{"id":2500,"date":"2024-12-26T16:20:22","date_gmt":"2024-12-26T16:20:22","guid":{"rendered":"https:\/\/trusteconomics.eu\/?p=2500"},"modified":"2024-12-26T16:20:22","modified_gmt":"2024-12-26T16:20:22","slug":"the-return-to-the-gold-standard-and-blockchain-are-killing-the-dollar","status":"publish","type":"post","link":"https:\/\/trusteconomics.eu\/index.php\/2024\/12\/26\/the-return-to-the-gold-standard-and-blockchain-are-killing-the-dollar\/","title":{"rendered":"The return to the gold standard and blockchain are killing the dollar"},"content":{"rendered":"

The changing dynamics of global trade and the economy have intensified the search for a stable, universally accepted unit of account for international settlements. Recent geopolitical tensions, such as Russia\u2019s exclusion from the SWIFT payment system, have accelerated efforts to find alternatives to the dollar. In response, the BRICS nations \u2013 which include Brazil, Russia, India, China and South Africa \u2013 are exploring the creation of a common currency tied partly to gold and partly to a basket of their own currencies. At the same time, China is increasing its gold reserves as part of its de-dollarization effort. This effort \u2013 using distributed ledger technology (It is a record of information or database that is shared across a network) as its basis \u2013 has already drawn sharp criticism. US President-elect Donald Trump has threatened 100% tariffs on BRICS nations if they seek to adopt a currency that challenges the dollar\u2019s \u200b\u200bdominance. The BRICS bloc, however, holds undisputed economic power. Representing 40% of the world\u2019s population, the BRICS contributed 31.5% of global gross domestic product in 2023, surpassing the G7\u2019s performance (30.7%). However, their currencies remain underrepresented in global trade, with the dollar dominating 88% of foreign exchange transactions. However, intra-BRICS trade accounted for 37% of their total trade in 2022, a 56% increase from 2017. This growing trade volume underscores the bloc\u2019s determination to strengthen its economic independence. \"This<\/p>\r\n\r\n

\u00a0 A gold-backed digital currency could be the BRICS\u2019 monetary revolution. Lower transaction costs and reduced exchange rate volatility are among the tangible benefits. If even 50% of intra-BRICS trade shifted to such a currency, savings in transaction costs of 1%-2% could translate into billions of dollars annually.<\/p>\r\n\r\n\r\n\r\n

These savings could be reinvested to fuel economic growth and enhance the efficiency of financial transactions. DLT offers the transparency, security, and efficiency needed to support such a currency.<\/p>\r\n\r\n\r\n\r\n

With the contribution of gold reserves, each digital unit would be backed by physical assets stored in secure vaults, with regular audits ensuring accountability.<\/p>\r\n\r\n\r\n\r\n

Smart contracts could dynamically adjust exchange rates to reflect trade patterns and the economic conditions in which bilateral trade takes place. This would enable real-time settlements, reduce delays, and enhance trust between participants.<\/p>\r\n\r\n\r\n\r\n

Such a system could even attract non-BRICS states seeking alternatives to dollar-dominated networks, potentially increasing the BRICS bloc\u2019s share of global trade beyond its current 18%.<\/p>\r\n\r\n\r\n\r\n

The acquisition of monetary gold<\/strong><\/p>\r\n\r\n\r\n\r\n

The foundation for realizing the vision is already in place. As of mid-2024, the World Gold Council estimates that the BRICS nations collectively hold 6,200 metric tons of gold, representing 15.5% of global reserves.<\/p>\r\n\r\n\r\n\r\n

Over the past two decades, these reserves have increased by about 150%, reflecting a deliberate effort to reduce dependence on the dollar and enhance financial stability. However, the balance of gold holdings remains heavily tilted in favor of the G7 countries, which collectively hold 17,500 tons, or 47.7% of global reserves. \"This \u00a0<\/p>\r\n\r\n

Some potential benefits of a gold-backed digital currency are clear, but implementation will not be straightforward.<\/p>\r\n\r\n\r\n\r\n

Significant coordination among BRICS countries is required, along with investments in technological infrastructure that will transform the global financial system. Geopolitical obstacles, including potential sanctions or tariffs, add further complexity to the endeavor.<\/p>\r\n\r\n\r\n\r\n

However, with their strategic gold reserves and economic clout, the BRICS group is likely to continue to advance ideas for reshaping global trade and providing an alternative to the existing dollar-centric order.<\/p>\r\n\r\n\r\n\r\n

What\u2019s behind China\u2019s gold rush?<\/strong><\/p>\r\n\r\n\r\n\r\n

After a six-month hiatus from an 18-month gold-buying rally, the People\u2019s Bank of China (PBOC) returned to its policy of large gold purchases in November. On October 31, gold hit a record high of $2,790.15 an ounce.<\/p>\r\n\r\n\r\n\r\n

While it fell 5% last month, it remains about 28% higher year-to-date. While the value of the PBOC\u2019s gold holdings fluctuates with market prices, China\u2019s central bank appears to be more concerned with acquiring more gold than with changing valuations.<\/p>\r\n\r\n\r\n\r\n

By the end of August this year, the PBOC\u2019s gold reserves had reached 2,165 tonnes, or about 4% of its total foreign exchange reserves. It\u2019s no surprise that in 2023, China led the world\u2019s financial institutions in gold purchases, and it could do the same in 2025.<\/p>\r\n\r\n\r\n\r\n

Domestic Demand: Part of China\u2019s Gold Rush<\/strong><\/p>\r\n\r\n\r\n\r\n

There are many explanations for Beijing\u2019s bold policy on gold reserves. To be sure, gold has long been a \u201csafe haven\u201d for investors, especially during times of economic uncertainty. Currently, several economic factors are projecting uncertainty globally, including China, which is driving demand.<\/p>\r\n\r\n\r\n\r\n

The ongoing collapse of the real estate sector, a shaky stock market, lower consumer spending, missed GDP growth targets, and a falling yuan are just a few of the problems. In addition, there are few opportunities for Chinese to invest domestically, and capital controls make it difficult for most Chinese to take advantage of overseas opportunities.<\/p>\r\n\r\n\r\n\r\n

Given gold\u2019s history as a reliable store of value, it is attractive to all levels of investors, leading to an increase in domestic demand. For all these reasons, the PBOC is looking to meet the Chinese public\u2019s demand for gold.<\/p>\r\n\r\n\r\n\r\n

Rising global uncertainty<\/strong><\/p>\r\n\r\n\r\n\r\n

But Beijing\u2019s strategy to promote gold involves more than just meeting domestic demand.<\/p>\r\n\r\n\r\n\r\n

The conflicts in Ukraine and the Middle East, including the evolving situation in Syria, have led to a much less predictable international order. Today, the world is leaning more towards uncertainty than predictability, which usually leads to an increase in demand for gold. This has undoubtedly been a factor in driving gold prices higher, but it has not had much of an impact on China\u2019s acquisition plans, which have been implemented for the past several years.<\/p>\r\n\r\n\r\n\r\n

The Monetary Strategy<\/strong><\/p>\r\n\r\n\r\n\r\n

Beyond global instability, the strategic goal behind Beijing\u2019s gold policy is, at the very least, to reduce its dependence on the dollar. This would include shielding it as much as possible from the punitive measures\u2014such as trade sanctions, export restrictions, and tariffs\u2014that Washington often imposes on its economic or geopolitical rivals.<\/p>\r\n\r\n\r\n\r\n

Both China and Russia are subject to and are subject to sanctions and tariffs by the United States.<\/p>\r\n\r\n\r\n\r\n

Although the US dollar\u2019s \u200b\u200bprominence in the world has declined in recent years, 64% of global debt, 54% of global trade, and about 59% of global foreign exchange reserves are denominated in dollars\u2014the closest competitor is the euro, at 20%.<\/p>\r\n\r\n\r\n\r\n

The Chinese Communist Party (CCP) is right to assume that more punitive economic policies from Washington will negatively affect China.<\/p>\r\n\r\n\r\n\r\n

These concerns have become especially acute with President-elect Donald Trump returning to the White House in January 2025.<\/p>\r\n\r\n\r\n\r\n

Donald Trump has pledged to raise tariffs on Chinese goods and services and even add sanctions based on China\u2019s behavior on trade and other factors.<\/p>\r\n\r\n

\"This \u00a0<\/p>\r\n\r\n

Is the yuan pegged to gold to compete with the dollar?<\/strong><\/p>\r\n\r\n\r\n\r\n

However, Trump is not the main player in Beijing\u2019s gold-buying policy. The CCP\u2019s long-term strategy is to challenge US hegemony. To do that, it needs to replace the dollar with the yuan, regardless of who is in the White House.<\/p>\r\n\r\n\r\n\r\n

China\u2019s gold purchases play a major role in this ambitious plan. The thinking is that the yuan pegged to gold would eventually make it more tradable than it is today.<\/p>\r\n\r\n\r\n\r\n

This is precisely why Beijing has been steadily replacing US dollar bonds with gold well before the 2024 election cycle. Shrinking China\u2019s US bond portfolio is the other half of Beijing\u2019s dollar-replacement strategy.<\/p>\r\n\r\n\r\n\r\n

Selling large amounts of bonds can reduce market demand and encourage other countries to do the same. In early 2022, China\u2019s US Treasury bond portfolio exceeded $1 trillion. By May 2024, it had fallen to $768.30 billion.<\/p>\r\n\r\n\r\n\r\n

This trend is likely to continue. At some point, China hopes to be able to prop up the value of the yuan to at least compete with the dollar on the world stage. The currency war is expected to prove relentless with incalculable (financial) casualties.<\/p>\r\n\r\n\r\n\r\n

The best-known type of distributed ledger is the blockchain, so named because it stores individual transactions in groups, or blocks, linked together in chronological order to form a chain.<\/p>\r\n","protected":false},"excerpt":{"rendered":"

The changing dynamics of global trade and the economy have intensified the search for a stable, universally accepted unit of account for international settlements. Recent geopolitical tensions, such as Russia\u2019s exclusion from the SWIFT payment system, have accelerated efforts to find alternatives to the dollar. In response, the BRICS nations \u2013 which include Brazil, Russia, … <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[58],"tags":[851,400,852,83,82,800,853],"class_list":["post-2500","post","type-post","status-publish","format-standard","hentry","category-investment-destinations","tag-blockchain","tag-currencies","tag-distributed-ledger-technology","tag-dollar","tag-gold","tag-gold-standard","tag-monetary-war"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2500","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/comments?post=2500"}],"version-history":[{"count":2,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2500\/revisions"}],"predecessor-version":[{"id":2507,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/posts\/2500\/revisions\/2507"}],"wp:attachment":[{"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/media?parent=2500"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/categories?post=2500"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/trusteconomics.eu\/index.php\/wp-json\/wp\/v2\/tags?post=2500"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}