BRICS Brace for Potential International Monetary System Collapse

The dollar is the Gordian knot of geopolitical tensions. The signals pointing in this direction are now legion. Bitcoin is biding its time.

The BRICS consider a post-dollar future

Russian representative to the International Monetary Fund Alexey Mozhin last Friday stated that the BRICS should brace for a collapse of the dollar and of the international monetary system.

Mr. Mozhin explained that it was possible to create a currency “built on a basket of currencies from the five member countries”. This currency basket would then comprise the Chinese yuan, the Indian rupee, the Russian ruble, the Brazilian real, and the South African rand.

“Such a proposal is under discussion. In case of a dollar collapse and the international monetary system, it will be necessary to transform the said BRICS accounting unit into a real currency”, he stated.

It has been a long time since the BRICS countries have hidden their ambition to abandon the dollar in favor of their national currencies. Deputy Russian Finance Minister Ivan Chebeskov notably declared earlier this year:

“Most of the [BRICS] countries think that payments in national currencies are necessary. We already are a big family with ten nations. Most support the need to create new payment mechanisms and share their experience in developing central bank digital currencies [CBDCs]”.

In other words, the BRICS aim to create a system to compete with the SWIFT network, based on CBDCs. The Bank for International Settlements in Basel is working on it (projects like mBridge, Agora, and so on).

However, it is hard to imagine that a bank controlled by the West could perform miracles. Moreover, creating a Frankenstein CBDC composed of five other currencies is likely a pipe dream.

Why not simplify life by simply adopting bitcoin? It is both a currency and a payment system, two-in-one…

Trump at the bedside of the greenback

Donald Trump is waging a vigorous campaign to warn about the dedollarization efforts gaining ground among the BRICS.

An article from Bloomberg reveals that the former American president contemplates punitive measures to deter countries wishing to distance themselves from the dollar, which accounts for 47% of international transactions.

Shares of international payments per currency.

(Those statistics are only for SWIFT. There are other payment systems such as CIPS, SPFS, etc) pic.twitter.com/KiWsCIrYMG

— Nicolas Teterel / PAX (@NTeterel) May 6, 2024

The euro accounts for 22%, the pound for 7%, and the Chinese yuan is close to 5%. Concurrently, foreign exchange reserves consist of 57% in dollars, or more precisely, in US Treasury bills (the American public debt).

Punitive measures could include export controls and tariffs. They would target both allies and rivals of the United States. The ultimate sanction being the freezing of foreign exchange reserves. Russia experienced this in 2022 with the freezing of 300 billion euros and dollars.

Mr. Trump’s priority is to preserve the dollar’s hegemony. If elected, he will urge allied countries to refrain from any intervention aimed at devaluing their currency. Japan has just been reminded of this by Janet Yellen.

The Secretary of the Treasury has stated that the Japanese central bank should consult her before intervening to support the yen in the foreign exchange market. This warning comes a few days after the BoJ sold Treasury bills to support its currency, which has already lost 50% of its value against the dollar since 2012.

Uncle Sam does not like when you sell US bonds… https://t.co/XFlakxkU1b

— Nicolas Teterel / PAX (@NTeterel) May 5, 2024

The question is whether the United States can still afford to sanction the BRICS? Bearing in mind that Ukraine is the next step following the sanctions…

Even Elon Musk advises tightening belts rather than bringing out the drums of war.

Bitcoin and the end of the exorbitant privilege

This privilege stems from the petrodollar system put in place starting from 1975 when Washington ended the Gold Standard before compelling OPEC countries to sell their oil exclusively in dollars.

Thereby, the dollar became the currency of globalization. Central banks therefore accumulate dollars in reserve. The United States benefits from this situation since these reserves are systematically invested in US Treasury bills (to earn interest).

About 57% of global foreign exchange reserves are placed in the dollar. We are talking about more than 7 trillion dollars supporting the dollar’s value. Otherwise, it would be weighed down by the United States’ chronic trade deficit (-773 billion $ in 2023…).

Such is the exorbitant privilege of the United States: Being able to import more than they export without their currency sinking. Donald Trump wants to protect the dollar at all costs because the privileged standard of living of Americans depends on it.

The problem is, China continues to shed US debt. The risk being that Donald Trump breaks off trade relations with China. Secretary of State Anthony Blinken recently threatened Beijing to disconnect certain Chinese banks from the dollar…

This scenario (inflationary) would signal the end of the international monetary system dominated by the dollar.

We would then return to the Gold Standard. Or else, will we embrace bitcoin, which is gold, but better?

Let’s not forget that nearly 94% of bitcoins have already been issued. There is already twice as little new bitcoin being created compared to the existing stock of gold.

Bitcoin also has the good taste of traveling at the speed of light. Or to cost only a few tens of cents for transactions of any size.

Bitcoin should gradually become an alternative international reserve currency. Stateless and uncensorable, it is a cutting-edge technology solution for equal footing commerce.