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(Kitco News) Many analysts claim the US dollar’s tendency to collapse is exaggerated, but Rockefeller International chairman Rutil Sharma says many countries are accelerating their search for alternative reserve currencies. And money is central to the conversation.
“Gold, the oldest and most traditional asset, is now the instrument of central bank rebellion against the dollar. Gold is now seen as much safer,” Sharma said. The founder and chief investment officer of Breakout Capital said in his FT-published comments over the weekend:
Sharma said the main reason for the shift to gold is the increased use of sanctions as weapons by the United States and its allies.
“Money [is] 20% increase in half a year. The surging demand isn’t being led by the usual suspects. Investors large and small want a hedge against inflation and low real interest rates. Instead, the bulk buyers are central banks, which have drastically reduced their dollar holdings and are looking for safer alternatives,” he noted.
In fact, central banks bought a record amount of gold in 2022. According to the World Gold Council, the year is off to a solid start and the trend is unlikely to slow down anytime soon.
“This buying boom pushed the price of gold to record levels, more than 50% higher than models based on real interest rates would suggest. Clearly, something new is driving the price of gold.” Sharma explained.
The biggest buyers of gold are emerging economies such as China, Russia, India and Turkey. Most of these countries are also interested in creating their own currency to avoid the US dollar when trading their own currency and building reserves.
The issue came to the fore as Western countries introduced a series of sanctions against Russia following Russia’s invasion of Ukraine.
“The US saw sanctions as a cheap way to fight Russia without endangering its military, but it is paying a price for losing fidelity to its currency,” Sharma wrote. “Amazingly, from his 10% in the early 90s, to her 30% now, countries face sanctions from the US, EU, Japan and UK,” Sharma notes.
The search for a suitable central bank digital currency (CBDC) has also intensified, with the number of countries considering the idea tripling in the past three years, pointing to another potential challenge for the US dollar, he said. added.
Sharma warned that a big risk for the United States is “overconfidence” in the belief that there is no good alternative to the US dollar as the world’s reserve currency.
“The dollar’s last line of defense is China. When giants turn to the weaknesses of their rivals, it’s time to take a closer look in the mirror. When faced with challenges from ‘barbaric relics’ such as gold and gold “Rather than taking its status as a financial superpower for granted, as new competitors like digital currencies, we should look for ways to strengthen trust in finance.”
Meanwhile, the sphere of influence of BRICS continues to expand. This group is an emerging market bloc consisting of Brazil, Russia, India, China and South Africa.
And now, with 19 countries wishing to join the group, we have received new membership requests ahead of our annual summit in South Africa on June 2-3.
The idea of the expansion will be raised at the annual meeting, Bloomberg said on Monday, citing Anil Sooklal, a South African ambassador to the group. “What will be discussed is the expansion of the BRICS and the modalities of how this will happen,” said Sooklal. We are receiving applications to join every day.”
The topic of expanding membership was brought up last year by China. And since the group’s founding in 2006, only one additional member has been added. It’s South Africa. And that was over ten years ago.
Some of the countries considering joining the ranks are Saudi Arabia, Iran, Argentina, United Arab Emirates, Algeria, Egypt, Bahrain and Indonesia.
The impact of BRICS has become a hot topic among analysts amid the growing trend of de-dollarization. Last month, former Goldman Sachs chief economist Jim O’Neill called for expanding to the BRICS bloc and challenging the dominance of the US dollar.
O’Neill said the dollar’s dominance has destabilized monetary policy in other countries and blocs need to counter it.
“The US dollar is playing too dominant a role in global finance,” he wrote in a paper published in the Global Policy Journal. Whenever we launch a period, the impact on the value of the dollar and the ripple effect has been dramatic.”
Click here for more information on recent de-dollarization trends around the world.
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