Test of strength

Does the next US President want a weak or strong Dollar? An answer to this is critical for holders of gold. When the Dollar is relatively stronger (and given that all the major currencies float against one another, it's always a relative matter) then the Dollar gold price (the international benchmark) tends to weaken, and vice versa. Logically, as gold holders, we want the Dollar to weaken. But is that good for general economic growth?

Six weeks until Donald Trump becomes the 47th President; making sense of his zig-zagging declarations on the US currency is like trying to sort out the start of the spaghetti in a spag-and-meatballs dish. Trump's latest salvo came on his own social platform. "The idea that the Brics countries are trying to move away from the Dollar...is OVER...We require a commitment from these countries that they will neither create a new Brics currency nor back any other currency to replace the mighty U.S. Dollar or they will face 100% tariffs and should expect to say goodbye to selling into the wonderful U.S. economy." A clearer threat of a trade war could not be had. Trump is "an uncertainty machine" says Barry Eichengreen, economics professor at the University of California. Will the new administration blow up the Dollar?

The Brics+ countries (Brazil, Russia, China, South Africa plus four others) talk tough, Russia especially, about wanting to humble the Dollar. And gradually, almost stealthily, the Brics bloc has accumulated economic (and thus political) strength. The Dollar's global hegemony is slowly dying.

Digital threats

The Brics+ members have talked of creating a new currency to replace the Dollar. They don't need a new fiat currency - they already a choice of schemes that would enable them to trade via digital currencies, such as Project mBridge, a platform to enable multiple central bank digital currencies for real-time, peer-to-peer cross-border payments. Central Bank Digital Currencies (CBDCs) are now being explored by 134 countries, amounting to 98% of the global gross domestic product (GDP). mBridge is just one of several. The Bank for International Settlements (BiS) backed the project since 2021 but pulled out in October, leaving China as its biggest supporter.

mBridge is already being overshadowed by another CBDC trade platform, known as Brics Bridge, as yet still in its infancy. The Brics Bridge scheme, under discussion for some time, was given fresh impetus at the October meeting of the Brics bloc, attended by delegates from more than 20 countries. This direct challenge to Dollar hegemony inspired the wrath of Trump. The Brics Bridge and even the more developed mBridge are not about to kill the Dollar. Analysts at ING bank said in October "gold is the biggest potential alternative to the US Dollar for the bloc. Despite active buying by Brics+, gold is still only 10% of their central bank reserves, half of the global average." The "threat" to the Dollar's hegemony repesented by CBDC projects "may be overestimated in the short term but underestimated in the long term" says ING.

What next?

It's commonplace that the US Dollar's dominance is both a cause and a consequence of America's power, which in turn is primarily military. America has since 1945, for good and ill, been the global policeman - a position from which it will shrink during the Trump Presidency. If anything can be certain about the 47th President it is that he favors protectionist policies, and wants to punish those countries he sees as free-riders, whether it is European members of Nato not paying their fair share or China subsidising its electric vehicle industry at the cost of US automobile manufacturing.

Trump's policies for the Dollar are not clear. He yearns for a weak Dollar because that will mean US exports will become more competitive. He'd like a strong Dollar because that will help keep consumers happy. He wants it all. The risk is that he will get neither. The danger lies in the rise of CBDCs, which will eventually by-pass the Dollar. There is a consensus that today is the most dangerous time since 1945; the danger is not merely military, but the violence that can be done to individuals' wallets. Not today, not tomorrow, but sometime in the close future the precarious hegemony of the Dollar will be over. What comes after is completely unclear. The best safeguard against the uncertainty is to arm oneself with a form of money that has been around for centuries - gold.

At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.