an urgent, FREE Special Briefing scheduled for [Wednesday, June 16th, at 1:00pm ET]( [(details here).]( New York Times bestselling financial author Jim Rickards is blowing the lid off a covert, yet rapidly escalating war that’s already forcing $6.6 trillion to change hands — every single day... With upside for YOU to tap into this massive flow of money… For potentially HUGE profits. To attend this free event, simply click below to confirm your reservation. [Click Here To Confirm Your Reservation]( Portsmouth, New Hampshire June 14, 2021 [Jim Rickards] Dear Reader, 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. The dollar displaced sterling as the leading reserve currency in the twentieth century, but it took thirty years, from 1914 to 1944, to happen. The decline started with the outbreak of World War I and the UK’s liquidation of assets and money printing to finance the war. It ended with the Bretton Woods agreement in 1944 that cemented the dollar's link to gold as the new global standard. Even after the gold link was broken in 1971, the dollar standard remained because there was no good alternative. Then the 1974 deal with Saudi Arabia (along with other OPEC cartel members) to price oil in dollars created increased global demand for the dollar. Because of the deal, dollars would be deposited with U.S. banks, so they could be loaned to developing economies, who could then buy U.S. manufactured goods and agricultural products. This would help the global economy and allow the U.S. to maintain price stability. The Saudis would get more customers and a stable dollar, and the U.S. would force the world to accept dollars because everyone would need dollars to buy oil. By the way, behind this "deal" was a not so subtle threat to invade Saudi Arabia and take the oil by force. I personally discussed these invasion plans in the White House with Henry Kissinger's deputy, Helmut Sonnenfeldt, at the time. But the Petro-Dollar plan worked brilliantly, and the invasion never happened. Despite all this, nearly 50 years later, the erosion of the dollar’s role has begun and is visible in many metrics. The dollar’s share of global reserves has fallen from 70% to 60% in the past 22-years. The dollar price of gold (an inverse measure of dollar strength) has gone from $250 per ounce to over $2,000 per ounce between August 1999 and August 2020 (it’s about $1,880 per ounce as of today). The IMF’s special drawing right (SDR), Bitcoin, and gold (again) are waiting in the wings to step up as the dollar falters further. The Russians, in particular, are moving quickly to protect themselves from this inevitable decline. Russia has already increased gold as a percentage of its reserves to 20% (only the U.S., Germany, Italy, France and the Netherlands have higher percentages of gold among the twenty largest developed economies). Now, Russia will completely eliminate dollar holdings from its $119 billion National Wellbeing Fund, a sovereign wealth fund that holds oil wealth for the future benefit of the Russian people. Russia will be able to execute this plan without severe disruption to either the gold market or the dollar market. By itself, this move does not mean the end of the dollar as the leading reserve currency. But, it is one more step on the slow path toward the dollar’s inevitable decline as a trusted medium of exchange. Even though the process is gradual, it can gain a lot of momentum in the final phases. It reminds me of a line from a Hemingway novel: “How did you go bankrupt?” asked one character. “Two ways,” responded the other. “Gradually, then suddenly.” When the rush for the exits begins in earnest, you don’t want to be the last one out the door. It’s a good idea to diversify into gold for about 10% of your investable assets if you haven’t already. That way you’ll be keeping up with the Russians and be one step ahead of the dollar’s decline. I believe that the world will have to return to some version of the gold standard, not because it wants to, but because it will have to in order to restore confidence in the global monetary system. The real question is, will it be an orderly process or a chaotic one? Read on for my answer. Regards, Jim Rickards for The Daily Reckoning P.S. I’m blowing the lid off a covert, yet rapidly escalating war that’s causing [$6.6 trillion to change hands — every single day.]( It’s offered little in the way of profit opportunities for everyday folks — until now. I’ve developed a strategy I call [C.O.B.R.A]( — a first-of-its-kind chance for retail investors to capture the upside of this massive $6.6 trillion bonanza. You can tap into this massive flow of money for potentially [HUGE profits.]( I’m inviting you to attend an urgent, FREE Special Briefing scheduled for this [Wednesday, June 16th, at 1:00pm ET.]( I’ll explain everything on Wednesday. To attend this free event, simply [click here]( to confirm your reservation. Recommended Link [Ex-CIA Insider Has a Stark Warning About Biden's "Recovery"]( [Read more here...]( As a former advisor to the CIA and the Pentagon… It gives me no pleasure to give you this stark warning... but I have to do it nonetheless. Anything else would be grossly irresponsible... Put simply, Joe Biden's widely touted post-pandemic "bailout" is doomed. In fact, I've uncovered three ticking financial time bombs that could derail America's "recovery." [See My Full Warning Here]( The Daily Reckoning Presents: “The dollar collapse has already begun and the need for a new monetary order is now emerging”… ****************************** New Gold Standard: Orderly or Chaotic? By Jim Rickards [Jim Rickards]Before 1914, the global monetary system was based on the classical gold standard. However, monetary systems change about every 30 to 40 years on average. Sure enough, 31 years after the end of the classical gold standard, in 1944, a new monetary system emerged after Bretton Woods. The dollar was officially designated the world’s leading reserve currency — a position that it still holds today. Under that system, the dollar was linked to gold at $35 per ounce. But 27 years later, 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 nearly 50 years old, so the world is long overdue for a new monetary system. Gold should once again play a leading role. It may be the only asset that can anchor the international monetary system in these troubled times. But the gold price will be much, much higher. I’ve written and spoken publicly for years about the prospects for a new gold standard. My convictions have only gotten stronger since the coronavirus and the monetary chaos it generated. My analysis is straightforward... International monetary figures have a choice. They can reintroduce gold into the monetary system on either a strict or loose basis (such as a “reference price” in monetary policy decision-making). This could happen through a new monetary conference, a la Bretton Woods. It could also be organized by convening powers, probably the U.S. working with China (which might seem unlikely these days, but not as unlikely as you think). Or they can continue to ignore the problem, let an even bigger debt crisis materialize (that will play out in interest rates and foreign-exchange markets), and watch gold soar to $14,000 per ounce or higher — that’s not a typo — not because they wanted it to but because the system is out of control. I’ve also said that the former course (a conference) is more desirable — isn’t it better to avoid the train wreck entirely rather than clear up the wreckage? But the latter course (chaos) is more likely. A conference will probably be ignored until it’s too late. Either way, the price of gold soars. The same force that made the dollar the world’s reserve currency is working to dethrone it. Under the Bretton Woods system, all major currencies were pegged to the dollar at a fixed exchange rate. Indirectly, the other currencies had a fixed gold value because of their peg to the dollar. Other currencies could devalue against the dollar, and therefore against gold, if they received permission from the International Monetary Fund (IMF). However, the dollar could not devalue, at least in theory. It was the keystone of the entire system — intended to be permanently anchored to gold. From 1950 into the 1960s, the Bretton Woods system worked fairly well. Trading partners of the U.S. who earned dollars could cash those dollars into the U.S. Treasury and be paid in gold at the fixed rate. But by 1970, the U.S. had lost over half of its gold. In 1950, the U.S. had about 20,000 tons of gold. By 1970, that amount had been reduced to about 9,000 tons. The 11,000-ton decline went to U.S. trading partners, primarily Germany, France and Italy, who earned dollars and cashed them in for gold. Recommended Link [#1 Futurist Says: Get Ready for This Global “Reboot”]( George Gilder has a shocking message for anybody with money in the bank… with a job that pays in dollars… or who carries a smartphone in their pocket. “Brace yourself,” he says, “for the coming $16.8 trillion global ‘reboot’ ahead.” It could radically transform the way just about every major corporation does business. It could change the way you get paid, save and invest for retirement. And, says George, it could make you exceedingly rich... [Click Here To See Why]( If you want to see where the dollar is ultimately heading, you should look to the U.K. pound sterling. It had previously held the dominant reserve currency role starting in 1816, following the end of the Napoleonic Wars and the official adoption of the gold standard by the U.K. 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, this process actually took 30 years, from 1914 to 1944. The period from 1919–1939 was really one in which the world had two major reserve currencies — dollars and sterling — operating side by side. Finally, in 1939, England suspended gold shipments in order to fight the Second World War, and the role of sterling as a reliable store of value was greatly diminished. The 1944 Bretton Woods conference merely recognized a process of dollar reserve dominance that had started in 1914. Like sterling, slippage in the dollar’s role as the leading global reserve currency is not necessarily something that would happen overnight but is more likely to be a slow, steady process. The change is often so gradual that few notice it until it can no longer be denied. A major creditor nation is emerging to challenge the U.S. today, just as the U.S. emerged to challenge the U.K. in 1914. That power is China. The U.S. had massive gold inflows from 1914-1944, but now China has been experiencing those same gold inflows. In recent years, China has acquired thousands of metric tonnes without reporting these acquisitions to the IMF or World Gold Council. Based on available data on imports and the output of Chinese mines, actual Chinese government and private gold holdings are likely much higher than official listings. It’s hard to pinpoint the exact amount because China operates through secret channels and does not officially report its gold holdings except at rare intervals. China’s gold acquisition is not the result of a formal gold standard but has been happening by stealth acquisitions on the market. They’ve used intelligence and military assets, covert operations and market manipulation. But the result is the same. Gold has been flowing to China in recent years, just as gold flowed to the U.S. before Bretton Woods. China is not alone in its efforts to achieve creditor status and acquire gold. Russia has greatly increased its gold reserves over the past several years and has little external debt. The move to accumulate gold in Russia is no secret, and as Putin advisor Sergey Glazyev has said, “The ruble is the most gold-backed currency in the world.” Iran has also imported significant amounts of gold, mostly through Turkey and Dubai, although no one knows the exact amount because Iranian gold imports are a state secret. In recent years, other countries, including BRICS members Brazil, India and South Africa, have joined Russia and China in their desire to break free of U.S. dollar dominance. You can certainly add North Korea and Venezuela to that list. The dollar collapse has already begun, and the need for a new monetary order is now emerging. I believe it will involve gold. The question is whether it will be an orderly process resulting from a new monetary conference or a chaotic one. Unfortunately, it’ll probably be chaotic. Regards, Jim Rickards for The Daily Reckoning P.S. I’m blowing the lid off a covert, yet rapidly escalating war that’s causing [$6.6 trillion to change hands — every single day.]( It’s offered little in the way of profit opportunities for everyday folks — until now. I’ve developed a strategy I call [C.O.B.R.A]( — a first-of-its-kind chance for retail investors to capture the upside of this massive $6.6 trillion bonanza. You can tap into this massive flow of money for potentially [HUGE profits.]( I’m inviting you to attend an urgent, FREE Special Briefing scheduled for this [Wednesday, June 16th, at 1:00pm ET.]( I’ll explain everything on Wednesday. To attend this free event, simply [click here]( to confirm your reservation. --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [James Rickards][James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. 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