BRICS Gold Currency: Is the Gold Standard Coming Back?

The dollar is still the world's reserve currency - Image credit: Unsplash/ Giorgio Trovato

In early July, the Russian broadcaster RT reported that the BRICS countries Brazil, Russia, India, China and South Africa are planning to introduce a common gold-backed currency.

At the next BRICS summit in South Africa in August, the countries want to announce details of the new currency. The interesting thing about the rumors so far is certainly that the BRICS currency will be backed by physical gold.

Target de-dollarization

The U.S. dollar is the leading currency in international payments. Not only gold is quoted in U.S. dollars, but above all the trade of oil in dollars, "petrodollars," cemented the hegemony of the dollar as the world currency. And this status brings enormous advantages to the USA. Not only can the U.S. very generously crank up the printing presses, but the dollar also offers opportunities to put other states under political pressure.

To escape this influence of the United States, countries such as China and Russia have an interest in establishing a "multipolar currency system" and undermining the dollar's status as the world's reserve currency. The proposed BRICS currency would primarily be a step toward achieving this goal.

Gold backed trading currency

However, the BRICS currency is likely to become less of a circulating currency - as coins and bills that citizens hold in their hands - and more of a virtual clearing unit. In other words, it will be a trading currency, similar to the ECU, which can be used to settle major international transactions.

With gold backing, however, the new currency could possibly quickly build up the necessary trust to actually establish itself as an alternative to the "dollar dictatorship. After all, if it is possible to exchange the currency for physical gold at any time, many trading partners would be happy to accept it.

In addition to the namesake BRICS, up to 40 other countries are said to have expressed interest in the new currency alliance, including Turkey, Argentina, Egypt, the United Arab Emirates and Saudi Arabia.

Effects on the gold price

If the BRICS currency is indeed linked to a gold standard, it will also be exciting to see what this means for the global gold price. If the BRICS manage to put pressure on the dollar, this would probably cause the price of gold in dollars to rise massively. The role of gold as a cover for the new BRICS currency would then probably give an additional boost to the price of the precious metal.

Nevertheless, it remains to be seen whether and in what form a BRICS currency will come at all. Much is still speculation at the moment. Even if the introduction is announced at the BRICS summit in August, a new world trade currency will first have to gain acceptance. To this end, the BRICS countries must not only bundle their sometimes very different interests, but also build up a corresponding infrastructure that is as independent as possible. Only then - with or without gold backing - can an alternative currency be successful in the long term.

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