Fading Fiat Currency
Yellow metal, bitcorns, and the stupidity of fiat currency when nobody uses cash anyway.
Late last night Seeking Alpha published my latest article: Sprott Physical Gold Trust: Follow The Yellow BRICS Road. I know, that headline…
Since the PHYS 0.00%↑ article is about a current holding in the Heretic Speculator Equity Portfolio, I wanted to share some points with you guys as well. I think the entire article is really worth a read if you’re a Seeking Alpha member, but in case you aren’t, it’s a buttoned up version of many of the themes that I’ve written about right here on Heretic Speculator throughout the last couple years. If you were here for Crazy Like a Fox, you may recognize quite a few familiar points.
One of my critical takeaways from Crazy Like a Fox:
I think kicking Russia out of the SWIFT system is almost as bad for the global dollar standard as it is for Russia. The US doesn’t want a country as big as Russia proving it doesn’t actually need SWIFT
Here’s an excerpt from the article last night that I want to elaborate on a bit more:
The most recent development for gold comes from a Russia Today report that the BRICS nations intend to introduce a gold-backed currency at BRICS summit in South Africa next month. Quite possibly in preparation for this, China and Russia have been increasing their gold holdings over the last decade.
Because Seeking Alpha is a reputable website that requires an editorial process for article publication, I occasionally have to be more careful with word choice than I might be here. With that said, I’ll put it a bit more plainly today; I don’t think the positioning in gold by the BRICS nations has been due to a possible preparation for a new currency regime. I believe it has been a strategic preparation for a new currency regime. And I take that view because of when the runup in these gold holdings began:
China, Russia, and India all started dramatically growing their gold reserves right around the time of the Great Financial Crisis. This is important context because this is when the ZIRP era began and the “money printing” really started to intensify. As a result of this gold buying, the BRICS nations (Brazil, Russia, India, China, South Africa) are now in a better position than they were a decade ago if gold becomes important to the global monetary system again. From where I sit, you do that if you’re hedging long term fiat currency debasement.
The Fiat System SUCKS
No doy, right? Allow me to paint a picture for you. My wife and I are leaving the country for a MUCH NEEDED vacation soon. We haven’t left the United States since before COVID lockdowns. We had historically spent a few days in Canada every summer leading up to 2020, but that changed due to the great global panic. Long after we personally stopped being even remotely concerned with the disease itself, I still couldn’t get into Canada because I chose not to let Pfizer PFE 0.00%↑ or Moderna MRNA 0.00%↑ hook me on their perpetual booster grift and I just beat the bug by myself.
But in the meantime, Baby Castro (calm down, it’s a joke (I think)) decided Canada was better off without my annual tourism contribution and we did other things instead. Whatever, Canada. I didn’t need your stupid maple syrup and Bloody Marys taste better than Caesars anyway.
Sidebar: I’m lucky my wife puts up with my $h!t. Find one like her, fellas.
In any case, I’m allowed in the country again and we’re going to visit soon. Now, the problem with fiat currencies is they move up and down against real assets and also against each other. So when the Dollar index breaks down as it did roughly a week ago, suddenly the CAD-denominated obligations I have to my lodging provider have become about 4% more expensive in the last few weeks measured in the currency of my homeland.
I realized rather quickly the only exposure to CAD in my house was the “special blue” 5 CAD bill that the tooth fairy left for my daughter when daddy forgot to get something smaller than an Andrew Jackson. Sorry, kiddo. The tooth fairy has limits and later efforts to run my own internal FX transaction failed miserably. I’ve since grabbed some Invesco Canadian Dollar Trust shares FXC 0.00%↑ and I feel better about now being hedged any further USD distress.
But this lack of exposure to the native currency of our vacation destination was coupled with the realization that I needed a spending vector while over the border. In the past, we’ve just gone to a currency exchange with cash and paid for as much as we can the analog way.
When we were last in Canada in 2019, the percentage of payments settled in cash was 26%. It’s now just 18%. It seems as the years go on and as cash is used less, things like Wise $WPLCF and Revolut actually make quite a bit of sense. But those businesses probably work a lot better in a fiat regime and I’m obviously hoping that society wakes up to the game.
Here’s my larger point though… this is all so stupid. This whole system is so complex and rent-seeking. There are so many middleman layers and none of this is necessary in the digital age. If we’re not going to use cash, fiat becomes less attractive when other monetary systems already exist digitally. We could use digital gold through some instrument like Paxos Gold (PAXG-USD) on Ethereum. We could obviously use Bitcoin which is completely permissionless and wildly cheap on Lightning Network.
What’s funny is there are actually some pretty obvious similarities to this fragmented fiat system in crypto and there are some really interesting protocols that are trying to address that fragmentation. Tomorrow, I’ll share two of those ideas with you. One of them appears to be poorly constructed and is predictably failing. The other is actually pretty good in my opinion and it’s now one of my larger crypto positions.
I have to warn you, this will be a paid subscriber-only post. But I think it’s well worth the cost of trying out the service for a month if you’re crypto-interested.
Disclaimer: I’m not an investment advisor. I am not a geopolitical analyst. I am not the tooth fairy.