Rickards Predicts a Major Monetary Shock

Thoughts for Hurricane Helene Victims

Firstly, our thoughts and prayers are extended to those affected by Hurricane Helene, which has caused significant devastation in the southeast through massive flooding. The death toll is over 100 and may increase substantially. We hope for a swift recovery in the affected areas.

Focus on Other Geopolitical Developments

While much attention is focused on the U.S. presidential election, the war in Ukraine, and the war in Gaza, it's crucial not to overlook other geopolitical developments that could be even more significant in the long run. One such development is the rise of the new BRICS currency and its potential role in the global monetary system.

For years, warnings have been issued about the collapse of the dollar, and the rise of BRICS has been closely monitored. It's a monetary shock about to hit the global financial system, and it's considered the most significant development in international finance in over half a century.

The annual leaders’ summit of BRICS nations is being held in Kazan, Russia from Oct. 22–24, and will include announcements moving the BRICS currency plans forward in material ways.

Understanding the Power of BRICS

The original BRICs membership from 2009 consisted of Brazil, Russia, India, and China. South Africa was added in 2010 when the group’s name was changed to BRICS. The group expanded significantly at the 2023 leaders’ summit in South Africa when Egypt, Ethiopia, Iran, and the United Arab Emirates (UAE) were added.

Over the years, BRICS has been active in institutionalizing its initiatives. In 2014, the BRICS created the New Development Bank (NDB), which functions like the World Bank to promote infrastructure development in emerging economies. The NDB was capitalized with over $100 billion from its members and currently has 53 projects underway with commitments of over $15 billion to those projects.

BRICS are part of an emerging Global South that is challenging the Collective West for world economic and geopolitical dominance.

Defining the BRICS Currency

The subject of a BRICS currency is confusing to most observers and is a fraught topic even for many experts. The BRICS currency is very far along in establishing itself as a viable payment currency. The prerequisites are: agreed-upon value, secure payments channels, digital ledgers, and an agreed issuer.

The single most important element is a sufficiently large membership in the BRICS currency union such that a recipient of BRICS payments can use them for purchases in many jurisdictions for many goods and services.

This constraint goes away in a currency union with 15 or 20 members or more. If Russia earns BRICs from China, they can buy Embraer aircrafts from Brazil or semiconductors from Malaysia.

Upcoming Developments to Watch

There are several interesting developments taking place. The first is that the U.S. is squandering its rule-of-law advantage with sanctions on Russia, the freezing of the assets of the Central Bank of Russia and efforts to actually steal those assets and convert them into a $50 billion loan to Ukraine using structured finance.

The second is that the BRICS summit in Kazan, Russia in late October will announce significant progress in building out secure payment channels and will admit new members, which will drive the group closer to the critical mass needed to launch a currency union.

None of this happens overnight. It’s helpful to recall that the euro took almost 10 years to launch from the Maastricht Treaty in 1992 to the actual creation of the euro in 2000.

A Linkage to Gold

It will take years to develop a BRICs-denominated bond market, although the process could be accelerated if BRICS members offered bonds directly to their own citizens as retail investors.

There is a short path to making the BRICs a viable reserve currency — gold. Members of the BRICS currency union could use surplus BRICs to buy gold bullion to hold in their reserves.

It will still take a few years to add members, build out the infrastructure and firm up some valuation issues. Still, this currency is coming.

Bottom Line

Even as a payment currency, the BRICS unit could be used in a material percentage of global trade giving the dollar a run for its money. The BRICS unit does not mark the end of the dollar as a widely accepted currency.

Still, in conjunction with the badly misguided weaponization of the dollar, it could mark the beginning of the end.

As Hemingway said about how men go bankrupt, "Slowly, then suddenly." The same could apply to the dollar.

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