This week back to an old theme where I got started with my occasional rant. I am referring to gold and stories I told in “Sell the Pig” “Stories of an Accidental Gold Miner” In particular “The Skin of the Gods” and the tangled history of gold.
With the news this week that the BRIC Countries (China, Russia, India, Brazil, and South Africa) have formed a new pool of currencies to replace the Special Drawing Rights (money of last resort) provided by the IMF (International Monetary Fund) The initial amount set at a value $150 billion is roughly the same amount as provided to launch Special Drawing Rights, the exchangeable currency into gold, US dollars, Euros, Pounds, and Yen after the collapse of the Breton Woods agreement in 1969. At that time SDRs’ were valued at .888671 grams of gold and hence carried forward the convertibility of the old US dollar into gold.
It is more than a little interesting that the fanfare of the launch of the new cookie jar led by President Putin makes no mention of gold, as being a part of the new arrangement. All of this bears a strange resemblance to Hans Christian Anderson’s tale of the Emperor Clothes or the lack thereof. I suppose if all the participants believe BRICS (If that’s what they will be called) are worth something it will be alright but outside the pool it will be problematic.
Officially the BRIC countries hold 3011 tons of gold as reserve currency. ( approximately 10 % of the world total ) Unofficially China and India may have a first call on a great deal more, and hereby hangs a tale. The gold is owned by BRIC citizens rather than the sovereign countries, in much the same way as it was in the US prior to 1935 when, desperate to stop hoarding, the US Government devalued the dollar by purchasing all gold held by Americans at $35 an ounce.
If there is another wobble, such as was seen in China during the past few weeks, history could well repeat and set off a chain reaction amongst other BRIC nations to consolidate gold holdings in the hands of government and devalue paper currencies. I have said before the Communist Party cannot afford for the Chinese economy to go into a tailspin and to avoid this they have to keep the economy growing and more than a billion people happy.
The Japanese condition of deflation and stagnation is not an option for China or the other the BRIC countries.
The BRIC nations alone now comprise 40% of all World Trade and must now be bought into the fold to counter balance the ECB and the US. Seems to me the knobs should be spending more time on this possible race to the bottom than fooling around with Greek insolvency that will make absolutely no difference to world prosperity.