This Will Destroy the Dollar

Hint: It’s Not BRICS [The Daily Reckoning] October 14, 2024 [WEBSITE]( | [UNSUBSCRIBE]( This Will Destroy the Dollar Portsmouth, New Hampshire [Jim Rickards] JIM RICKARDS Dear Reader, 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. Regards, Jim Rickards for The Daily Reckoning [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) P.S. Picture it: The streets are mayhem… Long lines at gas stations… Everyday supplies at the grocery store are cleaned out… In the parking lot outside, you see a large guy yelling at an elderly man… They’re out of the cars now. The big guy has something in his hand, and rage in his eyes. Things look like they could get out of hand at any moment. Is this disturbing scenario about to play out in cities across the country? Maybe we’ll get lucky and it won’t happen. But what if it does? Well, you need to be prepared because it could be the biggest wave of civil unrest in your lifetime. [Click here now to learn how.]( [Download This New Survival Guide Today!]( This short 54-page “Crisis Survival Guide” has everything you need to know to protect yourself and your family in times of crisis. Things like what foods to stock up on now, staying safe during periods of rioting and looting and more. [Click Here To Download Your Copy]( The Daily Reckoning Presents: The dollar still has legs, despite the Biden administration’s sabotage… ****************************** BRICS Currency Won’t Displace Dollar Overnight By Jim Rickards [Jim Rickards] 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. [Could Elon Musk’s New Project be worth trillions of dollars?]( Elon Musk has predicted that his new venture [“X-9840” could be “a multi trillion dollar company…”]( As big as Microsoft… Apple…and Nvidia… Companies gave their early investors a chance to become millionaires over the long term, starting with just $1,000. This has nothing to do with electric vehicles…Self-driving cars, rockets, brain chips, or satellites. [Click Here To See The Details]( 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. Regards, Jim Rickards for The Daily Reckoning [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) P.S. Picture it: The streets are mayhem… Long lines at gas stations… Everyday supplies at the grocery store are cleaned out… In the parking lot outside, you see a large guy yelling at an elderly man… They’re out of the cars now. The big guy has something in his hand, and rage in his eyes. Things look like they could get out of hand at any moment. Is this disturbing scenario about to play out in cities across the country? Maybe we’ll get lucky and it won’t happen. But what if it does? Well, you need to be prepared because it could be the biggest wave of civil unrest in your lifetime. [Click here now to learn how.]( Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) [Jim 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. [Paradigm]( ☰ ⊗ [UPDATE PREFERENCES]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your The Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [click here,]( or manage your newsletter preferences [here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@dailyreckoning.com. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. We allow the editors of our publications to recommend securities that they own themselves. However, our policy prohibits editors from exiting a personal trade while the recommendation to subscribers is open. In no circumstance may an editor sell a security before subscribers have a fair opportunity to exit. The length of time an editor must wait after subscribers have been advised to exit a play depends on the type of publication. All other employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. Please read our [Privacy Statement.]( If you are having trouble receiving your The Daily Reckoning subscription, you can ensure its arrival in your mailbox by [whitelisting The Daily Reckoning.](