Gold Standard Revisited: Dollar's Purchasing Power Plummets 99%
In recent days, many have been particularly concerned about the employment data in the United States, especially following the release of the ADP employment report last night, which showed that only 99,000 jobs were added, nearly 40% below the anticipated 145,000.
Subsequently, the US dollar experienced a significant decline, confirming the downward trend once again.
While many are hoping that a rate cut from the Fed might inject new growth into the global economy, the dollar has unceremoniously disappointed a lot of expectations.
According to a report released by Reuters on the evening of September 5, 2019, the Federal Reserve's decision to undertake interest rate cuts may mark the end of the dollar's strong position maintained over the past several years, leading to a gradual depreciation of the dollar's exchange rate.
In this context, Brian Rose, a senior economist at UBS Global Wealth Management, made the following prediction: "In any scenario, as long as the Fed initiates a rate cut policy, the dollar's exchange rate will undoubtedly exhibit a downward trend."
Advertisement
Additionally, according to reports from Russian media, Russia announced today (September 6) that after the BRICS meeting, it will support the use of gold or cryptocurrencies to purchase oil.
This move undoubtedly adds insult to injury for a dollar that was already supposed to weaken; does this mean that the dollar-dominated global financial system may come to an end?
The Return of the Gold Standard?
By the end of 2023, gold successfully surpassed the euro, claiming the second spot as a global reserve currency.
The share of the dollar in the total international reserve assets has quietly declined to 48%. Meanwhile, in the same scenario, gold's proportion in total reserves has steadily increased, rising from 11% in 2008 to 18% in 2023.
Now, gold's status has already surpassed that of the euro, which remains stagnant at 16%.
In the first half of 2017, central banks around the world set a new historical record for gold purchases, with a total of 483 tons of gold purchased.
Simultaneously, the price of gold exceeded $2500, with spot gold peaking at $2531 per ounce, and the New York futures market gold price reaching a high of $2570 per ounce.
Gold futures in the domestic market have also remained at a high of 570 RMB per gram, as the renminbi has significantly appreciated this year, preventing RMB gold prices from breaking new highs temporarily.
Almost all of the
international trading positions are gradually rising.
Following Russia's announcement to peg oil to gold, OPEC is likely to respond by announcing gold transactions for oil.
Post the BRICS meeting, Russia may directly announce that if Europe or the US wants to continue purchasing oil, they must settle in gold.
Russia will consequently increase its gold reserves, thus enhancing the credibility of the ruble, making it more convenient for the ruble to circulate internationally.
At this stage, the dollar remains the primary currency for international trade settlements, while the ruble's exchange rate against the dollar hovers around 90 to 1, yet due to sanctions from the US, this conversion ratio often goes untraded.
In Russia's underground market, astonishingly, 1 dollar can exchange for as much as 400 rubles.
Such an exchange rate has presented many with opportunities for profit, and Russian authorities have been unable to curb black market trading.
Hence, enhancing the international circulation of the ruble is of utmost importance.
If Russia seizes this opportunity to peg oil to gold, subsequently anchoring the ruble to gold, a new currency exchange system will emerge, thereby elevating the ruble's international standing.
Should this approach gain recognition from BRICS nations and some European countries, the dollar's position will undoubtedly be shaken; this is something the US cannot tolerate. However, in terms of military strength, the US finds itself impotent against Russia, and currently can only maintain its national status through proxy wars without daring to confront Russia head-on.
What will be the future fate of the dollar?
The Dollar's Position is Undermined
Both the dollar and the euro, two major global currencies, are increasingly showing characteristics detrimental to a stable economic environment, especially in Russia, where a substantial portion of its foreign exchange reserves has faced severe freezing.
Against this backdrop, numerous countries have expressed concerns about continuing to accumulate dollar reserves.
Although Western countries have publicly sanctioned Russia and the Nord Stream pipeline was bombed,
EU member states have not ceased importing oil from Russia.
The United States has employed various methods to pressure European nations to resist Russian oil, yet in a bid to combat domestic inflation, it has significantly increased its imports of Russian oil.
As of the first half of 2024, US imports of Russian oil increased by 43%.
At the same time, European countries have not slowed their pace; just from April to June this year, the EU imported as much as 127 billion cubic meters of natural gas from Russia, compared to only 123 billion cubic meters from the US.
Russia's natural gas supply to the EU has already surpassed that of the US.
Look, this is the world; full of allies and moral high ground, yet behind the scenes, all are stabbed in the back.
In this world, nothing is of significance in the face of interests and survival.
For those who blindedly venerate dollar hegemony, that green paper once allowed them to purchase goods made in China across the globe.
For China, the dollar previously facilitated the acquisition of essential resources from around the world.
But now it's no longer necessary; we can directly purchase oil, gold, copper, green minerals, and iron ore, among other resources, using renminbi.
For Russia, de-dollarization is urgent; but for the renminbi, it is a natural progression.
In such circumstances, what kind of structure will the future global financial system exhibit?
Dollar Purchasing Power Declines by 99.5%
In 2020, the US government and the Federal Reserve collaborated on the most aggressive fiscal and monetary policies to prevent the American economy from falling into recession; however, such stimulation cannot be deemed a long-term solution.
When an overwhelming amount of currency floods the market, it will inevitably trigger global inflation and elevate asset prices.
Moreover, while it is easy to inject liquidity, withdrawing it poses a significant challenge.
Forcing money out of people's pockets and subsequently destroying it is an even greater difficulty.
After 2022, the Federal Reserve aimed to withdraw dollars from the global market through rate hikes and balance sheet reductions, but this did not come without costs.
By 2024, dollars have flowed back into the United States, driving up housing and stock prices while causing prices to soar.
At this juncture, as the economy teeters on the brink of recession, the Federal Reserve is preparing to embark on a rate-cutting cycle.
However, this time the dollar will face a competitor multiplied many times over—gold.
Gold has never failed to honor the era it exists in.
Since the decoupling of the dollar from gold, irrespective of how hard the US government and the Federal Reserve strive, the price of gold in terms of dollars has consistently shown a steady upward trajectory.
Originally, $14,000 could purchase 400 ounces of gold, but by 2024, you would only be able to acquire a mere 6 ounces of this precious metal.
It is safe to say that gold has never failed to represent the essence of this era.
Leave a comment