Thank you to both sites for posting our most recent article – ‘$35 Trillion, the PetroDollar, and Dying Western Influence’. Due to the volume of questions regarding consumer actions in light of the realities discussed, we’ll be posting a separate column on that tomorrow.
The ‘news’ is agog the United States’ national debt just crossed yet another ugly milestone. $35 trillion. Long-time readers of this (and many other columns) know this milestone was just a matter of time. And, speaking of time, the situation is now in what we call the compression phase. In 2016, the national debt was just under $20 trillion. In 2020, it was just under $27 trillion. Now, in late July 2024 we’re at $35 trillion. That’s roughly a 75% increase in the debt level in roughly 8 years.
Looking back for comparison, in 2004, the national debt was $7.3 trillion. In 2008, it was just over $10 trillion, and in 2012, it was just over $16 trillion. During that 8-year period, the increase was 119%. While many would celebrate the fact that the percentage growth has actually dropped, we have to look at the sheer magnitude of the increases. The 2004-2012 period saw roughly $9 trillion in new debt whereas the 2016-2024 period has seen a $15 trillion increase. We chose these two periods for good reasons. The first period had the 2008 financial crisis, bailouts, and stimulus borrowing and the 2016-2024 period had the pandemic borrowing. Two major dislocations.
https://www.investopedia.com/us-national-debt-by-year-7499291
This is a near perfect illustration of the diminishing purchasing power of the dollar. The public didn’t notice it much in the first period, for reasons we’ve already written about. However, the spillover in 2020 to the real economy certainly got people’s attention. 1970s ‘inflation’ was back. However, the monetary inflation of the 70s never stopped. It only intensified. Keeping the fresh money in the financial markets and real estate fooled most people. That’s ‘good inflation’. However, when the same thing happens on the other side of people’s balance sheets? Not so good.
But even the above statement is paradoxical. Much like government, the people have been on a debt binge as well. Their assets certainly went up, but so did their liabilities. This would have been abhorred 100 years ago, but we’ve been conditioned to believe that frivolous debt is normal. And perhaps it is now normal since most people do it and that is the definition of normal after all. But that doesn’t make it smart. Now, let’s consider some of the repercussions below.
The Deathknell of the PetroDollar
This wanton accumulation of debt certainly hasn’t gone unnoticed by the rest of the world. Even more so, the power the USGovt wields with regards to the dollar to bend the rest of the world to its will has gone even less unnoticed. Both of these realities have contributed to the rise of organizations like BRICS and the SCO, just to name a few. We find it comical that countries who refuse to play to the rules of the Western ‘rules-based order’ are always labeled as evil and targeted by sanctions regimes using the dollar as a weapon. We’re not naive; we’d be hard-pressed to find a government anywhere that truly acts in the best interests of its people, but, failing to play by the ‘rules-based order’ resulting in economic isolation is beyond hypocritical.
There has been much talk about Saudi Arabia recently and its sale of oil in dollars. It has been alleged that the Saudis ended this agreement, accompanied by vehement denials of such. Ostensibly, there was never a formal agreement, rather more of a handshake quid pro quo arrangement. However, we don’t believe that Saudi Arabia is the most important player in terms of supporting the PetroDollar anymore, their aspirations to join BRICS notwithstanding. The world has changed – again. As of February 2024, BRICS countries controlled about 42% of global oil production, give or take a point or two depending on the source. This is another point that is vehemently contested depending on who you listen to. BRICS continues to grow and with it, the percentage of oil production. The point of BRICS – to this point anyway – is to allow partners to make trades in local currencies. There has been talk of a basket, an actual BRICS currency, and even a digital BRICS currency. We wrote about this final item in our last update and it’s very concerning, but the whole point of BRICS was to give countries options. Non-dollar options to be specific.
What does the PetroDollar have to do with the national debt then? The PetroDollar effectively allowed the US to create dollars, buy oil with them, then have the sellers of the oil buy USGovt debt with the oil receipts. This resulted in the exportation of monetary inflation. The US could inflate the money supply and have enough stay offshore so as not to create price inflation domestically. As more countries shy away from the dollar, that mechanism is going to continue to be eroded. If we’re going to keep borrowing to spend (without SIGNIFICANTLY increasing domestic production of exportable goods) then we’re going to have price inflation. Check that box. It’s here and it’s not going away. You’ve all noticed it by now. Psychologically, people were ok with the normal 4-5% per year rate that persisted since the 1980s. It wasn’t even noticed; it was background noise. The world has changed yet again, and we hear people (both in the US and UK/Europe in particular) complaining about runaway inflation.
The US did several big things from a policy perspective to mask the effects of monetary inflation. It absolutely destroyed US manufacturing. Not so much on the capital goods side, save steel as one example, but on consumer goods. We essentially financed China’s industrial revolution. Now we’re complaining that they’re overproducing. What exactly did we expect to happen? While many will opine that this is due to incompetence on the part of US policymakers, we know better. These people are not stupid. They knew exactly was going to happen and you’re inclined, you can go read Foreign Policy and other such journals from back then and see exactly what we’re talking about.
The world is changing – again. Now that we’ve stripped our economy of most consumer goods manufacturing (go into WalMart and browse the consumer goods sections and see how much is made here) we’re dependent on others for everyday goods. Perhaps ironically, we’re at all-time diplomatic lows – economically and otherwise – with these same countries. And now we’ve got the price inflation anyway. Chickens always come home to roost.
It’s not just the PetroDollar that is fading it’s the ConsumerDollar as well. These countries don’t want our debt for numerous reasons, one of which is the fact that the value of our currency is inherently unstable. Probably second (or first, depending) is the arbitrary and capricious overuse of sanctions to induce ‘good behavior’. We find it telling that the rest of the world doesn’t try to tell us how to live, but we have no problem doing exactly that to them.
Dying Western Influence
This will not be want the powerbrokers and elite want to hear, but Western, unipolar influence is dying. Partly of its own volition as the monetary cycle ends (see previous reserve currency regime lifespans) and due to the pernicious aggression of policymakers, especially within the USTreasury where sanctions are concerned. Sanctions are not generally understood by the public, so we’ll use an analogy. Think of a kids’ clubhouse. It has many doors, all with locks. Preferred members get keys. Tolerated acquaintances of preferred members are given access as long as ‘accompanied’ by said member. Outcasts are afforded neither of these benefits. SWIFT – the major dollar settlement system used by the West is similar in nature. So long as you follow the ‘rules-based order’ you can use SWIFT and enjoy the benefits. Cross Washington, DC and you get cut off. SWIFT is a dollar-based trade settlement system. Get cut off from SWIFT and the logic goes that you are instantly isolated. That is much less so the case now than in the past.
Many also think BRICS is a new phenomenon. It is not. We’ve mentioned this before, but for the benefit of new readers and/or people just becoming aware of the goings on, the concept of BRICS has been around for more than two decades now. In 2006, a book series focusing on the top ten stories of each year that WERE NOT covered in the mainstream news featured Iran’s intention to create an oil bourse, which would accept Euros for payment of oil. We can see what has transpired since then. We’ll readily allow that we’re focusing almost exclusively on the economic realities because that’s where our expertise lies and that there are many other moving parts behind these moves. What we’re trying to accomplish here is explain to the world one aspect of this complicated mess. Money is power and since money is perhaps this world’s greatest motivator, we feel examining the geoeconomic perspective is crucial.
Conclusions
The question at the front of most people’s minds is ‘How will this affect me if I hold dollars?’ Or perhaps a business that transacts in dollars. With the dollar standard era ending, even more changes will be taking place. We’re firmly in the MMT track (see our in-depth article on that here). The only difference is our government borrows money from the central bank because the central bank is private, unlike the model proposed by Knapp in 1905. Practically speaking it doesn’t make much difference. The dollar is losing value rapidly now. More and more countries are seeking to divest. There may come a time in the not too distant future where countries and individuals who rely on others accepting dollars may well have to convert to a different currency to settle trades. Price inflation in the US/UK/Europe and elsewhere is likely to accelerate as the transition gains velocity.
And just to be clear – these various military confrontations globally have one thing in common – the dollar standard and the protection thereof – although again there are many other moving parts involved. That’s all we’re going to say about that. Follow the money. Who benefits?
In 2008 Andy wrote an article entitled “Gold – The Opportunity of a Lifetime‘. The dollar ‘price’ of gold is now three times what it was when the article was penned, but the title of the article still holds true. You’ll need to exchange more of your folding money to get gold (silver is also a good choice), however, if current trends continue, you will be able to hold your purchasing power. Or you could take your chances in an overinflated, rigged, and completely disconnected stock market. That said, we would not be surprised one bit if the DOW, for example, hit 60,000 or more before the cycle ends.
In fantasy stories, the dragon is always most dangerous once it has been dealt that lethal blow. The dollar was dealt a lethal blow a long time ago and continues to be fraught with more and more risks as we progress through this inevitable transition.
EOF – Sutton / Mehl
We wouldn’t go as far as to call the recent BRICS summit a non-event, but the clarity many of us had been hoping for at the end of August has not yet emerged. The main feature of this year’s summit was to add additional countries – 14 members now in total with many more waiting in the wings.
Adding all of these countries at once would have been impractical – and difficult. However, it’s not the actual ‘official’ membership rolls that matter – it’s the spirit of the agreement behind the countries who have already entered – and those who will enter moving forward.
This trading / currency bloc has a largely singular purpose – to remove reliance on a weaponized US Dollar. While it’s true that many in the US and Europe don’t perceive the western financial system as a weapon, much of the rest of the world does. Our perceptions in this instance don’t matter. It is the perceptions of the growing BRICS bloc that matter. A secondary, but related, goal is to move towards multilateralism on a variety of fronts. We’re going to focus on the economic and financial aspects of this.
Simply put, these countries are tired of being told what to do. They’re tired of being told they have no self-determination. They’re tired of being sanctioned when they don’t do as the collective west wants. They’re tired of the colonialist French (just one example) taking natural resources while the people in the countries who provide these resources live in abject poverty. This is perhaps the most important takeaway of the big globalization movement in the 1990s and early 2000s – the goal was NEVER to raise the living standards in these countries, but merely to use whatever levers could be applied to get the resources from these countries for use by the ‘first world’ nations. Again, they’re tired of it. This alone is the primary fuel for the BRICS movement. They have united against a common enemy – the weaponized US Dollar, SWIFT, and the many other structures that have arisen from the USDollar’s hegemony.
Put in this particular light, it would make sense that BRICS would introduce some type of currency. We have always assumed that it would be gold-backed. Why? Another worthless paper currency isn’t going to have much appeal – if any. If there is to be a new currency regime, there must be something unique about it that provides it with the necessary credibility to function. For many years, we economists have felt gold-backing would provide that credibility.
However, the landscape has changed over the past several years and as such, we need to revisit our prior assumptions. Could the mere disdain for the USDollar and it’s financial system be enough to give even an unbacked new currency credibility? A few years ago, we’d have opined in the negative. Now? It seems possible that perhaps a backing isn’t really necessary. At least not at the outset. Countries are already cutting deals to exclude the dollar using national currencies – none of which are backed by gold or any other commodity money. The resource-rich countries might argue there’s an implied backing – extracting natural resources requires tremendous amounts of economic activity. Could that activity in and of itself be enough to provide credibility? Yes – because that’s what’s going on right now. Again, it comes down to perceptions. If these countries view national currencies as less risky than the USDollar system, then that’l how they’re going to behave.
Do the BRICS nations have enough gold to back a currency either now or in the future? Absolutely. This is some of the information we were hoping to get out of this year’s summit. What we did see is a prototype of a potential BRICS note. While the providence of the images we’ll show cannot be 100% verified at this time, the rolling out of a new currency is an event that must be chronicled and studied. What we lack at this point is the clarity of the actual mechanics of the currency. Some questions are:
Who will issue the currency?
What (if anything) will back the currency?
Will non-BRICS members be required to obtain the currency in order to trade with BRICS members? This is huge for countries like the US
If the currency eventually used is a ‘hard’ currency (with commodity backing), what will be the peg?
If the bloc decides on national currencies instead, how will exchange rates be determined?
If there IS a BRICS currency, will it trade against other currencies in global FOREX markets?
If the bloc is serious about making this work, then we can answer some of these questions now. We can certainly opine on what ‘should’ be done. However, given the fluid nature of the situation – and the fact that the world is already mired in another regional (proxy) war and several smaller ones, the situation on the ground is likely to change rapidly and the attendant amount of disinformation will certainly be present – as is the case anytime countries are at war.
It is also worth mentioning that the BRICS countries do no agree on many other matters. Some of the countries have trading alliances with NATO nations for example, while others do not. Again, the single point of focus thus far is to (at a minimum) decrease dependence on the USDollar and its hegemonic system. Surely there are some current and aspiring members that would love to see the Dollar disappear from the world stage. Others are simply looking for a stable and reliable alternative.
Instead of ad hominem attacks, the US and the collective west would do well to take a huge step back and look at WHY the BRICS alliance started and why it is growing. From our vantage point, the wounds the Dollar has sustained have been largely self-inflicted, which is consistent with economic and monetary history. We simply don’t learn from history. Or, worse yet, there is enough hubris involved that policymakers think they can do things so much better now than in the past. Again, history indicates otherwise.
Andy Sutton / Graham Mehl – August 2023
The first portion of this piece, pertaining to personal experience with a political dissident is written entirely by Andy Sutton. The rest of the report is co-authored as is the case with much of the recent ‘My Two Cents’ work.
As a young first-year graduate student in 1997, I was required to take a class called ‘Banking and Monetary Policy’. As I registered, the course itself sounded rather interesting – my undergraduate work had been in the field of what is now called Molecular Biology. It was an introductory course, taught by a professor who was in exile from South Africa.
The professor (name withheld) had been involved with that country’s central bank at a moderately high level and had spoken out rather loudly against Apartheid. Facing the very real threat of either prison or execution, the professor sought political asylum in several countries. By a mere twist of fate, I had the honor of sitting under some of the best teaching I’ve ever experienced thanks to these unfortunate circumstances, full stop.
For many years now I, along with my writing partner Graham, have been discussing the concept of BRIC:, what the goals are, why there is a perceived need for an ex-dollar trade settlement mechanism, and what the possible implications are, not just for America, but the world as a whole. What started out as a seemingly benign desire to merely bring a parallel monetary system into existence has morphed into something that at least has the potential to be rather insidious.
Back to the Monetary Policy class. There were two pieces of required reading – G. Edward Griffin’s ‘Creature from Jekyll Island’ and William Greider’s ‘Secrets of the Temple’. These were in addition to the requisite text by Mishkin. That the not-so-USFed was found in a place called Jekyll Island is beyond ironic. Greider’s treatise was an 800-page behemoth, measuring almost 4 inches in width. I was immediately sucked in and the book read more like an exciting mystery novel than anything resembling academic reading. I couldn’t put it down. ‘Creature’ was more readable in the traditional sense and it examined in great detail the founding of what became the most odious monetary institution on Earth. It also examined the various crises that were intentionally caused to bring this institution into effect. I say ‘intentionally’ as 90% fact, 10% opinion. I refuse to believe that people could build massive fortunes through business acumen only to fall victim to incompetence where the idea of a central bank was concerned. Also, we can’t forget that these fortunes were also built on almost inhuman cruelty, theft, deception, and avarice as well. These people were smart and shrewd.
The professor spent as much time teaching us how the financial and economic world really works as going over the required material for the class, which consisted of analyzing monetary policy, the issuance of bonds, monetization of same when markets dry up, and banking topics such as reserve requirements, the FDIC, regulation and governance of the banking system, and the not-so-USFed’s ‘open market’ operations. We also spent a great deal of time discussing the President’s Working Group on Markets – aka the Plunge Protection Team, which came into existence after the crash of 1987.
We were shown how a gold-backed currency in the traditional sense is to the benefit of the People and to the detriment of the powerbrokers in any financial system. The gold-backed currency is honest money. Currency cannot be created arbitrarily or capriciously. In order to expand the currency aggregates, the issuing country MUST have the physical metal in reserve. The metal must be owned, not leased. Clear title must be held on the metal. In other words, pegging the value of currency to a commodity money demands discipline on the part of government, banks, and the structures that govern them. For those of you with a Biblical worldview, a look a Proverbs 11:1 tells the entire story in a single verse.
This class, in the summer of 1997, changed everything about my thinking moving forward. It was transformational in a way few things can be. This professor, who at risk of life and limb, dared to tell the truth. While I paid almost 1,000 1997 US dollars for the class, its true value was far in excess of that. Most of the students in my class were in full agreement. The discussions were vibrant and animated, with us peppering our professor with questions which were answered enthusiastically, with occasional theatrics such as standing on the teaching table and hurling the textbook at the wall to make a point. This was, by far, the best class I ever had the honor of taking. Due to it being a summer class, it was only 6 weeks. It covered a full semester’s material, but I believe to this day that I learned a lifetime’s worth in that 6 weeks. To my dissident professor, I give my utmost respect and gratitude.
Not to put too fine a point on it, this was teaching at its absolute finest. The learning was automatic, not forced. The material was not just read out of a sense of obligation, but was attacked with intellectual fervor and a desire for knowledge, and the thirst for truth. I have tried, albeit it mostly unsuccessfully, to teach this subject matter in this manner. Unfortunately, while I know the whole story of this professor, I lack the context of having been there and experiencing that story. I’ve had to find my own sources of passion in this regard, which thankfully has not been difficult. I will admit to having tossed several texts into the garbage can in front of my classes with extreme prejudice because they are full of lies.
If we dare to conjure a posterity worthy of passing on, the lies must stop.
Many years later I had the opportunity to have several discussions with G. Edward Griffin in the form of podcasts produced under the now defunct Contrary Investors Cafe. Unfortunately, I am unable to share them. While he’s been branded as a conspiracy theorist by much of the mainstream world, there is no ‘theory’ involved. His observations are provable and the monetary regimes of the world have done just that of their own volition time and time again. – AS
BRICS – Then and Now
We included the introduction above mostly due to the fact that South Africa is considered one of the founding nations of the BRICS alliance, albeit not one of the original four. We’ll allow the reader to draw their own conclusions and encourage further research on their part. This is not an all-inclusive report; it’s an overview and status update. We will hit the highs and lows to date, but the minutiae of the subject are far outside the scope of this report. This will likely become a series. We felt it necessary to get this first part out before the summit later this month.
The idea of BRICS came about entirely because of the USDollar’s rapid retreat from the monetary discipline of the gold standard. The monetary system became fiat – currency was and is created from nothing and assigned value based on an extinct concept – the full faith and credit of the USGovt. Frankly, the USGovt has blown it where credit is concerned with debt ratios that baffle even the most conceptual minds. The ship on faith, sadly, sailed long ago.
The USDollar also became weaponized during the period from 1971 – the year America left honest money – to the present. A weaponized currency is mostly one of coercion. You do what we tell you or else you lose access to our wonderful financial system. In essence, the USDollar became a global monopoly and a hegemon – and ripe for an alternative. Unfortunately, entering the 21st century, there were no viable alternatives. The EU was much too disorganized and for all intents and purposes was merely a satellite of the USDollar. China, while undergoing its version of the industrial revolution (thanks to American consumerism) was still in its infancy as an economic superpower. The same can be said of the rest of the early BRICS members. But they had – and still do – one thing that the collective West does not – Gold. Lots of it.
The last 20 years have featured, among other things, the acquisition of gold at a near fever pitch by China. Russia is mining it like crazy. India too, albeit to a slightly lesser extent. The French, whose colonization of Africa is currently receiving quite a bit of attention, has absconded with most of the gold from its colonial outposts. It mines none of its own. None. Not a single gold mine. Yet it boasts over 4,000 tonnes of gold in reserve. Still, you don’t hear even a peep from the French about monetary discipline or pegging the Euro to gold. Why?
Governments do not want monetary discipline. They never have. They never will. Even in its infancy, BRICS was almost entirely about the necessity of a non-USDollar alternative than any individual or collective desire to cede control of the currency back to the strict discipline of a gold standard. In the end, it’s all about control and this is a recurring theme. It will become even more so as we move into the era of central bank digital currencies. Thomas Jefferson nailed it when he stated that as soon as the majority realize that they can vote themselves transfer payments from the treasury that a country is toast. Governments, constantly seeking to curry favor to gain more control simply cannot resist the temptation of the power given by a fiat currency regime. This is the primary reason why the US left the gold standard. The temptation to spend beyond means is a powerful one.
Why a Gold-Backed BRICS Currency?
If it’s not done for the discipline, then why do it? Fortunately, the answer is simple: credibility. The USDollar has none. Zero. Less than zero in fact. Any viable alternative must have a semblance of credibility. Even if it’s just veneer, which we believe is the direction this venture is headed. The mechanics of the pegging have yet to be decided. Perhaps we’ll be able to update after the BRICS forum later this month. Honest money advocates prefer a hard peg versus a soft one. Soft pegs are flexible and may be changed within a range. Sometimes there is no range, however. This is similar to what the USGovt did after 1933, however the soft peg was unidirectional towards depreciation of the currency. The USDollar was NEVER appreciated from 1933 to 1971. If you look at a US Gold Eagle 1 oz coin, you’ll see it is struck with a $50 currency value. This wasn’t even the terminal peg value.
To make this idiocy more clear – the USMint purchases 1 oz. gold blanks at around $1950 per, then stamps $50 on them. Not that gold bugs particularly care. We understand that the bullion value is where it’s at. The part dripping with irony? The ‘money’ used to buy those blanks? It’s created from nothing. Think really hard about that for a while.
BRICS Gains Momentum
As of this writing there are approximately 40 additional countries who want to participate in BRICS along with the founding four (BRIC). South Africa was added in 2011, hence the current moniker. The group has garnered serious interest since the increased and overt weaponization of the USDollar since the beginning of 2022. Not only did the myriad sanctions against Russia fail in epic fashion, they also succeeded in driving a wedge between the dollar-centric, SWIFT system and countries who were previously ambivalent to a competing currency and settlement system.
With yet another proxy crisis brewing – this time in Africa, we are strongly of the opinion that this number will continue to grow. Again, we should know more after the summit at the end of this month.
The Downside(s) of a Gold-Backed Currency??
Based on our nearly 20 years of research and publications, the subtitle of this section might appear to be heresy. If we were talking about a traditional gold-backed, then yes. It would be heresy. However, there is a huge difference between what society remembers of gold-backed currencies and what is being proposed now. BRICS didn’t start this way. When the idea of the world’s ’emerging economies’ banding together to form a trading block and an attendant currency was first hatched, it was proposed in the traditional sense. Paper (and electronic) scrip backed by ounces of gold. The value of scrip in the system would be pegged directly to the number of ounces in the bloc’s reserves. This would establish the ‘value’ of the currency.
A similar example would be the US monetary system until 1933. With one twist. The US actually had a redeemability feature in its currency. See the image below – taken at the Smithsonian Institute in 2008 by Andy and ‘My Two Cents’ contributor ‘CJH’. Prior to FDR’s infamous executive action, people could take $20 worth of paper scrip to a bank and receive one ounce of gold in exchange. Try that today. We have and the reactions are humorous, albeit ignorant and disgusting.
There is a great deal of controversy on the issue of BRICS currency having a redeemability feature. With many countries involved, the issue of fraudulent redemption by unqualified parties is a real concern. There has been some back-channel chatter about BRICS member nations being able to redeem their excess currency, but then how does that affect the peg and the quantity of currency in the bloc itself? Those countries would have to hold the gold in order to maintain the integrity of the peg. There are many other possible issues and we just don’t know enough about the actual mechanics yet. There are many aspects that haven’t been formalized at this time.
There has also been talk of using a basket of local, member nation currencies as the actual BRICS currency. Since the founding member nations have large quantities of gold, this could work, but again, there are many complexities involved in doing it this way also.
All of the above, however, is not why we feel there are insidious potentials to the whole idea. The biggest reason we’ll propose is the concept of the central bank digital currency. This is where things get rather unpleasant. Reading think tank whitepapers, it becomes obvious that policymakers view the central bank digital currency (CBDC) as the ultimate form of control. Below are some of the more troubling possibilities. Again, all of these have come directly from policy-driving think tanks.
We’re adding these troubling possibilities because the BRICS currency is likely to be in the form of a CBDC digital ‘wallet’, under the control of the BRICS NDB (New Development Bank) or a tangential entity, which has yet to be created. There are already digital Yuan, and digital Rubles. The trend here is fairly clear.
Expiration Dates on Currency – If you’re going to a FedNow type system or what the Chinese are putting in place, it is highly likely that your currency will have an expiration date. Use it or lose it. Imagine getting paid twice a month. Let’s say there’s a one-year expiration date on your funds – from the day they are debited to your account. Savings? Gone. In order to save you’ll have to enter the risk markets. Stocks and bonds. CDs may still be an option – again it’s still too early to say for sure.
Loss of Credit Unions (US) – Member owned credit unions would cease to exist. Under the current system, credit unions are much safer than chartered commercial banks simply because they are not allowed to have in-house broker-dealer operations. They are not allowed to act as market makers. These are risky activities, which sunk names such as Merrill Lynch, Lehman Brothers, and Bear Stearns.
The Not-So-USFed Will be Your Bank – Since the central bank has the ultimate control over the digital wallets, you would not be able to choose your bank as you do now. This is a direct insult to the concept of liberty and the protections of personal choice in your financial matters. If you live in a BRICS member nation, whatever entity eventually is tasked with administrating the CDBC will be your bank.
Complete Loss of Anonymity – Cash supports liberty, full stop. If anyone thinks that going to a CBDC is going to stop illegal activity? Think again. Gresham’s law will apply in full force as always. The bad currency drives the good money underground. This is why silver US coins, for example, are not found in general circulation. The banks pulled their share, but most of it was people going through their coins and setting the silver aside. In this case, the bad digital currency will drive pretty much anything that can be used as a money underground.
Enactment of ‘Social Credit Scores’ – There are currently several nations that are either considering or in the process of implementing social credit scores. The term means exactly what it says. Post something contrarian online – like this report? Suffer a financial penalty. With AI exploding onto the scene, it is not hard to conjure up scenarios where social media, emails, texts, and other communication systems may easily be monitored. ‘Offenders’ are easily punished since everything is centralized. This is the antithesis of liberty. While most other nations don’t have free speech protections at all, in the US, we’ll likely lose 3/5 of the First Amendment as a direct consequence of going to a CBDC. If you believe that this can’t happen here, you probably shouldn’t be reading this report.
That last item is as political as we’ll get. Policies, not personalities has always been our credo. The above list is not all-inclusive, but we feel those five items have the biggest transformational effect potential; at least from an economic and financial perspective.
In Summary
The emergence of cryptocurrencies has been a sword that has cut both ways. Crypto does have the potential to enhance anonymity. But, when centralized as with the CBDC, it has tremendous power to enhance governmental control over people. To say we were disappointed when we saw the path that BRICS was taking is an understatement of epic proportions. It opens the world up to many rather unpleasant possibilities that we were hoping this bloc would strive to avoid. Instead of being a legitimate tool to foster competitiveness in the monetary world, the evidence is leading us to believe this new CBDC will end up being just another ‘BRIC’ in the wall.
Sutton/Mehl