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Series: Global Finance

  • India’s rupee rescue — the fraying, live

    This is post 3 of 3 in the series “Global Finance”

    1. Is there a way out of the dollar?
    2. Why is gold so expensive — and will it stay that way?
    3. India’s rupee rescue — the fraying, live

    This week gave us a live demonstration of everything the first two posts in this series argued. So let’s walk through it.

    India’s central bank, the RBI, just opened a special dollar window for the country’s three big state oil refiners, starting Monday. Translation: instead of letting these giant dollar buyers hit the open market, the central bank will sell them dollars directly. It also tightened the rules on currency derivatives. The reason: the rupee is near its record low, around 97 to the dollar.

    Why is the rupee hurting? Start with the obvious suspect and rule it out: the dollar isn’t surging. The dollar index is flat around 102 — nothing like the 114 panic of 2022. So this isn’t a strong-dollar story. It’s India’s own math plus one very deliberate American punch.

    India’s math: the country imports far more than it exports, and the biggest import is oil. That means a constant outflow of dollars. When foreign investors also pull money out, the rupee slides. Standard emerging-market physics.

    The American punch: the US has stacked 50% tariffs on Indian goods — 25% reciprocal, plus another 25% explicitly as punishment for buying Russian oil. That hits roughly $48 billion of Indian exports. Fewer exports, fewer dollars coming in, weaker rupee. And here’s the thread that connects to this series: a good chunk of that Russian oil is bought outside the dollar system — in rupees, dirhams, yuan. From New Delhi’s seat, this looks like getting punished for stepping outside dollar hegemony. Washington says the motive is Ukraine. The weapon used is dollar-system leverage. The lesson lands the same either way.

    Now the part I keep coming back to: no conspiracy is required. The Fed sets interest rates for Ohio; Mumbai feels it as collateral damage. Tariffs get imposed for domestic politics; emerging-market currencies bleed as a side effect. The system inflicts the pain on autopilot. That’s what hegemony actually is — not a plot, but architecture. A plot would be less scary, because plots end.

    And then the second-order effect, which is the whole thesis of this series: every time the weapon gets used, every central bank on earth learns the same lesson — the dollar system can be turned against you, at any time, for any reason Washington chooses. That’s the 2022 frozen-reserves lesson, taught again through tariffs. The coercion meant to enforce compliance is what accelerates the fraying.

    Finally, this week’s irony, which deserves its own sentence: to defend the rupee, the RBI is spending its dollar reserves. The system forces you to stockpile the very weapon that’s pointed at you. Which is exactly why, as the last post covered, central banks are also stockpiling gold.

    No flip. Just fraying — live, this week, in Mumbai.

    Previously in this series: Is there a way out of the dollar? · Why is gold so expensive — and will it stay that way?

    References

  • Why is gold so expensive — and will it stay that way?

    This is post 2 of 3 in the series “Global Finance”

    1. Is there a way out of the dollar?
    2. Why is gold so expensive — and will it stay that way?
    3. India’s rupee rescue — the fraying, live

    Gold is sitting around $4,200 an ounce today. In January it touched $5,300, an all-time high. A few years ago it was $2,000. So what changed? And the harder question: does it keep going?

    I think there are three engines pushing it up. None of them is hype. All of them are about trust — or the lack of it.

    Engine one: central banks are hoarding.

    In 2022, the West froze about $300 billion of Russia’s dollar reserves. Every central banker on earth watched that and learned the same lesson: dollars can be switched off by someone else. Gold can’t.

    A foreign bond is a promise — some other country owes you money and has to choose to pay. Gold sitting in your own vault depends on nobody’s promise.

    So they started buying. From 2010 to 2021, central banks bought about 470 tonnes a year. Since 2022, it’s been over 1,000 tonnes a year, a record 1,136 tonnes in 2022. It cooled in 2025 to 863 tonnes, but that’s still nearly double the old pace — and their own survey says 9 out of 10 expect the buying to continue.

    And then there’s China: the world’s largest gold producer, its largest consumer, and its largest importer. All three at once. While the West watches the price, China is building the entire system around the metal. The incentive engine under this story is real — this isn’t speculation, it’s countries insuring themselves.

    Engine two: interest rates.

    Gold pays you nothing — no dividend, no interest. “Real interest rate” just means interest minus inflation: what your money actually earns after prices rise. When real rates are high, holding gold costs you. When they fall, gold starts looking good again. A big part of gold’s run is this math quietly working in its favor.

    Engine three: fear.

    Government debts are enormous, deficits keep growing, geopolitics keeps delivering surprises. Gold is the asset you hold when you don’t fully trust anyone’s promises — not a government’s, not a bank’s. Every crisis adds buyers who aren’t coming back soon.

    So will it keep rising?

    Honest answer: the first engine is slow and structural — central banks buy for decades, not quarters. That’s a floor under the price. The other two engines can reverse. Gold is already about 20% off its January high, which tells you the ride isn’t one-directional.

    I don’t predict prices. But here’s the dashboard I’d watch: the pace of central-bank buying, the direction of real interest rates, and whether any oil ever actually settles in gold. As long as those three point the same way, the wind is at gold’s back.

    One more theory — mine.

    There’s a ceiling nobody talks about: space. There’s an asteroid called 16 Psyche, roughly 200 kilometers wide, that might be the exposed metal core of a dead planet. NASA has a spacecraft arriving there in 2029 — pure science, no mining involved. But the idea is real: the solar system holds more gold than humanity could ever dig up, and someday we might go get it.

    Here’s the twist I keep coming back to: asteroid mining would defeat itself. The mission only makes economic sense with gold at $4,000 an ounce. Bring back serious supply and the price collapses — which kills the economics of the mission. And there’s a deeper paradox: gold is valuable because it’s scarce. Make it abundant and central banks stop hoarding it. The very demand disappears.

    So space gold isn’t a coming supply shock. It’s a very-long-term ceiling on the price — and a reminder that everything gold is, is built on scarcity. The day scarcity ends, the story ends. That day is not this decade.

    Who would want the space gold most?

    Here’s a thought experiment. If gold becomes every country’s escape pod from the dollar, wouldn’t America want to grab the space gold for itself?

    America already has the largest gold pile on earth — about 8,100 tonnes. Nobody’s close. But America’s power doesn’t come from its gold. It comes from the dollar plumbing. Gold is the anti-dollar hedge, and America doesn’t need an anti-dollar hedge. It is the dollar.

    So the US wouldn’t grab space gold to hoard it. It would grab the capability — as a threat. If every rival’s plan B is “we’ll park our wealth in gold,” then the country that can credibly say “we could mine an asteroid and cut the price in half” holds a gun to everyone’s hedge. You never fire it. Like nuclear weapons, the power is in the threat, not the use — firing it would torch America’s own 8,100 tonnes too.

    Would Washington even bother? Probably not. Gold hoarding doesn’t threaten the plumbing, and the plumbing is where the real power lives. Countries can stack all the gold they want and still need dollars to settle trade. The escape pod has no engine.

    Unless. If trade ever actually starts settling in gold, reserves become power again — the way dollar clearing is power today. In that world, America would want the biggest pile, just in case. Hedge the hedge.

    And one last twist: announcing a program to monopolize space gold would prove the hoarders right — validating gold as the strategic asset and kicking off a space race with China. The move meant to protect dollar dominance could accelerate exactly what it’s afraid of.

    References

  • Is there a way out of the dollar?

    This is post 1 of 3 in the series “Global Finance”

    1. Is there a way out of the dollar?
    2. Why is gold so expensive — and will it stay that way?
    3. India’s rupee rescue — the fraying, live

    Everyone talks about countries “ditching the dollar.” China buying gold, BRICS making noise, a de-dollarization headline every other month. So let’s ask the question properly, from first principles: can anyone actually leave?

    Short answer: probably not. But the reason why is more interesting than the answer. Because “the dollar” isn’t one thing. It’s a stack of five layers, and you’d have to beat all five at once.

    The five layers.

    One: trade invoicing. Most of the world’s trade — especially oil — is priced in dollars. Two: settlement plumbing. Money actually moves through correspondent banks in New York; SWIFT carries the messages, CHIPS clears the payments. Three: reserves. Central banks park their savings in Treasuries. Four: debt. Emerging markets borrow in dollars. Five: network effects. Everyone uses dollars because everyone else does.

    Take gold: it attacks exactly one of these — reserves. It doesn’t touch the other four. That’s the whole game in one sentence.

    So let’s walk the exits, one by one.

    Exit one: trade in your own currencies. China and Russia settle in yuan and rubles; India and Russia tried rupees. The killer here is the surplus problem. If you sell more than you buy, you pile up the other guy’s currency — and then what? Yuan isn’t fully convertible, China’s bond markets are shallow and state-controlled. You’re holding an IOU you can’t freely spend. And bilateral pipes don’t scale: a yuan-ruble pipe does nothing for Brazil trading with India.

    Exit two: crown a rival currency. The yuan dream. Here’s the trap, and it’s beautiful in a cruel way: to supply the world with your currency, you have to spend more than you earn — permanently. Economists call this the Triffin dilemma. China runs surpluses and loves control. It wants the crown without the costs. The euro already proved that even rich democracies stall at this wall.

    Exit three: settle in gold. Here’s where the theory gets sharper. Gold works for savings, not payments. Modern trade runs on credit — 90-day terms, letters of credit. You can’t do that with bars in a vault. And a BRICS coin? Who issues it, who sets rates, who bails it out? India and China barely trust each other with a border, let alone a central bank.

    Exit four: build rival plumbing. CIPS, mBridge, Russia’s SPFS. Necessary — but pipes without liquidity are empty. CIPS volume is a rounding error next to SWIFT and CHIPS. And dollar plumbing isn’t just pipes; it’s trust, deep markets, and New York courts enforcing contracts. You don’t rebuild that in a decade.

    Exit five: crypto. The loveliest irony in finance: the most successful “alternative money” — stablecoins — are just dollars on a blockchain. Crypto didn’t escape the dollar. It digitized it. Bitcoin itself is too volatile and too slow to price global trade in.

    Exit six: just leave. Shrink your exposure, trade inside your own bloc, eat the efficiency loss. This is Russia right now — oil at a discount, imports through back channels. It works. The price is being poorer than you’d be inside the system. Rational only if you’re already sanctioned.

    The honest theory.

    There’s no clean exit because the system is valuable precisely because everyone uses it. That’s what a network effect is: the moat is the crowd. Breaking it requires one of two things. Either the center does something so reckless that staying becomes scarier than leaving for most countries at once — defaulting on Treasuries, say, or freezing an ally’s reserves. Or someone builds a parallel system patiently for decades until it reaches critical mass.

    Notice that’s exactly what China is doing. Not one exit — all of them at once: CIPS, mBridge, yuan deals, gold hoarding, BRICS. Slowly. Over decades.

    So my theoretical prediction: no flip. A fraying. Dollar still dominant, with yuan corridors and gold reserves and digital bridges around the edges. A multipolar mess, not a new king.

    Next, the other side of this: if nobody can leave the dollar, why does gold keep rising — and will it keep going?

    References

    • World Gold Council, Gold Demand Trends — central-bank reserve data behind the hoarding story