From August 22 through 24th, an extended coalition of over 40 nations which has become known as BRICS+ will meet in Johannesburg, South Africa. Among the likely topics of discussion is the feasibility of setting up a jointly-owned international financial institution. It would be funded by gold deposits, issue a currency, and extend loans tied to the spot value of gold. There are substantial reasons to doubt the workability of the growing consortium’s plan. But to dismiss it summarily, whether as bad economics or rote anti-American propaganda, is to dismiss a moment five decades in the making.
Throughout the 1990s and into the early dawn of the 21st century, national governments looked down upon a world they credited themselves with creating. A Federal Reserve-engineered ‘soft landing’ in the mid-1990s buttressed the perception of monetary policy as a perfectable science.
The Third Way – not free markets, but a hampered, highly regulated mixed economy – had outlasted and arguably defeated Communism. Technological innovation was vaulting beyond anyone’s wildest expectations. Space was at the forefront of science again, with the launch of the Hubble Space Telescope and construction starting on the International Space Station. Protease inhibitors, bioengineered foods, and the first hybrid vehicles arrived.
US Dollar Index (DXY), Fall of USSR – present
At that time political figures all around the globe, elected and appointed, surveyed a world built upon paper money and financialization. They looked upon it with great, in many cases smug, satisfaction. And among other self-congratulatory measures, they began selling their long-held gold reserves – by the ton. England, the Netherlands, Australia, Belgium, Canada, and even precious metal stalwart Switzerland liquidated physical stocks of gold. The US did as well, a bit later. Some explained those sales as a means for diversifying central bank holdings. Others claimed that the proceeds would benefit the poor or be used to pay down government debt. A new millennium was at hand, the towpath to which was paved not by soft yellow metal but by batteries of workstations armed with Pentium III processors, silently churning out solutions to partial differential equations.
Twenty-five years later the poor are still poor, national debt is at record levels, and the price of gold in US dollars is eight to ten times the price that governments and central bankers sold almost 5,000 metric tons for. Multi-trillion dollar wars have been fought to inconclusive ends: not lost, really, but far from won. Orders of magnitudes typically only found in astronomy textbooks, invoking trillions (and in Japan, quadrillions) regularly surfaced in the descriptions of monetary and fiscal policy measures of developed nations. Then, on the heels of a highly politicized response to a public health event, inflation returned from a four decade sojourn. One dollar printed during the Y2K scare today purchases roughly 56 percent of what it did then.
Nevertheless, the US dollar has remained the indisputable and essentially singular global reserve currency, acting as a medium of exchange, unit of account, and settlement instrument for the lion’s share of daily international trading.
Despite policy missteps and distractions, the Fed has arguably performed better than most of the world’s other central banks: in the land of the blind, the one-eyed man is king. But the weaponization of the US dollar in 2022 has exposed greenback dependency as a vulnerability of existential proportions. With the banning of most Russian banks from the Swift (Society for Worldwide Interbank Financial Telecommunication) messaging system, and despite the dollar’s advantages for use in global trade, a line was crossed.
Despite petulant insistences to the contrary by the most well-known economist today (regrettably), a wave of de-dollarization is very much underway. It would be interesting to know how Krugman, who scoffed at the description of ejecting a nation from SWIFT as “weaponization,” would characterize French Finance Minister Bruno Le Maier’s dubbing the move a “financial nuclear weapon.”
None of this means that the dollar is “doomed,” and certainly not imminently. Neither is the US dollar “dead.” But its use as a sanctioning instrument likely represents the crossing of a rubicon whereby nations habitually using the dollar need to have currency alternatives ready. US Treasury Secretary Janet Yellen, even while citing the entrenched nature of the dollar in global trade, conceded that “diversif[cation]” in global foreign exchange reserves is underway earlier this month.
The argument that few if any other nations have currencies (and/or economies underlying them) that meet the requirements of a global reserve currency is a cogent one. Of course, one needn’t necessarily replace the dollar. What matters is having a ready means of transacting outside dollar-based systems and institutions in exigent circumstances: to maintain continuity of trade, and to hedge against the policy errors of central bankers. What is the most marketable, least manipulable means of shifting away from the dollar (and possibly back to it, once tensions have abated) with the lowest switching costs? Gold.
Gold in USD, Fall of USSR – present
Saudi Arabia, not a particular fan of the current Presidential administration, has indicated that it will invest billions of dollars into its expanding gold sector over the remainder of this decade. India recently launched an international gold bullion exchange. The imposition of (almost) unprecedented non-pharmaceutical interventions in early 2020 saw the price of gold rise to record highs. At the end of last year, central banks were buying gold at the fastest rate since 1967. As of May, 70 percent of central banks indicated believing that gold reserves would increase over the next year. Experimentation with using gold alongside dollars, and as money, including in some innovative, familiar formats here in the US, has been growing in just the last few years.
Specific details on the proposed currency union have not yet been released. They may not yet exist outside the minds of their promoters. Suffice to say that drawing scores of nations together from different continents and cultures, with different histories and remarkably diverse resource endowments will be a heavy lift, organizationally speaking. Smaller members are likely to find their interests marginalized, with the resulting dynamic closer to what’s seen in the United Nations than, say, OPEC. And few of the proposed members have confidence-inspiring track records where property rights are concerned.
The form and function of the BRICS+ financial institution, if any is indeed forthcoming, is of secondary importance. What matters is that the slow creep of de-dollarization is, on its flip side, an inexorable push toward the re-monetization of gold. And whether that means sound money through innovation or pressuring global central banks to reform their practices, those outcomes are welcome to say the least.
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About the Author
Peter C. Earle is an economist who joined AIER in 2018. Prior to that he spent over 20 years as a trader and analyst at a number of securities firms and hedge funds in the New York metropolitan area. His research focuses on financial markets, monetary policy, and problems in economic measurement. He has been quoted by the Wall Street Journal, Bloomberg, Reuters, CNBC, Grant’s Interest Rate Observer, NPR, and in numerous other media outlets and publications. Pete holds an MA in Applied Economics from American University, an MBA (Finance), and a BS in Engineering from the United States Military Academy at West Point.
Article cross-posted from AIER.
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Two Storms, One Harvest
Every food crisis in living memory has been a one-shock event. The 2008 price spike was a commodity bubble. The 2020 shortages were a logistics failure. The 2022 grain scare was a war on one exporter’s ports. Each time, the system bent, adjusted, and recovered, and each time the experts assured us afterward that global markets are simply too big and too diversified to fail.
What nobody in Washington seems eager to discuss is that 2026 is shaping up to be something the modern food system has never actually faced. Two independent shocks, one climatic and one geopolitical, are converging on the same harvest cycle at the same time. Not sequentially. Simultaneously.
Start with the weather. The Pacific Ocean is currently building toward what forecasters now openly call a record event. NOAA’s Climate Prediction Center puts the odds of at least a strong El Niño near 88 percent, with roughly two in three odds it reaches “very strong” status, the tier reserved for perhaps three or four events in the entire satellite era. Every major global model now projects a median peak in Super El Niño territory, and most of them project it exceeding the 2015-16 event, which until now held the modern record. Sea surface anomalies were already brushing the super threshold in mid-July, months before these events normally peak. The atmosphere has already shifted into El Niño mode, and the event is forecast to crest in late fall and early winter.
This is not about “climate change.” It’s about the standard cycles of weather, and the cycle we’re currently in is one that has likely devastated societies in the past. We’re better prepared as a society today, but not all Americans are equally prepared.
Serious households have started doing the quiet math on their own. Grocery bills tell part of the story, and the forecast maps tell the rest, which is why long-term food storage has moved from fringe hobby to mainstream line item in the family budget, with established suppliers like Heaven’s Harvest seeing demand from people who five years ago would have rolled their eyes at the idea. That instinct is not paranoia. It is pattern recognition, and the pattern is worth walking through carefully.
Editor’s Note: Heaven’s Harvest IS a sponsor, but the warnings of this article are real and would be written even if we didn’t have a survival food sponsor. With that said, those who take advantage of what they offer can use promo code “Patriot” for 15% off.
The Fertilizer Clock Is Already Running
While the Pacific warms, the second shock has been unfolding in the Strait of Hormuz. The conflict with Iran turned the world’s most important energy chokepoint into a contested waterway, and the consequences reach far beyond the gas pump. Roughly a third of global fertilizer trade moves through Hormuz, and the disruption sent urea prices up 86 percent year over year by March, with a 53 percent jump in a single month.
The World Bank projects energy prices rising about 24 percent in 2026 and fertilizer about 31 percent. By its own accounting, fertilizer prices ran 35 percent higher in the first five months of this year than the same period last year.
Here is the mechanism the nightly news will not explain. Fertilizer is not a grocery item. It is a time-delayed input. The nitrogen a farmer in Iowa or Punjab could not afford to apply this spring does not show up as a problem this spring. It shows up as a thinner harvest six to twelve months later.
The World Bank’s own food security brief concedes that the effects of reduced applications earlier this season “are likely to become visible only later in harvest outcomes.” Translate that from institutional language into plain English and it means this. The damage is already done, it is already in the ground, and we are simply waiting for it to arrive on the shelf.
Now check the calendar. Six to twelve months from the spring planting season lands us squarely in late 2026 and early 2027. Which is precisely when the strongest El Niño in the instrumental record is forecast to peak, bringing its signature droughts to Southeast Asia, Australia, southern Africa, northern Brazil, and South Asia, the very regions that grow the world’s rice, sugar, and oilseeds.
The World Bank warns openly that a strong El Niño “could disrupt multiple crop belts simultaneously” on top of the conflict-driven input costs. Their baseline projection assumes the Middle East disruptions ease by autumn. What in the last two years of Middle East history suggests that assumption is safe?
The System Has No Slack Left
The comfortable answer is that global markets always adjust. But adjustment requires slack, and the slack is gone. Global cereal production is expected to decline from last year’s records even before El Niño does its work. The UN World Food Programme, hardly a den of right-wing preppers, is calling this the most significant disruption to its supply chains since Covid and the invasion of Ukraine, and its supply chain director put the stakes bluntly.
Today’s supply chain challenges are tomorrow’s hunger crisis.
There is also a political dimension that markets cannot price. When food gets scarce, governments do not behave like economists. They behave like politicians. Export bans, hoarding mandates, and panic buying at the national level turned the modest rice shortfall of 2008 into a global crisis, and analysts are already warning that import-dependent nations are the first dominoes.
The 2015-16 Super El Niño, a far weaker event than what is now forecast, threw tens of millions into food stress across Africa and Asia. This one is projected to be stronger, and it arrives with fertilizer already rationed by price and shipping lanes already contested by missiles.
What Joseph Knew
Scripture does not treat preparation for lean years as faithlessness. It treats it as wisdom delivered in advance to those willing to act on it.
Behold, there come seven years of great plenty throughout all the land of Egypt: And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt.
Joseph did not respond to that warning with a hashtag or a committee. He stored grain during the years of abundance, and when the famine came, Egypt stood while its neighbors begged. The lesson is not that famine is certain. It is that the time to prepare is precisely when preparation still looks optional.
Nobody who filled a pantry in a year of plenty has ever regretted it, and nobody standing in an empty aisle has ever been glad he waited for certainty.
None of this calls for panic, and panic is the enemy of sound judgment anyway. It calls for the same unglamorous prudence our grandparents considered ordinary. Keep some cash margin, know your local growers, and put real food in deep storage while it is cheap and available, because the entire arc of this story is that cheap and available is a closing window.
Families looking for a straightforward place to start can visit Heaven’s Harvest and use promo code Patriot for 15 percent off long-term storable food. The forecasts may yet soften, the strait may yet reopen, and we should pray they do. But hope is a fine thing to hold and a foolish thing to eat.