Since the closing of the gold window in 1971, our world currency system has functioned without a material 'anchor' and/or a 'reference point for value'. The history of commerce (international trade) involves a philosophy of exchanging VALUE for VALUE. Value is the KEY concept within economics which evolved gradually from BARTER. VALUE has always been assumed to be intrinsic within select 'things' (goods).
To calculate VALUE one needs 'reference point' for VALUE. When America started their economic system, the DOLLAR was chosen as America's reference point for VALUE. The American dollar (paper or otherwise) could be used in any marketplace for calculating VALUE (in exchange). International trade involves the exchange of products (which are presumed to have VALUE). How did this work historically?
The American dollar ($) started out as a symbol and a number ($1.00) which had no material reality in itself. The word 'dollar' is imaginary and merely part of our 'consciousness'. So the 'dollar' starts out as a 'unit of consciousness. It's a pure mental abstraction. Today, we say that our 'dollar' is virtual/digital. This is equivalent (essentially) to the American dollar prior to its definition in terms of some 'thing'. So what happened to give our 'dollar' some material reality (substance)?
What happened is that Thomas Jefferson and Alexander Hamilton (the inventors of our $) decided that this 'unit' (of consciousness) needed to be defined in terms of a material substance (that people viewed as giving them confidence when trading). After testing the marketplace these founders chose silver (and gold) as the material items which seemed to be viewed as having VALUE (in the marketplace). The Spanish coin which Thomas Jefferson used to define our first 'dollar' was the Spanish peso (also called dollar). He had this coin assayed and discovered that it contained some 371.25 grains of pure silver.
In 1789 - 92, our Congress studied the thinking of Thomas Jefferson and Alexander Hamilton and decided to choose SILVER as the first material 'reference point' for the American dollar. The Coinage Act of 1792 was produced and this ACT defined the American dollar ($1.00) as 371.25 grains of silver. Gold was also viewed as an equivalent reference point for VALUE (giving our dollar a value of 24.75 grains of Gold). At the time, the silver/gold ratio in the marketplace as 15:1.
America now had a monetary unit which could be traded in the world marketplace for other goods and services. Nations would accept our silver/gold backed DOLLAR for their products. A VALUE for VALUE exchange could be negotiated as all nations accepted the concept that SILVER and GOLD had VALUE (in exchange). International commerce could be conducted with confidence as all nations agreed on the idea that SILVER and GOLD had meaningful VALUE (in exchange).
The American dollar (when defined) had meaningful exchange as this currency unit could be exchanged (if desired) for units of silver and/or gold in the marketplace. Central Banks could use our DOLLAR as a reserve currency as it was viewed as STABLE/sound and also a unit which everyone accepted as a viable LEGAL TENDER unit (for goods and services). All this broke down in 1971 when Nixon closed the American gold window (due to American mismanagement/inflation) and America refused to redeem foreign held dollars for our gold (after August 15, 1971). All currencies then became FIAT units of nothing (mere 'numbers') in a bookkeeping system.
In 1974-75, Kissinger (America's Secretary of State) helped our dollar to regain some stability by getting OPEC (mainly Saudi Arabia) to PRICE all their OIL in American dollars. This created the concept of a PETRO DOLLAR which helped America to continue the mantra that our DOLLAR was tied to some material thing (oil). From 1975 to 2021, the petro dollar had relevance (for most nations). This all changed, however, when Saudi Arabia agreed to accept alternative FIAT currencies for their oil (starting in 2021). Biden may have been part of the problem!
Today, we have a NEW group of nations which want to reestablish a SOUND and STABLE international currency system. This group is called the BRICS group of nations. Brazil, Russia, India, China, and South Africa make up the core group (BRICS). Many new nations now desire to JOIN this core group and form a new international trading union (with new currencies). De-dollarization is the new concept. A growing group of nations wants to drop the DOLLAR and trade using their own national currencies going forward.
On August 22 - 24, the BRICS group (along with some 40 or more additional nations) will meet to talk about this concept of de-dollarization (dropping the dollar and using national currencies for trade settlements). This group will eventually make up OVER 50% of all global GDP (gross domestic product). Talk will also center on the idea of creating ONE currency which is GOLD backed for this group of nations. A gold backed currency (exchangeable/convertible) would be a REAL challenge to the AMERICAN dollar.
The mis-managment of the American dollar along with the virtual/digital nature of our dollar is forcing these BRICS nations to desire a new system for global trade settlement. Also the Ukraine/Russia war situation is forcing Russia to abandon the American dollar as sanctions can be imposed upon Russia if they continue to trade with this American dollar. The desire is to get out of the dollar trade system and establish a NEW SYSTEM for the BRICS nations. Watch the meeting on August 22 - 24 for more details.
Our world money system is changing rapidly. My sense is that the American dollar will be in serious trouble by the end of 2023. We could witness a dollar crash in the markets as alternative currencies replace our historical reserve currency (the dollar). This crash (in value) could happen prior to the end of 2023. All this is ominous for our stock market and our bond markets. Interest rates could also be in play as this NEW SYSTEM of trading evolves. Prepare for BIG changes in our currency markets by the END of 2023.
Money is a confidence game and the system which we currently have is ephemeral. My sense is that the BRICS will start with global de-dollarization and then move towards a GOLD back currency. Much could change by the end of 2023 and early 2024. Today, we have a VALUE system based on NOTHING. Digital currencies are VIRTUAL currencies. Virtual currencies are really UNITS of NOTHING! Amazing! Think for yourself to discern!
Our digital currencies get created by the punch of a computer key. The units have zero intrinsic value. Central Bankers manipulate their 'imaginary' value (artificially). This is unsound for international trading. The BRICS want this to change going forward!
I am: Donald B. Swenson, Economist/Philosopher, donaldswenson.blogspot.com.
http://kingdomecon.wordpress.com
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