What will be the impact on Black Americans of a new BRICS reserve currency?

The Russia-Ukraine war has spawned a lot of social media chatter about the possibility of further involvement in the Eastern European conflict on the part of the United States. US posturing may devolve into further arms shipments to Ukraine or a hot war where US air and ground services may be called into action.

A Russia hard pivot

After a year at war, I do not see the Russian Federation making a hard pivot to peace much less withdrawing from Ukraine. I see no returns on Russia’s investment of money and lives by leaving Ukraine without any territory, resources, or promises by Ukraine not to join the North Atlantic Treaty Organization. The best move on Russia’s part would be to force a stalemate or create some demilitarized zone turning any captured territory in Ukraine into either permanent Russian territory or independent nations, at least on the surface.

A stalemate would give Russia more time to pursue a joint reserve currency, along with Brazil, India, China, Saudi Arabia, and a few other Asian and Latin American countries. A new reserve currency used by 40% of the globe’s population would eventually have an inflationary impact on the United States.

Inflation and a new reserve currency …

Substituting a new reserve currency for the US dollar would reduce demand for the dollar. As the BRICS countries sell the dollar back to the United States either through the foreign exchange markets or via bond redemptions in the bond market, the supply of dollars will increase and likely create a scenario where there are too many dollars chasing too few goods. The United States would have to ramp up its productive capacity in order to soak up dollars. This would call for a reverse of 40 years of economic policy where the United States has offshored productive capacity in exchange for an economy driven by credit, the financial industry, and the knowledge economy.

Increased money supply is followed by increased prices including interest rates, the price for borrowing money. Interest rates go up to compensate for the loss in spending power brought on by an inflated dollar. Increased interest rates also mean that the value of assets, i.e., bonds, stocks, land, etc., start to decrease. For investors that borrow money to buy homes, equities, land, currencies, or other investments, it means that they will have to bring more collateral, more margin to secure these loans.

…and the impact on blacks

Blacks may not have the excess capital as a buffer against an inflation scenario that could come about from the formation of a new reserve currency. Data from the U.S. Bureau of Labor Statistics shows that Black expenditures amount to 79.8% of average pre-tax income. One-third of Black household income goes to housing. Thirty percent of total spending goes to items and services such as personal insurance and pensions, healthcare, entertainment, apparel, and personal care. Thirty-five percent of black households make between $12,500 and $37,499.

Data from the Board of Governors of the Federal Reserve System showed that while the median black households hold directly or indirectly about $14,400 in equities, their median white counterparts directly or indirectly hold $50,600 in equities.

In addition, white households typically save around $50,000 in retirement accounts while blacks typically hold around $20,000.

Black political leadership is inept …

Black households are in no position to have inflation, ensuing price increases, and increases in unemployment erode an already unequal financial position. Unfortunately, black political leadership and black media have been distracting black households from the global-macro political factors that may contribute to decreases in the value of their assets. Black households are also unaware of inflation’s impact on the US currency they spend to meet their daily needs.

For example, black congressional leadership has opted for supporting the war in Ukraine rather than questioning the President’s policy or intervening personally in attempts to bring Russia, Ukraine, and NATO to the bargaining table. NATO and the United States’ policy of sanctions including kicking Russia off of a global payments system, the Society for Worldwide Interbank Financial Telecommunications, has only served to incentivize Russia’s accumulation of gold as a commodity for backing a currency and creating an alliance with China, India, and other countries to create an alternative reserve currency.

Failure to see how US policy exacerbates potential damage to America’s reserve currency status is another major fail of black political leadership. The impact on black households will be negative one.

Recommendation

What should black households do to head off the inflation scenario I described above? I recommend that Black households persuade their families, social and community groups to express clearly to the Biden administration that while they find Russia’s actions reprehensible, they also find Mr Biden’s responses inept. Black households should then threaten to cast a vote of no confidence at the polls for Mr Biden and the black political leadership in 2024.

Alton Drew

19 February 2023

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