A Serious Contender: The Next Global Powerhouse

In less than one month, something big is going to happen.

No, I am not talking about the US elections.

Nor am I talking about another potential attack on Trump.

I am talking about the gathering of a new elite group – one that is set to challenge the entire world.

And what happens during this meeting will determine the future of the entire world.

To understand the ramifications of what’s about to happen, you need to understand how we got here.

It’s no secret that the biggest economic threat to the United States is China.

In real terms, no one matches the might of the United States, which has a staggering GDP of over US$28 trillion.

China, on the other hand, has just over $18.5 trillion.

But if things continue on the same trend, it won’t take long for China to catch up.

Since 2000, US GDP has increased by about 186%.

During that same time, China’s GDP has increased by over 1400%.

But GDP isn’t the only way to become the world number one – that is just one criterion.

You also have to control the world’s money supply.

Or, at least, not be controlled by it.

What do I mean?

Last year, we told you exactly what China was doing to circumvent the US Dollar and ultimately remove the dollar from its global dominance.

Here is an excerpt from that past Letter…

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China is notorious for playing the long game.

And its role in US de-dollarization is one of the most remarkable moves we are witnessing first-hand.

In 2014, Russia annexed Crimea, and the West slapped Russia with sanctions.

In response, China urged its BRICS partners to launch the New Development Bank—a replacement for the West-dominated International Monetary Fund (IMF) and World Bank.

Headquartered in Shanghai, the New Development Bank became an alternative funding source for emerging economies, which now are less reliant on dollar-denominated debt. 

That was Phase 1. 

Then Covid swept the world.

Not letting an opportunity go to waste, China’s central bank announced that it needed “better visibility” into the nation’s finances so it could target stimulus more effectively.

Thus, under the guise of COVID, China’s President Xi launched the e-yuan, the world’s first central bank digital currency (CBDC).

Via South Morning China Post:

“Guo said the key advantage of the e-yuan system was its ability to trace cash flow and make it easier to enforce financial regulations, which were absent from traditional payment systems and created huge challenges for the real economy. “There will be a lot of challenges from the pandemic that will make good cases for the use of digital currencies,” said chief scientist at the Bank of China Guo Weimin.”

That was Phase 2

Shortly after, Russia and Ukraine go head-on. The West responded with another barrage of sanctions while cutting off Russia’s most valuable financial resource: the energy sector.

Some have even alluded to the US sabotaging one of the pipelines delivering gas from Russia to Europe. 

With sanctions in place and a pipeline destroyed, Putin was in 

desperate need. 

And not letting an opportunity go to waste, Xi obliged. 

He came to Russia’s rescue and bought Russia’s embargoed fossil fuels, but with one very specific condition: half of the purchase must be settled in China’s currency, the yuan.

Putin agreed.

From A New Global Currency Is Live:

“In September, China and Russia signed an agreement to trade gas in the yuan and the ruble on a 50-50 split. The deal came shortly after Finance Minister Alexey Moiseev concluded that “Russia no longer needs the US dollar as a reserve currency.” 

Since October 8, the yuan/ruble pair has been the most traded currency on the Moscow Exchange. 

Meanwhile, Russian companies have since issued hundreds of millions of dollars in yuan-denominated bonds.

For the first time in history, the yuan dethroned the dollar in Russia. 

More importantly, it marked the first time in the modern era that a major oil producer sold oil in a currency other than the dollar.

A new precedent has been set.

That was Phase 3.

Soon after, other prominent oil exporters hinted they would also be on board for settling oil exports in China’s currency. 

At the same time, China began piloting its already domestically tested e-yuan for cross-border transactions.

For the first time in history, a technologically superior alternative to the US fiat dollar for global trade was born.

Critical Mass 

Even with a technologically superior currency, China still has to convince a good part of the world to adopt it—which means burning diplomatic bridges with what is still the world’s most powerful economy, the United States of America.

Furthermore, China’s allies aren’t stupid. They won’t drop the dollar only to be subjected to the same fate by a different ruler.

That’s why China’s President Xi has been pushing the BRICS nations (Brazil, Russia, India, China, and South Africa) to adopt a common reserve currency – rumored to be a basket of its member currencies led by the yuan, similar to the IMF’s special drawing rights (SDR).

However, a common currency among these five emerging economies still won’t be enough to rival the US dollar, let alone stand as a global reserve currency; international trade is simply too big and complex. 

But what if the BRICS nations could convince others to join them? 

BRICS to Expand?

It turns out, it won’t take much convincing.

Last month, the BRICS nations announced they would entertain allowing other countries to be included in their coalition.

And immediately, a dozen oil nations lined up—including oil producers Argentina, Egypt, and Algeria, and even bigger players, such as the UAE, Iran, and even Saudi Arabia.

Via Bloomberg:

“The BRICS group of nations plans to decide this year whether to admit new members and what criteria they would have to meet, with Iran and Saudi Arabia among those who’ve formally asked to join, according to South Africa’s ambassador to the bloc.

The proposal to expand BRICS will be one of the economic bloc’s main focuses this year, said Ambassador Anil Sooklal. South Africa is the group’s current chair.

“There are over a dozen countries that have knocked on the door,” Sooklal said in an interview in Johannesburg last week. “We are quite advanced at looking at a further group of new members.” 

Think about what an economic powerhouse this lineup could become – especially given the vast control of oil these nations possess.

BRICS, as is, already covers one-third of the world’s land surface and is home to over 40% of the global population. Moreover, its economies account for 20% of international trade and nearly one-fourth of global GDP. 

At currently expected growth rates, this emerging market block is projected to contribute half of the world’s GDP by 2030. 

And that’s assuming BRICS won’t expand.

If oil exporters follow through and join the block, their combined global output could easily make up nearly 50% of the world’s output—likely more.

Even more damaging to the US dollar, their combined forces would represent 7 of the top 10 oil producers in the world. Bye bye petrodollar.

And why wouldn’t the BRICS want this? According to Bloomberg, the BRICS has a mere 15% of the vote in both the IMF and the World Bank.

If you’re a BRICS nation, you’d probably feel pretty shafted. 

So don’t be surprised if the BRICS allows more members to create their own international financial organization. 

And guess who will be the most powerful within that group?

That’s right, China.

Acting Swiftly

Many laugh off China’s ability to dethrone the US dollar by pointing out the yuan’s meager use in global trade.

And they’re not wrong.

For all China’s mighty power, the yuan ranks only fifth in currencies used in global trade – representing a measly 2.15% compared to nearly 42% for the dollar and 35% for the euro.

But remember, China is great at playing the long game. 

As we’ve discussed many times before, the US has printed trillions upon trillions of dollars over the last few years – with no signs of stopping. 

And it’s printing fiat currency – a currency that isn’t backed by any commodity, such as gold.

If the US were ever to default – that is, fail to pay its debt on time – holders of that debt could end up with nothing.

And don’t think for one second that the world hasn’t noticed how much fiat money the US has printed in the last few years alone. It’s not the first time the US has overspent. 

One look back at the 70s, and you’ll see a similar event playing out now (see “How Money Works”).

During that time, the US acted swiftly and maintained its dollar dominance by signing agreements to trade the world’s most valuable resource, oil, in US dollars. 

(You can learn more about how the US dollar remained on top after the Nixon Shock in our Letter, “Bretton Woods 3.”)

But today, things have changed. 

It is now the BRICS and China who are acting swiftly.

Right now, just as in the 60s and 70s, US government spending is hitting record highs along with the uncertainty of government policies. 

Meanwhile, the US may soon lose the petrodollar advantage it once had – especially given the West’s move toward green energy. 

So just how are the BRICS and China acting swiftly?

For starters, China explicitly hinted that the new reserve currency would be backed by real assets. And considering recent developments, it would most likely come in the form of a central bank digital currency, otherwise known as CBDC.

As I wrote in “A New Global Currency Is Live,” China and its trading partners are testing a SWIFT alternative called “mCBDC bridge” specifically designed for clearing cross-border transactions in CBDCs. 

In other words, China isn’t pushing for an alternative fiat reserve system. Instead, it’s building a digital version of the gold standard.

And the economics of it makes a lot of sense.

Worthless

If you think the end of the dollar can’t happen—or at least not in your lifetime—think again.

Here’s some quick back-of-the-envelope math. 

Saudi Arabia holds 268 billion barrels of oil in proven reserves—worth roughly $20 trillion at today’s prices.

For perspective: 

• That’s 3.5x more than all US dollars held in FX reserves: ($6.44 trillion) 
• And it nearly matches America’s entire GDP ($23.32 trillion)

Keep in mind that’s reserve assets of just one wannabe BRICS member…

Add in Russia’s oil reserves and China’s secret stash of gold that Xi has quietly been stacking up since 2008, and you’ve got a backing that’s more powerful than any fiat currency can claim. 

In other words, fiat currencies and its ever-growing pile of debt may soon have a very powerful challenger.

That’s not to say the US dollar will become worthless. But it could be worth less.

So my advice for you is this: If you are still overweight in dollar-denominated paper assets, there’s still time to spread your seed. Gold, silver, commodities, natural gas, and alternative energy, such as lithium and uranium, all come to mind (we’ll be revealing more of these ideas soon.)

Because, in the end, resources will always be worth something.

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That was last year. And boy have China and the BRICS nations continued to act swiftly.

As soon as the BRICS announced last year that they would entertain allowing other countries to be included in their coalition, countries all around the world applied.

Then, during the BRICS summit last August, the BRICS announced six new members: Ethiopia, Egypt, Iran, Saudi Arabia, the United Arab Emirates (UAE), and Argentina.

What was once BRICS is now BRICS+.

Collectively, they represent well over 40% of global oil reserves and production and a significant portion of rare earth elements and lithium.

China alone has been the dominant player in rare earth elements production and processing, with estimates suggesting it controls approximately 60% of the world’s rare earth elements production but nearly 90% of the processing and refining capacity.

When it comes to GDP, BRICS+ surpasses the US with $30.76 trillion (as of October 2023), representing 30 percent of the world economy.

And BRICS+ won’t stop there.

Via the Australian Institute of International Affairs:

“…The necessity of expanding trade and investment among the BRICS member states and strengthening their relations was emphasised by the summit leaders.

By 2050, leaders at the summit hope to account for 50 percent of the world’s GDP, which will fundamentally change the economic landscape.”

As we mentioned earlier, GDP alone won’t make you king.

Which is why the leaders of BRICS+ emphasized their goal of de-dollarization.

Via International Affairs, continued:

“…leaders of the BRICS members at the summit declared their intention to reduce dependency on the US dollar and to increase the pace of de-dollarisation in global commerce. They also discussed currency alternatives such as including the potential development of a shared currency.

The BRICS New Development Bank, for instance, was proffered as a concrete step away from the dollar, with plans to lend in South African Rand and the Brazilian Real. However, because of the very limited use and reach of the currencies beyond South Africa and Brazil, these efforts are mostly idealistic. Experts suspect that a complete challenge to the US dollar’s dominance in global commerce remains a tough task due to limited intra-BRICS trade.

Beyond these developments, the BRICS summit showed that the possibility of a common trading system or BRICS currency was growing interest.

Brazilian president Luiz Inácio Lula da Silva advocated for the BRICS currency by highlighting its benefits for the member states.

Via Video, Russian President Vladimir Putin criticised the dollar dominance and US sanctions for global economic volatility and emphasised the benefits of de-dollarization for BRICS nations. The 2024 summit of BRICS, which will be held in Russia, will likely pursue the issue further.“

Despite the challenges of de-dollarization, BRICS+ has continued its momentum on removing the world’s reliance on the dollar.

In previous letters, we explained how China has been working with countries around the world to adopt a Blockchain-based cross-border payments system to rival SWIFT, a global member-owned cooperative that provides a network for secure financial and administrative messaging between banks and other financial institutions.

Recall our Letter, “A New Global Currency is Live,” from November 2022:

“China’s next step in de-dollarizing its trading partners is having a first-mover advantage in CBDCs.

…China successfully completed a 40-day trial using its digital currency to settle cross-border transactions with Hong Kong, Thailand, and the United Arab Emirates.

The trial processed over 160 payments worth $22 million – all in real-time.

That’s right – no more waiting days to clear through SWIFT.

Those transactions came through the so-called “mCBDC bridge. “

This system was initiated by the same countries that participated in the e-yuan trial and was designed to settle real-time payments in CBDCs without using correspondent banks.”

An update on CBDCs can be found via our past letter, “A Gathering of the Elites.”

While the media has been focused on central bank digital currencies (CBDCs), the BRICS nations have been working for the last five years on a new global payment system.

It’s called BRICS Pay.

Via BRICS Pay:

“BRICS PAY set benefits from a combination of traditional payment systems and new technologies such as central bank digital currencies (CBDC), decentralized finance, and tokenized assets (secured money). BRICS PAY is an expansion of payment options for companies and citizens of participating countries, as well as for the entire world and all existing or emerging payment solutions.”

In other words, this system will circumvent the SWIFT network, traditionally controlled by Western interests.

The importance of this initiative cannot be overstated.

By establishing this new settlement mechanism, BRICS nations are not only creating an alternative for international transactions free from the threat of Western sanctions but are also significantly advancing the process of de-dollarization.

This system facilitates trade settlements in local currencies and diminishes the dependency on the US dollar, which has historically dominated global financial transactions.

This is no longer an idea. It’s happening now.

And get this: the BRICS+ nations are meeting next month.

This time, in Russia.

Last year, BRICS made a pivotal announcement, revealing its decision to expand by inviting new countries to join its ranks.

And it did that officially at the last meeting.

This year, we bet it will announce something big again.

And that something is the official launch of BRICS Pay.

The economic strength of the BRICS+ countries is easily represented by two of the fastest-growing economies in the world: China and India.

And they’ve just added some of the biggest oil producers in the world to the coalition.

With a list of countries eager and waiting to join, there is no doubt that BRICS+ could soon represent more than 50% of the world’s output.

Undoubtedly, this will challenge the hegemony that the US has owned for so long.

Not only can the demand for US dollars decline thus, weakening its value, but the dollar’s prevailing status has been fundamental to American influence, enabling the enforcement of sanctions and guiding international financial transactions.

Sure, challenges remain for such a new system, such as which currency will dominate the BRICS Pay system. China isn’t exactly friendly with India, while India is still working out its currency payment issues with Russia.

Via Bloomberg:

“Russia has accumulated billions of dollars worth of rupee assets given its wide trade surplus with India, but it’s struggling to use the funds. The rupee isn’t a fully convertible currency internationally, making it difficult to use in global trade.

Russian Foreign Minister Sergei Lavrov said in May the build-up of rupees is a “problem” and discussions were taking place on how the funds can be transferred into another currency.

Indian refiners want to use dirhams over yuan in order to comply with the government’s instructions, according to one of the people familiar with the matter. However, some suppliers of Russian oil are not in favor of using the UAE’s currency since it requires them to conduct the transactions out of Dubai, which would result in more scrutiny of the funds, the person said.”

But there is one obvious solution to the currency swap issues: gold.

The price of gold has once again hit an all-time high. And while it isn’t as exciting and technologically advanced as Bitcoin, it still represents a true store of global wealth – an asset class that EVERY nation in the world accepts without question.

Gold is the most reasonable and logical anchor of such a system that can challenge the might of the US dollar.

Is it surprising that the BRICS countries have been net buyers of gold over the past few years?

Could the next summit lead to a BRICS pay backed by gold?

The implementation of the new BRICS pay framework will have significant ramifications for worldwide financial markets, trade dynamics, and geopolitics.

This initiative represents a historic shift in global economics, moving towards a more decentralized model of economic alliances from the long-held central hubs of Western power.

While we are all focused on the US elections and the battle for power between the Left and Right, countries around the world are quietly focused on removing power from the US.

It’s as if this has been the plan all along…

Seek the truth and be prepared,

Carlisle Kane