China Strikes Back: “The End Of The US Dollar”

Is the United States dollar under threat? We should prepare to lose our position as holder of the world's reserve currency. That is happening in slow motion; it's unmistakable. I think it's—I will use the word doomed—in the long term.

What's up guys, it's Graham here. So apparently, there could soon be a new replacement for the US dollar. That's right! Several nations have now teamed up to reduce their dependence on the United States. They've all begun buying gold at the highest level since 1950, and the result could be an Asian monetary fund that begins to take a financial toll on the value of your money.

So given all the misinformation surrounding some of these claims, I thought it would be a good idea to break down exactly what's going on, the new changes that are about to take place, and whether or not this is realistically going to have an impact on all of you watching. Because even though there is a lot to cover, it's probably not what you're expecting. Although really quick, before we start, I just want to say a huge thank you to everybody who hits the like button or subscribes. It really does make a tremendous difference; it helps out tremendously. And as a thank you for doing that, I will do my best to respond to as many comments as possible. So thank you guys so much, and now with that said, let's begin.

Alright, so all of this begins with what's called the Group of Seven or G7 for short, which refers to a group of developed nations that all share similar economic values in a strong economy. This includes the United States, Canada, France, Germany, Italy, Japan, and the United Kingdom. The purpose of this group was to form a strong economic alliance of the world's leading nations who meet every single year to discuss and resolve economic problems, including looming financial crises, commodity shortages, and global economic growth.

Basically, just think of this like a tight-knit circle of the world's leading superpowers who have all joined together to one day gain interstellar dominance. Okay, maybe not that far, but they do meet to resolve trade issues, maintain financial stability, and encourage political peace. However, in 1999, it was said that the G7 didn't properly represent the entire worldwide economy, especially emerging markets. So a G20 group was born to provide an even larger forum for the global good.

Except not everyone was happy. See, in a way, the G7 overlooked some of the fastest-growing markets, which were quickly catching up in terms of dominance. So in 2001, the term BRICS was going to represent Brazil, Russia, India, China, and later, South Africa, who are believed to dominate the global economy by 2050. After all, those countries encompass over 25 percent of the world's land coverage and 40 percent of the entire world's population, with a total GDP of almost 25 trillion dollars.

You know, even though that term was originally coined by Goldman Sachs to represent their belief that emerging markets would be a profitable investment, that term stuck. In 2009, BRICS began hosting its annual summit for a greater voice and representation throughout global finance, which brings us to today. It's now reported that BRICS nations have overtaken the G7 in terms of purchasing power GDP, which basically means even though the US brings in more dollars, BRICS nations produce more relative to what you could buy.

On top of that, BRICS is also expanding and might soon include the likes of Argentina, Egypt, Iran, Indonesia, Bangladesh, and the United Arab Emirates, which if accepted, would create an entity with a GDP 30 percent larger than the United States, over 50 percent of the global population, and in control of 60 percent of the global gas reserves. Obviously, a group of that magnitude would have a lot of influence and leverage in terms of global finance, and one of those initiatives could very well be replacing the dollar.

That's because after China and Brazil entered into a trade agreement to ditch the US dollar, a new report highlighted that BRICS nations are in the process of creating a new medium for payments established on a strategy that does not defend the dollar or Euro. Even though the details are sparse, it's said that the new currency would be secured by gold and other commodities such as rare Earth elements. The new form of currency would be presented at The Brick Summit this year, which takes place between August 22nd to 24th.

This also comes just days after South Africa sent officials to Russia for new global order talks. All of this is simply referred to as de-dollarization, which in simple terms suggests replacing the US dollar as the world's reserve currency, or at least reducing its dominance to promote more competition.

In addition to that, there's also been talks and concerns over the US dollar being weaponized through sanctions against other countries. If a new currency would exist, that could be another option for transacting outside of the United States. Now, the proponents of this argue that this process would reduce other countries’ dependence on the US dollar and the U.S. economy, which could help mitigate the impact of economic and political changes in the U.S. on their own economies.

But others believe that this is simply a way for countries to avoid sanctions and that full dollarization could help countries achieve lower inflation, economic stability, and growth. Although even with all that said, one thing is very clear: the dominance of the US dollar has been steadily declining for more than 20 years, with most of that going to China or smaller countries that play a more limited role as a reserve currency.

So what's happening? Well, one report found that there were three main reasons. First, there's a lot more liquidity in the markets today than there was in the past. See, previously growing economies didn't have access to electronic trading and had to resort to US dollars to settle transactions. But now, falling transaction costs give them the opportunity to use other currencies with the push of a button, reducing their dependence on the US dollar.

Second, countries are already holding on to a high amount of dollars as reserves, giving them the option to accumulate other currencies at a higher rate. For example, it was found that throughout 55 emerging markets, 30 of them had excess reserves as of 2017, and those reserves were exceeded by an average of 58.

And third, the Russia-Ukraine war forced alternative payment methods between countries that wanted to do business with each other, like Russia invoicing in Ruble, Saudi Arabia paying in Renminbi, and China trading with their Yuan. This article then goes on to say that the overall conclusion is that the weaponization of the dollar serves to increase incentives towards financial fragmentation.

Or I guess more simply put, if you put limitations on who can transact with the dollar, the most likely outcome is that other countries will try to find a way around it, and economically, that leads to alternatives that might not be in our best interest. What could that be, you ask? Well, apparently, they've been buying gold on a broad scale. Central banks have been buying up the precious metal at the fastest pace since 1950, with China making another purchase of 30 tons back in December—not including what we don't already know of.

In addition to that, Turkey was the biggest buyer of gold during the last quarter of 2022, followed by Uzbekistan and India. Because of that, it's said that these large gold purchases could be symbolic of the departure from the US dollar, especially now that reserves have fallen from 70 in 2000 down to 60 today. It's also said to be an attempt to diversify holdings outside of the United States within an asset that typically holds value to inflation.

Although the downside is that the more research I try to do on this, the more I go down a rabbit hole of getting sucked into a sales funnel that tries to sell you on gold bullion. But objectively, it does seem like a large amount of gold was purchased at the end of 2022, with prices almost reaching their previous all-time high.

Now, whether or not gold is actually a valid hedge against inflation is up for debate, especially since there are decades in a row where it’s underperformed. But the fact remains that central banks are buying it as a store of value, and perhaps that’ll reduce reliance on the US dollar at least a bit. This could also be why a U.S. congresswoman wants to go back to the gold standard, where every dollar is backed by an equivalent amount of gold.

Although I gotta say, with 31 trillion dollars of national debt, we either need to mine more gold than currently exists for sale, or the price of gold would have to skyrocket to fifty thousand dollars an ounce, or the bill is going nowhere. And let’s be real, the bill is going nowhere.

Now, as far as what happens next, it's the Goldman Sachs Chief Economist who pointed the term BRICS, who is calling on BRICS to expand to create a fair multi-currency global system by introducing emerging nations. Even though this might sound counter-intuitive for those who want the US dollar to stay in control, as he explains, whenever the Federal Reserve Board is embarked on periods of monetary tightening or the opposite loosening, the consequences on the value of the dollar and the knock-on effects have been dramatic.

Or in other words, it takes a significant toll in developing nations anytime the Federal Reserve prints more money, raises interest rates, or lowers interest rates. Sometimes developing nations just can't keep up. Fun fact, but this is also referred to as what's called the dollar milkshake theory, where if other countries begin slowing down relative to the United States, their currencies begin falling in value, making it more expensive to buy goods and services in US Dollars during a time where they could at least afford it.

Or pretty much, as demand for US Dollars increases, other countries need to print more of their own currency to pay for those dollars. It's called the milkshake theory because in this scenario, the US would suck up more dollars from around the world, resulting in cascading defaults throughout every other large economy. Although in this case, it's urged that BRICS use their influence on climate finance, healthcare, and trade while expanding their involvement throughout the International Monetary Fund.

But only time is going to tell how this plays out, and I have a feeling they’re probably not going to listen. Personally, though, I’ve said this before, but in terms of the US Dollar's dominance, it's unlikely that anything else is going to take its place anytime soon. Because currently, there's nothing else that comes close.

Even throughout global currency trading, the US dollar currently makes up 90 percent of all transactions. So the idea that BRICS is going to come up with this currency and the whole world is suddenly going to trust it is a broad overreach. And I say this as a person on YouTube who has absolutely no idea what he's talking about because I'm a guy making videos in a half-converted garage.

If I'm speaking candidly here, sure, some countries are wary of the US dollar because of sanctions, interest rates, inflation, and a somewhat volatile Federal Reserve. There's also a very, very, very small, almost non-existent chance that the U.S. somehow defaults on their national debt, which has never happened before in history, but if Congress can't agree on a new debt ceiling, then hey, you know what? Maybe there's slightly more than a non-zero chance.

On top of that, there's also never been a reserve currency that's lasted more than 110 years, and so far, we're on year 103. But that doesn't mean we're automatically next, barring some severe financial catastrophe, in which case I would tend to think that watching YouTube videos and investing would probably be the least of your concerns.

That's why I believe the US dollar threat is something to be mindful of. But realistically, nothing else is trusted as much as the US dollar right now. Nothing is probably going to happen anytime soon, and the best thing that you could do in the meantime is to hit the like button and subscribe if you haven't done that already.

So with that said, you guys, thank you so much for watching. As always, feel free to add me on Instagram, and don't forget that you can get a free stock worth all the way up to a thousand dollars with their paid sponsor public.com down below in the description with the code Graham. Enjoy! Let me know which free stock you get. Thank you so much, and until next time.