Tag: banknote

Economics-Watching: BRICS Currency Creates Dilemma for the Dollar

by Christopher Whalen, from China Daily

The term “BRICS currency” typically refers to a hypothetical or proposed unified currency for the BRICS grouping. It’s not a single, physical currency currently in use, but rather a concept for a potential future monetary system that some suggest will reduce the dominance of the U.S. dollar in international trade and finance.

Is BRICS currency cooperation about immediate de-dollarization or long-term financial sovereignty? The answer is that BRICS cooperation may include reducing long-term dependence on the dollar as a means of exchange. The dollar is involved in more than half of all trade and 80 percent of all foreign exchange transactions. BRICS currency cooperation aims to gradually reduce the group’s dollar dependency, but challenges remain.

The BRICS concept came about not because the dollar is unsuitable as a means of exchange or unit of account, but rather because of the use of the dollar by Washington as a weapon. As I note in my book, Inflated: Money, Debt and the American Dream, the special role of the dollar in U.S. finance allows the U.S. government to impose harsh compliance and reporting requirements on foreign nationals and institutions. The U.S. is an arbitrary hegemon and does not follow reciprocity with other countries.

The global role of the dollar is an anomaly, the byproduct of two world wars had left the other antagonists broke by the time the Bretton Woods Agreement was signed in July 1944.

Choosing the fiat paper dollar as the default global reserve currency more than seven decades ago reflected the fact that the United States was one of the victors and possessed the wealth that gave Washington unchallenged economic leadership. Prior to World War I, the United Kingdom’s pound sterling was the global standard, but importantly, this paper currency was backed by gold — the only money that is not debt. The dollar, too, was backed by gold — until 1933, when the Franklin Roosevelt administration confiscated gold in private hands to prevent his government from collapsing.

Pound notes started to circulate in England in 1694, shortly after the establishment of the Bank of England. The paper pound helped to fuel the expansion of the British Empire, in large part because the only competing form of money was physical gold. When Britain and other nations left the gold standard in the 1930s, it was due to the deflation caused by the Great Depression rather than a deliberate choice.

The 19th-century rule attributed to English journalist and businessman Walter Bagehot says that in times of crisis, lend freely at a high rate against good collateral. Yet since the currency devaluation and gold seizures of 1933, fiat currencies and below-market interest rates have been the rule. In a global scheme in which the government occupies the prime position, the operative term remains “financial repression”, whereby governments control markets and artificially suppress rates of return on debt. For this reason, the dollar is losing its role as a store of value to gold.

The fact that the dollar continues to trade strongly versus other currencies reflects the reality that as the main means of exchange globally, the dollar cannot be easily replaced. One reason for this continued support for the dollar is that the trade in petroleum and other commodities is so large that it requires an equally large currency to accommodate it. Also, neither the Europeans nor the Japanese, the only two possible alternatives, are willing to risk the external deficits or inflation that the U.S. suffers as the host for the global currency.

What global currency will replace the fiat paper dollar? None. As this article is being written, gold is the second-largest reserve asset for central banks after the dollar. “The initiation in 2002 of the Shanghai Gold Exchange was of great strategic significance, both for gold and the global monetary system,” notes veteran gold fund manager Henry Smyth in an interview in The Institutional Risk Analyst. “Now it is completely clear what happened.”

Smyth and many other observers see the creation of the SGE in 2002 as the return of gold to the international monetary system. But while gold is growing in importance as a reserve asset for many countries, it does not mean that the role of the dollar as a global means of exchange or unit of account is about to change.

The dollar will remain the dominant asset. And even then, displacing the dollar will require a major change in the international monetary system, a change that is already underway.

The author is the chairman of Whalen Global Advisors LLC in New York and the author of Inflated: Money, Debt and the American Dream published by Wiley Global (2025).

Essay 107: Critiquing Geniuses Respectfully: “Stances” and “Circum-Stances”

A very deep intellectual exercise or “gymnastic skill” is the ability to critique a giant of intellect without flippancy or fear.

To acknowledge someone’s absolute greatness but sense human blindnesses and logical omissions is not childish or sophomoric but simply acknowledges the truth that one mind can’t “swallow” all of truth, as William James teaches us.

Take the case of Søren Kierkegaard (1813-1855), the Danish genius thinker. His thinking is endlessly deep and rich. However, since life is a mix of “stances” (explored by people like Kierkegaard with profundity) and “circum-stances” (the hyphen is used here intentionally to emphasize that these practical details and situations surround us).

Consider this insight into Kierkegaard’s family finances:

About his birth S. K. (Kierkegaard) once remarked with somber wit that “it occurred in that year (i.e., 1813) when so many worthless (literally, ‘mad’) notes were put in circulation.”

He had in mind the great inflation which only two months before his birth brought financial ruin to most of the well-to-do families in Denmark.

To provide for its part in the Napoleonic Wars the government had issued a prodigious number of bank notes, which resulted of course, in a complete collapse of credit. The only security which did not sink to a a small fraction of its nominal value was the so-called “Royal Loan.”

Upon that, because the bonds were held briefly by foreign governments, Denmark was obliged to pay the stipulated interest in gold. The elder Kierkegaard had invested his whole fortune in this security, and therefore, from the general crumble of values he emerged not only as rich as he was before but relatively richer than ever.

(A Short Life of Kierkegaard, Walter Lowrie, Princeton University Press, 1974, page 23)

This Walter Lowrie standard biography of Kierkegaard shows you how these “circum-stances” were a kind of material background or financial basis which gave him, Kierkegaard, the basic economic and financial support system his life “stood” on. His genius was his own but his family background and financial realities cannot be completely ignored. Lowrie’s biographical book in various places tells you how Kierkegaard went on to manage his estate and how unlucky he sometimes was in financial matters.

A person “walks” on two practical “legs,” money and health.

When Kierkegaard (or Dostoyevsky, say) maps out the human soul, he tends to ignore these “preconditions” or economic supports so a completely reverential admirer of his could say that his depth psychology might have been even better had he included these two “practical legs” in his analyses.

Remember too the first sentence of the great American classic novel, The Magnificent Ambersons, where the author, Booth Tarkington, tells you that the magnificence of the Ambersons dated from 1873 when they uniquely got a “bounce” from the grave financial crisis which sank just about everybody else.

This reminds us of the Kierkegaard family, 1813, when the family, whether by dumb luck or shrewdness, benefited from the turbulence of Danish war finance.

“Stances” and “circum-stances” would be linked in an even deeper synthesis where these historical and financial dimensions are part of the story.

Such a critique of Kierkegaard (say) is not meant to be brickbats for their own sake or cranky grousing or facile negativity but a signpost as to what is needed to get even more out of these geniuses.