Attacks on the dollar are not limited to SDRs. The most imminent threat comes from the oldest form of money — gold. Specifically, a combination of gold and digital currency may constitute a potent alternative to the dollar.
The fact that Russia and China have been acquiring gold is old news. Both countries have more than tripled their gold reserves since 2009. In addition to buying gold, Russia has been dumping U.S. Treasuries and has reduced its dollar asset position to almost zero.
Still, there are practical problems with using gold as a form of currency, including storage and transportation costs. As explained in this article, Russia is solving these transactional hurdles by combining its gold position with distributed ledger technology.
Russia and China could develop a new cryptocurrency that would be transferred on a proprietary encrypted ledger with message traffic moving through an internet-type system not connected to the existing internet. Other countries could be allowed into this new system with permission from Russia or China.
The new cryptocurrency would be a so-called “stable coin,” where the value was fixed with reference either to a weight of gold or another standard unit such as the SDR. Goods and services would be priced in this new unit of account. Periodically, surpluses and deficits would be settled up in physical gold.
Such net settlements would require far less gold than gross settlements (where every transaction had to be paid for in real-time). This type of system (also called a “permissioned blockchain”) is not pie-in-the-sky, but is already under development and will be deployed soon.
Apparently, the U.S. government will be the last to know.
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