In my first explainer about the BRICS nations, you met the players and you know why their decisions affect the global economy. But why do their decisions affect us?
You need to understand that first – before the August 22nd Durban Accords will make any sense. (But once you do understand, you’ll be astonished…)
Professor Reagan’s class is now in session!
Global trade runs on U.S. dollars
Since World War II, the U.S. dollar has enjoyed the role of global reserve currency. You may have heard those words before – here’s what they mean…
Worldwide, when companies or nations transacting with one another don’t share a common currency, they use U.S. dollars. When a Chilean copper mine sells tons of raw ore to a Canadian refiner, they invoice (and get paid) in U.S. dollars.
Obviously, most nations don’t have a common currency (the exception is the Euro zone). So the use of dollars for international trade is simply huge, approximately 85% of the global total.
So the world relies on dollars to do business. That’s a great deal for us! That means, for example, that deficit spending and newly-printed money always have a home somewhere in the world. Simply because the world has to have dollars.
Like I said, that’s a great deal for the nation that exports dollars. It’s not such a great deal for everyone else…
“It’s our currency, but it’s your problem”
In 1971, President Nixon ended the convertibility of dollars to gold.
The rest of the world, to put it mildly, went nuts. The gold standard was supposed to prevent inflation – but it hadn’t (primarily because American citizens weren’t allowed to swap dollars for gold since 1933).
…click on the above link to read the rest…
