All the currencies of the world today are derivatives of the dollar,
including the Russian Ruble and the Chinese Yuan, and even the miserable
currencies of Venezuela and Argentina. As long as they can be used to
purchase dollars, either officially or through the black market, they will
continue in circulation.
The Mexican Peso circulates and has value, because Mexicans have always
been able to purchase dollars with pesos (except for a few days during the
�Mexdollar� crisis of the early �80s). The price of the dollar in pesos has
varied, but at any rate it has (almost) always been possible to obtain
dollars in exchange for pesos.
If the new Islamic State �ISIS� should wish to have its own currency, it
would have to be possible for its currency to acquire dollars, either
directly or through some other currencies. (Just by the way, a 1/10 ounce
silver coin would be the equivalent of the dirham, prescribed as
money by Islam, and its value would not depend on the dollar or any
derivative of the dollar. Maybe someone else will tell �ISIS� about this; I
do not want to get mixed up with these people.)
Even in the case of a fiat currency to be used exclusively within national
borders, with no plan for commercial purposes outside of its own zone, such a
currency would have to be issued with a value that could not be other than an
external reference either to the dollar, or to some currency derived from the
dollar, which would amount to the same thing. A fiat currency cannot be born
out of nothing; it has to have a �parent� and in our times, that parent must
be, in the last analysis, the fiat dollar.
The same principle prevails in the case of the dollar.
The existence of fiat currencies depends on their ability to acquire dollars.
In the case of the fiat dollar, the dollar will continue to exist as long as
dollars can be used to acquire gold.
The condition under which no quantity of dollars can acquire a gram of
gold, is known as �permanent backwardation�. (There will
always be individuals who will be disposed to part with a small quantity of
gold, in exchange for dollars or other fiat currencies. But the purchase of
gold in quantity can only be done on world markets, and while �backwardation�
is temporary. This possibility disappears when �backwardation� becomes
permanent).
In �backwardation� � which has presented itself momentarily, in recent
times � gold goes into hiding (its owners do not wish to part with it) and in
the markets there has been no one willing to purchase gold for future
delivery, even though its future price is lower than the price of physical
gold for immediate delivery. So far, this condition has been temporary and
not permanent.
When �backwardation� imposes itself permanently, the dollar is finished.
The process will be as follows: at some future date, gold for future
delivery will cost less than gold for immediate physical delivery, that is to
say, it will be in �backwardation�. However, the normal condition, which is
called �contango� and which is the opposite of �backwardation�, will not be
re-established. The price of gold for future delivery will stagnate at a low
price � apparently very attractive � but the price of physical gold for
immediate delivery (�spot� gold) will begin to rise. �Backwardation� will not
disappear because the world wants physical gold, received in hand at the
moment of payment, and not a promise of future delivery of gold.
When the price of physical gold for immediate delivery is superior to the
price of gold for future delivery, and this condition becomes permanent,
it will mean that the dollar is no longer acceptable: the price of
future gold may be extremely cheap, but the market is not interested in that
offer, because the market wants physical gold in hand, immediately.
The price of physical gold for immediate delivery � �spot� gold � will
rise to the thousands and thousands of dollars, and the �backwardation� will
remain permanently. Finally, the price of gold in dollars will be so high
that there will be no further quote in dollars � or in any derivative of
dollars, of course.
The dollar will have died.
When the economic and financial crisis in the world explodes � as it will
have to explode � the reaction of States around the world will have to be to
print up enormous quantities of fiat money, because that is all they know how
to do.
This will give rise to a huge run into gold from the dollar and every
derivative of it.
This will bring about �permanent backwardation� of gold and will put an
end to the world-wide empire of the fiat dollar.
It will then not be possible to obtain gold except by the delivery of
things or of services in exchange. In other words, gold will once again be
the money of the world.
When will this happen? It is not possible to predict a date. All we can
note is that the total of world debt calculated in fiat dollars is now
astronomical; since the financial debacle of 2007-2008 world debt has not
been paid down, on the contrary, it has been increasing by leaps and bounds
and is absolutely unpayable. So the situation today is even more critical and
unstable than it was six years ago, and an economic and financial collapse is
inevitable, sooner or later.
