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Are the BRICS Ready to Trade One Master for Another?

Dear Friend of GATA and Gold:

Prompted by the confiscation of Russian assets by the United States and its Western European allies, governments, central banks, and even mainstream news organizations are acknowledging what they should have known all along: that the more you use another nation's currency, the more subservient to that nation you become.

Hence the various recent moves away from the U.S. dollar and the money-transfer systems controlled by the U.S. government, and, perhaps most dramatic, the idea of the BRICS nations to create a currency of their own for international trade, a currency that would be "backed by gold," the monetary metal already abundantly held as financial reserves or produced by some of the BRICs countries.

Such a currency is expected to be on the agenda of the BRICS conference next month in South Africa.

Fairly enough this idea has caused speculation about gold's de-facto remonetization and even the return of an international gold standard. It also has gotten gold's advocates excited after a half century of Western gold price suppression policy, which GATA has documented for more than 20 years:

Any retreat from the dollar is sure to increase demand for monetary gold, insofar as gold is the only plausible alternative reserve currency -- a politically neutral constant without counterparty risk when the owner holds it directly, a form of money long recognized around the world. 

For what are the chances that the BRICS group could devise and maintain a currency incorporating anything besides gold, a currency that also had commodity components? There would be great variability in the prices of such components and differences of opinion about them within the BRICS group, probably making long-term agreement on such a currency impossible. 

Additionally, of course, many BRICS governments were totalitarian and lawless, outright or in the crunch, even before the United States and its allies started moving in that direction. If the United States and its allies can't be trusted to maintain the rule of law and property rights, how can China, Russia, and their allies be trusted?

Whatever the BRICS group does with its new currency, exactly what will "backed by gold" mean? Will the currency be officially convertible to metal at a fixed rate, and, if so, convertible by everyone who holds it or only by governments?

After all, even the U.S. dollar is still "backed by gold," insofar as the United States can use whatever metal remains in its reserves for open or surreptitious intervention in the currency markets in support of the dollar. The currency of every country with gold reserves is "backed by gold." Central banks used to admit that currency market intervention was the very purpose of gold reserves.


Full of resentment of the dollar and the imperial power it has given the United States -- like the "exorbitant privilege" of paying its international debts in its own currency -- the BRICS may not be thinking too much of the handicap gold itself may inflict on them. For gold as money empowers individuals and markets and disempowers government, since it diminishes government's greatest power, the power of money creation and inflation. 

What government today really wants a free market in money? As much as some governments may want to liberate themselves from the dollar and the United States, do they want to be subservient to gold instead?

And even countries with huge gold reserves in the gold, reserves with which they long ago could have liberated themselves -- countries like South Africa, Venezuela, Zimbabwe, and Russia -- still have managed to impoverish themselves with stupid politics, economic systems, and corruption. There are many resource-rich countries that insist on being poor.


Gold doesn't need the BRICS to remonetize it. It is already money, has been money for thousands of years, and well may be money for thousands more. 

No, gold needs only a free market, a market without the desperate manipulation long perpetrated by government intervention with futures contracts and other derivatives and gold swaps and leases, intervention giving the false impression of vast supply when gold's crucial value is, like the value of all sound currency, relative scarcity.

Exposing the subversion of free markets in the monetary metals has been GATA's work. The BRICS group will succeed only if it understands this subversion and explodes it by putting real metal back into motion 

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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