Brics Nations Seek to Dethrone the Dollar with a New Gold-Backed Currency

As the world's economic landscape continues to evolve, a group of emerging economies is poised to challenge the dominance of the US dollar. The upcoming BRICS summit in Kazan, Russia, is expected to be a pivotal moment, as the coalition of developing countries, including Russia, India, China, Brazil, and others, prepares to unveil a new international payment platform that could rival the current fiat money system. At the heart of this initiative is the potential use of gold as a crucial component, signaling a shift towards a more diversified and decentralized global financial order.

Forging a New Financial Future: BRICS' Quest for Autonomy

Undermining the Dollar's Hegemony

Russia, which has faced Western sanctions in response to its invasion of Ukraine, has a vested interest in undermining the dollar's dominance, which currently accounts for around 90% of global transactions. Other BRICS nations, such as China, have also encountered trade restrictions, further fueling their desire for an alternative financial system. By creating a new payment platform, the BRICS coalition aims to bypass the Western-led system and assert greater control over their economic affairs.

Expanding the BRICS Footprint

The BRICS coalition has recently expanded, welcoming new members like Egypt, Iran, and the United Arab Emirates. This expansion underscores the growing influence and ambition of the group, which now represents nearly half of the world's population, one-quarter of global GDP, and approximately 40% of global crude oil production and imports. The inclusion of these additional countries further strengthens the BRICS' collective bargaining power and their ability to challenge the status quo.

Designing a Decentralized Financial System

According to the head of the BRICS Business Council's task force on financial services, Andrey Mikhailishin, the proposed new financial system will be designed with a focus on decentralization and the use of digital technologies. This approach aligns with the broader trend towards decentralization and the growing influence of emerging technologies in the financial sector.

Introducing a BRICS-Backed Currency

At the heart of the BRICS' financial initiative is the creation of a common unit of account that would be pegged 40% to gold and 60% to a basket of BRICS national currencies. This hybrid approach is intended to provide a "convenient and universal instrument" that could potentially weaken the power of American sanctions and challenge the US dollar's dominance as the primary reserve currency.

Diversifying Reserves and Reducing Dollar Dependence

BRICS countries have already begun diversifying their reserves away from American treasuries and towards gold, which they have been accumulating at a faster rate than the rest of the world since 2018. By the second fiscal quarter of 2024, the gold reserves of BRICS countries accounted for more than 20% of the global gold supply held by central banks. This shift away from the US dollar reflects the BRICS' desire to reduce their reliance on the American currency and its associated vulnerabilities.

Overcoming Challenges and Achieving Consensus

The timeline for the rollout of the BRICS financial platform remains unclear, and the founder of the BRICS+ Analytics think tank, Yaroslav Lissovolik, has acknowledged that the expansion of BRICS membership has made the attainment of consensus more challenging. However, the technical feasibility of creating such a system is widely recognized, and the BRICS are determined to present various solutions at the upcoming summit.Ultimately, the success of the BRICS' new financial initiative will depend on its adoption, perceived stability, and its ability to offer a viable alternative to the long-standing dominance of the US dollar. As the world's economic landscape continues to evolve, the BRICS' quest to dethrone the dollar and establish a more diversified and decentralized global financial order will undoubtedly be a closely watched development with far-reaching implications.