No Currency Will Replace the Dollar, and Central Bank Gold-Buying is Irrelevant

The sound money community often gets itself needlessly caught in Keynesian traps. The temptation is overwhelming, because the inflationists all seem to be slathered in this thick, viscous, gelatinous mathematical layer of seeming academic legitimacy. When they blather on about “macroeconomics” it certainly seems like they know what they're talking about, just like those academic saboteurs who write papers that say that men should breastfeed their babies because “equity” or something.

I digress. Point is, when we see equations and hear nonsense jargon, our inferiority complex puffs up and starts whispering in our ears…"Maybe it really is that complicated…maybe money really isn't that simple after all…" and we get despondent. "Maybe this inflationary monster can keep going on forever?"

Last time we dealt with debunking CBDCs as the "new money" that will enable totalitarian control over all humanity forever, handing the keys to our souls to the dullest, most mind-numbing cadre of criminality the world has ever known. That’s not happening. Today, we’ll debunk the assumption that after the dollar falls, some other globalist power will take its place and enslave humanity anyway through a new fiat currency of some sort.

Some people imagine it will be China. Others, Russia. Or maybe the BRICS alliance, as if adding Brazil, India, and South Africa to the mix will change something. (It won't.) An extension of this line of thought is the implicit assumption that central bank gold-buying is important, or is otherwise some sort of preparation for the dollar End Game on a State level. (It isn't.)

No currency will replace the dollar once the dollar is dead. Just the opposite. Since all currencies are merely dollar derivatives, once the dollar goes, all currencies go bye-bye with it. Second, no current power or developing power alliance will fill the vacuum left by the United States once it falls. Instead, we will be living in a completely decentralized world. We can all speculate about what exactly this world will look like politically once this process has taken its course, but really I have no idea. I'll leave that to the preppers. But I will say, don't rely on law and order to spontaneously materialize. The stronger morally and locally interdependent and armed your community is now, the better off you'll be.

But why is it that no existing power will take the place of the United States once the dollar is no more? Why can't BRICS be the new USA? Why does gold accumulation by central banks not really matter?

Consider, past inflations were always localized. The inflating country or territory would hyperinflate, lose all purchasing power, and its economy would break down, its citizens unable to trade with one another. Other countries with functioning monetary systems would swoop in to buy whatever was on offer at enormous discounts in their own sounder currencies, because the most desperate need after hyperinflation is a functioning money. The inflated country would be stripped bare but at least it would have a sound monetary base to restart a division of labor with, thanks to the influx of foreign currency.

That was all before the dollar became the "world's reserve currency" in 1946 under Bretton Woods. The United States had just conquered the world and decided to exploit that conquest by mandating that every other country use the dollar as the backing to their own currencies, rather than gold directly. This crackpot but ingenious scheme was sewn together with the empty promise of 1oz of gold for every $35 by any central bank. I seriously doubt any of the leaders who signed up to Bretton Woods actually believed this promise would be fulfilled long term. They more likely just signed at the dotted line because they had to, knowing their people would be messed over in due time. And so they were, come August 15, 1971.

Now that the content of Bretton Woods – the nominal promise of 1oz gold for every $35 – has been hollowed out over the course of 50 years, only the skeletal inverted pyramidal structure of it remains. The dollar occupies the bottom layer of this pyramid, just above gold, and every other currency sits on top of the dollar.

Now, you could object and say this is just my own conception of the pyramid and that I have no proof of this. That maybe, just maybe another currency can simply replace the dollar if it comes to that. Here I'll show why this cannot happen.

We live in an inflationary world where banks, headed by their local or regional central banks, can continuously steal from us as long as we allow them to. We allow them to by holding – for any amount of time at all – those currency units issued by those same banks. Meaning that for some amount of time, we choose to hold rather than spend currency. In other words, we aim for a cash balance at some level above zero, for some amount of time.

That amount of time could be as long as generations if we're talking about an inheritance. It could be half a lifetime if we're talking about a nest egg. Or it could be a month, a week, or even as short as an hour or 10 seconds. The shorter we are collectively willing to hold any amount of cash balance in whatever form, the closer we are to hyperinflation. Finally, when nobody wants to hold any cash for any amount of time but would rather spend everything instantly on anything available at all, all prices approach infinity.

On the other hand, if inflation of the currency supply stops for long enough, defaults pile up quick. Eventually, a run on banks ensues and banks die. Banks are therefore always living on the precipice between deflation and hyperinflation, both of which would bankrupt them completely. And so their only choice is to continue to inflate at a steady, constant rate. That's where the 2% target comes from.

That constant rate of consumer price inflation must be reflected in currency exchange rates. All major currencies must keep their exchange rates with one another within certain windows or the price array between those two countries falls into disorder – either into hyperdeflation (AKA a financial crisis) or hyperinflation. What this means is that all of the quantum mechanics and calculus and econometric gobbledygook that central banks supposedly base their decisions on, ultimately comes down to maintaining an exchange rate window with all other major currencies. That's it. That's the whole game.

Much like a magician will wow you with misdirection and complicated-sounding spells that in the end have nothing to do with how he pulled off the trick, this is what the purpose of econometrics actually is. It’s a distraction. A magic spell. A chant. If you feel confused and wowed by it, that's the point. The trick was already done while you were scratching your head feeling stupid.

It comes down to this. If the Federal Reserve inflates the dollar, other central banks must follow suit. If the Fed slows down or even reverses money-printing, other central banks must do the same in order to maintain the exchange rate window. It is no coincidence then that the currency supplies of all major economies have basically the same growth curves.

The key is, this includes Russia, China, and all the BRICS countries supposedly vying to replace the United States as the world's greatest power. Here's Russia's ruble supply for example:

Here's China's yuan supply:

It's all basically the same exponential curve everywhere, in every currency, in every country. If one currency were to theoretically supplant the dollar as the world's reserve currency, that would necessarily mean stepping off the exponential curve for that central bank. A financial crisis would quickly ensue in that country, which would destroy the entire centralized banking system of that currency. Nobody can step out of line here, and so no country can take over as the new leader of the inflationary system.

Why Central Bank Gold-Buying Doesn’t Matter

What about central bank gold? Why can't central bank gold accumulation save a currency? Theoretically it could as a first step, but it's not the act of a central bank buying gold itself that saves a currency. It is establishing convertibility with gold that saves a currency. In order to establish convertibility, a central bank would of course have to buy gold first, but just because a central bank has any amount of gold does not in and of itself give a currency any value.

Consider Russia for example. Its central bank has been accumulating gold since 2008, but it stopped in 2020. Since 2020, the Russian ruble supply has nearly doubled. So much for Russia being on a gold standard.

Or consider Turkey, a country currently suffering from hyperinflation. Its gold reserves have increased from just over 100 tonnes to nearly 600 just recently. Has that stopped the currency from dying?

No, Turkey is still in hyperinflation because the printing never stopped and still hasn't. It's the same exponential curve again.

Or we can look at it this way. What is the cumulative percentage of gold backing for all major currencies? Below, on the left, we have the total amount of gold held in central banks globally. It has not changed much since 1950. So yes – all the hype about central banks being on a gold buying binge is just hype. It may be true on a very short time scale, but over the decades it is meaningless. Meanwhile, on the right side, we have the percentage of gold backing for global currencies. It has fallen from a high of 80% for advanced economies back in 1950, to less than 20% now.

This is just another way of saying the money printing will not stop – cannot stop – until the entire global monetary system as we know it is destroyed.

As I said previously, all banks constantly live on the precipice between financial crisis and hyperinflation. Either path will destroy them, and one or the other is inevitable once the inflationary process begins. If any central bank decides to stop inflating and make its currency convertible to gold at a fixed rate, that would indeed save its currency, but only at the cost of its entire banking sector imploding, and its entire economy having to be restructured. It is doubtful this could ever happen in any country without bankers being literally lynched in the streets by an angry, lawless population.

The conclusion is that no country or group of countries will supplant the dollar. It is impossible. All central banks are on the same hyperinflationary path, and if any of them step off the curve, the entire banking system of that country implodes. The End Game is indeed the End Game. All currencies will hyperinflate simultaneously, and all power centers built on inflation will evaporate together. How the world will look after that exactly is difficult to say, but we can be sure that the words of Garet Garrett will remain true. He writes in his 1932 book "The Bubble That Broke The World":

For a while this difficulty of not knowing what anything is worth but inflames the ecstasy. Everything will be priced higher and higher to make sure it is high enough; there will be the illusion that things are becoming dear and scarce. They seem to be dear because the value of the money and credit in which they are priced is falling; they will seem to be scarce because people are buying in the expectation that prices will go higher and higher still.

Suddenly doubt, then coming awake and panic. The spirit of gold has been debased by senseless inflation. The faith is lost. All with one impulse people rush to seize the gold itself as the only reality left—not only people as individuals ; banks, also, and the great banking systems and governments do it, in competition with people. This is the financial crisis.

When you see a line at a bank, you don't want to have to join it. You want to be out of the banking system as much as possible before that line forms. The only way to be completely out of the banking system is to own physical gold and silver. Not an ETF managed by a bank, which is just another form of currency. The final line at all banks will be the rush into gold and silver themselves as the only monetary reality left. The rest of the pyramid will crumble to dust, including China, Russia, and all the other contenders for power today.