Sovereign States Moving from USD to Gold

Whilst we have written extensively previously about major sovereign trading parties seeking direct trade and the so called ‘US dollar wrecking ball’ forcing such behaviour, this last week has seen that escalate further and the world’s oldest form of money, gold, coming to the fore yet again.

Ghana is Africa’s second largest gold producer (almost tied for 1^st) and likewise the second largest cacao producer.  However, despite both those commodities being in solid demand, the unfortunate reality is that the miners and cacao farmers are largely foreign owned and earnings are repatriated, not kept in Ghana.  Ghana is very heavily dependent on imports for its day to day goods.  And so we have a situation where despite a large export market, they need to sell their local currency, the cedi, to buy the USD to pay for their imports. That of course puts downward pressure on the cedi and now hands it the unfortunate title of worst performing currency in the entire world this year at -57%. 

As the US Fed has hiked rates, money has flowed out of emerging markets bonds like Ghana and into USD or US Treasuries seeking a better return. One can easily draw parallels with Australia’s reliance on export income and imports for goods as we let our manufacturing sector die in the move to globalisation.  COVID and the Ukraine invasion were each watershed moments where the ‘world’ realised the downside of globalisation and reliance on imports.  The world also learned how the hegemonic reserve currency, the USD, can export the issuer’s inflation to the rest of the world.

The speed of the collapse in Ghana’s reserves has been staggering, having lost nearly a third with reserves dropping from $9.7b to $6.6b in the year to end of September and no doubt worse now.  That $6.6b represents less than 3 months of imports cover!

So what does one do when your currency tanks and your bonds are posting losses?  Turn to the world’s oldest form of money, gold…

Cue the announcement last week that Ghana now mandate 20% of all gold produced within its borders must be sold to the nation’s central bank, no doubt paid for with some newly printed pretend Fiat currency. This isn’t new as they have been buying up gold for the past year, but the pace and overtness are much more pronounced.

Their grand plan is to use some of the gold to pay for their $400m/month refined oil needs and then also seek a $3b bailout from the IMF. They intend on paying for refined oil with gold through a deal with the United Arab Emirates (UAE) in stark avoidance of the US Petro Dollar system.

Its not just Ghana either. 

India’s ambassador to UAE, Sunjay Sudhir, said on Friday the central banks of India and the UAE are discussing the creation of a mechanism to engage in bilateral trade in local currencies in order to reduce transaction costs for exporters and importers using the USD. UAE is India’s (the world’s second most populous nation), third biggest trading partner and second largest export market. UAE is also a member of the 6 country Gulf Cooperation Council (GCC) including the oil giants of Bahrain, Kuwait, Oman, Qatar, and petro dollar founder Saudi Arabia. You see where this is going yeah?

India has also announced it will start testing its Central Bank Digital Currency (CBDC) tomorrow as one of the first movers in the rush by most central banks to implement the same. Of course India is the ‘I” in BRICS.  The R and C, Russia and China are again signalling recently they too are developing a system to bypass the USD and US centric SWIFT system. If you missed it, we talk directly to this and the USD wrecking ball last here and its imperative everyone understands what’s coming.

Gold sits beautifully, securely, unencumbered, and highly liquid outside of this escalating death spiral to the collapse of the current monetary world order. It does, and always has. The 4 most expensive words in protecting your hard earned wealth are “This time is different”.