Weekly Mailbag: CBDCs and the Big Mac Index

[Inside Wall Street with Nomi Prins]( Weekly Mailbag: CBDCs and the Big Mac Index By Nomi Prins, Editor, Inside Wall Street with Nomi Prins Welcome to our Friday mailbag edition! Every week, we receive some great questions from your fellow readers. And every Friday, I answer as many as I can. This week, the conversation continues around the [all-digital dollar I’ve been warning about]( – and the [“death by a thousand cuts” for the petrodollar]( Are you saying competition from BRICS to anyone is bad? Americans have been enjoying exuberant lifestyles through the petrodollar. De-dollarization is a necessity regardless of whether its full impact reaches Americans 20 years or 50 years from now. – Tshidi S. Thanks for writing in, Tshidi! You’re right to suggest that many countries, including BRICS, are unhappy with the dollar’s dominance. And that they see de-dollarization as a necessity. Just consider the fact that many previous emerging market crises were tied to the strength of the U.S. dollar. For example, the Asian Crisis in 1997. I was Senior Managing Director at Bear Stearns in London at the time, so I witnessed the effect this had on global markets. Thailand unpegged its currency, the baht, from the U.S. dollar. The baht went on to lose more than half of its value. This set off a domino effect of devaluations that spread as far as Russia and Brazil. That’s because as the dollar strengthens, developing countries must tighten their monetary policy to balance the related drop in the value of their currencies. If they don’t, they risk increasing domestic inflation. And the cost of servicing their dollar-denominated debt would rise. That’s what happened when the Thai government decoupled the country’s currency from the dollar. More recently, countries like Egypt, Pakistan, and Ghana asked for bailouts by the International Monetary Fund (IMF). This was due to financial stress caused by a stronger dollar compared to their own currency. Because they borrowed heavily in U.S. dollars, paying it back meant a squeeze on what they could spend domestically. For them, moving away from the dollar is a matter of economic survival. Countries like these have seen the financial turmoil that comes with a stronger dollar. A strong dollar makes their own currencies weaker. Then, you have other governments losing trust in the U.S. on a financial and geopolitical level. Political tools like sanctions and embargos were the first to create distrust. Then bank failures, high interest rates, and economic uncertainty made business with the U.S. a financial liability. Countries like China and Russia have been unhappy with the dollar’s dominance for quite some time. And it didn’t help that Western countries hit Russia with unprecedented sanctions following Russia’s war in Ukraine. That gave BRICS countries an even bigger push to try to find an alternative to the dollar. As justified as the Western sanctions might be, it does show the rest of the world just how risky it can be to depend on the U.S. dollar. The upshot is that countries want control over their finances. That’s especially true for big economies like China. So, in that regard, I agree with you: from their perspective, finding a way to sidestep the dollar is a necessity. That’s what a new BRICS currency would do. For one, it would reduce any threat by the U.S. to exclude BRICS nations from the dollar-based financial system. The BRICS countries would also benefit from being able to pay for their energy imports with their own currency. This is exactly why BRICS as a whole, and China specifically, have been trying to cozy up to the Saudis. In August, the [BRICS announced]( they were bringing Saudi Arabia, Iran, and the United Arab Emirates into their group. These are the world’s top oil producers. By doing this, the group is solidifying its role in a crucial global trade sector: oil exports. This places BRICS in a unique position to challenge the U.S. The move could siphon off a portion of U.S. oil trade. That’s likely what you were referring to, Tshidi, when you mentioned “competition from BRICS.” And, yes, when you consider that China has already begun using the yuan for most of its energy imports from Russia, it does sound like that. Russia is also now using the Chinese yuan to settle 25% of its trade with the rest of the world. Plus, India’s largest oil refinery, Indian Oil Corp, and two other refineries there began paying in yuan for some of their Russian oil imports. Recommended Link [Viral Silicon Valley video reveals new AI cash cow]( [image]( Did you see this new viral AI video? On camera, one of America’s top tech analysts, Colin Tedards, reveals the next AI cash cow… A groundbreaking technology The Wall Street Journal calls, “the lifeblood of AI.” It has nothing to do with Nvidia or any popular tech company. But firms like Tesla, Microsoft, and OpenAI – the company behind ChatGPT – are buzzing about this groundbreaking technology right now. For early investors, this tiny new device could unlock $200 trillion in AI profits. [Click here to see this viral video before it gets taken down.]( -- Now, I’ve mentioned on many occasions that I don’t see the end of the petrodollar happening tomorrow. More than 90% of all oil traded around the world is still priced in U.S. dollars. That’s not the type of thing that can change overnight. Whether it will take 50, 100, or more years, no one knows for sure. [As I’ve written before]( it will be a death by a thousand cuts, not something that happens overnight. The shift is happening though. If the dollar is losing its value, the government will at some point need a hard asset like gold to back it. So what prevents them from calling in all the precious metals like in the past? Also, how can the government convert our dollars to digital coins, given the dollar is fiat money not backed by gold? – Kathy F. Thank you for this question, Kathy! There’s nothing to stop the government from trying to confiscate gold through an act of Congress or executive order again. But the role of gold today is very different than it was when we had a gold standard. So it makes a gold recall very unlikely. We still had the gold standard in 1933. That was when President Franklin Delano Roosevelt issued the executive order demanding Americans turn in their gold. FDR’s order forced Americans to turn in their gold or face a $10,000 penalty. The idea behind this was that “hoarding” gold during the Great Depression was stalling economic growth. So it supposedly constituted a national emergency. You just can’t make that argument today. The U.S. went off the gold standard in 1971. Since then, our currency has been backed only by the “full faith and credit” of the U.S. government. This enabled the Fed to create more money in times of emergency. That money no longer needed to be backed by anything real. Which means the Fed could now create it out of thin air. And that’s exactly where we are right now. There is no direct link between gold and the dollar. So it’s much less likely that the government or president can confiscate gold under the guise of getting the U.S. out of a national emergency, like they did during the Great Depression. As for your second question, how can the government convert our dollars to digital coins if the dollar is fiat money not backed by gold? This is a great question. There’s a lot of confusion out there about what the digital dollar will look like. So let me clarify a few key concepts here. The digital dollar would be issued by the U.S. Federal Reserve, like all the U.S. dollar bills we use now. It would just be in a digital form, with no need for gold backing. This means that a digital dollar should be worth the same as its paper counterpart. That’s the good news. The bad news is that central bank digital currencies (CBDCs) will give central banks and governments almost unbreakable financial control over your life. Indeed, the implications are limitless. They range from taxation to interest rates, as I wrote in a [recent essay](. And the global tide toward CBDCs is already well underway: - 98 central banks are in the process of planning the digitalization of their currency. - More than 80% of global banks are exploring digital currencies. - And 130 countries are exploring digital currencies. This suggests that the U.S. will likely transition to a digital form of the dollar too – perhaps sooner than many might think. We want you to be prepared to get the most out of your money when the transformation to CBDCs takes place. Recommended Link [Buy this AI Stock Before Elon’s Announcement]( [image]( Teeka Tiwari, the man who picked Nvidia before it skyrocketed as high as 5,246%, is now recommending [this AI stock…]( Because it’s most likely supplying Elon Musk with a key piece of advanced tech for his new AI venture. Hurry… Elon Musk has promised that he “will share more information [about this AI project] over the next couple of weeks.” If he mentions the name of this supplier in a tweet or during a press conference, there’s no telling how high shares could go. [Click here now before it’s too late.]( -- That’s why I recorded [this video presentation](. In it, I go into more detail on what an all-digital dollar could mean for our financial system, for regular Americans, and for our money. I travel abroad. Will a cup of coffee be the same price in CBDCs around the world? – Gene R. Hi, Gene, thank you so much for that question. I’m an avid traveler myself. There’s no better way to understand the world than to get out there and explore it. Now, allow me to step aside from CBDCs – and coffee, of which I’m also a big fan! – for a moment to answer your question. For that, I want to talk about McDonald’s hamburgers – or the Big Mac Index. It was developed by The Economist back in 1986 to show the different costs of a Big Mac in different countries. In economics wonk speak, that’s called “purchasing power parity.” I remember it from my days living in London as a senior managing director at Bear Stearns. I ran the analytics group there, and we traveled to meet with central banks, pension funds, and banks around the world. During one year in the mid-1990s, I traveled to 12 countries in Europe, 8 in Asia, and a couple in the Middle East – and more cities than that. Talk about air miles! I didn’t buy Big Macs in any of them (I’m a vegetarian). But the index was a topic of conversation at the office for my team after various travels. And you can still find it today. Take a look… [Chart] [[click to enlarge]( Today, a Big Mac in the U.S. costs $5.58. In U.S. dollar terms, it’s most expensive in Switzerland, where it costs $7.73. And it’s cheapest in Taiwan, where it costs $2.39. That’s what the Big Mac Index chart above shows. In other words, the price for a Big Mac in dollar terms is different around the world, even though it’s the same item. That’s because of domestic economic differences. Like what your original currency of exchange was… And the cost of getting or producing that item in each country. Recommended Link [The One Ticker Retirement Plan]( Over the Shoulder Demo Now Available [image]( Market Wizard Larry Benedict crushed the market in 2022. But he didn't do it with a “traditional” method… For a limited time, he’s sharing a free over-the-shoulder “demo” of his strategy in action. It takes less than 10 seconds… [Watch it here.]( -- Now, in theory, all other things being equal… If the dollar is strong relative to other currencies, you can buy more Big Macs in another country for the same price than you can in the U.S. But all other things aren’t always equal, as Switzerland shows. The U.S. dollar has strengthened relative to the Swiss franc, but Big Macs are still relatively expensive there. That’s because depending on what you’re buying, there are other costs. For example, there are transportation and supply chain costs for getting raw materials and commodities from one country to another. Some countries are net exporters and some are net importers of certain materials. Some are developed and some are developing. In short, all of these economic factors contribute to how much any currency can buy at home or abroad. And all of this backdrop will apply to CBDCs, like it applies to non-digital currencies today. That means that your cup of coffee will cost a different amount in other countries just as it does today once we convert to a CBDC-based currency world. As we’ve written, most of the world is in different degrees of analyzing or reaching the ability to launch a digital currency in their nation. And we discussed how these would eventually replace current “cash” or non-digital versions of their currencies. This process will likely take place over several years and will happen more quickly in some countries than others. But overall, what this means is that your money in the form of a U.S.-based CBDC will have a roughly similar purchasing power relative to other countries’ CBDCs as it has now. Notice I said “roughly.” That’s because there’s one more thing to consider in the transition to global CBDCs. That is, some dollar-based countries may find themselves basing their CBDCs off the dollar, as they base their currencies now. And some may use this conversion to become more de-dollarized. As I touched on in some of my recent essays (catch up [here]( and [here]( what that looks like exactly remains to be seen. And that’s all for this week’s mailbag. Thanks again to everyone who wrote in! I do my best to respond to as many of your questions and comments as I can each Friday. If I didn’t get to your question this week, please write me at feedback@rogueeconomics.com. Just remember, I can’t give personal investment advice. Happy investing… and have a fantastic weekend! Regards, [signature] Nomi Prins Editor, Inside Wall Street with Nomi Prins --------------------------------------------------------------- Like what you’re reading? Send your thoughts to [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=RE: Inside Wall Street Feedback). IN CASE YOU MISSED IT… [PhD Predicts America’s Next ‘Nightmare’ Coming in 2024]( Take a look at the image below… According to research by investigative journalist Dr. Nomi Prins, some stores have stopped honoring their own shelf prices… In the coming weeks, the cost of your favorite items will soar overnight – while others will crater. And the markets will enter a new era of chaos… Unlike anything you’ve seen in your lifetime. As a matter of fact, according to Dr. Prins, in as little as 60 days, the market will be very, very different than it is right now. All because the coming ‘price shocks’ could affect every financial decision you ever make with your money – EVER again. To explain all the details and to warn Americans, Dr. Prins sat down for an in-depth interview where she breaks everything down in full detail. [Please watch Dr. Prins’ warning before it’s too late.]( [image]( [Rogue Economincs]( Rogue Economics 55 NE 5th Avenue, Delray Beach, FL 33483 [www.rogueeconomics.com]( [Tweet]( [TWITTER]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This editorial email containing advertisements was sent to {EMAIL} because you subscribed to this service. To stop receiving these emails, click [here](. Rogue Economics welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. To contact Customer Service, call toll free Domestic/International: 1-800-681-1765, Mon–Fri, 9am–7pm ET, or email us [here](mailto:memberservices@rogueeconomics.com). © 2023 Rogue Economics. All rights reserved. Any reproduction, copying, or redistribution of our content, in whole or in part, is prohibited without written permission from Rogue Economics. [Privacy Policy]( | [Terms of Use](