They say all that glitters isn’t gold. But for some countries, gold represents a step toward divesting from reliance on the U.S. dollar.
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.
The conference, to be hosted in Johannesburg, South Africa, between Aug. 22 and Aug. 24, will reportedly address criteria for new member applicants and an expansion agenda.
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 purported discussion of a common currency. Comments from Russian officials have ignited international buzz amid the run-up to the summit.
“The BRICS countries are planning to introduce a new trading currency, which will be backed by gold,” a spokesperson at the Russian Embassy in Kenya said, a comment that was initially reported by RT News on July 5.
Since then, Aleksandr Babakov, the Russian State Duma’s deputy speaker, reiterated the sentiment and confirmed that BRICS and other African nations are developing a common currency to challenge the U.S. dollar.
“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.”
Double-Edged Sword
“A common currency for BRICS is an idea as attractive as it is complex,” Michael Barton, a financial adviser and senior contributor to Wallet Savvy, told The Epoch Times. “A lunch meeting with BRICS central bank representatives years ago left me pondering the real challenges in making it a reality.”He noted that 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,” Mr. Barton said. “BRICS’s 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.”
There’s already opposition within the bloc to a shared currency.
During the week that the Russian Embassy created a stir with its comments, Subrahmanyam Jaishankar, India’s external affairs minister, told reporters that his country has no intention of supporting a BRICS currency.
Instead, Mr. Jaishankar said India is prioritizing strengthening the rupee.
When asked about potential 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.”
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 boosted 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 bought 2.8 tons. China added to its gold reserves for eight consecutive months as of July.
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 gold-backed currency would likely have a significant impact on the U.S. dollar as the global reserve currency,” financial expert Andrew Lokenauth told The Epoch Times. “If BRICS countries began using a gold-backed currency for trade, it would reduce their reliance on the U.S. dollar.”
Mr. Lokenauth, who has worked for top Wall Street firms and founded TheFinanceNewsletter.com, believes that 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.
Mr. Lokenauth warned that much stands between the idea and the successful implementation of a shared currency. Andrew Gosselin, a senior contributor at MoneyInc., agrees.
“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 such as national pride, regulatory controls, and individual priorities to consider.
“Take Brazil’s agricultural sector or India’s IT industry; they have different needs,” Mr. Gosselin said. “A one-size-fits-all approach? Unlikely.”
Still, he conceded that even the whisper of a gold-backed BRICS currency would create 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 have the potential to threaten the U.S. dollar—note: potential—but the effect would likely be a long-term byproduct. Not overnight.
While the announcement of a shared currency for the trade bloc has a long road ahead, 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.
Expansion Troubles
An attempted BRICS currency is nothing new. But this year, the concept has gained new momentum amid Russia’s desperation to get out from under U.S. sanctions and an avalanche of new membership applications.Although not all the trade bloc members are excited about expanding. Because with more countries come more power struggles.
Up to this point, Russia and China have been driving the proverbial boat of BRICS.
However, analysts have pointed out that bringing on new members from other authoritarian regimes—such as Iran or Saudi Arabia—will require a wider distribution of power and influence.
And historically, sharing power isn’t something Russia or China have done very well.
Some have attributed this to a fear of losing influence within the bloc and a higher chance of infighting among participating nations.
And that really cuts to the core of any common currency discussion for the BRICS countries. Beyond a mutual desire to displace the U.S. dollar and become an economic “king of the hill,” the member states have little else in common.
Still, analysts warn that the United States shouldn’t shrug off the notion of competition so easily.
“I’ve seen critics dismiss the idea of the BRICS currency as mere fantasy,” Mr. Barton said. “But, in a rapidly evolving world, the economic influence of BRICS could breathe life into this concept. It’s wise to prepare for the unseen ... its very contemplation signals a shift in the global financial landscape.”
