Like bolts from the blue, six additional allies, including Saudi Arabia, have been welcomed into the BRICS (Brazil, Russia, India, China, and South Africa) sanctuary. This paradigm shift leaves the West squirming as BRICS flexes muscles, chipping away at the erstwhile dominance of the dollar, and threatening Western economic supremacy.
More than just a ‘Map Shift’
Gone are the days when this unfolding drama was viewed as a mere scuffle between the East and West. In the words of the renowned economist Patrick Barron, we’re witnessing a war of economic ideologies. Here, the age-old Keynesian economic theory contends with gold, crafting an intriguing “Economic World War.” As gripping as this battle royal sounds, Barron bets his bottom dollar that ultimately, gold will reign supreme.
Time to Pass the Baton?
Since the extermination of the Bretton Woods Agreement in 1971, the fiat dollar has basked in the glory of being the preferred currency for international trade. However, titan economies of the Western democracies are awfully unprepared for the dark clouds gathering, threatening to end this reign.
In the recently concluded BRICS summit, discussions revolved around the establishment of an alternative international trade settlement system centered on commodities-including gold. Of course, this step is more welcomed by the non-Western members, but it has sparked interest even in some Western-affiliated nations. With six new members, including the likes of Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates, the BRICS family is growing stronger, waxing eccentric circles around the Western world.
A Recycled Battle: Gold vs Keynesian Theory
Within this convoluted matrix, the ironclad Keynesian theory squares off with gold. The battle is nerve-racking, but gold seems set to deal the knockout punch to Keynesian economics, asserting its foothold in international trade. As the sagacious Murray N. Rothbard pointed out in “What Has Government Done to Our Money?” the grandeur of gold was never negated by fiat money. The gold standard was stealthily stifled, all to satiate the state’s incessant desire for more money. The repercussions? A continuous onslaught of wars, ever-expanding welfare states, and ballooning public deficits, all culminating in the staggering currency debasement.
Vying for an Alternative System
Russia obstinately rallied for an alternative system at the receiving end of Western sanctions and denied access to the international dollar trade via SWIFT. Introducing gold into the trading system would unmask the Achilles heel of Keynesian Economics — the prominence of aggregate demand overproduction. Such a revision paints a grim picture where consuming at whim lays waste to infrastructure and production.
The political benefit? No single nation would monopolize and tamper with the system for personal gain. The economic perks? Government spending could be curtailed to prioritize resource allocation towards production. Alas, commodities like gold would only drain out without a matching export boom to balance the imports, thereby discouraging reckless economic practices.
The Dawn of a Gold System
Alasdair Macleod of Goldmoney, a walking encyclopedia on the matter, outlined that with time, spectators would see the global trade settlement system slowly infiltrating individual economies — and consigning fiat currencies to the historical waste-bin. He argues that Keynes’ 1924 prediction for the Gold standard could ironically apply to fiat currencies, becoming the “barbarous relics” themselves.