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The frenzied pace of gold buying by central banks all across the globe evidences an increasing push toward a return to the gold standard, although exactly how that might unfold remains to be seen. The three most commonly touted possibilities are: A gold-backed Chinese yuan/renminbi, A gold-backed Russian ruble, A gold-backed BRICS currency
Market analysts differ on which of those three possibilities carries the highest probability. China, which has been the most voracious buyer of gold and silver for the longest period of time, is perhaps the country best poised to move to backing its currency with gold. In fact, it has already made a move in that direction in its negotiations with Middle East oil producers to go around the longstanding Petrodollar agreement and accept yuan in payment for oil. The offer it made, which was eagerly accepted, was one where the oil producer/seller could immediately convert to gold, through the Shanghai Gold Exchange, Chinese yuan taken in payment for oil.
However, the Chinese have always been notoriously cautious and measured in their actions. Therefore, they may not wish to be the country that triggers the worldwide financial cataclysm that would likely result from announcing a formal return to the gold standard. There’s also the fact that, while they’ve been steadily rolling US Treasuries off of their balance sheet, they still hold around $700 million worth (that’s way down from their former balance of approximately $3 trillion in US debt securities). Making the yuan gold-backed could, overnight, send the value of those US Treasuries plummeting toward $0. So, the Chinese might want to at least wait until they’re completely divested of US debt before making such a move.
Russia, on the other hand, has already completely divested itself of US investments. And, like China, it has already amassed a large stockpile of gold reserves. Rick Rule, head of Rule Investment Media, argues that Russia is likely more motivated than China to make its currency gold-backed. Why? – Simply because the Russian ruble isn’t a currency that has commanded widespread respect, trust, and acceptance. Global financial perception regarding the ruble is largely negative, while, in comparison, the take on the Chinese yuan is more neutral – neither particularly good nor bad.
Backing the ruble with gold would give it instant international credibility, in addition to increased value. Another weight on the scale for Russia is the fact that Vladimir Putin’s chief financial advisor, who’s also the Commissioner for Integration and Macroeconomics within the Eurasian Economic Commission, the executive body of the Eurasian Economic Union, Sergey Glazyev, has long been one of the strongest advocates for a return to the gold standard.
Bringing Sergey Glazyev into the conversation leads us to option number three – a new BRICS settlement currency backed by gold. In fact, Glazyev co-authored a paper exploring that option following the 2022 BRICS summit. Even more interesting is the fact that Dilma Rousseff, former president of Brazil and head of the BRICS New Development Bank, has said that she, Putin, and Glazyev have, “in principle”, agreed on a such a new BRICS settlement currency, to be called the “unit”. The unit would be 40% backed by gold and 60% backed by a basket of BRICS currencies, with no single BRICS currency comprising more than 30% of the basket.
Gold market analyst Jim Rickards favors the idea of a new BRICS currency as the best candidate for initiating a return to the gold standard. One point in its favor is that – rather than just a single nation with a single currency – a gold-backed BRICS currency would already have several nations on board in making the move back to the gold standard, which would strengthen its power and legitimacy. Rickards argues against the possibility of China or Russia converting their own currency to being gold-backed, pointing out that neither China nor Russia have the necessary bond market infrastructure components required for a reserve currency.
There’s already a seeming test run for the BRICS unit in operation – Project mBridge. Project mBridge is a financial experiment being conducted by the Bank for International Settlements – the BIS – which also just happens to be the financial authority that recently reclassified gold as a Tier One financial asset.
Project mBridge appears to be driven both by (1) the push toward gold and the importance of essential commodities, and (2) the desire to provide an alternative to the SWIFT banking system that has been weaponized by the US. The project, while operating officially under the auspices of the BIS’ Innovation Hub, located in Hong Kong, is largely directed by China, and is outside the reach of US financial sanctions.
There were originally four participants in the project –. The Digital Currency Research Institute of the People’s Bank of China (PBoC), the Hong Kong Monetary Authority (HKMA), the UAE’s central bank (CBUAE), and the Bank of Thailand (BoT). Saudi Arabia, the newest member of BRICS, had its central bank – SAMA - jump on board with the project earlier this year.
Listening to, or reading, a description of the details of Project mBridge can quickly become a bit confusing and mind-numbing, so I’m going to do my best to just give you the basics here. Essentially, Project mBridge offers an international payment system that is an alternative to the SWIFT system that is commonly used for international commerce in the West. It accomplishes this by creating a digital currency platform for participating banks to utilize for cross-border payments. The platform was constructed using the mBridge Ledger, an Ethereum-compatible ledger technology network that was created by China’s Digital Currency Research Institute.
(Is it merely a coincidence that the mBridge platform is not compatible with the US dollar? – I doubt it.)
The aim of the mBridge Project is two-fold:
The CBDCs that the project uses for transactions and settlement very closely resemble the idea of the BRICS “unit” currency under consideration by Putin, Glazyev, and Rousseff. In addition to laying the groundwork for a - possibly gold-backed – BRICS currency, the key takeaways from Project mBridge are as follows:
The United States has the North Atlantic Treaty Organization (NATO), its collection of European economic and military allies. China now has NATO times three – the BRICS organization, the Shanghai Cooperation Organization, and the Belt and Road Initiative.
Let’s take a look at each of them.
With the addition of five new members - Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE – thus doubling its size, the BRICS economic cooperation group is rapidly expanding in economic clout and international financial market importance. Dozens of other countries have applied for membership and are eager to join the alliance. Lots of eyes will be on this year’s October BRICS summit meeting, hosted by Russia, to see which of the eager applicants for membership the existing group decides to accept. (China has stated that, in considering new members, the group will focus on what applicants offer in the way of natural resources and trade routes.)
Altogether, the BRICS nations now encompass about half of the world’s population and account for roughly half of world trade and more than half of global GDP. The BRICS countries are resource rich – and with the new members, only getting richer, adding significant sources of oil and key strategic minerals such as graphite. The group now includes three of the five largest oil producers in the world (oh, and also has two of the world’s three largest nuclear arsenals – just sayin’…). The BRICS countries are, collectively, the largest producers and exporters of grain worldwide. (And, hey – food is important.)
The natural resources riches of the BRICS countries is no minor detail. The BRICS nations don’t want US Treasuries – their focus is on gold and other commodities. They’ve got the hard commodities, the soft commodities, precious metals, base metals, rare earths…and key trade routes and increasing military might. Hungarian economist and member of the Shadow Banking Colloquium of the Institute for New Economic Thinking (INET), Zoltan Pozsar, has said, in an obvious jab at the US and the West, “You can print money, but you can’t print oil, iron, or wheat. Bretton Woods III (a theoretical new financial order much bandied about by the World Economic Forum) will be all about commodities.”
China has certainly gotten that message. In addition to buying up gold and silver at a record pace, and being the world’s largest gold producer and second-largest silver producer –
There’s no question that the ultimate aim of the BRICS organization is to establish itself as an economic and financial juggernaut designed to wrest control of world markets from the US and the West in general. In yet another move undermining the hegemony of the US dollar as the world’s reserve currency, Brazil is now accepting payment in Chinese yuan for the tons of grain it sells to China.
The group just recently announced its intention to establish a BRICS grain exchange. The creation of a BRICS-run commodity trading exchange could represent a major shift in economic power. A Russian BRICS official recently issued the following statement - “The BRICS grain exchange is likely to change the face of the world grain market tremendously…Although US exports no longer dominate the market like they used to, global grain prices are still primarily determined by the Chicago commodity exchange. Moscow seeks to move away from trading grain for US dollars in favor of the national currencies of the BRICS member states. The BRICS countries are the largest producers and exporters (of grain), but have no leverage to influence the price of the agricultural commodities critical for their food security. The BRICS commodity exchange will solve this problem.”
As BRICS continues to expand, and if it successfully establishes a BRICS currency, the following scenario begins to unfold: once you get 15 or 20 countries in the BRICS group, then you’ve basically duplicated the euro scenario – only with a much larger “shopping mall”. So, then you can have, for example, Russia selling oil to India - but instead of getting payment in rupees that it has little use for, it gets paid in a BRICS currency that it can then use, with the mBridge technology, to buy semiconductors from China.
Yet another brainchild of China, in partnership with Russia, the Shanghai Cooperation Organization (SCO) represents the biggest regional economic and military organization in the world. It’s huge, including approximately 80% of the geographical area of Eurasia, half of the world’s population, and approximately one-third of global GDP. In addition to China and Russia, its membership includes India, Pakistan, Iran, Kazakhstan, and Uzbekistan.
The SCO has launched dozens of projects in the areas of banking and finance, transportation, energy, communications, and security. (One of its key components is the Regional Anti-Terrorist Structure - RATS).
China has utilized the organization to significantly expand its military presence and influence in the region. It has, for example, successfully pressured some member states to force the closing of US military bases that were located in their countries. Vladimir Putin has touted the SCO as “one of the key pillars of a fair, multipolar world order”. For “multipolar”, read “not just run by the West”. SCO members have regularly conducted joint military exercises. Rather ominously for the West, many of these operations have featured China and Russia participating in war games together.
As with the BRICS group, the Shanghai Cooperation Organization is engaged in multiple joint economic projects. Very early on its existence, China successfully pushed to establish a free trade zone within the SCO member states. Current endeavors include joint energy projects, such as exploration of hydrocarbon reserves and water resources. The SCO Interbank Consortium was created to help fund these and other projects.
In many ways, the SCO is a mirror organization of BRICS. Like many of the countries that make up the BRICS group, many member states of the SCO are countries that are rich in natural resources, but economically underdeveloped. In a 2019 SCO summit meeting, Pakistan’s Prime Minister, Imran Khan, pushed the idea of conducting more trade in local currencies, rather than in US dollars. That was followed, in 2022, by a suggestion to create a unique SCO currency. (Sound familiar?)
A notable event in the organization’s history occurred when the US applied for membership in the group…but was rejected.
On its surface, China’s Belt and Road Initiative (BRI – everything has an acronym these days) is, primarily, a massive series of infrastructure projects that are designed to significantly improve China’s trade routes and supply lines.
Underneath the surface, its also part of China’s continued grab for gold, silver, and other commodities, and part of its global efforts to unseat the US dollar as the world’s reserve currency and the US as the world’s dominant economic power – while simultaneously boosting the prominence of China’s own currency and enhancing the scope and power of its global economic leverage.
The BRI plan is massive in scope, covering more than 150 countries, which have a total GDP of more than $40 trillion. It has helped China to develop more than $3 trillion in international trade with the countries that the Belt and Road Initiative runs through. One of the largest BRI projects is the China-Pakistan Economic Corridor (CPEC). It involves numerous highway, railway, power plant, and pipeline projects along a 3,000-kilometer corridor that extends from Kashgar, in China, to the port city of Gwadar, in Pakistan. Smaller – less ambitious and less expensive - projects run along the lines of science and technology development, and increasing digital connectivity.
The “belt” part of the initiative aims to extend China’s trade routes in two directions, first, extending through Central Asia to Europe, and, second, extending throughout South and Southeast Asia. The “road” part of the plan is primarily aimed at helping China obtain access to major ports in Asia, Africa, and Europe. Benefits of the BRI for China include expanded export markets, reduced tariff and transportation costs, and increased acceptance of the Chinese yuan/renminbi as an international currency.
China has made investments in the BRI totaling more than a trillion dollars. Much of the financing for such projects has come from the Chinese Development Bank (CDB) and the Export-Import Bank of China (EXIM). China’s investments may show a sizeable return on investment in the long run. Increased trade and connections with China will likely mean many countries becoming more dependent on China for essential goods, thus increasing its overall economic leverage. In many poor, but rich in natural resources, countries China may be able to negotiate sweetheart deals to help it acquire more of the valuable commodities that it seeks. There are, for example, an abundance of mining resources in African countries that welcome China’s willingness to help give them a leg up in economic development. (“Tell you what – we’ll loan you $75 million for a highway project – and you don’t even have to pay us back in cash – we’ll just take 20% of the production of that gold mine over there for the next 20 years.”)
So, what’s the significance of all these actions and major economic forces – actions that are commonly ignored by the financial press in the West? I see part of my job here at True Gold Republic as being to help you stay aware and informed of what’s really going on in the financial world. I’ll bet some of you had probably never even heard of the Belt and Road Initiative before reading this article – yet it’s a major campaign, more than a decade old, that has hugely increased China’s economic power and influence over dozens of countries and thousands of square miles across Europe and Asia.
To quickly recap, there’s obviously pressure, driven largely by China and Russia, building across many parts of the globe for a return to the gold standard, be it in the form of a gold-backed ruble, a gold-backed Chinese yuan, or a gold-backed BRICS or SCO currency. Even countries not advocating for the gold standard, such as the US, have their central banks buying up every bit of gold bullion they can.
Other important movements include:
China seems to have a firm grasp on the future of the global economy. It is, effectively, the head, or at least co-head, of not one, but three far-reaching economic cooperation organizations, whose members collectively account for more than half of total global GDP. China has, at the very least, assured its future significant participation in the production, acquisition, and provision of goods and services worldwide. It is building up the world’s largest stockpile of essential commodities…and has its foot on the neck of the US dollar.
Don’t get me wrong. I’m not trying to paint China as a villain here. China is just, like any other nation, pursuing its own best interests. And part of those interests lies in reducing the global economic power of the US and the US dollar. In fact, if anyone’s a villain here, it’s the United States, through its weaponization of the dollar and US Treasuries. Faced with massive financial sanctions and outright theft of assets, what choice do Russia, China, and other countries have but to do everything possible to eliminate exposure to the US dollar by establishing financial and economic alternatives? The US largely has no one to blame but itself for the current push toward de-dollarization.
Meanwhile, the old adage is, “He who has the gold, rules”. Well, China has the gold, the silver, the rare earths, the exchanges, and pretty much everything else in essential commodities markets. If Zoltan Pozsar is correct in his prediction that the world’s financial future will be “all about commodities”, then it will likely also be all about China.
Sources:
https://www.investopedia.com/terms/b/brics.asp
https://www.csis.org/analysis/six-new-brics-implications-energy-trade
https://en.wikipedia.org/wiki/MBridge
https://www.thegoldobserver.com/p/nations-in-the-mbridge-project-are
https://www.freiheit.org/latin-america/brics-enlargement-non-event-or-stage-victory-against-west
https://asiasociety.org/australia/why-russia-wants-brics-grain-exchange-and-what-it-means-world
https://www.producer.com/news/new-brics-grain-exchange-idea-gains-traction/
https://en.wikipedia.org/wiki/Shanghai_Cooperation_Organisation
https://www.econlib.org/library/Enc/GoldStandard.html
https://www.ledgerinsights.com/mbridge-cross-border-cbdc-project-mvp-trials-timing/
https://en.wikipedia.org/wiki/BRICS
https://www.visualcapitalist.com/mapped-the-expansion-of-the-shanghai-cooperation-organization/
https://www.bbc.com/news/world-asia-china-67120726
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