I am not really announcing MishBucks. However, the concept, as described below, is real. I also discuss where a currency crisis is likely to start.
Understanding MishBucks
You deposit fiat money, credit cards not allowed, and I buy physical gold, held in your name, never lent. In return you get MishBucksTM. All transactions are on blockchain.
You can redeem your MishBucks for gold on demand. I will send gold to you, insured. If you prefer, I will sell your gold and send cash in any of six major currencies to your bank account on file.
Audits every month.
This is a super-duper-deal because I refuse to take any profit.
You do have to pay shipping costs, storage costs, and audit costs, but I will not profit in any way from any part of the process.
This unbelievable deal is 100 percent out of the goodness of my heart.
Want In?
Of course you don’t.
If you want gold, there are a number of places that already do what I just proposed, except that someone will profit a tiny bit.
Competition keeps the profit margin small.
But Wait! There’s More!
Along with the above, I announce the MBTCTM MishBucks Trading Currency (ooooh, ahhhh)!
As with MishBucks, the MBTC is 100 percent backed by gold and redeemable in gold on demand.
Who in their right mind would not want to be in on this obviously brilliant currency idea?
The floodgates are open. Everyone in the world will surely want to base their international trade entirely on the MBTC.
Right?
Introducing The BRICK
The Brick is my proposed name for a BRICS-based currency.
BRICS is an acronym for Brazil, Russia, India, China, and South Africa, nations that have little to do with each other.
On January 1, 2024, BRICS – the intergovernmental organization comprising Brazil, Russia, India, China and South Africa – admitted four new members: Egypt, Ethiopia, Iran and the United Arab Emirates.
Unfortunately, the more nations the BRICS add, the more unwieldy the group will become. The EU and UN are prime examples.
A BRICS Gold Standard?
A constantly recycled proposal claims The BRICS Will Use a Gold Standard 40 to 60 percent backed by gold.
Let’s do a one-on-one comparison.
MishBucks vs the BRICK
- MishBucks: 100 percent backed by gold at all times.
- The Brick: 40-60 percent backed by gold with no explanation as to how that works or what that means.
- MishBucks: Immediately redeemable in gold on demand, alternatively to six major currencies.
- The Brick: Not redeemable in gold, nor dollars, nor euros, nor yen.
- MishBucks: Don’t float. They represent a fixed amount of gold deliverable on demand. But at your request, you can alternatively convert your holding to dollars, euros, or yen instead.
- Bricks: Who the hell knows? Since the Brick does not represent a fixed quantity of anything, it needs to float.
Questions Abound
Is the Brick redeemable to anything, ever? If so to what and how?
Does the Brick float? If it doesn’t float, how is the peg maintained?
How liquid is the Brick?
Who or what controls the number of Bricks?
Is the Brick freely tradeable? Where? How?
Key Question: Why would anyone want to buy Bricks?
BRICS Gold Standard
I addressed the key question (Why would anyone want to buy Bricks?) in my post Will the BRICS Currency Use a Gold Standard?
Here’s a review the key points of the discussion.
Let’s start with this claim: “The Brics will go on a gold standard. By every definition of the word this person can think of.“
Really? What about redeemability? How can something backed by 40 percent gold or “perhaps 60 percent” be redeemable for gold?
It can’t. It is impossible to “back” something with 60 percent of something else.
Also, there is no explanation of whether the currency floats, how the currency comes into existence or any other details about how anything works.
Investor Questions
If you are an investor, would you buy BRICKs or would you rather buy gold, silver, or Bitcoin?
Trade Between Nations?!
But Mish, this is not for investors, BRICKs are for trade between nations!
OK let’s march down that path with more questions. This time let’s assume you are a Brazilian farmer (BF) who sells soybeans to a Chinese merchant (CM).
CM offers BF BRICKs for soybeans.
Why would BF want BRICKs? Can BF buy fertilizer with BRICKs? Farm equipment from John Deere? Pay rent?
What possible use does BF have for BRICKs? And why would CM have BRICKs to offer in the first place?
Logical Answers
BF has no need for BRICKs. He needs the Brazilian Real or US dollars to pay his bills or buy things he needs.
Similarly, CM has no reason to hold BRICKs because his expenses are in Yuan, the official currency in China.
Think of BF as any person. Think of CM as any other person. Why would anyone, anywhere, want to trade in BRICKs?
Trade is Not Between Nations
The whole idea of a “trading currency” between nations is absurd because trade is between individuals, not nations.
Trade deficits or surpluses are the result of millions of transactions by individuals.
I made numerous assumptions in an honest attempt to see if I could make sense of a BRICKs trading currency.
BRICK Assumptions
- The BRICK floats
- It will be “backed” (whatever that means) by 60 percent gold but it won’t be redeemable because something cannot be backed by 60 percent of something else.
- Everyone will accept on faith, or by audits, the gold exists.
- There will be no friction between the BRICS nations on how BRICKs are administered.
- BRICKs will be very liquid, assume by magic if necessary.
- There will be no fear of holding BRICKs.
- China accepts BRICKs and will freely trade yuan to local merchants who receive BRICKs in trade with BRICS nations.
Even if you believe those assumptions, what reason is there for Brazilian Farmer BF to trade with Chinese Merchant CM in BRICKs?
Note that it has to be to the distinct advantage of both parties to want to trade in BRICKs for that trade to take place. I did not mention that point in my rebuttal.
In this example, BF and CM are both in the BRICKs alliance.
The entire construct obviously blows sky high the moment BF or CM represent anyone other than trade between BRICKs nations.
I failed to make that point as well.
Anything Else?
Yes, nations accumulate US dollars because the US constantly runs trade deficits with nearly every nation.
This is what makes the US dollar a reserve currency. China supports export mercantilism and accumulates US dollars as a result, The latest report that China is dumping US dollars is highly likely false for mathematical reasons alone.
Regardless, China runs a trade surplus with most of the world except for oil nations. If China freely accepted BRICKs (one of my added assumptions) what the heck would the Bank of China do with them?
Here’s the scenario: The local CM accepts BRICKs but has expenses in yuan and dollars and taxes in yuan.
So the CM exchanges the BRICKs to the Chinese central bank for Yuan. And what does the Bank of China do with them? Answer please!
The same question applies to Brazil. If the BF accepted BRICKs and traded them to the Brazilian central bank for Real, what the hell does the Brazilian central bank do with the BRICKs?
Note that China can buy planes and other items for its SOEs with dollars. So can the Brazilian government.
China and Brazil also collect interest on US Treasuries. Where’s the global bond market on BRICKs? Answer Please!
Toot Toot!
Statista points out “May 16, 2024 — “In 2023, it is estimated that the BRICS countries have a combined population of 3.25 billion people, which is over 40 percent of the world population.”
40 percent of the world’s population is in the BRICS alliance. Wow!?
India is 17.76 percent. China is 17.72 percent. Russia is 1.8 percent. Brazil is 2.69 percent.
Lovely. That is 39.97 percentage points of the total.
What percent of global trade is between China and all the rest of the BRICS? I don’t have that answer, but I do have a number for Bilateral Trade Between China and India the vast majority of the BRICS.
China has emerged as India’s largest trading partner with $ 118.4 billion of two-way commerce in 2023-24, edging past the US.
The bilateral trade between India and the US stood at $ 118.28 billion in 2023-24. Washington was the top trading partner of New Delhi during 2021-22 and 2022-23.
Here’s the AI generated response
In 2023-2024, China accounted for 15% of India’s total merchandise imports, which were valued at $677.2 billion, with $101.8 billion coming from China. China has become India’s largest trading partner, surpassing the US in 2023-2024 with $118.4 billion in two-way trade.
Understanding What Won’t Happen
US-China trade will not be in BRICKs. Nor will EU-China trade. Nor will US-EU trade. Nor US-to-Anyone, nor EU-to-anyone, nor UK-to-anyone, nor Japan-to-anyone, etc. etc. etc.
Total global trade is over $31 trillion! The China-India trade is $101 billion.
If 100 percent of China’s trade with India was in BRICKs how would it possibly matter?
But for reasons presented, 100 percent of China’s trade with India will not be in BRICKs.
Smoke and Mirrors
Percentage of population or alleged purchasing power parity is more silliness given that nearly all of it is in two countries and those two countries have a tiny amount of trade with each other.
The four words that best describe the BRICS currency are smoke, mirrors, and nonsensical hype.
Will This Post Stop the BS?
Of course not. Preaching the demise of the US dollar is sexy. But perhaps my examples will sink in to some small percentage of BRICS lovers.
OK, trade in US dollars will decline over time. The China-India relationship is a good reason. Some of that bilateral trade will be in yuan and already is. But the BRICK offers no added value in bilateral China-India trade over the yuan.
The decline in dollar transactions on a percentage basis will be a slow process. Many of the reasons are welcome or neutral.
For example, US trade with the Mideast has plunged. This is not because oil is trading in yuan, but because the US is energy independent and no longer imports much oil. The decline in US trade with the Mideast is a very good thing for the US.
There are neutral reasons why trade in US dollars will decline. For example, consider the possibility African nations trade with each other in African nation currencies just as cross-border trade between India and China is slowing increasing in yuan.
There are not so good reasons for declining trade in dollars. Tariffs and trade wars are in this category.
Regardless, the idea that a BRICKs currency will fundamentally change anything is obvious nonsense.
Currency Crisis
I am not singing praises of the US dollar. I am just explaining why the BRICK solves nothing other than a limited amount of sanction avoidance.
Deficit spending is out of control, everywhere, including India and China. Were you aware China’s debt-to-GDP ratio hit a record 287.8% in 2023?!
A global trade war is underway.
I expect a currency crisis, timing uncertain. Where would it start?
The EU is a much stronger candidate than the US. The EU has budget rules that are not close to being met, terrible demographics, and no innovation (unlike the US).
On July 7, I commented, France is Now Ungovernable Following a Pyrrhic Victory for the Left-Green Alliance
I did not expect National Rally to win a majority, but nor did I expect a third place finish. This is a terrible outcome for both Macron and France.
For additional details and discussion, please see Debt Brakes and Treaty Requirements About to Smash the EU.
Germany’s export machine is permanently broken. The EU wants to block AI, not participate in development. With 27 members, the EU is unwieldly in every way. It takes unanimous approval to make any significant changes. EU innovation is dead.
If you are looking for a currency crisis, start with the euro. A currency crisis could also start with the Yen or Yuan. China and Japan are in very poor shape.
The yuan, euro, and yen are all more likely places for a currency crisis to start than the US dollar.
So ….
Anyone for MishBucksTM?