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Crossing the U.S. Dollar Rubicon

vladimir putin

Over the past two years, whenever it has come up, I've sought to remind interviewers of the most significant financial action of 2022. After the political events of this past weekend, it's time to discuss this again.

Of course you'll recall the Russian invasion of Ukraine in late February of 2022. This was the most important geopolitical event of that year, and the ramifications continue to metastasize in 2024.

However, the most important financial event of 2022 occurred in early March of that year when the United States and the European Union combined forces to:

  1. Freeze Russia's non-domestic foreign currency reserves.
  2. Expel Russia from the SWIFT international payment system.

The ramifications of these moves continue to metastasize today too. Why?

By taking those financial acts in March of 2022, the U.S. established a very important precedent. To wit, if your country dares to pursue an economic or military policy with which the U.S. disagrees, you will soon find yourself economically isolated and/or removed from the U.S. dollar-based monetary system. As such, "offending" countries are left with no alternative but to seek other currencies and systems for conducting business. 

As a result, the past two years have seen increased shedding of U.S. treasuries by "BRICS" nations, an acceleration in the planning of a new BRICS-based trade system, and a steep rise in the price of gold as measured by every major fiat currency. Expect these trends to continue.

But now the U.S. has taken things one step further.

Beginning a few months ago, think tanks floated trial balloons regarding the idea of seizing (stealing) those frozen Russian assets and giving them to Ukraine as funding for their war effort. This idea was next picked up by SecTreas Yellen and then by President Biden himself.

gold prices chart

"Progress" on this issue was made over the weekend as the U.S. House of Representatives passed the REPO Act, which paves the way for the U.S. to confiscate (steal) Russia's frozen assets.

gold prices chart

Now this might feel good to non-thinking politicians and their ideologically-blinded supporters...

gold prices chart

...but it is terrible news for the long-term viability of the U.S. dollar-based financial system.

  gold prices chart

gold prices chart

gold prices chart

gold prices chart

Why are these developments such terrible news for the long-term viability of the U.S. dollar-based monetary system? Don't think of it from the U.S. or E.U. perspective. Instead consider how this looks to the potentially adversarial BRICS nations, where the message is clear: Play ball and toe the line regarding U.S. demands or face the consequences.

Put yourself into the shoes of Putin, Xi, Modi, or any of the other BRICS leaders. In advancing your country's interests, it’s almost inevitable that you will one day run afoul of the United States. What happens then? Do the U.S and E.U. steal your foreign currency reserves too?

As such, this precedent will undoubtedly speed the development of a U.S. dollar alternative. Besides the inherent geopolitical and military dangers that will result from any threat to U.S. financial hegemony, the simple lessening of demand for the U.S. dollar—at a time when the supply of U.S. dollars is exponentially increasing—will make dollars less valuable. This is simple Econ 101. Shift the supply and demand curves accordingly and you get a drop in price.

gold prices chart

In the end, all of this is just another prompt for you to acquire the ultimate form of money—physical gold. If you don't own any, you should get some. If you already own some, you should buy more. As the world increasingly spins out of control, only physical gold can provide safe harbor through the financial storms ahead.

Don’t miss a golden opportunity.

Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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