Digital Currency Essential For The Revolution Of Global Monetary Policy
Tom Bodrovics @ Palisades Gold Radio
You recently wrote an article about China’s plan to introduce a digital renminbi, so what do you know about when this will be launched and why should any of this matter to us?
Dr. Stephen Leeb, Ph.D.
Well it definitely should matter, and I think it’s the beginning of a new age in terms of what’s going to be a monetary system. It’s become ever clearer that the dollar is not serving its purpose as a reserve currency. When our central bank prints eight trillion dollars and that money sits on banks balance sheets… there’s something obviously wrong with what we’re doing.
China has been developing a digital currency for seven years and they are finally ready to introduce it. As cited in my latest book, ‘China’s Rise and the New Age of Gold’ my thinking is that China’s new digital currency will inevitably be an international currency. Although, as an international currency, it’s not expected to be solely governed by China but rather a basket of currencies. The ‘e-yuan’ or digital yuan will initially be used in China. The government plans to launch the new digital currency in February at the 2022 Winter Olympics in Beijing. The e-yuan will be equal in value intrinsically to fiat currency (paper money). There will be no difference between the digital currency and paper money. I expect, given the Chinese prefer to deal in digital applications rather than paper applications, it will be widely adapted in the country. That will be the first step. It will also de facto be backed by gold.
The De Facto Mystery
When any Chinese citizen trades gold (unlike when they trade gold in the U.S. or in London) they trade physical gold. Everybody’s free to exchange their renminbi or yuan for gold anytime they want- this will also hold true with the digital yuan. Initially, it will be used as a digital yuan rather than a basket of digital currencies. The digital yuan will first be used within China, backed by gold de facto. Although, China has been elusive and won’t mention gold in connection with the monetary system. They won’t admit that it’s backed by gold… however the mystery remains obvious.
The next step, once the digital yuan is widely accepted and people see how easy it is to use… it will be a contender for international transactions. It’s so much easier to deal with transactions digitally than the way we deal with things now, monetarily speaking. Currently we use SWIFT, which is the basis of our international monetary system. It’s the way international banks communicate but it really complicates things. However, it’s a great tool for the U.S. because it allows us to sanction other nations. Through SWIFT we get this information. The United States has that power because we have a reserve currency. You really need dollars in today’s world in order to trade internationally. SWIFT is a source of knowing who is using dollars- who’s not, and it’s very cumbersome.
The digital currency that China is introducing, even without gold backing, will be much simpler than the monetary system we are using today. It’s anticipated to be adopted almost immediately by the Chinese, and certainly by so many countries in the east. China is now the world’s biggest trader and by far the biggest trader in the east. The Belt and Road Initiative (BRI) and all the 142 countries in cooperation will most likely accept this new digital currency for international trade. Especially if they know what’s coming next- and trust me- they will want to be a part of what’s coming next.
The next critical step will be a basket of currencies backed by gold. Right now, a major problem in this world is that every country is disadvantaged relative to the United States. This is essentially bad for all countries- including the United States. Americans think that our country is doing very well because we have a reserve currency and this gives us power to sanction other nations. The unfortunate outcome is that some nations don’t want to cooperate with us. This gives us too much power and we are not using it wisely. It’s inevitably catastrophic for the rest of the world for the United States to have the freedom as a reserve currency to print unlimited amounts of money.
“It’s critical for gold to back currency. Civilizations have been using gold as a currency for thousands of years- we have just come to accept its value.”
Growing Resource Scarcity
The real existential threat that we face is global resource scarcities. Whether it be water, energy, copper…ect. All the fossil fuels in the world will be required to build a society that is completely sustained by renewable energy. To build a society in which we don’t need fossil fuels- you’re going to need fossil fuels to get rid of fossil fuels. And you’re going to need a tremendous amount. The world needs to find a way to create cheap sources of energy to get rid of fossil fuels. The only way to achieve this is to first recognize what’s at stake. Second, having better control over the world’s exponential growth. If the world grows haphazardly and we consume all of our natural resources, we’re going to run into a lot of trouble. In fact, it’s already happening to a certain extent.
Global Spike In Solar Energy Prices
How many times have you heard about sand in reference to solar production or semiconductors? To explain it in simple terms, let’s talk about sand. The world has an astronomical amount of sand. Essentially, that’s what silicon is… it’s sand! Although, it’s a very special kind of silicon that’s 99.999999% pure. This ultra pure silicon is called polysilicon. The only way you can turn silicon into polysilicon is through incredibly elaborate processing- which happens to be highly energy intensive. Without that elaborate processing you don’t have semiconductors, and in turn, it creates very expensive solar energy. The semiconductor shortage is already happening, along with increasing solar energy prices. China has run out of capacity to manufacture semiconductors and they are rapidly building more. Essentially, China needs semiconductors to build out their own clean energy infrastructure but so does the rest of the world! Japan, Singapore and China all export semiconductors and that’s a cooperative thing to do because if they really wanted to hurt other nations, they could stop exportation.
Right now, we are experiencing a major worldwide semiconductor shortage. This presents a prime example of the negative correlation between semiconductor shortages and the dramatic increase in solar energy prices. Any recent chart of solar prices looks like a steep roller coaster ride. To bring things full circle, there’s just not a sufficient amount of cheap energy available. Coal is the major source of cheap energy production coming from China. Likewise, China has certainly not run out of coal, but they do have a shortage of factories that can make polysilicon. Without polysilicon, we lack the critical component to manufacture solar panels and integrated circuits (semiconductors).
There’s a few companies in Japan and Singapore that have the technology to make ultra pure polysilicon on a small scale. Although, to manufacture polysilicon in mass quantities- China is the only place in the world that can accomplish this on a grand scale. Until recently, China has been unwisely using cheap energy or lending it… or letting the Bitcoin miners use it. However, they decided to stop that upon realizing they need this energy in order to keep solar prices cheap. Manufacturing ultra pure silicon (polysilicon) is energy intensive, requiring advanced technology.
The initiative to manufacture polysilicon and semiconductors are smart reasons for the use of cheap energy. We’re using cheap energy (which is coal) to get rid of coal, because solar is a substitute for coal. Therefore, you’re not going to have solar unless you’re willing to use something as dirty as coal to get there. That’s the message and it’s just the facts. We need all the energy we can get to keep this world going and to create a world which is sustainable.
So, What’s The Deal With The Digital Yuan?
It’s clear that with the dollar as a reserve currency, other countries (along with the U.S.) are trying to corner the market on commodities, except they can’t. China has accumulated tremendous amounts of commodities over the past few decades. Why? Because we’re headed for global commodity scarcities!
Robert Freeland, one of the most successful commodity investors of our time, discovered several major copper mines. Freeland said something that makes all the sense in the world. He uses the term “hydro” because it’s going to be necessary to keep copper as cheap as we possibly can.
“We’re going to use all the hydro energy we can find to develop those new mines in Africa.”
Take a look at what’s currently happening in the market for copper demand. One relevant example, electric vehicles require thirty more pounds of copper to manufacture than a vehicle with an internal combustion engine. Not to mention, copper is used in practically every household appliance or electronic device. There isn’t enough copper left in existing mines in the western part of the world. Right now, we’re almost at an inflection point in mining copper grades. If you mine much more copper, the price in terms of energy is going to start skyrocketing. And it’s going to become super expensive. Recently, you’ve had this incredible bull market in copper. In the midst of a pandemic, people are recognizing what’s involved. If you are using an expensive source of energy, what’s going to happen to copper? It’s going to be way higher in price. How are we going to get electricity from one place to another? It’s going to cost a lot more! We need all the energy we can possibly get and we need to control how that energy is distributed and used. In effort that everybody can benefit and you’re not going to achieve that with the dollar as a sovereign currency.
That’s what China is after with the digital yuan- that’s why currency needs to be backed by gold. China isn’t after world control, that’s really important to recognize. They are after a world that lives in harmony. They don’t care what religion you are. China basically accepts everybody and they want to cooperate. Europe is cooperating. And if the U.S. decides to play nice- we will cooperate with them. The only way you can get there, in my opinion, is to control the amount of money we can spend on international transactions. It just cannot be free. Right now, money is free. We can print an unlimited amount of fiat currency in this country and we can use it for any purpose. We can use it to sanction but historically, it’s never really done us any good.
That’s the deal with the digital yuan. That’s why it’s so important. It’s going to first demonstrate that there’s a much better way of trading than the monetary system we are currently using, even if it’s not gold backed. It’s much less cumbersome, and it keeps the United States off your back, which is a big deal in the East. China is the leading trader for about 68% of world trade versus the United States accounting for only 35%. The digital yuan will eventually be accepted for international trade in the eastern part of the world and perhaps beyond.
“The big question is… what will the U.S. do?“
Tom Bodrovics @ Palisades Gold Radio
Why don’t we start by using these terms renminbi and yuan seemingly interchangeably. What’s the difference between those two terms?
Dr. Stephen Leeb, Ph.D.
I don’t think there is. It’s like saying the dollar or the buck. One is a little more formal. I don’t see any real difference in those words. I’m sure there is some formality to renminbi that there isn’t to the yuan, but it’s not a meaningful distinction.
Tom Bodrovics @ Palisades Gold Radio
What do we think about the possibility that China is going to back this digital currency with gold?
Dr. Stephen Leeb, Ph.D.
I think we’re horrified. Because it will basically control the amount of currency in circulation. I wrote about this in my book, ‘China’s Rise and the New age of Gold.’
If you want to convince yourself of this, look at the correlations between the dollar and any other variable you can think of. They are incredibly strong. Gold has always been a threat to the dollar. From the day Nixon took us off the gold standard, it was still considered by many to be the currency of choice. The correlation started to rise between the dollar and gold because it’s become a more visible threat.
Real interest rates are currently negative, which indicates that gold prices should be on the rise. Well, this hasn’t happened yet and certainly not to the extent it has historically. There’s an incredibly strong negative correlation between gold and the dollar. If you’re going to back any currency with gold- it has to be a gold standard. This implies the currency is 100% backed by gold. You’re certainly not going to be trading paper gold that is only 1% gold backed, which is the case today.
Global Market Manipulation?
I don’t want to insinuate manipulation, because I have no hard evidence to prove it. However, when someone recently sold $3 billion dollars worth of paper gold at the quietest time of the market (when almost all global markets are closed at 6am on a Sunday morning) you have to speculate that some kind of manipulation is happening. It’s certainly suspicious and you cannot rationalize why someone would be selling that quantity of gold at such an inconspicuous hour. It also proved the credibility of the manipulation of gold prices happening behind the scenes. The most likely case was that this was done deliberately, and if this was done deliberately, it had to have been a central bank. The negative correlation that continues to persist- and the fact that the price of gold going down only boosts the value of the dollar, you have to wonder. After watching the trading patterns of the dollar and you see the dollar going up, you can be fairly certain that the price of gold is going to go down. That correlation doesn’t hold true 100% of the time but it holds true for enough of the time to make you very suspicious. My belief is that the U.S. government is really scared and doesn’t want gold to be a part of the monetary system. I think it’s too late, I don’t think we can fight it anymore. I think a currency backed by gold is going to become commonplace in the East. I believe the digital yuan or renminbi is something that scares everyone in this country because they know where China is headed.
It’s not a secret that back in 2009, the head of the People’s Bank of China (PPOC) wrote a white paper which insinuated that Bretton Woods made a terrible mistake. Instead, they should have taken the SDR, used that as a currency and backed it with something else. And he didn’t say explicitly what that “something else” should be but it was clearly not something that this world is going to run out of. If you back the renminbi with rhodium, which is the rarest metal in the world (which we most certainly could run out of) it’s not going to do you much good. However if you back it up with gold, of which there is plenty, the price of gold will have to rise dramatically in order to assure that trading can take place.
Gold is the only commodity that can also call itself a currency. Reason being that gold has no industrial uses. Perhaps 10% of gold is used for industry and that could easily be substituted by copper or silver. And silver is also a monetary metal. You’re seeing the same kind of price manipulation going on with silver but it’s a little less apparent because silver does have very important industrial uses. Fifty years of history, combined with the intensity of the dollar/gold correlation suggests that we are fighting tooth to nail against gold backing currency.
In my view of things, a lot of the financial institutions in this country advocate the trade of Bitcoin yet at the same time- promote clean energy. They support IPO’s involving Bitcoin and this is a total contradiction. Essentially, Bitcoin is a big danger but it’s also a big threat to gold. Our government knows Bitcoin is dangerous, so why do they allow it to exist? Bitcoin is used for laundering money… has it ever occurred to anyone that when they stopped the flow of gasoline from Texas to New York- they wanted Bitcoin as ransom? It’s a great way of committing financial crimes and it also uses a tremendous amount of clean energy. We need to use our clean energy to create more renewable energy infrastructure, but instead our financial institutions are sponsoring Bitcoin which goes against the very grain of the pursuit of clean energy.