- Putin’s ambitious push for a gold-backed currency among BRICS nations poses a substantial challenge to the dominance of the US dollar.
- However, the endeavor, deeply rooted in geopolitics and fraught with inherent challenges, appears more complicated than it seems.
As part of an effort to challenge the hegemony of the US dollar, the BRICS nations—Brazil, Russia, India, China, and South Africa—are contemplating launching their own gold-backed currency. Spurred by Russia, this move is seen as a response to the power wielded by the US over the international financial system, underscored when Russia’s foreign dollar reserves were frozen amidst its military actions against Ukraine.
The Quest for Monetary Independence
The conception of this new gold currency is straightforward: break free from the perceived shackles of the US dollar’s dominance. For countries with strained relations with the US, the dependency on the existing primary currency has become painfully evident. Exploiting the current unrest in the foreign exchange sector, these nations aim to press the accelerator on this initiative.
However, the credibility of a currency relies on trust. And trust in the BRICS nations, particularly Russia, has been rather wobbly. To build confidence, these nations propose backing their currency with gold—an anchor that raises numerous questions. How will the currency be gold-backed? Can it be exchanged for gold at any time? What control will the BRICS nations have over the gold through their newly established financial institution? Answers remain elusive.
Constructing a Multi-National Gold Currency Regime
Developing a gold currency regime involving multiple countries is a Herculean task. Balancing the interests of each BRICS nation in such an endeavor is complex. Not every state is equally influential—China holds considerable sway, whereas South Africa might find it much more challenging. Moreover, the BRICS nations are not a homogenous group; for example, India would not willingly acquiesce to China’s dominance.
Furthermore, the internal stability of some BRICS nations, notably Russia, raises significant questions. China, despite its eagerness to check the US dollar, is unlikely to blindly accept every risk, especially when it is seeking to expand its digital central bank currency (CBDC), a goal potentially at odds with the BRICS gold currency.
Assuming all criticisms are surmounted, and the BRICS gold currency emerges triumphant, there remains the potential of becoming a victim of their own success. The BRICS gold currency would primarily serve as a supplementary international currency to the nations’ own. As such, if it became an export hit, it could lead to a backflow of funds from local currencies like the ruble and renminbi to the gold currency, potentially instigating a new debt crisis due to depreciation.
Bitcoin Over Gold?
If the BRICS nations’ objective is a payment infrastructure independent from the US dollar, Bitcoin might be a more straightforward solution. Unlike gold with its physical limitations, Bitcoin is a digital native—less prone to fraud and devoid of the need to trust an institution or country for its management.
At first glance, a gold-backed currency may seem appealing, but the prospect of the BRICS gold currency posing a serious threat to the US dollar is slim. The new gold currency could merely be a fanciful idea from the Kremlin, not unanimously welcomed by every BRICS state. This could explain why, so far, only Russia Today and pro-gold sites have presented the BRICS gold currency as a done deal.