The Tipping Point

3 Is the Dollar Facing a Tipping Point? www.LearCapital.com The term “fiat” refers to currency that has value because a government or authority declares it does, rather than having intrinsic value based on a physical commodity like gold or silver. Fiat money is essentially a representation of trust in the issuing government or authority. As long as people continue to have confidence in the stability and credibility of the issuing authority, fiat money can function effectively as a medium of exchange, a unit of account, and a store of value in an economy. But what if that confidence begins to crumble? It is important to recognize that a FIAT CURRENCY as a global reserve is a relatively new phenomenon, historically speaking. Precious metals had critical and central roles in currencies and finance for 8,000 years of recorded human history. The fully fiat dollar has only been around since 1971. There is no logical reason to believe the world’s patience and trust in the U.S. dollar will last indefinitely. In fact, we might be reaching a critical tipping point right now. Weaponizing the Dollar Sanctions against Russia got the globe’s attention. It wasn’t just limitations on trading certain items. Russia was kicked off the Society for Worldwide Interbank Financial Telecommunication network (SWIFT) which is the platform on which international banking is conducted. They also had their foreign exchange reserves frozen. Weaponizing the dollar 1 was not a great move for its reputation as trustworthy, reliable and apolitical. The sanctions against Russia were a wake-up call to the rest of the world. The United States can and will use the power of the dollar as an enforcement mechanism in foreign policy. Having a competing, parallel system to defend against this is existential now, and BRICS are actively working on it according to some reports. BRICS Bucks The 5 main BRICS countries – Brazil, Russia, India, China and South Africa - represent 3.2 billion people - 40% of the world’s population. How long can the United States defend the dollar against them plus the other 41 countries all wanting alternatives 2 to the U.S. dollar? A BRICS currency could be similar to the Euro but supported by larger economies not joined by borders. A BRICS currency’s footprint would span the globe and represent a very diverse ecosystem of goods and services produced by the member nations, increasing its appeal to outside countries as well. If this were to materialize, it wouldn’t dethrone the dollar overnight, but because these countries together have a larger GDP than the entire G7, it could set up a multi-polar economic playing field. In fact, BRICS nations have already set up their own competition for the IMF called the NDB, the New Development Bank. They’ve promised that 30% of their loans 3 will be in the local currency of the country they are lending to. This is very appealing and promises like these are driving the expansion of the BRICS+ bloc. It now includes Egypt, Bangladesh and the UAE. Argentina, Algeria and Iran have also formally applied. Uruguay, Turkey, Indonesia, Mexico and Saudi Arabia have all indicated interest as well. That is a stunning list of countries looking to de-dollarize. There is much talk of gold being involved 4 in the backing of this new currency. Many are wising up to the folly of backing currencies only on the word of a government - any government. And why wouldn’t these countries want the strength of gold behind this new monetary powerhouse they are exploring?