A Multipolar Reserve Currrency: US Dollar Alternatives

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if you’re looking ahead of the elections
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do you think that the outcome of the
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elections either way
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would influence foreign policy going
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forward and as a result
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foreign countries decisions to hold more
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or less gold
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absolutely i mean we’re working on a
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report right now
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on the implications of the election for
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for gold and precious metals
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uh and you have like four different
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scenarios on how things
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shake out but definitely i mean you know
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this
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administration has um
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excelled in its ability to reduce the us
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stature around the world
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and to create hostile relationships with
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countries around the world
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it’s had a negative effect on cpm group
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because
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there are people who don’t want to deal
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with u.s companies
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and and so i think a change in the
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administration
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while it wouldn’t be a 180 degrees turn
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because
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there are people in the democratic party
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including joe biden
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who will probably retake retain would
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retain
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some sort of hostile posture toward
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china
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it may be less hostile than the current
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one and it may be less hostile toward
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canada
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and and other countries around the world
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so you should see
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if you saw a change in the
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administration and a change in the
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senate
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you should see some improvement in the
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u.s relations with
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the rest of the world but there’s been a
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tremendous amount of damage
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done to the u.s stature globally
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and it’s probably not going to get
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changed by one
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by a change of government for four years
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do you think the us dollar then going
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forward could lose its status as a de
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facto reserve currency of the world
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because you see another currency
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challenging that status
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as i said the part of the problem is
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that the u.s owes the world so much
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it owns it we have 62 percent of
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monetary reserves
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the u.s dollar will lose its stature
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as the reserve currency in the future
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the future may be 50 years from now and
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it is it not it is reversible
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this could not happen if the u.s
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government got its act together but i
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have
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no hopes for that well if the u.s if the
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u.s loses that status
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who’s what’s going to take over who or
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what well i was getting to that
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as i said earlier most central banks in
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the world
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see as an ideal a multi-polar
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international currency regime they
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understand that it will take
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decades to get there because of the
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imbalance and liquidity between the
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dollar and
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all of the other currencies in the world
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yeah
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62 percent of their money of their forex
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is in dollars that means that there’s
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only 38 percent and everything else
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they have to slowly make that transition
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away
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no government wants to see
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its currency replace the dollar as the
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reserve currency
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what they’d like to see is a multi-polar
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international currency regime
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where people are free and companies and
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governments are free
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and there’s sufficient liquidity in
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non-dollar currencies
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that you can own and hold a portion of
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your wealth
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in those other currencies a greater
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proportion of it
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no one like if you talk to the chinese
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central bankers if you talk to
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other central bankers in around the
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world
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no one expects the dollar to disappear
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as a
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quote de facto reserve currency
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but they‘d like to see it disappear as
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the de facto current
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reserve currency but they’re fully aware
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that this is something that’s going to
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take decades to execute
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if it can be done okay you brought up
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china i’m surprised to see that china
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was relatively low on the list
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when you’re talking about their
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percentage of foreign reserves
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in gold holdings it’s only four percent
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of the foreign reserves in gold
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are you surprised at how low that number
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is
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no um i’m not surprised i
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i should ask you why you’re surprised
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that it’s high
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but you know china that should the
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people’s bank of china for
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decades had a view that gold was a small
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and insignificant portion of its
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monetary reserves
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it changed that view in 2015 at a time
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when it rolled out
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a massive acceleration of
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its efforts to make the rmb
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more of an international currency it’s
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still not you know fully convertible
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but they expanded the daily trading
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ranges and they expanded the longer term
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trading ranges that they found
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acceptable on the rmb
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they started encouraging rmb
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bonds offshore being issued offshore
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and they said okay we’re adding some
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gold to our reserves and we’re going to
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continue to buy gold because
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we see gold as a small but significant
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part of our monetary reserve policy
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going forward
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now this was in 2015 and it’s very
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important to understand that that was
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after 2008 and 2009 when the u.s
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treasury
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basically stuffed everybody else and
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protected
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the bankers or the executives at the
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banks uh
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in the us and and so this was a direct
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reaction
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to the inappropriate behavior that the
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us
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treasury had during the financial the
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global financial crisis
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uh and and the chinese central bank
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basically said we have to accelerate our
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effort
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to help move toward that multi-polar
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currency
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regime that we all would like to see in
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the long run
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uh and so they started adding their goal
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if you go back to 2015
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they probably had about 1.1 1.3 percent
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of their reserves in gold so the fact
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that it’s up to four percent
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and the fact that they have like three
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trillion dollars of dollar reserve
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of of foreign exchange reserves means
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that it’s going to be a slow transition
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as they add gold to it and as i said
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they’re very price sensitive
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they pulled out of buying gold for about
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15 months a few years ago
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then they came back and they were buying
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but then they pulled back at the end of
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2019
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and they haven’t reappeared they said
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you know in the past they said
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we’ll buy gold below a thousand when
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gold went over a thousand they
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didn’t buy any gold for several years
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then they increased their threshold
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and they knew they were buying uh and
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then when the price started rising this
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year they said no
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you know we’re going to wait finally
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jeff with everything that’s happened
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this year and in particular with the um
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central bank activity or slowdown of
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central bank buying activity
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do you think the run-up of gold prices
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to two thousand dollars
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all-time highs has made sense to you do
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you think valuations are
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correct as they should be right now yeah
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i think they are
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uh you know obviously the trend of the
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next year or two is going to depend on
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several things the outcome of the us
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elections for the senate as well as the
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presidency
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brexit is coming up the pandemic which
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is getting worse in europe now and is
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expected to get much worse in the united
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states
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there are a lot of negative factors
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there uh that fully support the idea of
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a two thousand dollar
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gold price now i wouldn’t be surprised
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to see the price of gold
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spike up higher on a short-term basis uh
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then maybe plateau depending on what
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happens politically
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uh but we expect higher prices later
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like
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2023 2025 because
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none of these things are being solved
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would you have a long-term price target
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in mind
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we’re looking at a gold price that is
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very significantly higher than it is
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today
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all right perfect jeff jeff i want to
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thank you so much for uh speaking with
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me today that was a fascinating talk
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thank you for your time thank you for
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your time
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and thank you for watching kiko news
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we’ll have much more coverage for you
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at the denver gold form stay tuned
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you

Reserve Currency set by Country that offers Regime Protetion (Petro-Dollar)

Reserve Currency Status

Brainard’s speech didn’t address recent concerns regarding the reserve currency status concerns of the US dollar or China’s current lead in the CBDC race, which could advance its national interests. The reserve currency status is among others determined by the resilience of a country’s payment system, depth and trust in the well-functioning of the capital markets and exchanges, appeal to and innovation acumen of its tech industry and financial market infrastructure, international thought leadership, lead into climate change solutions and the global military might and power base, which reinforces adoption of a currency. (Customers pay for oil in the currency of the nation which offers regime protection at the oil fields. Asians and Europeans move every month out of their home currency in favor of the US Dollar to pay for their imported oil bill).  Global adoption can also be ensured if censorship or control concerns, linked to the use of the CBDC, can be substantially mitigated.

Referring to innovation acumen and climate change solutions, could the central bank digital currency project incorporate scientific data observations regarding climate change triggering terrestrial and atmospheric trends? Could TRACE, a consortium tracking greenhouse gas emissions 24/7 by satellite, foster a balance between monetary policy and a thriving planet and be made part of this initiative? Could monetary policy be framed incorporating observations from those data trends, with support from climate scientists? Could digital currency be directed at ZIP code levels, impacted by climate change calamities? From a supervisory perspective, could solvency weightings for banks’ asset exposure be dynamically set as a function of the data observations and the remaining finite carbon budget? Could bank stress testing scenarios under CCAR (Comprehensive Capital Assessment and Review), undertaken to assess the banks’ adequacy of solvency levels, be articulated as an extended continuum of such climate change observations?

Innovative monetary design ingenuity linked to climate change solutions can only solidify the continued appeal in the US dollar as the global reserve currency.

The Current Five-Headed Crisis

The current crisis is five-headed in nature, characterized by a

  1. public health crisis, a
  2. financial crisis, a
  3. social justice crisis, a
  4. climate change crisis and a
  5. trust crisis in institutions and international trade.

Could a central bank digital crypto currency address each of the crisis challenges? How could financial inclusion offer a dent into the social injustice paradigm? How could distributed, decentralized and crypto-graphed data sharing enhance trust in institutions?  How could the Central Bank consensus protocol be made more energy efficient than the private crypto-currency protocols? How could smart contract design introduce a central bank digital currency-based reward economy?

Instead of offering mere helicopter money, could compensation be offered in exchange for contributions to the regenerative (climate change) and caring economy (childcare and parental care at home)? How could blockchain supported supply chain data trace the global export and import flows in relationship to FX trades and exchange rates? How could market intervention and/or sustainable change to circular economic paradigms be steered on the back of those data?

Need For A New Anchor Currency 

The debasing of currencies by the most important central banks ($6 Trillion of QE in the US alone), the arising currency tensions in the emerging markets (e.g. Lebanon, Turkey, South-Africa,….) and the COVID-19 default impact on total debt outstanding of $258 trillion per Q1 2020 will only accelerate the need and call for debt rescheduling and ensuing FX rate mechanism interventions. If gold is no longer an option, could a central bank issued stablecoin, finite in supply, become a store of value or new anchor currency to manage the restructurings and market support activities?

Brainard’s speech makes reference to a new initiative with the Bank of International Settlement’s Innovation Hub. This initiative could provide a useful avenue to design such Central Bank stablecoin.

The collateral base of the stablecoin could consist of a reserve of natural capital assets, consisting of

  • 50% of land and forests,
  • 35% In renewable energy initiatives, and
  • 10% in the top 100 most compliant ESG companies and
  • 5% in biotech research.

The collateral base would be managed dynamically, but would also benefit from monetary policy and prudential supervisory decisions aimed at regenerating the natural capital base on earth and replenishing its finite carbon reserve.  The supply could be managed, within a range, as a function of the TRACE observations.

On the occasion of Bretton Woods II, the new Central Bank Stablecoin could be introduced and offered, akin to the gold standard, as a fixed rate against all other fiat currencies, including the US dollar.

Conclusion 

Milton Friedman once observed, only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. Then, ideas once dismissed as unrealistic or impossible might just become inevitable.

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