According to state-run international news portal RT, Russian President Vladimir Putin's administration confirmed that Brazil, Russia, India, China and South Africa (BRICS) are set to announce at the BRICS summit in August in South Africa the launch of a new gold-backed trading currency. (Related: BRICS members discuss possible expansion and creation of common currency to challenge US dollar's supremacy.)
BRICS plans to introduce new gold-backed currency
— RT (@RT_com) July 6, 2023
"With the growing initiative, more and more countries are lining up to join the group," the news outlet wrote.
Meanwhile, former journalist Willem MiddelKoop tweeted that 41 countries have applied for BRICS membership.
There You Go - It's Official
'BRICS planning to introduce new trading currency backed by gold at August summit'
'Gold standard will be a great benefit to strengthening single currency'
'41 countries have applied for BRICS-membership'
Source: RT / Russian Embassy pic.twitter.com/zmqOKiXlsa
— Willem Middelkoop (@wmiddelkoop) July 7, 2023
The developing trend of steering away from the American dollar has received various opinions on how it would devastate the dominance of the United States currency. Some suspect China's recent gold purchases are an attempt to bring international credibility to the yuan. President Joe Biden's regime weaponizes its USD against Russia as a form of sanction for invading Ukraine. Of course, this has created some geopolitical uncertainty among some nations allied with Russia.
To others, it is unlikely to replace the dollar and the new gold-backed currency would exist only as an addition to the established dollar-based global monetary system. An official Monetary and Financial Institutions Forum report said, "It will be a regional initiative rather like the euro."
Though a good measure, expert Thorsten Polleit believes steering clear of the USD is still far-fetched. The Degussa chief economist said that while the announcement is a step in the right direction, there is still a long way to go to become a reality. "At first glance, a new transaction unit, backed by gold, sounds like good money and it could be, first and foremost, a major challenge to the U.S. dollar's hegemony," he said in an exclusive comment to Kitco News.
But the devil is in the details, Polleit warned. According to him, to make the new currency as good as gold, a truly sound currency, it must be convertible into gold on demand. He said he was not sure whether this is what BRICS has in mind.
"Using gold as money, the unit of account would be a true game changer, no doubt about it. It could lead to a sharp devaluation of many fiat currencies vis-à-vis the yellow metal (including the BRICS fiat currencies), and it could catapult up goods prices in terms of fiat currencies. It could be a shock to the global fiat money system. I am not sure that this is what the BRICS wish to achieve," he said.
Another option would be for the BRICS nation to create a new bank for financing foreign trade that would require holding gold as capital, Polleit volunteered. "Against this gold stock, the new bank could say, grant financing loans to exporters, and issue the "new currency;" or BRICS exports will be sold against the "new currency" and/or gold," he said. "I think it is fair to say that it is early to come up with a final conclusion where this will lead us to – we need more details."
Chief Investment Officer at Zaye Capital Markets Naeem Aslam mirrors the same sentiment. According to Aslam, the precious metal continues to face short-term challenges and despite the announcement, the world is still far from seeing a gold-backed currency.
"But this doesn't mean this can't be achieved at all," he said. "For now, any additional positive news on this could certainly help the gold price, but more importantly, traders are now going to be focused on the U.S. CPI data, which is due next week."
The Shanghai Cooperation Organization (SCO) member states like the BRICS nations are planning on ditching the dollar eventually, according to the Eurasian political, economic, international security and defense organization's latest virtual 23rd SCO summit on July 4, where a landslide decision to conduct the majority of transactions in national currencies instead of the American dollar, following Iranian President Ebrahim Raisi's proposal, was agreed on.
Raisi warned against the world's dependency on USD in global exchanges and pointed out the importance of de-dollarization to form a just international system. "Based on the experience of the past decades, it is now obvious that militarism and the dominance of the dollar form the bases of the Western domination system," the president stressed. "Therefore, any attempt to shape a fair international system requires the removal of this instrument of dominance in intra-regional relations."
Prime Minister Narendra Modi, who chaired the meeting, Putin, Chinese President Xi Jinping and Pakistan Prime Minister Shehbaz Sharif were all in attendance at the summit.
Read more about how the U.S. dollar is slowly weakening at DollarDemise.com.