ॐ ॥ हिरण्यवर्णां हरिणीं सुवर्णरजतस्रजाम् ।
चन्द्रां हिरण्मयीं लक्ष्मीं जातवेदो म आवह ॥ १॥
Sri Suktam
The world witnessed how “money” went from being one of the many variables that enables production to a variable that actually dictates production. The post Bretton-Woods era (specifically after the abandonment of the gold standard in 1971) resulted in a hyper-financialized world where the main objective of households and firms was to garner “money” and not necessarily to maximise production. The only exception to this rule was China where production, however, came to be linked with political factors, the societal implications becoming secondary. In other words, the integration of military and civilian technologies by Deng Xiaoping in 1982 became a key component of China’s monetary strategy. The US on the other hand, was printing money to finance its debt, in other words maximizing “money” at the expense of production; an inflation of real assets was inevitable.
Eventually, the US realized the contradictions in its approach; one can thus understand its frantic attempts today to look for an alternative reserve currency system to the US dollar that will not compromise its ability to finance (and re-finance) its existing debt. This is indeed an oxymoron. The US faces a unique conundrum—it would intend to continue the propagation of its current credit based financial system but still maintain its world’s reserve currency status in its presently weakened economic condition. The former requires it to continue to find buyers for its debt, especially large private financial institutions and foreign governments. This is all the more important given that the American households and the government run on a credit financing model where they are encouraged to spend more than they earn. The latter requires it to have considerable political control over the affairs of foreign countries and their economies. To summarise, as the volume of US debt explodes ($35 trillion currently) and shows no signs of abating in the near or medium term, the necessity to find innovative solutions has only become more pervasive.
History tells us that such contradictions have precipitated the creation of divergent and diverse monetary systems, the norm for most of the modern era except for the last 80 years after World War II. For the US, the “different” monetary system, which it feels would allow it to have the best of all worlds, would imply loading its debt onto a cryptocurrency based stablecoin which is then accepted by individuals, corporations and central banks alike in countries which recognize the extent of American geopolitical power. This stablecoin would likely be backed by a basket of “assets” (Bitcoin, US treasuries, gold or crude oil) in varying proportions. How the percentage of these assets would vary over time is something that would remain dependent on the decisions of successive US governments. However, what is not known is when and how this basket and its constituents would be readjusted. Undoubtedly, the decision to push US debt assets into the hands of individual investors instead of limiting it to institutional investors might increase its acceptability and credibility. The biggest risk, of course, would arise from fluctuations in the price of the asset based on the buying and selling patterns of individuals.
As the US plans its future monetary system, other parts of the world are also coalescing to create their own alternatives. There has been an increasing buzz about a basket of assets backed currency that the BRICS group of nations are contemplating, piloting BRICSCOIN (our suggested name) as a common currency to wean themselves away from the US dollar. Any economic grouping that contains China within it is likely to be dominated by it given China’s industrial capacity and economic output. However, if BRICSCOIN is backed by a basket of commodities including crude oil, minerals and gold, the weight of the industrial capacity of China in the new currency might be somewhat lessened. However, it would also be true that given that China runs trade surpluses with most nations, the probability that it will accumulate the maximum amount of BRICSCOIN over time is high. Member countries will need to ensure that China has sufficient incentive to purchase goods and services from other BRICS nations or offer them investment opportunities.
What will make BRICSCOIN different from another common currency like the Euro is that the individual member countries will not have to relinquish monetary sovereignty like countries that joined the Euro Area. There will also not be the need to have a BRICS central bank that overrides the decisions of the members’ individual central banks. It is suggested that BRICSCOIN is meant to function solely as a trading currency that the member countries use to settle trade transactions among themselves.
Crucially, given that the economies of almost 20 countries will get to decide the absolute value of BRICSCOIN, it may not be subject to wild swings as any US backed stablecoin might be, also given the fact that the latter may be held directly by individual investors and investment funds. A crucial question remains how the value of a BRICS coin might be determined vis-à-vis the local currencies of member countries. Ideally, the decision to free-float or fix the local currency with respect to BRICSCOIN should be a decision best left to the individual central banks given the countries’ economic stability, natural resources and production capacity. Depending on whether a particular member nation is a net importer or exporter among the BRICS nations, the specific central bank could decide to follow a commensurate exchange rate policy. Such a policy would ensure that the exchange rate of the local currency with respect to BRICSCOIN would not impact trading between countries. For example, suppose India—where let us say 100 rupees equals 10 BRICSCOIN — wants to sell something that costs 100 rupees to Indonesia where 10 BRICSCOIN equals 12000 rupiah, Indonesia could pay India either 12000 rupiah or 10 BRICSCOIN depending on mutual agreement. This would allow BRICSCOIN to become an abstraction like the Swiss Franc in the late 19th and early 20th century or the ultimate absolute, gold.
It is noteworthy that the member countries would have to agree upon what actually determines the new supply of BRICSCOIN. While increase in gold reserves remains an obvious candidate, there could be the option of including other possibilities as well. It is a fact that with the volume of trade in the world today and the sum total of money in circulation, there is not enough physical gold in the world (barring probably in sea water from where it is still economically unfeasible to extract the metal) to stand guarantee for any kind of lesser “money”.
Using the analogy of Strauss’ and Howes’ four turnings, the US dollar has seen its “high” in the period 1945-1971, its “awakening” during 1971-2008, its “unraveling” during 2008-2024 and the “crisis” is here today for all to see. And what of Aurum, or Hiranya if you will, which is our ultimate form of money? There are no turnings for this noblest of metals, it has always been on a high in its splendid isolation with nothing able to ever reach it for any length of time, if at all. It has seen currencies come and go for at least four millennia, and this is long enough for one to suggest that it is here forever.
Comments