How Geopolitics Could Make Singapore The Most Important Gold Market

Last year I had the privilege to attend a dinner with Mr. Chan Chun Sing, a Singapore Minister from the Prime Minister’s Office.

I brought along a copy of Jim Rickards’s book “Currency Wars” to the dinner. In the book, Jim described his participation in the U.S Military’s first financial war games which were held to study various scenarios that could upset the dominance of the U.S dollar in the global financial system.

During the war games, Russia led a bloc of countries to create a new currency based on a fixed gold ratio which was stored outside of Russian control in neutral Switzerland. Other countries could also obtain this currency by depositing gold in neutral and trusted Switzerland.

Once this currency was established, Russia would stop accepting U.S dollars in payment for their commodity exports, requiring payment in the new currency instead. This would force third party countries to buy gold and sell dollars to get the Russian energy imports they depended on.

If OPEC and China would have joined this system, it would have effectively undermined the dominance of the U.S dollar and inevitably brought about the creation of a new modern gold standard causing gold to appreciate immensely in importance and price.

However, such an “Anchor Currency” would need to be stored in a trusted neutral jurisdiction and be easily audited by all parties to minimize the possibility of “cheating”; be it illicit gold removal, fake gold, or issuing of new currency without the required gold being actually present.

While the war games created interesting scenarios, the establishment of such an anchor currency does not necessarily have to result from financial wars. As the world is accumulating more debt and becoming more leveraged, the next major financial crisis will result in increased calls for a new type of reserve currency that is less prone to be inflated unilaterally by individual countries.

Regardless of what this new currency might be, there will be a need for trusted neutral jurisdictions to act as escrows and keep it all honest. With power shifting increasingly to Asia, I am quite certain that it would not be Europe’s Switzerland with its French, German, Italian cultures but Asia’s globally oriented Singapore, with its Western, Chinese, Indian and Malay cultures which will play an increasingly important role in such a scenarios.