by Philip Pilkington
Tuesday, 10
January 2023
Analysis
10:09

BRICS undermine dollar hegemony with gold purchases

Central banks have been accumulating the precious metal at a record rate
by Philip Pilkington
The three amigos. Credit: Getty.

Just before the New Year, the Financial Times ran a piece noting that central banks were accumulating gold at a rate not seen in 55 years. In the third quarter of 2022, analysts estimate that almost 400 tonnes of gold were bought by central banks. That much gold would take around 16 semi-trailer trucks to transport.

In November, traders in the gold market noted that there was a huge buyer entering the market and purchasing very large volumes of gold — a so-called ‘whale’. In December it was revealed that this whale was the Chinese central bank. But it wasn’t just the Chinese buying gold. Other buyers include Turkey, India, Uzbekistan, Egypt, Qatar, and Iraq. It is worth noting that many of these countries have expressed an interest in joining the BRICS+ alliance.


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Why are central banks snapping up gold? Most commentators recognise that it is due to geopolitical turmoil. Jonathan Guthrie at the FT, for example, argues that “gold is the currency of fear and mistrust,” and that “the democratic west and the authoritarian east are pulling apart amid mutual recriminations”. Guthrie is certainly correct that a geopolitical schism is taking place, but since when is gold the currency of mistrust? Throughout history gold-backing has been used to buttress trust in currencies — when sterling was the global reserve currency it was said to be “good as gold”.

Our period of paper currency is the exception rather than the rule, and it only started in 1971 when the US dollar link to gold was broken. It was 1967 which saw levels of gold purchases by central banks comparable to what we observed at the end of 2022. All of this raises the obvious question: what if these purchases signal the beginning of the end of the paper dollar as the global reserve currency?

It seems unlikely that the countries buying gold are going to try to give their currencies gold backing. But it appears probable that the immediate cause of the rush for gold is an attempt to diversify out of dollars. Since the United States seized Russia’s dollar reserves after the invasion of Ukraine last year, other countries have grown distrustful of holding dollars as they fear that they, too, could see their reserves seized in the future. Hence the race for gold.

Perhaps there is no plan behind the current gold rush, but it may be read in retrospect as the beginning of the evolution of a new global monetary order. It could be the first step toward this reshaping of the landscape, as countries around the world try to find alternatives to the dollar. The West is learning a hard and fundamental lesson: financial systems are built on trust, and if they are weaponised they lose the trust required to maintain their dominance. It would be strongly in our self-interest to attempt to rebuild faith in our financial system if we want to protect our global power.

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Emmanuel MARTIN
Emmanuel MARTIN
28 days ago

Dollar was doomed the day the US authorities decided they could confiscate or freeze the dollar assets of countries and/or SWIFT users they did not like.
BRICS world is slowly but gradually shifting away from the dollar and towards a multipolar world.

Prashant Kotak
Prashant Kotak
28 days ago

There is very little evidence for this claim. The US as the holder of the reserve currency can do things consequences free, that other nations simply cannot. That does not mean the other nations have the option to decouple from the dollar, because in truth they don’t.

Jon Morrow
Jon Morrow
28 days ago
Reply to  Prashant Kotak

The world decoupled from Roman Dinarii easily enough.

Prashant Kotak
Prashant Kotak
28 days ago
Reply to  Jon Morrow

Ushering in the dark ages

Tim richardson
Tim richardson
28 days ago
Reply to  Jon Morrow

do you have a reference for that?

A A
A A
28 days ago
Reply to  Prashant Kotak

Agree with your points here. Good analysis.

D Walsh
D Walsh
28 days ago
Reply to  Prashant Kotak

Did you miss the visit of president Xi to Saudi Arabia, look it up and compere it to Bidens visit. the Saudis are looking at joining BRICS, the world is changing

Phillip Arundel
Phillip Arundel
28 days ago
Reply to  Prashant Kotak

Prash – you are right there, despite the down votes. Everyone must listen to Zaihan’s 8 minute video if they fear the end of $ Hegemony as Reserve. I would tell the down voters to watch my link.

https://www.youtube.com/watch?v=LiR54FPQiCs

The gist is there is NO OTHER CHOICE. One thing he does not mention is Reserve Currency means the first ‘Must Have’ is having a huge, and well structured, Bond Market. None other exists but the USA $. But watch this to get a good story on how there is just no choice but USD $, and will not till there is a financial global reset – and that is a long way off.

(Beware of Zaihan though he is so utterly convincing on everything – that being his job – talking on world matters, and he makes a great deal doing it to the very important people – but I think he is ‘Controlled Opposition’ and really a Deep State Mole. Like with Ray Epps, when he gets talking my brain keeps saying ‘FED, FED, FED…haha)

Tim richardson
Tim richardson
28 days ago

Dollar will remain the worlds’ reserve until the US loses WWIII

Phillip Arundel
Phillip Arundel
28 days ago
Reply to  Tim richardson

Even then the ‘Winner’ will likely have had a very Pyrrhic Victory and come off worse, and the USD $ still stay Reserve…. it is that hard to find any who could replace it but Gold – and that is very unlikely indeed.

ROSS MANSELL
ROSS MANSELL
27 days ago
Reply to  Tim richardson

or until Arab oil is sold in a currency other thsn the US dollar.

Simon Blanchard
Simon Blanchard
27 days ago
Reply to  ROSS MANSELL

Exactly that. We’ve seen what happens when an oil producer announces he will accept other currencies for his oil.

Nick Wade
Nick Wade
28 days ago

China, Iran, and India, amongst others have all been looking into alternative payment systems and currencies. The US dollar is only the reserve currency because it is used to pay for oil, and in turn backed by the American military.

This is the true reason for most of the wars we’ve seen for the past 30 years, at least. Not because the USA felt the desperate need to “free Kuwait” or let Afghan girls read. That, and of course the fact that the money gets cycled back into the military industrial complex.

But they’ve blown it, because who would trust the USD now? I don’t trust the pound either, after governments have destroyed its value over the years, through low interest rates and QE.

And as the man says, trust is everything in a fiat currency.

Phillip Arundel
Phillip Arundel
28 days ago
Reply to  Nick Wade

I do believe a Gold Backed Crypto is coming. I see Sprott and Schiff, and someone like the BofE and Swiss Central Bank making one at some point. There would be good fees in storing the gold and processing transactions. IT will make a fortune for whom ever has the street cred to hold the gold (NYC, Canada, London, Switzerland) and everyone believe it really is there.

It will be Huge – but not big enough to be Reserve – way too small – but would be taken up by everyone for store of value AND Transaction – which is the definition of Money (something no other crypto has had). It would have a huge value as banking collateral too.

Su Mac
Su Mac
27 days ago
Ercument Gundogdu
Ercument Gundogdu
28 days ago

The reason why the US was the first to move away from the gold standard was that they intuitively knew that in 1970s there were more standards than gold, as there were new economies coming into existence that were also sources of money. It was not because those who made the decision could articulate it at the time. Even today, the concept of (distinct and) plural economies is not within the perception of economists or other social sciences. Productions of texts/documents, artefacts (tools for the performance of professional tasks from cuisine art to medical surgeries and space explorations), looks (from cosmetic surgery to urban design), events (festivals, conferences, meetings), lottery tickets, tourism destinations, taxi trips, meal delivery, news, entertainment, forms of energy, forms of financial credit, weapons, various forms of food, and tens of other species of products for contemporary lives, are not all production of commodities. 
The US and the Western World have a greater command on these worlds of production, that is, distinct economies. Outside the Western World, there are significant developments in the creation of these worlds of production (of goods and economic-value on the back of those goods). Still, the Western universities are a destination for students from around the world. Academic journals are to a great extend housed in the West. In news production, the situation has changed significantly. Russian, Iranian, Indian, Turkish international broadcasting have better quality than Western legacy corporate news networks. There are others as well. China has advanced in several worlds of production. Energy is for the most part produced outside the West.
To think economically, one has to differentiate between the good itself and the economic-value produced on the back of it. The US and the Western World have overshot their advantage/hegemony in the plural economies of the world by making claims into the future in every dimension of human life. They were able to do this by their position in the discoursal production of meanings for governing institutional practices (their position in international governing bodies like the UN, the WHO, IMF, WB and others). With the discoursal production of and implementation/intervention through ‘human rights”, “gender identity”, “climate change”, “fossil fuel use”, “wars” on drugs, terrorism, viral infection, and other humanitarian ideologies, the Western nations have been shaping the present from a position of future conditions of humanity. This is analogical to making third world countries indebted to the West in the name of development projects in industrial economy. But they have screwed up their position in the last three decades and particularly with the pandemic tyranny. So the West was able to produce goods for the future or produce the future as a good for the world’s population. They’re still insisting they are able to do it by shipping migrants to the Western world, approving gender transition therapy and surgery, radically opposing fossil fuel use or continuing credit supply with printed money. Every promise for the production of goods for the future or the production of humanity’s future with goods from new economies come with bigger risks and terrible consequences as they ignore the democratic participation of citizens of the world.
It’s highly probable that with the suicidal push of the US and the Western nations to undermine the new plural economies that they have relied on to hold onto their hegemonic position, they will undo these economies and gold will become king again, as the economy of subsistence goods, in which gold rules, can’t be entirely undone.

Last edited 28 days ago by Ercument Gundogdu
Jim R
Jim R
28 days ago

No mention of inflation here. The excessive printing of money to support government spending has caused the highest levels of inflation in our lifetimes. They are literally diluting the value of the dollar. Gold is finite and can’t be printed out of thin air by central banks. The markets have clearly signaled that they believe the Fed, having caused the problem and then denied there was a problem, will also pivot back to stimulating the economy once the recession hits – allowing inflation to rage on.

Su Mac
Su Mac
27 days ago

New non-Dollar payment systems and alliances are popping up all over the East and South as we speak. I can imagine a bi-polar world where the West stays under a Dollar/Euro closed loop for inflation management purposes – commodities will only be affordable within the loop – and an alternative system is adopted by the BRICS and other Eurasian alliances freeing themselves from malevolent Dollar politics.

Madeleine Jones
Madeleine Jones
28 days ago

India: both a BRICS and a Quad country.

mike otter
mike otter
28 days ago

Early days after all the dollar took over a century to get “reserve” status. Gold will do if you can keep it secure – but the BRICS+ need to develop a legal and financial system as stable as UK, Suisse or USA – which though far from perfect are the safest out there, before they will be taken seriously as a reserve. I think its more likely they’ll fall to fighting long before that. Recall the old jokes about the EU – the Italians do the fighting, the Germans the humour, the brits do food, Spanish do the timekeeping etc. Well what fun we could have with that one once India, Brazil, Russia, Iran etc get invloved together, the food alone would probably spark a shoot out!

Last edited 28 days ago by mike otter
Phillip Arundel
Phillip Arundel
28 days ago
Reply to  mike otter

Otter – the biggie is no one has a Bond Market which could float a Reserve Currency other than USA. And China has NO chance of creating one any time for decades and decades. No one else is big enough. BIS and World Bank are not an option – they are backed by nothing and just nothing really.

carolyn jankiv
carolyn jankiv
27 days ago

Logically it all sounds like the us currency will remain but what about the big push by the globalists? They are pushing for CBDC/digital dollar and they have been working this plan for hundreds of years. I don’t have 1/4 or the knowledge of all of you so I’d like your perspective on this.
Please!!

Akyempemhene owusu Sekyere
Akyempemhene owusu Sekyere
26 days ago

There shd be a leader in this world but shd not bully or cheat other nations,the game shd be fair
Too much injustice against race and other nations
Stand strong and unshaken

Prashant Kotak
Prashant Kotak
26 days ago

Alternatively, watch a Disney movie.

Akyempemhene owusu Sekyere
Akyempemhene owusu Sekyere
26 days ago

Owusu Sekyere

Max Price
Max Price
27 days ago

Now I’m no economist but I am a betting man and my money is on the USD for at the very least a century, or until as Tim Richardson notes down thread America loses WWIII

Last edited 27 days ago by Max Price
Chris Keating
Chris Keating
27 days ago
Reply to  Max Price

Dream on. No country that imagines that they will ever be on the wrong side of the US will not be doing all within their powers to get from underneath the US boot. It is already over as was shown when the Saudi Crown Prince stiffed Biden regarding oil production increases. Like all things it will not happen overnight but it is already happening and the trajectory of change will only accelerate.
The US has shot itself in both feet but still have little idea as to what they have done. The swindled are much more sensitive to their losses than the swindler is to their marks awareness .
The US dollar is less powerful than it was a year ago but the slide is accelerating.

Prashant Kotak
Prashant Kotak
28 days ago

The idea that the dollar hegemony is going to loosen anytime soon is outright nonsense. No one, not China, certainly not Russia, not any of the other brics are in a position to trade with each other in any currency other than the dollar – for a start they don’t trust each other, but also the volumes involved are dwarfed compared to trade in dollars. And in relation to global trade flows, gold purchases of the type mentioned are miniscule and virtually an irrelevance. I suspect gold purchases are going to be used, not as a trojan to decouple from the dollar but to add ballast to their currencies, when governments around the world can see that their currencies are set to weaken for reasons of reducing global trade and isolationism over the next several years.

Like it or not, the dollar is going to remain the global reserve currency for the next two to three decades minimum.

Last edited 28 days ago by Prashant Kotak
Senator Smith
Senator Smith
28 days ago
Reply to  Prashant Kotak

“The share of international settlements and payments in currencies other than the dollar and the euro has moved up from 21 percent to almost 50 percent, Russian news agency TASS reported on Thursday, citing the Financial Stability Review by the Bank of Russia.”:- https://www.globaltimes.cn/page/202212/1280969.shtml

Prashant Kotak
Prashant Kotak
28 days ago
Reply to  Senator Smith

TASS?? P-leeze.

In contrast:
“The dollar is by far the dominant currency for international trade. Apart from intra-European trade, dollar invoicing is used in more than three-fourths of global trade, including 96 percent of trade in the Americas. Approximately 60 percent of international and foreign currency liabilities—international banking loans and deposits as well as international debt securities—are denominated in dollars. And the dollar remains the single most widely used currency in foreign exchange transactions”.

https://www.federalreserve.gov/newsevents/speech/waller20221014a.htm

We could exchange references all day long. Ultimately you pays your money and makes your choice who you believe. But I like to look at what companies in different countries do, not the narratives various governments like to push. And the evidence is incontrovertible: the dollar remains as unassailable as ever.

Last edited 28 days ago by Prashant Kotak
Rocky Martiano
Rocky Martiano
28 days ago
Reply to  Prashant Kotak

The Fed?? P-leeze.

Phillip Arundel
Phillip Arundel
28 days ago
Reply to  Prashant Kotak

Prash – you are totally wrong about all covid-19, but otherwise have one of the most sound minds here, and are 100% correct on this issue.

First thing – a Huge Thing, if if the USD $ even begins to weaken as Reserve – the world falls apart. One of the reasons USA $ gets paid a couple $ Trillion by the world for the Reserve Currency Status (this is true, the USA Makes Vast sums by the reserve status) is it spends a $ Trillion on its military, and keeps the world’s Sea Lanes open.

USA does this – it takes a global hegemon to do this. If the sea-lanes got problematic, and they would fast if let go a tiny bit, the entire global trade falls apart, the world goes into a huge depression – Billions Die!

Take oil – any pinching off of movement and all breaks immediately – oil is ‘Priced at the Margin’. China would die in 6 months if anyone just sent some missiles into tankers going there – done, finished, hundred million starve, China broken.

My link above is a good watch.

There just is no alternate for Global Reserve. A Basket of goods and currencies can be used between some trading nations, but not the global Reserve. BRICK + can have their basket of goods – but that would only be for trade – it would not be a ‘Store of Value’ as it would be too erratic, so one could not use it as a Central Bank Reserve – just to trade. Not to collateralize debt…..

Chris Keating
Chris Keating
27 days ago

You seriously believe that the US Navy is there to keep the Sea lanes open? That’s a novel thought. They are there so that they can close them down and strangle the trade of countries that they do not like and China is now that country.

Why do you think that the Chinese are building railway links to the west through the BRI? I would guess it is to keep their supply lines away from US interference. The hubris of the US and their western lackeys is dividing the world.

J Bryant
J Bryant
28 days ago
Reply to  Prashant Kotak

the dollar is going to remain the global reserve currency for the next two to three decades minimum
I agree with both your statement and the thesis of the article. It seems highly unlikely the dollar will cease being the reserve currency in the next few years, but I believe a process of gradual decoupling, in a more realistic time frame of decades has begun. Even the USA’s allies must quietly be discussing whether it’s in their interests to rely too heavily on America.

Jim R
Jim R
28 days ago
Reply to  J Bryant

Maybe gradual, or maybe “slowly at first, then all at once”.

Chris Keating
Chris Keating
27 days ago
Reply to  J Bryant

Dead right, the europeans must be doing some serious thinking after the destruction of the Nord Stream Gas pipelines.

Matthew Grainger
Matthew Grainger
27 days ago
Reply to  Prashant Kotak

Bear in mind that no one really believes China’s ‘officially’ reported gold holdings and purchases which are likely to be far in excess of the publicly reported figure. The move towards dedollarisation may be at an early stage but it is underway.
Interesting recent article from BNP Paribas on this point: https://viewpoint.bnpparibas-am.com/renminbi-internationalisation-the-petro-yuan-and-the-role-of-gold/

Last edited 27 days ago by Matthew Grainger