Are They Setting Up A New Silver Monetary System? My Thoughts.

Key Concepts

• De-dollarization: The process of reducing reliance on the US dollar in international trade and finance.
• Bi-metallic Standard: A monetary system valuing currency in terms of both gold and silver.
• Strategic/Critical Minerals: Minerals essential for modern technology, defense, and industrial applications, with supply chains vulnerable to disruption.
• Fabrication Demand: The demand for a commodity (like silver) driven by its use in manufacturing and industrial processes.
• Sovereign Accumulation: Central bank purchases of a commodity as part of national reserves.
• Comex Pricing: The spot price of commodities traded on the COMEX (Commodity Exchange) exchange.
• Structural Deficit: A consistent shortfall in supply compared to demand for a commodity.

India-Russia Trade & The Rise of the AED-CNY Loop

The discussion centers around a Twitter thread by macrobsil analyzing a potential shift in the global monetary system, triggered by the challenges faced in India-Russia trade following Western sanctions in 2022. Initially, Russia rejected payment in Indian Rupees (INR) due to their limited international convertibility. This led to a workaround: India began paying Russia in United Arab Emirates Dirhams (AED), which Russia then converted to Chinese Yuan (CNY). China, in turn, uses the CNY to purchase physical silver from Russia. This creates a triangular settlement loop bypassing the US dollar. The key point is that the AED is liquid, freely convertible, and strategically important, making it a viable intermediary currency. Mike notes this isn’t a complete replacement for the dollar, as it’s limited by the volume of oil China buys, but represents a significant “nail in the coffin” of the global dollar standard. He references his earlier “Nails in the Coffin” series, highlighting the gradual erosion of the dollar’s dominance.

Silver’s Correlation with the INR-CNY Exchange Rate

A key observation highlighted in the macrobsil thread is a recent correlation between the price of silver and the Indian Rupee (INR) – Chinese Yuan (CNY) exchange rate, beginning around July 2024. The thread posits this indicates sovereign accumulation of silver by India and Russia, outside the traditional dollar system. However, both Mike and Allen express caution about interpreting correlation as causation. Allen points out that numerous macroeconomic factors are currently influencing prices, making it difficult to isolate the impact of this currency pair. Mike also questions the timing of the correlation as presented in the original chart, suggesting it’s more pronounced after a later period.

Doubts Regarding Comex Pricing & Silver Detachment

The thread claims silver has detached from COMEX pricing, tracking settlement currency flows instead. Mike disputes this claim, stating that COMEX spot prices still reflect the current market price of silver. He acknowledges this could change in the future, signaling a more significant shift in the silver market.

India’s Silver Import Duty Cut & Russia’s Sovereign Silver Purchases

In July 2024, India slashed its silver import duty from 15% to 6%. Macrobsil interprets this as a deliberate move to encourage domestic silver accumulation as a hedge. Mike questions whether this policy shift directly impacts the India-Russia trade loop, as the trade itself would likely be duty-free. He suggests the duty cut may be aimed at increasing silver holdings within India, potentially for government control.

Further supporting the narrative, Russia’s 2025-2027 federal budget includes allocated funds (approximately $500 million annually) for purchasing critical minerals, including silver – a first in Russian history. This confirms silver’s emergence as a sovereign reserve asset.

Silver as a Strategic & Monetary Metal

The discussion emphasizes silver’s dual role as both an industrial metal and a monetary metal. Allen highlights the increasing importance of silver as a “strategic mineral” due to its essential role in emerging technologies like electric vehicles, AI, and solar panels. Mike points to the historical depletion of silver stockpiles and the long lead times for new mine development, creating a structural deficit in supply. He predicts this deficit will likely persist into the 2030s, driving up prices. The conversation also touches on the historical recovery of silver from photographic processes, a supply source that is diminishing.

Fabrication Demand & Future Outlook

Analysis of a chart depicting silver fabrication demand reveals a volatile pattern. While photography demand has declined, demand from electronics, batteries, and solar panels is increasing. Both speakers anticipate significant growth in demand from these sectors, particularly with the expansion of AI and electric vehicle production. Mike emphasizes that the fundamental supply-demand imbalance will inevitably drive silver prices higher.

Gold vs. Silver & Accumulation Strategy

Concluding the discussion, Mike states his belief that “who owns the gold makes the rules.” He is actively accumulating silver, anticipating a 20:1 or even 10:1 ratio of silver to gold. He believes silver has the potential to outperform gold significantly, potentially by a factor of seven, even if gold itself appreciates in value. This suggests a strategic investment approach focused on silver’s potential for greater percentage gains.

Conclusion

The discussion presents a compelling case for a potential shift in the global monetary landscape, driven by de-dollarization efforts and the increasing recognition of silver as a strategic asset. While acknowledging the complexities and potential for misinterpretation of the data, both Mike and Allen agree that silver is experiencing a resurgence in importance, fueled by both sovereign accumulation and growing industrial demand. The conversation underscores the importance of understanding the interplay between geopolitical events, economic trends, and commodity markets, and highlights silver as a potentially undervalued asset with significant upside potential.