World Reserve Currency

RESERVE CURRENCY is a large quantity of currency held by central banks and financial institutions that is used for investments, transactions, international debt payments, and to set the domestic exchange rate. A large percentage of physical commodities, such as gold and oil, are priced in the reserve currency. This sets a stable value based on the global market prices of these items, even when the currency itself is no longer “hard” and officially tied to a commodity. In turn, this causes other countries to view the reserve currency as stable and therefore reliable to use to pay for goods in trade.

WORLD RESERVE CURRENCY refers to a universally recognized standard currency that dominates all foreign exchange. From the beginning of the Age of Exploration in the 1300s until the time of the British Empire in the late 1800s, the European standard currency was a certain weight of gold or silver coin. For example, Spanish gold coinage was the eight escudos piece, often called a doubloon or pieces of eight. In 1537, the eight escudos coin was set at 27.4680 grams (about .97 ounce) of 92 percent fine gold (22-carat gold). Likewise, the British pound coin originally weighed one troy pound of sterling silver ( 92.5 percent silver).

DEVALUATION is the mechanism by which gold and silver are debased or fiat currency notes gradually replace gold and silver. Since inflation in the price of goods at market price could be brought anytime by releasing more gold or silver into circulation, the government of the nation controlling the reserve currency set the weight, purity and amount of coined gold and silver. This created an international standard. For example, Article I, Section 8, of the US Constitution states that “Congress shall have Power … to coin Money, regulate the Value thereof, and of foreign Coin.” Section 10 states, “no state … shall make any Thing but gold and silver Coin a Tender in Payment of Debts.” The US Coinage Act of 1792 pegged the newly created United States dollar to the value of the widely used Spanish silver dollar, saying it was to have “the value of a Spanish milled dollar as the same is now current.” Since silver and gold have intrinsic value, inflation rose only an accumulated two percent between 1789 and 1944. As empires enter crisis periods, gold and silver reserve currencies become subject to devaluation in weight and purity. The United States has been no exception to this rule with the Federal Reserve forsaking the gold standard entirely in 1971. From 1789 until the time of this writing, $1.00 once tied to silver has become equivalent in purchasing power to about $34.88. In other words, inflation is not a natural trend, but is created by devaluing the currency. In the United States, this produced a cumulative price increase of 3,388.93 percent since 1789, with the vast majority of devaluation coming since 1971.

GOLD STANDARD is the system by which paper money is considered a “reserve currency note” or “certificate.” Such notes are backed with federal gold held in a national treasury. In US history, a gold or silver certificate could be exchanged for an equal amount of minted gold or silver dollar coins of the same noted value. Gold backed reserve currency ended completely in 1971 when the United States also stopped issuing gold to foreign governments in exchange for the USD.

FRACTIONAL RESERVE BANKING describes the state of US currency from 1933 to 1971. Between those dates, each dollar was only backed partially by gold. With the passage of the Emergency Banking Act of 1933, the federal government stopped allowing citizens of the United States to exchange currency for government held gold. Silver coins and silver certificate notes stopped being issued after 1964. Half-dollar coins minted between 1965 and 1970 are 40 percent silver, but from 1971 onward, contain no silver. Due to inflation, even copper pennies rose to an intrinsic value of higher than one cent each. After 1982, copper pennies became 95 percent zinc.

FIAT CURRENCY describes any currency that is not backed with gold or silver. In the United States, fiat currency fully began in 1971 when the government stopped issuing gold to foreign governments in exchange for US currency. Since that time, the USD is legally backed by the “full faith and credit” of the US government, “legal tender for all debts, public and private,” but not “redeemable in lawful money at the United States Treasury or at any Federal Reserve Bank,” as printing on USD used to claim. In this sense, the USD is now “legal tender,” rather than “lawful money.” It cannot be exchanged for a minted gold or silver coin at matching face value, although it can buy gold at market inflation value. The USD is instead tied to the perceived stability of the largest and wealthiest national economy in history. The advantage of fiat currency is the ability of the nation’s central bank to print new dollars (not just physical cash, but also credit issued to banks digitally for investment). Supposedly, this gives central banks greater control to be able to manipulate the economy. The disadvantage is that this system is not a fool-proof way to protect the economy from booms and crashes. It creates the opportunity for investment bubbles and leads to inflation that inevitably wipes out the gains made by enlarging the money supply. Economist Ray Dalio has pointed out that the total net wealth of the Dutch Empire from its founding to its final implosion remained the same. Although the wealth of the empire rose to a great peak – during the Golden Age of the Netherlands – all economic gains over a sum period of eighty years were finally wiped out through excessive spending and the progressive devaluation of the currency. In fact, the “end of empire” stages for nations that held the reserve currency were always the same. (1). Debt restructuring and debt crisis. (2). Internal revolution (peaceful or violent) that leads to large transfers of wealth from the “haves” to the “have-nots.” (3). External war. (4). Big currency breakdown. (5). New domestic and world order.

PETRODOLLAR refers to the reserve currency of the United States. Some US dollars have been tied to Saudi Arabian oil since 1971 when President Richard Nixon removed the dollar from the gold standard entirely. Faced with spiraling inflation due to the over expenditure in the Vietnam War and the previous administration’s Great Society entitlement programs, the Nixon administration looked for ways to increase spending without devaluing the dollar. A secret deal was cut with Saudi Arabia, the details of which did not become declassified until 2012. The first step was to divest the US dollar from the remaining fractional reserve system that still backed printed money with gold at rates that varied between 20 to 30 percent. Nixon’s financial managers brokered a deal with Saudi Arabia in which US oil production would be curtailed and the Saudis agreed to boost oil production using mostly the USD for exchange. The US also agreed to provide Saudi Arabia with military support to protect its oil fields and assets. The profit from each sale kept in reserve by the Saudi government was held in US Treasury Notes. This reserve used in trade was known as the petrodollar. After a series of booms and crashes (due to strife with OPEC nations and oil embargoes in the 1970s) the USD reached a peak of over 80 percent of the share of all world reserve currencies in 1979. This stabilized the USD as the world’s reserve currency not only because of its use in the oil trade, but also as an attractive hedge against inflation. This motivated foreign banks to invest in US Bonds and Treasuries as the USD became the most stable currency.

GOLD DINAR was a proposed currency independent of the US dollar by Muammar Gaddafi in 2009 for use in the African Union. The objective of this new currency was to divert oil revenues towards state-controlled funds rather than American banks and to cease using the USD for oil transactions. Countries such as Nigeria, Tunisia, Egypt, and Angola were ready to change their currencies. One of the 3000 emails leaked from then US Secretary of State Hillary Clinton’s electronic mailbox showed NATO’s resulting willingness to overthrow Gaddafi’s government. NATO wanted to neutralize the African gold currency supported by Libyan oil reserves. In March 2011, a NATO-led coalition began a military intervention in Libya during which Gaddafi was assassinated.²⁹

BRICS CURRENCY or BRICS COIN is a foreign exchange reserve currency in development. BRICS currency is pegged to gold (or gold plus a “basket of commodities”) that would allow the BRICS+ nations to trade with each other bypassing the US dollar (USD) or the Euro. The currency would be a digital exchange mechanism used only for trade. BRICS as a hard currency might be pegged to gold reserves held in vaults by a central bank. Trade exchanges would take place electronically. BRICS nations currently trade using their own currencies. A gold backed currency might provide a more stable reserve. It would not rely on the strength of exchange rates with the USD or Euro, which are subject to frequent devaluation. Holding USD in reserve forces countries to absorb the brunt of inflation whenever the US enlarges its currency supply. BRICS currency would serve as a means of reducing vulnerability to dollar exchange rate fluctuations. Although there are no immediate plans to create a BRICS currency, the intermediate step of discarding the USD for exchanges in Russian rubles, Indian rupees, Chinese yuan renminbi is occurring with more frequency. As of 2024, some analysts predicted that BRICS currency could launch within five to ten years.

DEDOLLARIZATION or the DEMISE OF THE DOLLAR is the idea that BRICS currency could someday surpass or bypass the USD as the world’s reserve currency. Opinions differ as to how much this might affect the standing of the USD. One side argues the difficulty and complexity of establishing a world reserve exchange currency. Another argument recognizes that the USD’s reliance on the stability and strength of the petrodollar in trade for Saudi Arabian oil could be undermined by any currency traded in its place. The USD reserve currency has fallen from over 80 percent of global reserve currencies in 1979 to 58 percent as of 2024 (or 47 percent when adjusted for exchange rate changes). Therefore, it is possible that a BRICS currency could rival the euro and the USD, even if it does not replace them as the major reserve currency. This would not result in a dominance of one reserve currency, but simply more options for trade in a multipolar world.

²⁹ “Gold Dinar: the Real Reason Behind Gaddafi’s Murder,” May 3, 2019, Millennium State. https://millenium-state.com/blog/2019/05/03/the-dinar-gold-the-real-reason-for-gaddafis-murder/.

³⁰ Rachel Savage, “What is a BRICS currency and is the U.S. dollar in trouble?” Reuters. August 24, 2023. https://www.reuters.com/markets/currencies/what-is-brics-currency-could-one-be-adopted-2023-08-23/.

Glossary Headings

Political Theories
Modern Political Movements
Forms of Government
Modern Political Counterfeits
Political World Orders
Culture and Society
Epistemology
Globalism
Regional and Global Organizations
World Reserve Currency
World Financial Organizations
Globalist Think Tanks, Theories, and Doctrines

Book

The Fourth Political Theory in Biblical Perspective

Jay Rogers

A Christian civilization is emerging from under the wreckage of Modern culture.

A Christian civilization is emerging from under the chaos that has been strewn throughout the wreckage of Modern culture. As dawn breaks through the darkness, many will be awakened to a new understanding of the fulfillment of the Law through love and grace. Many will comprehend, as if for the first time, what it means to be truly human. We are being prepared to overcome a world system that has denied God, faith, family, and even humanity itself. This book analyzes and critiques several leading experts in the theory of the rising multipolar world including –

• The Changing World Order by Ray Dalio
• The Clash of Civilizations by Samuel Huntington
• The Fourth Political Theory by Aleksandr Dugin