I am seeing more and more posts on how a BRICS commodity-backed currency isn’t possible. I mean, I don’t think anyone really gives it 10 seconds of thought. It’s like, “can’t be done”, and on they go with their day. I find the concept thrilling to look into and design. As an IT engineer – you build things. This can also be business processes using IT. The concept here is I’d like to build a currency with the backend of a commodities-based system. And, I think I’ve done it below. Note – I thank the gents at Kinesis for giving the blueprint of how this can work.
In this article, I’ll walk you through HOW something like this can be done. Last night I walked through a little of it on Twitter. Note: You cannot fully develop any thoughts out with this means of communication, which is why I ended up here.
This is a thought experiment. I have an MBA, which means I took a load of economics and finance/accounting classes – but it doesn’t mean I have a PhD in economics, and therefore I’m somewhat limited to those with a PhD in subjects when it comes to this. However, it doesn’t mean I can’t see big picture items and make suggestions as I don’t think Adam Smith had any idea something like Kinesis could exist. This means innovations are possible, and what I’d like to do here is talk about an existing economic framework that works, today, with Kinesis, and blow it out a bit on how this can work at a nation state level with a BRICS currency. I am perfectly aware there are a lot of smarter people than me who can figure out the nuts and bolts of the details at the user level. The purpose of this would be “big, broad strokes” with the weeds being handled by the super smart market/finance guys.
But why should they do this? What PROBLEMS are being solved with this?
- Stop dollar hegemony. I believe many of these countries are fed up with the dollar hegemony. They see the US borrowing trillions and making tanks and planes with it. I believe that THEY feel if the US no longer can print money at will, it could topple their ability to be the world’s police.
- Build strong international currency that is FAIR to all. With FIAT currencies, they all eventually go to zero – but you can see Western-backed finance going full MMT right now, where many of these other economies have been prudent with their spending and debt, and feel that the MMT thing is fraud. IF they back their currency with SOMETHING, they it would be favored over USD fiat. It would either force the US to back their debt with something or risk being overrun by those that do.
- Build currency based on COMMODITIES. A “gold standard” has limitations for countries, especially those with no gold. We have seen this level of restriction isn’t exactly great for countries. It seems countries “print” more than they have. But what happens when a country’s currency is far more than gold? But what if a country has a lot of uranium? Another has a lot of copper? Another has a lot of coffee? Nation’s wealth would not be demonstrated by gold, but by all resources.
- Currency control. Currencies can print themselves to oblivion. With this model, there would only be as much currency as commodities in the system and this is controlled by digital tokens on the blockchain.
- Universal international settlement. This currency would be to settle international accounts and thus a country would not have to accept a country’s “shitty and worthless” paper currency for trade. No need to hold the currencies of 75 countries in reserve. All you would care about is your local currency against a BRICS currency.
Gold is the center of the financial system
At the basis of the entire system is gold. This doesn’t mean it’s a gold BACKED system as much as it is a gold BASED system. In countless works I have done here, on YouTube, and even on Palisades – I have demonstrated that over time, “things” are ultimately priced in gold, whether you see it visually or not. It doesn’t mean it is a static price – it means there is RELAVATISM between things and gold.
Consider that gold is $1760 and oil is $74. We look at price information through the lens of the USD. However, if we used the RELATIONSHIP between them to show their VALUE, you would see that today, you could get 23.78 barrels for an ounce of gold. you can see outliers cause less or more oil production.
Give or take, over the last 50 years we are somewhere on average of about 17-23 barrels of oil per ounce of gold. Meaning, you perhaps are somewhere around .7 barrels per gram, or roughly about 1.2-1.5g of gold per barrel depending on your measures and years. All of the above is eyeballed, and if you dug in and got a real MEAN here, over a much longer time, you might see somewhere around 1.2g of gold per barrel. The above shows that oil moves perhaps within about 5 barrels per oz of gold from an approximate mean in oscillation, or roughly 25%. This isn’t perfect either. This is how a market cycle works. Things become over priced and more supply hits the markets to bring down price. Price gets too low, production stops, which then creates more demand and price goes up. This is the oscillation you are seeing against gold. It’s not perfect, but you can see a relativism here.
The idea here is that when you look at the price information, in dollars, it looks like the below and has wild swings – but priced in gold, the VALUE is closer.
For the longest time, this is how the US did business.
The piece of paper was a certificate you could REDEEM for gold. So, when oil was priced in dollars 100 years ago, it was essentially priced in gold. The data you see above as the price – reflects the lost value in USD over the period of the last 70 years. AND the USD has lost value against GOLD during that time too. So the BEST price information is to look at the VALUE of oil, in gold, which removes the spastic nature of the USD. The VALUE of gold or oil is not changing – the price of the USD is acting nuts.
By pricing things, in gold, you can then have an international market. No one cares about your yen or yuan or USD or ruble – they care about how much oil they can get for their gold.
You can see this type of oscillation in other commodities/things with respect to gold.
And my favorite…
The point here is that the price information, in gold, has been there for quite some time. If you can look at how to price things in respect to grams of gold, you might then be able to build your exchange around the VALUE of gold.
What SHOULD happen is that participants would see a price of something being stretched too far in one direction, and corrections would happen. Consider price of oil, in gold – if it gets too high, like 16 barrels per ounce (I would say over 1.5g per barrel), more oil would come to market to sell at that high price. The more oil coming to the market would lower the price. So I don’t care how much oil or gold is in the system, but you will be able to see how the markets would self- regulate.
In gold we trust
For the sake of this article, the BRICS currency would be called BRIC$ (or BRICS dollars). Imagine today if I wanted to buy a futures contract in silver. From what my friend Jim says, I need $9000 to buy a contract on margin, and when and if I decide to buy, I would then have to pony up the rest of the $125,000 or so if I wanted the silver. So there is dollar liquidity to go into the system first by participants wanting to purchase things. Obviously, this is leveraged, but you get the idea that currency of sorts enters the system.
I could see the BRICS exchange as a REAL PHYSICAL exchange of things. I can see member nations having to put in 10 tons of gold – they can always add more later. To make things rough, let’s say that is 300,000 oz. It’s roughly half a billion dollars in USD. This is deposited in BRICS-compliant exchanges. Here’s your FIRST hurdle. If BRICS is going to trade using a basket of commodities, it would need to set up rules and have their exchanges compliant and use the same accounting methods. So let’s assume we are 2-3 years from now and the Shanghai, Dubai, Moscow, etc all have a portion of their exchanges set up for BRICS trading.
Let’s say that there are 10 exchanges to start, and any member-nation of BRICS can stand up a compliant exchange, as long as it works within the rule sets established. I believe there would need to be a financial governing board representing all members of the BRICS nations. This is hurdle TWO, which would require these exchanges to be available for inspection and audit.
IF the basis of this entire thing is trust, all of these nations trust gold, and we now assume all of these nations have deposited 300k oz of gold, we now have the basis of purchasing goods in this system. Liquidity now started the whole system up, now let’s buy shit with it.
Once a member nation deposits the 300k oz, perhaps they then get BRIC$ in return. Let’s say a BRIC$ = 1g of gold. I’m using this in smaller increments due to like a pound of copper at $4 USD. If a g of gold is about $60 USD, you can see 15 pounds of copper to 1g of gold. This is how anyone outside of the system would first start looking at this.
So each member state now has 9,330,000 in BRIC$. Once they deposited this gold, they were given a digital token in BRIC$ to spend. The BRIC$ is the overarching currency that the rest of trade is dependent on.
At this stage, I’m looking at the nation-state levels. But you have to realize in this country, the government isn’t mining gold, nor is it producing oil. It would seem that at the VERY start, it would be the BRICS nation states establishing the exchange, the rules, settlement, and tokenization. It would then stand to reason that government-licensed companies could enter these exchanges and bring items to the exchange to sell and buy. I think building THIS level out is another 40 page document, so for now I’m going to leave this to a government-only type of situation. However, like Kinesis does KYC, it would stand to reason that highly regulated companies approved by a host state could get on to the exchanges.
I want to focus on how Kinesis does this for reference here which is what gave me the idea for a lot of this. So I’m not reinventing the wheel – I’m pointing out where the wheel is working to see if it can work here. One common question was asked in the Tweets about how a BRICS currency would be issued and how it would be controlled.
With Kinesis, you have 9 vaults around the world. I can take USD and buy a KAG (oz of silver) or KAU (gram of gold). So I would deposit USD into this exchange, and then I can buy these tokens that are for sale from others with bid/ask. To GET silver or gold into the system, you can send them your gold OR you can “mint” (which has them buying from external to add to the vaults). When new gold or silver is added, the KAU/KAG is created to match this, and when it is removed, the KAG/KAU is destroyed.
The same can be said then for this to be vaults around the world with nation states, in these BRICS-approved depositories. Once gold is added, the BRIC$ is issued for the gold. If you add silver, perhaps it’s BRIC$-AG tokens. Perhaps you add copper, it’s BRIC$-CU tokens. Meaning, as these items are deposited, the tokens are created. This is your currency.
At any given time, you could see exchange rates for BRIC$-CU to BRIC$. Also, you could see BRIC$-AG to BRIC$. Using this, you can then extrapolate out relative trade pairs for just about ANY commodity you’d like to trade – using gold as the center of this exchange.
For example, you could say today that 1g of gold is $56 which equals 2.67 oz silver. Copper is 3.63 a pound so 1g of gold = 16.67 pounds. Therefore, at this exact moment, you could use gold to extrapolate that 2.67 silver = 16.67 pounds of silver, or 1 silver oz = 6.24 pounds of copper. Obviously, minute to minute this silver to copper ratio would change, but gold is the universal translator.
The idea is then that people start to see the relativism in the relationships to gold and start thinking of silver as 2.5 oz per gram of gold or something like that. If you see it at 3 oz per gram, you start to convert gold to silver. If it’s at 2 oz per gram, you move silver to gold, etc. As people begin moving away from a dollar nominal number to a VALUE, this is where the trade gets interesting – and relatively tightly correlated as any arbs will thus have the relationships move back to the means.
Now, let’s say you are Chile and you deposit a lot of copper – you are issued BRIC$-CU. Perhaps Russia deposits a lot of BRIC$-AG. You would be able to see the currency pairings if you wanted to then buy Chile’s copper with your silver because each silver and copper would have a relationship with gold (BRIC$). The BRIC$ is the base currency, but the commodities that are added are tokenized.
If I’m Chile, I then send my copper token to Russia (via escrow), and Russia sends me silver tokens (via escrow). Once both parties made good on the contract, the tokens are released to both parties. In my local BRICS exchange, all of the silver might not be there that I need at this moment, so perhaps I want to cash in half of my BRIC$-AG tokens to redeem. The local exchange (vault) would give me the silver on hand, and order the rest shipped from a closer BRICS exchange, perhaps in Brazil. The BRIC$-AG tokens are destroyed as they are redeemed, and silver exits the system.
I would think that the idea here is BRICS members would all have an exchange/depository on their soil, which would be compliant with BRICS accounting principles and be expected to be audited.
Only items deposited into the system would create tokens. So at any given point in time, the BRICS currency is equal to the sum of what is deposited into these vaults. This is why I thought Kinesis was so revolutionary. And – on that platform is an exchange of real time pairings.
One can then consider the below concepts…
- A local, non-BRICS exchange might have Rubles to gold. The government could then use rubles to buy gold from the people, and then turn around and put this gold on the exchange. So their value of rubles to gold would thus impact the ruble/gold exchange rates. People would determine if the amount of rubles offered would be enough to sell gold – and by this nature, you would see a ruble have relative value to gold locally – which should in theory have relative value to the BRIC$ token. The arb here is something the people can play, which keeps fiat currencies honest with gold.
- An exchange to a member nation would look like the above, where you would have pairings of things – like gold to copper, silver, aluminum, platinum, etc. Perhaps you wanted to view the exchange in copper – you would have all of the pairings in copper.
Your account would be the market rate of all items, combined, in gold (BRIC$). You might start with 9.33m in BRIC$ with gold, but as you are adding commodities and getting tokens, your account would reflect overall value in BRIC$ equivalent – just as how my Kinesis account is the sum of everything in USD, a member account’s currency would be BRIC$ equivalent at existing market rates. The exchange, as a whole, may start off as 100% gold to begin trade, but perhaps 5 years in, gold might only be 5% of the underlying BRICS currency. Maybe 20 years it, it is 1-3%. But it is THE universal money that all commodities would trade against for value.
Everything would be measured in g of gold for value on the exchange, but your LOCAL currencies might see a BRIC$ worth $54 in trade, today, in USD.
I believe strongly that a currency, like this, is the next evolution of how societies conduct business at international levels. While I have had some international finance classes, the full build out of this would require 100 of the best international finance PhDs in the world to design. I believe the appetite is there from the international community to make this happen.
Why? The US has shown that we print our currency irresponsibly, and with our printed greenbacks, we buy all of your shit you pull out of the ground with it, and we don’t touch what we have. You NEED these green slips of paper to buy oil and world goods. For now. But what if this system was set up and you no longer needed USD to get oil, gas, and silver? What if you were a seller and didn’t want to sell in cedi, Yuan, or Rubles? This is a perfect international settlement currency.
I see the days as the USD as the international reserve currency as limited. Not over – but limited. It stands to reason that global TRADE will need to be based on TRUST and VALUE. People accept the green slips of paper because they can turn around and buy things with it, just about anywhere. It is HIGHLY LIQUID. But, it’s a slip of paper. A fiat currency with no backing. Put into existence with debt at the other end of it. I believe the AMOUNT of debt we have has now essentially made the green slips of paper relatively worthless. I also believe that all of the slips of paper that are out there are trying to find a home in tangible goods. Maybe not today. But I believe that is the end game.
Right now, I believe the BRICS currency that is backed by commodities could be a real thing. I believe underestimating this, is rather silly. When I bring this up to people, it is summarily dismissed. But I ask you this….
If you are the Saudis, and someone is willing to give you gold for oil, as opposed to green backs, would you not be willing to take it? Would gold be a harder form of money than the USD? Would virtually all central banks in the world accept gold? IF there’s a hyperinflation situation in (name your currency), would gold not be something of value that these people would try and buy with that cash?
I also have to ask, if you are a third world nation and accepting spot prices for metals, run by foreign companies who invest and then extract your natural resources, aren’t you looking at this as a bad deal? This “spot” price might be set by paper trading in the COMEX. It’s not being set by those actually owning the metals in the ground. Companies are coming into these remote areas of the world, paying workers low wages, and then selling these minerals for a profit. One CAN marvel at the efficiency of the COMEX, but one also has to consider this is a globalist model. It opens the world up to produce goods at the cheapest rates possible. But, in a world of de-globalization, you could perhaps see these countries starving the COMEX of metals and thus selling on exchanges that might offer higher rates.
One could see a BRICS type of exchange as a PHYSICAL exchange, and thus this is REAL international trade. It would bypass a USD-based system which perhaps finds efficiencies – but perhaps too many efficiencies. These depressed prices essentially have taken nations rich with minerals and kept them in third world status while nations like mine develop price mechanisms to find these efficiencies, then profit off of it. I think these days are numbered.
But this has the promise of standing up a real currency, from the ground up, where 10 years from now an entire nation’s commodities outputs could be on this exchange providing billions upon billions in sales for each host nation. Where the currency would START as a nation-state settlement for goods, one could then see private organizations being allowed to deposit into these exchanges and take out as well.
Meaning, perhaps 10 years from now, BRICS+ nations could be the dominant form of commerce in the world. you would be selling things for a currency that is backed by things.
I talk about metals here because they are the most durable, but you start to run into issue when you are talking about oil, nat gas, wheat, corn, soy, etc. As Keith Wiener pointed out, you can’t exactly deposit oil into these exchanges. In this case, I could see selling an oil contract to be worthy of getting currency in return. For example, a contract might be 1 million barrels to be delivered within 30 days. The seller would get BRIC$-oil token when stating they have oil to sell on the market and the buyer would then buy the BRIC$-oil token for any other form of currency pairing the seller accepts – but BRIC$ would be universal to all.
You then have problems with crops rotting or the like, and rather this being a forward selling hedge, it would be, “I just harvested a million bushels, I need to get this to market in 7 days”. So when you create a BRIC$-wheat contract and get those tokens, you sell those to buyers for accepted currency pairings. For example, seller might accept BRIC$-AG as well as BRIC$-CU.
I think Wiener did point out an initial flaw – that you can’t have x oz of silver equal to y pounds of copper equal to z oz of platinum. However, you could have gold conversions for all, and thus this gold is the universal translator among all.
I think those who specialize in markets can probably crack this nut better than I could – but you can see how having a physical market of real things can then have a nation trading its goods for the goods of another nation with trusted currencies.
At issue today is you have paper shit currencies. Who wants the Yuan to sell oil? What are you buying with the Yuan? Chinese goods only? I think the US also sees value in no longer being the world’s reserve currency in the respect of trade deficits and seeing jobs going overseas every year. While we like being able to do MMT and print to eternity, the world is saying, “hold the fuck on, I didn’t sign up for you to be able to print and give us these slips of paper forever”. I believe the BRICS nations are built from nations that valued gold and silver throughout their histories and see our decadence as a result of allowing us to print money to infinity.
I think if you are the Saudis, and can see an unraveling of the Petro dollar – why are you willing to hold 60 different currencies which are all devaluing against real things? It makes sense to be paid in a single currency/token. A country can then hold BRIC$ (gold) or have tons of commodities in tokenized form in vaults/warehouses all over the world in BRICS-compliant warehouses. Likewise, if you are a nation like Chile and saw the US just take hundreds of millions of dollars in foreign reserves, you think it might not be a great idea to hold USD in foreign exchanges. Likewise, holding those USD are perhaps depreciating at 8%+ per year. So it makes sense to take those dollars and put it into tangible goods, while I can.
I’m not an fx guy. A very foreign world to me. But you can clearly see what happened when Russia HINTED at backing the ruble with gold.
The problem with backing a currency with gold only, means you are more or less restricted with your currency based on how much gold you have. However, assume for a second that I am creating a worldwide currency from the ground up, and it is backed by all commodities. This would not really be a currency you could use to go to the dentist to get your teeth cleaned. This would be an international currency, only, for commodities.
Assume, for a moment, I have $60 USD. Perhaps I want to buy a BRIC$ to redeem for a gram of gold. If I am a nation state or large banker who owns BRIC$, I can sell you the rights to this BRIC$ for USD. Meaning – I may have deposited gold and gotten a BRIC$ token. I can then send this to you, and you can send me $60 USD.
But I want you to think about how this would work, big picture. 20 years from now, it might take $300 USD to buy a BRIC$. This would be the inflationary nature of the USD currency system. Over time, it takes more currency units to get the same amount of goods. However, 20 years from now, it may still be 1.2-1.5g of gold for oil.
So I could see the BRIC$ currency as THE global trade currency, and local currencies can then trade against the BRIC$ international currency. Assume you are a US businessman and want to get 1,000 grams of gold. You take USD and bid on BRIC$ and then take those tokens to exchange for gold. Or copper. Or silver. You get the idea. Today it might be $60 for a BRIC$ token. It might be $4 for a BRIC$-CU token. It might be $22 for a BRIC$-AG token. But a year from now, those prices might be drastically higher as international trade moves away from COMEX price setting into real price discovery.
Right now, we look at the DXY as the index of shit USD against shit EUR/shit GBP, shit JPY, shit CAD and see the dollar “strength” against this dog shit, not realizing all that means is we aren’t printing as badly as they are. All of this obscures the fact that these currencies are all falling against REAL things. The BRIC$ solves that, as it is a measure of commodities against gold.
And – due to how depositories and exchanges are set up, no one really had to fly gold all over the world, all the time. These depositories can be the equivalent to UN-type of territory, so while the warehouse may be on Chilean soil, it can be thought of as owned by BRICS nation-states collectively. Meaning, if Chile wanted to just steal everything in the warehouse, then they would be dealing with China’s military and be shunned from global trade, forever.
I believe that this model then incentivizes global trade and domestic production of goods. Today, we could trade USD for BRIC$, but 10-20 years from now, a BRIC$ may cost so much no normal people could afford them – perhaps a BRIC$ would be $1,000. Why? We don’t produce shit. The concept then is that the more stuff we are able to produce, the more inline we are with global trading. Think about how we could produce a lot of food for the world, and many of these middle eastern countries with lots of oil and no food could trade us using BRIC$ tokens. Countries with a lot of natural resources could get much stronger than they are now, and countries that have little resource production may get much weaker.
In this scenario, one could see how mine nationalization would come to play, but I don’t think so. I mean, it could happen, but governments are not in the mining business. Think about if you are in Ghana now, and Newmont owns the mine locally. If gold is now getting priced much higher in USD due to the BRICS exchanges setting prices, you could then think of these local countries as striking for higher wages, and a NEM easily being able to pay them. Or, countries may issue some form of royalties to miners to ensure they get their beaks wet from all minerals pulled out of the ground.
You could see the design of this take 1-2 years, with the beginnings of this by perhaps 2026-2027. You could see nation states getting more and more membership of the BRICS, and a whole pseudo -UN type of thing setup from within it. Meaning – there may be ways to add new members, expel members, and how to opt in to the currency and trade.
One could see early success with this in 2026, but there could be 100 members signed on by then and many of them may want access to this currency and trade. Look at all the countries in the world that had pegged their currency to the dollar and have been getting screwed over.
You could perhaps see big private industry getting involved in 2028, and perhaps we might then have this roll out to regular people by 2030. Think about a big company that sells copper, can then sell this copper for BRIC$ and pay their people in that currency. Widespread adoption may not be until 2035-2040.
I state all of this to admit the dollar isn’t going anywhere in 2-3 years, but can see a path for a new international currency that would replace any single currency as a world’s reserve currency.
November 29, 2022 at 12:12 am
All the Burrok Ratts already drooling at the thought of how to divide and conquer that system
November 29, 2022 at 1:32 am
Excellent read; my questions are:
What if a country has no natural goods, does this destroy their currency or purchasing power, or do they need to sell tech(example) to acquire the BRIC$?
What if a country runs out of materials?
Very thought provoking!
November 29, 2022 at 2:13 am
I think that countries that do not begin to exploit what they have will fall behind. There can be a day when 10 years from now BRICS+ nations might simply ban the dollar. I know it sounds silly today to say that. But if you were selling goods, would you accept a zimbabwe $100 trillion note? I would not. This is how many fiat currencies may be looked at. Then again – local currencies may be just fine. At issue is international trade. If there is an energy crunch 10 years from now you could see the US bidding up prices with dollars. If they simply aren’t allowed to buy energy with un-backed paper, you would have to be self reliant on energy.
You can also see that many countries have things – but not necessarily commodities. Imagine you are the french with your wines. It would make sense that people could buy it with bric$. The wine companies could then convert those to euros if they so choose. Or, hold/save the bric$