Trade bloc considers gold-backed currency to challenge US dollar.
Is a Gold-Backed Currency on the Horizon for BRICS Nations?
They say all that glisters isn’t gold. But for some countries, gold represents a step toward divesting from U.S. dollar reliance.
An emerging trade bloc of nations including Brazil, Russia, India, China, and South Africa—commonly known as BRICS—has created international rumblings over the possible announcement of a gold-backed currency at its annual summit this year.
To be hosted in Johannesburg, South Africa, between Aug. 22–24, the BRICS conference will reportedly address criteria for new member applicants and an expansion agenda.
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Presently, 22 countries have applied to join the trade bloc.
“Twenty-two countries have formally approached BRICS countries to become full members. There’s an equal number of countries that have been informally asking about becoming BRICS members,” South Africa’s BRICS ambassador, Anil Sooklal, told reporters in July.
Among the new membership hopefuls are Iran, Saudi Arabia, Argentina, and the United Arab Emirates, according to Sooklal.
But the most surprising item on the summit’s agenda is the alleged discussion of a common currency. Comments from Russian officials have ignited international buzz on the run-up to the summit.
A spokesperson at the Russian Embassy in Kenya stated, “The BRICS countries are planning to introduce a new trading currency, which will be backed by gold,” which was initially reported by RT News on July 5.
Following that, after July’s Russia-Africa summit, Aleksandr Babakov, the Russian State Duma Deputy Speaker, reiterated the sentiment and said BRICS and other African nations are developing a common currency to challenge the U.S. dollar.
“This is not the RMB yuan and not the ruble. There are already certain formulations. The name is not important, but it should be an analogue of the dollar,” Mr. Babakov said.
“After all, the BRICS, in terms of its potential today, is greater than the G7. That is, the potential of the market where this currency can function is very wide. There are no reasons to be tied to the dollar.”
Some commodity experts and economists say a shared currency for the trade bloc—particularly one backed by gold—could threaten U.S. dollar dominance. However, there are significant hurdles the ambitious BRICS nations need to address first.
Double-Edged Sword
“A common currency for BRICS is an idea as attractive as it is complex. A lunch meeting with BRICS central bank representatives years ago left me pondering the real challenges in making it a reality,” Michael Barton told The Epoch Times.
Mr. Barton is a financial adviser and senior contributor for Wallet Savvy. He noted the diverse economic makeup of the BRICS nations, coupled with varying inflation rates and delicate trade balancing acts, present significant hurdles to the dream of a common currency.
That said, he thinks the allure of self-sufficiency and increased negotiating power could motivate participating countries to take a shot at the gold.
“A shared currency would have to navigate governance hurdles and potential resistance from individual economic allies. BRICS’ strength indeed lies in their diversity, but when we talk about a unified currency, this strength becomes a multifaceted challenge. The sword of diversity is sharp on both sides,” Mr. Barton said.
And there’s already opposition within the bloc to a shared currency.
The same week the Russian Embassy created a stir with its comments, India’s External Affairs Minister, S. Jaishankar, told reporters at a press conference that his country has no intention of supporting a BRICS currency.
Instead, Mr. Jaishankar said India is prioritizing strengthening the rupee.
When queried on a list of topics for the BRICS summit, he replied, “On what we will discuss at the BRICS meeting, we’ll have to see because there are many other issues—but there is no idea of a BRICS currency.”
Contradicting statements aside, there’s evidence member nations are giving serious consideration to a gold-backed currency.
The Golden Ticket
This year, central banks have been purchasing gold at a record pace, and BRICS countries are among the top buyers. In the first two months of 2023, China, Russia, and India all increased their gold holdings at an astonishing rate.
Gold bullion purchases in China topped out at nearly 40 tons, while Russia weighed in at 31.1 tons. India also bought 2.8 tons. China added to its gold reserves for eight consecutive months as of July this year.
At the end of the day, the BRICS nations share an essential common ground: a deeply rooted desire to shift away from using the U.S. dollar.
A recent U.S. investor’s report noted, “For the first time ever, BRICS countries’ share of the global economy has surpassed that of the G7 nations … on a purchasing parity basis.”
Financial expert Andrew Lokenauth told The Epoch Times, “A gold-backed currency would likely have a significant impact on the U.S. dollar as the global reserve currency. If BRICS countries began using a gold-backed currency for trade, it would reduce their reliance on the U.S. dollar.”
Mr. Lokenauth has worked for top Wall Street firms and founded TheFinanceNewsletter.com. He believes a BRICS currency could lead to an overall decline in U.S. dollar value since it wouldn’t be as widely used.
“Additionally, a gold-backed currency would be more stable than the U.S. dollar, which is often volatile due to political and economic factors. This could make it a more attractive option for countries looking for a safe and reliable currency to hold,” he said.
That said, Mr. Lokenauth added a lot stands between the idea and the successful implementation of a shared currency. Financial insider and senior contributor at MoneyInc., Andrew Gosselin, seconded this.
“The idea of a common currency is fascinating, but let’s not forget the European Union’s experience. The Euro has its own set of challenges. With BRICS, you’re dealing with culturally, politically, and economically diverse nations,” Mr. Gosselin told The Epoch Times.
He said that, beyond huge logistical challenges, there are matters like national pride, regulatory controls, and individual priorities to consider.
“Take Brazil’s agricultural sector or India’s IT industry; they have different needs. A one-size-fits-all approach? Unlikely.”
Still, Mr. Gosselin admits that even the whisper of a gold-backed BRICS currency would have ripples in the international community. Particularly for the United States.
Financial, economic, and political analysts generally agree that attempts to circulate a common currency among the BRICS nations has the potential to threaten the U.S. dollar—keyword, potential—but the impact would likely be a long-term by-product. Not overnight.
Western think tanks have also labeled a potential BRICS currency as a critical stepping stone for China’s “de-dollarization” plan to uproot U.S. economic and geopolitical hegemony.
The announcement of a shared currency for the trade bloc has a long road ahead, but short-term economic and market waves are still possible.
“Back when I was deeply engrossed in my work at Cargill Investor Services, the pulse of currency dynamics had my full attention. It’s here that I realized the real fragility of finance and how a mere suggestion of change can stir the calm waters of the global economy,” Mr. Barton said.
Mr. Lokenauth, Mr. Gosselin, and Mr. Barton agree that merely mentioning a gold-backed currency would likely create a spike in the metal’s price point.
“This is because investors would see gold as a more attractive investment, as it would be backed by a basket of currencies from major economies,” Mr. Lokenauth said.
And though the U.S. dollar hasn’t hitched its
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