Slowly but Surely the World is De-Dollarizing

FDR devalued the US dollar in 1933

De-dollarization is becoming more evident today than ever before. Before 1933, the US adhered to the gold standard, which meant that the value of the US dollar was tied to a specific amount of gold. However, facing financial difficulties, President Roosevelt signed Executive Order 6102 on April 5, 1933. This order required US citizens to deliver most of their gold coins, gold bullion, and gold certificates to the Federal Reserve in exchange for US dollars. The order also prohibited the private ownership of gold for most purposes, except for small quantities used in jewelry and industry.

Subsequently, the Gold Reserve Act of 1934 was enacted, effectively devaluing the US dollar in terms of gold. The act increased the price at which the US Government valued gold from $20.67 to $35 per ounce. This devaluation helped stimulate the economy by making US exports more competitive and encouraging inflation.

The abandonment of the gold standard during this period marked a significant shift in US monetary policy and had implications for the global monetary system. It allowed for greater flexibility in monetary policy but also contributed to the end of the gold-backed international monetary system and set the stage for the development of the modern fiat currency system.

The US dollar became the world’s primary reserve currency in the aftermath of World War II with the Bretton Woods Agreement. In 1944, representatives from 44 Allied nations gathered at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, USA, to establish a new international monetary order.

The Bretton Woods Agreement makes the US dominant in world trade

Under this system, other major currencies were pegged to the US dollar, and the dollar itself was pegged to gold. The US was the only nation that could print the globally accepted currency, and countries had more flexibility than they did with the old gold standard. The Bretton Woods Agreement made the United States dominant in the world economy.

Richard Nixon ended the gold window in 1971

On August 15, 1971, US President Richard Nixon announced a series of economic measures, including the suspension of the convertibility of the US dollar into gold. This event is often referred to as the Nixon Shock. Nixon’s announcement marked a shift to a system of fiat currencies, where the value of a currency is not tied to a physical commodity like gold. This move had significant implications for the global monetary system, leading to increased volatility in exchange rates and changing the dynamics of international trade and finance. The US dollar, despite no longer being directly linked to gold, continued to serve as the world’s primary reserve currency due to its importance in global trade and finance.

The US Dollar became petrodollar in 1974

In 1974, the United States reached an agreement with Saudi Arabia, the largest oil producer within the Organization of the Petroleum Exporting Countries (OPEC). The agreement, commonly known as the petrodollar recycling deal, stipulated that Saudi Arabia and other OPEC nations would price and sell their oil exclusively in US dollars. In return, the United States agreed to provide military protection and support to these oil-producing nations.

The US allows its citizens to own gold again in 1974

The restrictions on private ownership of gold in the United States were lifted in 1974. On December 31, 1974, President Gerald Ford signed into law the Gold Reserve Act of 1974, which effectively repealed the restrictions on private ownership of gold. This act allowed US citizens to own gold coins, gold bullion, and gold certificates without the limitations imposed during the period of the gold ownership restrictions. The change reflected a shift away from the policies established during the Great Depression era and marked the end of the government’s direct control over private gold ownership in the United States. The US didn’t start making Gold and Silver Eagles until 1986 so the South African Krugerrand was a favorite for the gold old timers.

The Shanghai Cooperation Organization contributed to de-dollarization

The Shanghai Cooperation Organization (SCO) is a political, economic, and security alliance founded in 2001 by China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan. The primary objectives of the SCO include promoting regional cooperation on security-related issues, maintaining stability in the region, and fostering economic and cultural ties among member states.

Over the years the SCO has expanded, with India and Pakistan becoming full members in 2017. Before full membership, they had been observers since 2005. Several other countries, including Iran, Afghanistan, Belarus, and Mongolia, have observer status or dialogue partner status within the organization. The SCO reflects the growing influence and collaboration among its member states, particularly in the context of changing geopolitical dynamics in Central Asia and beyond. While it primarily focuses on regional issues, the organization’s activities and discussions also have implications for broader international relations.

The Eurasian Economic Union supports de-dollarization

The Eurasian Economic Union (EAEU) is an economic and political union consisting of several countries in Eurasia. It was established to promote economic integration and cooperation among its member states. The EAEU builds upon the foundation laid by the Eurasian Economic Community (EurAsEC), which was in existence from 2000 to 2014. The member states of the EAEU are Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia. These countries have agreed to coordinate their economic policies and integrate their economies more closely.

The Belt and Road Initiative is all about “local currencies”

The term Belt and Road refers to the Belt and Road Initiative (BRI), also known as the Silk Road Economic Belt and the 21st Century Maritime Silk Road. It is a large-scale infrastructure and economic development project launched by the Chinese Government in 2013. The initiative is named after the ancient Silk Road trading routes that connected China to the Mediterranean and other parts of Asia, Africa, and Europe.

One of the primary goals of the Belt and Road Initiative is to promote infrastructure development in participating countries. This includes the construction of ports, railways, highways, pipelines, and other key infrastructure projects. The initiative seeks to boost international trade and economic cooperation by creating more efficient transportation routes and fostering economic ties between countries along the Belt and Road. The initiative involves policy coordination and collaboration among participating countries to address challenges and promote mutual development. This includes efforts to align regulatory standards, streamline customs procedures, and enhance financial cooperation. In addition to economic and infrastructure development, the Belt and Road Initiative aims to promote cultural exchange and people-to-people ties between participating countries.

The New Development Bank also supports de-dollarization

The New Development Bank (NDB) is a multilateral financial institution established by the BRICS countries—Brazil, Russia, India, China, and South Africa. The bank was created to support infrastructure and sustainable development projects in emerging economies. The idea behind the establishment of the NDB was to provide an alternative source of funding for development projects and reduce the dependency on traditional Western-dominated financial institutions like the World Bank and the International Monetary Fund (IMF).

The decision to establish the NDB was made at the 5th BRICS Summit in Fortaleza, Brazil, in 2014. The bank officially opened in Shanghai, China, in 2015. The primary purpose of the NDB is to mobilize resources for infrastructure and sustainable development projects in BRICS countries and other emerging economies. The bank aims to address the infrastructure financing gap and promote sustainable development. The NDB is part of a broader set of initiatives aimed at promoting South-South cooperation and fostering development in emerging and developing economies.

BRICS are taking de-dollarization to the next level

BRICS is an acronym that refers to a group of five major emerging national economies: Brazil, Russia, India, China, and South Africa. These countries are known for their significant influence on regional and global affairs, and they come together as a group to collaborate on various economic and political initiatives. The term BRICS was initially coined in 2001 by economist Jim O’Neill to represent the growing importance of these economies in the world.

BRICS has now added Argentina, Egypt, Ethiopia, Saudi Arabia, Iran, and the United Arab Emirates. Venezuela has been rumored to be interested in joining BRICS. Possibly twenty or more nations are petitioning to join BRICS. BRICS is growing stronger by land, sea, and canal. BRICS will eventually announce their currency backed by tangible assets like gold, silver, and oil. What are we backing our currency with? That’s correct, we are backing it by nothing except a lot more debt.

The US dollar as the World Reserve Currency is slipping away. The petrodollar status of our dollar is slipping away. A good part of the rest of the world is laughing at us. They see the deficit spending. They see the debt. They see the cost annually to service our debt is now over a trillion dollars. Our leadership is embarrassing. The US financial sanctions are a factor for these other countries that are now doing business together in their own “local currencies.” Our government has shown the ability to use the US dollar as a weapon. Other countries are tired of being bullied by the US for decades. This must be a rallying cry for these nations that are now doing business together outside of the US dollar.

How will this affect our dollar? If other countries continue to be net sellers of US Treasuries, then the lack of demand for US Treasuries will continue and the bond market is at risk of blowing up. The US system cannot function without new debt and new money printing. The US bond market is key to the entire global financial system. All the actions of de-dollarization by other countries mean less demand for US debt and US dollars. Less demand means lower value. Our dollar will continue to lose significant purchasing power as the world de-dollarizes. Every single American should be thinking about what this means to their savings and their investments. Every single American should be diversifying a portion of their paper assets into tangible assets like gold and silver. Give us a call to discuss your situation.

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