New proposed BRICS Gold-backed Currency Unit

BRICS Gold-backed Currency Unit

In recent months, speculation about the creation of a BRICS common currency—often referred to as the BRICS Unit—has been mounting. Internet sleuths and some Russian officials have suggested that this new currency could be digital and gold-backed. Adding to the buzz they explored possible approaches to a BRICS payment system.

However, Russia tempered expectations, noting that while digital currencies were being explored, the time for a BRICS common currency had not yet arrived.

Is a BRICS Currency Possible?

Some financial analysts point to the euro’s creation in 1999 as a precedent for a possible BRICS currency. However, such a move would require years of preparation, including the establishment of a new central bank and the phasing out of each nation’s sovereign currency. It would also likely need support from the International Monetary Fund (IMF) to be viable on a global scale.

There are significant obstacles to overcome, including Russia's weakened economy due to the ongoing Ukraine conflict, China’s ambitions to elevate the Yuan’s global standing, and the economic disparity between BRICS members. These challenges complicate the path to a unified currency.

Would a BRICS Currency Be Gold-Backed?

While President Putin has suggested that hard assets like gold or oil could back the currency, many analysts believe it would be based on a basket of BRICS currencies instead. Notably, some experts has backed gold-backed BRICS currency could work. If a BRICS currency was tied to gold—say, 1 ounce of gold equals 1 BRICS Unit—its value would rise with the price of gold, which experts predicts could reach US$3,000 per ounce. However, this wouldn't represent a return to the traditional gold standard or spell the end of the US dollar or Euro.

How Much Gold Do BRICS Nations Have?

As of Q2 2024, the BRICS nations (including Egypt, a new member) hold over 20% of the world's central bank gold reserves. Russia, China, and India are among the top 10 nations with the largest gold holdings, collectively holding thousands of metric tons of the yellow metal. Russia ranks fifth with 2,335.85 metric tons (MT), China sixth with 2,264.32 MT, and India eighth with 840.76 MT. Brazil and South Africa have more modest reserves, while Egypt holds 126.57 MT. This Gold holding is by Central Banks & Government and not private Gold Holdings.

Why Do the BRICS Nations Want a New Currency?

The BRICS nations—Brazil, Russia, India, China, and South Africa and 6 new members—are seeking to establish a new currency as part of their long-standing ambition to reduce dependence on the U.S. dollar and create a more multipolar global financial system. This move, often referred to as "de-dollarization," has gained momentum in recent years, driven by a combination of geopolitical, economic, and strategic factors. At the core of this push is the desire for greater financial autonomy and a rebalancing of global power away from the Western-dominated monetary order. The BRICS countries have a host of reasons for wanting a new currency:

1. Reducing Dependency on the U.S. Dollar: The U.S. dollar has been the world’s dominant reserve currency for decades, facilitating the vast majority of global trade and financial transactions. Around 90% of currency trading and the majority of international oil transactions are conducted in U.S. dollars. This dominance gives the U.S. significant influence over the global financial system, allowing it to enforce sanctions and control access to critical resources through its financial network. For BRICS nations, this heavy reliance on the dollar creates vulnerabilities. Events like the freezing of $300 billion of Russian currency reserves in 2022—an action taken in response to Russia's invasion of Ukraine—highlight how dollar dominance can be weaponised for political purposes. Russia's President Vladimir Putin described this move as an "act of theft" and economic warfare. Similarly, other BRICS members see the creation of an alternative currency as a way to shield themselves from U.S.-led sanctions and financial control, giving them greater sovereignty over their economies.

2. Building Economic Independence: A BRICS currency would allow these nations to conduct trade amongst themselves using their own currencies, bypassing the dollar entirely. This could be particularly useful in the energy, commodities, and technology sectors, where BRICS countries are major global players. By creating a system that no longer depends on the dollar for invoicing or settlements, BRICS nations hope to insulate themselves from U.S. economic policies, which often have global ramifications. For instance, fluctuations in U.S. interest rates or inflation can significantly affect global markets, including those of the BRICS nations. By shifting to a BRICS currency, they aim to reduce the ripple effects of U.S. economic decisions on their economies, enabling more stable and predictable trade and investment flows.

3. Promoting Multilateralism and a Multipolar World Order: One of the key motivations behind the BRICS push for a new currency is the desire to create a more balanced and equitable global financial system. Currently, the international monetary system is largely dominated by Western institutions such as the International Monetary Fund (IMF) and the World Bank, which set the rules for global trade and finance. These institutions often impose conditions that favor Western economies, leaving emerging markets with limited bargaining power. The creation of a BRICS currency could be seen as a step toward establishing a multipolar world order, where no single nation or currency holds disproportionate power. By asserting their economic clout—BRICS countries collectively account for around 37% of global GDP—these nations aim to reform the financial system in a way that better reflects the realities of a more interconnected and diversified global economy.

4. Challenging Dollar Dominance in Commodity Markets: BRICS nations, particularly Russia, Brazil, and South Africa, are major exporters of commodities such as oil, gas, wheat, and metals. Currently, most global commodities are priced and traded in dollars, giving the U.S. significant control over the global supply chains. A BRICS currency, potentially backed by gold or other commodities, could challenge this hegemony by introducing a new standard for pricing and trading key resources. For instance, Russia has proposed the creation of a BRICS grain exchange, with the potential to expand into oil, gas, and metals. This initiative could lead to the pricing of these commodities in a BRICS currency rather than the U.S. dollar, thereby reducing the dominance of the dollar in global commodity markets and providing more predictable pricing mechanisms for BRICS exporters.

5. Strengthening Regional Influence: By establishing a common currency, BRICS nations could significantly strengthen their regional influence. In addition to Brazil, Russia, India, China, and South Africa, over 40 other countries—including Saudi Arabia, Iran, Argentina, and Indonesia—have expressed interest in joining the BRICS forum or aligning with its economic goals. This growing interest reflects the desire among many emerging economies to reduce their dependence on Western financial systems and seek alternatives that better serve their development needs. A BRICS currency could serve as a tool for regional integration, allowing member countries to conduct trade and investment more seamlessly while minimizing currency risks and exchange rate fluctuations. It would also provide smaller economies with an alternative to the dollar-based financial system, offering them a potential path toward economic growth that is less subject to external shocks from U.S. monetary policy.

6. Mitigating the Impact of U.S. Sanctions: U.S. sanctions have become a key tool in its foreign policy, targeting countries like Russia, China, and Iran. These sanctions often limit access to the U.S. financial system, effectively cutting off targeted nations from the global economy. By creating a BRICS currency and a parallel financial system, BRICS countries hope to insulate themselves from the effects of such sanctions. For example, in 2023, Russia and China conducted about 20% of their oil trades in non-dollar currencies. By expanding this trend, the BRICS countries could further reduce their exposure to the U.S. financial system, allowing them to maintain economic relations even in the face of Western sanctions.

7. Leveraging Gold and Commodities as Backing: A significant point of discussion within BRICS has been the possibility of creating a gold-backed currency. Gold has historically been seen as a store of value and a hedge against inflation, making it an attractive option for countries looking to create a stable alternative to fiat currencies. A gold-backed BRICS currency could enhance its credibility and appeal to international markets, particularly in times of economic uncertainty. Additionally, by using commodities such as oil, gas, and metals to back their currency, BRICS nations could leverage their vast natural resources to increase global demand for their new currency. This would not only strengthen the currency but also increase its use in international trade.

A Complex Balancing Act: While the BRICS nations are united in their desire to create a new currency and reduce dependence on the U.S. dollar, the path forward is complex. The BRICS countries have diverse economic systems and priorities, and they still maintain significant trade relationships with the West. For instance, China’s trade with the U.S. amounts to $700-$800 billion annually, making a complete break from the dollar unlikely in the short term. Nevertheless, the move toward a BRICS currency signals a broader shift in the global financial landscape, one in which emerging economies are seeking to assert their autonomy and reduce the influence of Western powers. If successful, this initiative could mark the beginning of a new era of global economic governance, with a more multipolar financial system at its core

When Will a BRICS Currency Be Released?

There is no official timeline for launching a BRICS currency. Although leaders from these nations have openly discussed the idea, the development of an alternative global currency remains a medium- to long-term ambition. At the 2022 BRICS Summit, President Putin suggested that the bloc was prepared to issue a "new global reserve currency," but nothing concrete has materialized. While some leaders, such as Brazilian President Lula da Silva, have expressed support for the idea, there’s been little progress on its actual implementation.

Will BRICS Have a Digital Currency?

While BRICS does not yet have its own digital currency, plans for a Blockchain-based payment system are underway. Known as the BRICS Bridge multisided payment platform, this system would facilitate settlements between member nations using their central bank digital currencies. This alternative to the US-dominated SWIFT system aims to reduce political interference and provide more cost-effective cross-border transactions.

Advantages of a BRICS Currency

A BRICS currency could streamline cross-border payments, increase financial inclusion, and promote deeper economic integration among its member nations. By leveraging digital currency and Blockchain technology, it could also reduce reliance on the US dollar as a global reserve currency and mitigate the risks associated with global financial volatility.

If successfully launched, such a currency could:

a)????? Strengthen economic ties between BRICS nations

b)????? Reduce the global dominance of the US dollar

c)?????? Encourage the formation of other regional currencies

d)????? Minimize risks stemming from international sanctions and trade restrictions

Despite these potential benefits, the challenges of creating and sustaining a BRICS currency remain substantial. However, continued discussions and efforts by BRICS nations signal their intent to reshape the global financial landscape.

Challenges and Uncertainties

The BRICS nations—Brazil, Russia, India, China, and South Africa—face complex dynamics due to their diverse economies and political priorities. Any move towards a common currency will need to overcome major hurdles, such as disagreements on structure, governance, and reliance on existing national currencies. Moreover, China’s Yuan could dominate the new currency bloc, creating concerns of dependency among non-Chinese members.

Whether a new BRICS currency becomes a reality or not, the financial landscape is set for change, and investors must stay informed to navigate the evolving economic environment.

How would a BRICS currency impact the economy?

The introduction of a new BRICS currency could bring significant changes to the global economy, particularly impacting key sectors in North America. If this currency gains traction, it could influence:

1.?????? Oil and Gas: A BRICS currency used for oil trading would reduce reliance on the US dollar, altering global energy markets.

2.?????? Banking and Finance: USA and international financial institutions would need to adapt to the shift in global currency dynamics, impacting investments and monetary flows.

3.?????? Commodities: A BRICS currency could influence pricing in global commodity markets, with potential new trading benchmarks.

4.?????? International Trade: The introduction of new trading pairs with the BRICS currency could affect international trade contracts and terms.

5.?????? Technology: The tech industry, heavily reliant on global markets, could face disruption in supply chains and cross-border transactions.

6.?????? Tourism and Travel: Exchange rates and international transactions could be influenced by a new BRICS currency, affecting global travel and tourism.

7.?????? Foreign Exchange Markets: New currency pairs and correlations could emerge, increasing market volatility and creating new challenges for forex traders.

Preparing for a BRICS Currency

Investors should consider several strategies to mitigate risk and capitalize on the changes:

a)????? Diversify Currency Exposure: Shift investments into currencies besides the US dollar through bonds, mutual funds, or ETFs.

b)????? Invest in Commodities: Assets like gold and silver offer protection against currency fluctuations.

c)?????? BRICS Equity Markets: Gain exposure to BRICS countries via stocks or ETFs that track their market performance.

d)????? Alternative Investments: Consider real estate or private equity within BRICS nations for further diversification.

These strategies need careful evaluation to balance potential returns with market and political risks.

How Would a BRICS Currency Impact the US Dollar?

A BRICS currency would challenge the US dollar’s dominance, which currently facilitates 90% of currency trading and nearly 100% of oil trades. If BRICS countries move forward, the US dollar could see reduced demand in global markets, accelerating de-dollarization. This would weaken the dollar's standing as the world’s reserve currency and may lead to global economic disruptions, including volatility in forex markets and the weakening of US sanctions.

De-dollarization efforts are already underway, as seen in trade deals between China, Russia, and other nations that bypass the US dollar. While it is uncertain whether a BRICS currency would dethrone the dollar, it could create new alternatives, intensifying competition among global currencies.

Why does BRICS want to de-dollarize?

BRICS is seeking to de-dollarize to reduce its reliance on the U.S.-dominated financial system, which has long given the U.S. significant economic leverage over the rest of the world. By moving away from the dollar, BRICS nations—Brazil, Russia, India, China, and South Africa—aim to establish greater financial independence, asserting their sovereignty in global economic affairs.

The push for de-dollarization has been in motion since 2010, but it accelerated significantly in 2022 when Russia faced extensive international sanctions. In response to Russia's invasion of Ukraine, its foreign reserves, worth $300 billion, were frozen. Russian President Vladimir Putin viewed this as an act of economic warfare, reinforcing the urgency for BRICS countries to create an alternative financial system, which has fueled speculation about the development of a BRICS currency.

The fundamental goal is to lessen dependency on the U.S. dollar, particularly in trade and international transactions. However, de-dollarization is complex. Despite growing interest, BRICS members maintain substantial economic ties with the West, especially China, which has trade with the U.S. valued at $700–$800 billion annually. This complicates efforts to fully break away from the U.S. dollar without jeopardizing these critical relationships.

While the idea of a BRICS currency is gaining attention, there’s uncertainty about its immediate launch. Some believe that Russia, and particularly Putin, could be using these discussions as strategic leverage, potentially seeking to catch global markets by surprise, similar to how he managed prelude events before the Ukraine invasion. Whether BRICS will fully de-dollarize or establish its own currency remains to be seen, but its growing momentum signals an evolving shift in the global financial landscape.

Reactions from BRICS Leaders on Proposed Single Currency

At the 2024 BRICS Summit in Kazan, Russian President Vladimir Putin unveiled a symbolic banknote for a single BRICS currency, a gesture aimed at showcasing the group's intent to shift away from the U.S. dollar. The note was described as "very native and grand," representing a potential game-changer in global financial systems. The proposed gold-backed BRICS currency is designed to assert the economic independence of BRICS members and challenge the dominance of the U.S. dollar, which currently accounts for around 90% of global currency trading. Notably, in 2023, one-fifth of oil trades were conducted in non-dollar currencies, signaling a shift in international financial dynamics.

Global Interest in BRICS Expansion

Over 40 countries, including economic heavyweights like Saudi Arabia, Iran, and the United Arab Emirates, have expressed interest in joining BRICS. This reflects the group's growing influence, as it already accounts for 37% of global economic output. BRICS leaders anticipate that their influence will continue to grow, with common projects such as a BRICS grain exchange and a cross-border payment system on the horizon. Putin emphasized the group’s projected economic growth of 3.8% for 2024/25, which outpaces the global average of 3.2-3.3%.

Key Proposals from the Summit

Putin's proposal for a BRICS grain exchange, to be expanded later to trade other major commodities like oil and metals, received widespread support. The initiative aims to establish fair and predictable pricing, particularly for food security, with the Kazan Declaration endorsing it. Russia, as the world's leading wheat exporter, sees this as a vital step in reshaping global trade mechanisms.

Local Currencies in Cross-Border Payments

India’s Prime Minister Narendra Modi welcomed the BRICS initiative for financial integration, advocating for the use of local currencies in cross-border transactions. Meanwhile, Chinese President Xi Jinping called for deeper financial and economic cooperation among BRICS nations. The leaders underscored the necessity of reducing reliance on the U.S. dollar and promoting national currencies in trade.

Brazil Calls for De-Dollarization

Brazil’s Foreign Affairs Secretary Eduardo Paes Saboia echoed the call for de-dollarization, emphasizing the need for BRICS members to increase the use of national currencies in their economic interactions. President Lula da Silva, however, had to cancel his participation in the summit due to a minor health issue, but Brazil’s push for an alternative payment system remains strong.

BRICS New Development Bank to Invest Using Member Currencies

Dilma Rousseff, President of the BRICS New Development Bank, announced that the bank would begin using member currencies for investments in the private sectors of BRICS economies. This move is part of the broader strategy to reduce dependency on the U.S. dollar. While the specific currencies have not been disclosed, the Indian rupee and Chinese RMB are strong contenders, especially given China’s ongoing issuance of RMB loans through its Belt and Road Initiative.

Outlook for BRICS and the New Currency

Despite the excitement surrounding a potential BRICS currency, many experts believe the rumors of a gold-backed currency reveal at this summit will amount to little. The process of de-dollarization is complex, and while BRICS is making significant strides toward financial independence, a full-fledged alternative currency is still on the horizon. However, the growing collaboration among BRICS nations, coupled with their collective economic clout, suggests that the global financial order is gradually shifting.

Updates from BRICS 2024 on the New Currency

Leaders emphasise use of local currency, call for greater financial cooperation. The leaders of BRICS nations have reaffirmed their dedication to enhancing financial cooperation and increasing the use of local currencies to foster economic stability and promote development. This commitment was outlined in the Kazan Declaration, titled 'Strengthening Multilateralism for Just Global Development and Security,' The leaders emphasised the significance of improving cross-border financial practices and strengthening economic relationships among member countries. They also highlighted the urgent need to reform the international financial system to ensure it is more inclusive and equitable. Leaders of the nations in the BRICS grouping, which accounts for 37% of global economic output, predicted its influence would grow. Thus, the push for new BRICS currency has been postponed.?