Why The Dollar Is Finished

The comments below are an edited and abridged synopsis of an article by Alasdair Macleod

On July 7, Russia confirmed that the upcoming BRICS meeting in South Africa will include a proposal for a gold-backed currency to be used for trade settlement and commodity pricing. This will probably be the most important monetary and geopolitical development this century.

Why The Dollar Is Finished - BullionBuzz - Nick's Top Six
Hundred dollar bill puzzle being assembled

The Russian confirmation is the culmination of clues dating back to the western alliance’s sanctions on Russian trade. Among those who don’t understand what has led us here are the press, economists of all schools, and the western financial community.

Driving this is a war between the US on one side and Russia in partnership with China on the other. Until Russia was sanctioned, China had a policy of doing nothing while the US tied itself in knots. This has been evident in military strategy, but also in the hidden financial war. And it is the financial war that could determine the military outcome, because if the US dollar is destroyed, America’s military capability will follow, and NATO will fall apart.

Under what circumstances would China drop its passive strategy and take the initiative? The time may have arrived. Russia’s trade surplus has fallen sharply, and the war in Ukraine is a drain on government finances. President Putin needs to bring the war to a conclusion, or drive global commodity prices higher, which is the same thing as undermining the purchasing power of the dollar.

China faces problems from the escalation of US hostilities over Taiwan. If the war with Ukraine continues, China could be dragged into the conflict. With much of Africa and Latin America moving away from the US and towards Asia, rising dollar interest rates are creating a crisis. China likely believes that in bankrupting emerging economies by raising interest rates, the US is trying to stop them from joining BRICS and seeks to take over many of the assets and infrastructure that China has helped create.

This threat is now greater to China’s economic strategy than threats to her export trade with the US and Europe. China is prepared to back Russia’s plan for a gold-backed trade currency, which will undermine the dollar, as central banks influenced by Asia sell off their dollar reserves to acquire physical gold. Macleod has described activating gold as being the financial equivalent of a nuclear war—this is about to be tested.

Up for discussion: A lesson from Cantillon; the dollar and related currencies are being challenged; US budget deficits and inflation; all fiat currencies are threatened; and the consequences for gold.