It seems like there is a lot of discussion these days about taking out the USD as the global reserve currency. We are in a period where all are complaining about it.

What is ironic is that the USD isn't the reserve currency, a point we will get to in a moment.

In the meantime, let us analyze some of what is taking place.

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BRICS Want The Own Currency

Many are familiar with term BRICS. For those who are not, this stands for Brazil, Russia, India, China, and South Africa. This is an alliance of developing countries designed to build an economic and financial center.

At their summit, the idea is being floated to create a currency that will rival the USD and the SDR from the IMF. This is what the BRICS feel is the solution to some of their issues. They feel beholden to the United States and are looking to get out from under their control.

One of the biggest challenges, other than what was mentioned before, is the fact that setting up a reserve currency is not something that happens overnight. A lot more goes into it other than just claiming you have one. After all, isn't that what we see in cryptocurrency? Many feel that throwing something out there is all it takes.

Sadly, it does not that the leaders of these countries understand the monetary system any better than those in crypto. For this reason, they are equally off-base.

Misguided Focus

While the attention is on the USD, the true currency that runs the world, for better or worse, if the Eurodollar. This is a system designed by the international banking system to the exclusion of governments and central banks. Included in this coalition are the banks from the BRICS also.

It might be to leaders such as Putin and Xi to talk to their bankers. They would tell them how things truly work.

The reality is the system that was created, only uses the USD as a unit of account. There are no actually dollars in the system. This is all done based upon the banks' balance sheets. That is what runs the entire system.

Therefore, if there is an attack on the USD, it is aiming at the wrong target. The bankers took control of money long ago. In turn, the US Government is as impotent in this areas as are the BRICS.

Nevertheless, the tentacles of this system, which does push some value back on the USD, is enormous.

More Than Just Flipping A Switch

Throughout our conversations about stablecoins and what it takes for something to become viable, we see the same situation with the BRICS. If they want to produce a new "reserve" currency, they are going to have to do a lot.

Again, this is more than simply creating the currency and proclaiming it as a competitor.

We also have to be mindful of where the power of the USD comes from, even if it is mostly as a unit of account. Most want to focus upon payments which is only a piece of the puzzle.

This leads people to believe that the USD's power comes from the mythological "petrodollar". It is a notion that stems from the belief the USD's value came from a commodity such as the Gold Standard. Thus, many still feel that it has to some type of commodity basis for people to want to use it.

Sadly, this is a complete misunderstanding of monetary history. The USD tied to the Gold Standard but you had US banks issuing convertible notes which provided the money elasticity. At the same time, you had the global banking system creating an entire network of money creation outside these bounds.

Ultimately, the power of the dollar (or Eurodollar) stems from the depth, liquidity, sophistication, and infrastructure. It takes decades for this type of development to roll out. Of course, this is the problem that stablecoin adoption faces. We are looking at years of infrastructure before other aspects can be even approached.

Bigger Problems Than Just Currency

The biggest challenge with this entire situation is all these countries are going to have major problems going forward.

To start, both Russia and China have major demographic issues. Over the next 20 years, the time it will take to develop a reserve currency, their populations are going to fall off a cliff. This is likely to cause major economic upheavals, as they scramble to convert their economies in an era of less people.

At the same time, globalization is seeing a pullback. There is little doubt that production is going to be closer to consumption. This means exporters are going to have issues. That really affects China and Brazil.