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De-dollarization gaining rapid momentum.
Good bye USD and say hello to BRICS a new currency backed by gold.
The decision comes a month ahead of the BRICS summit to be held in August in Johannesburg, South Africa where the official announcement is expected to be made.
More and more countries are lining-up to join the BRICS group. The list of countries ready to join the BRICS alliance and accept the new currency is growing. From a set of 19 countries in April, the numbers have spiked to 41 by the end of June. A total of 22 new countries expressed interest to enter the bloc. To top of it all, this year’s BRICS summit in South Africa would be big because South Africa has invited heads of state of all African countries to the summit.
A monetary union without fiscal union could be a shock to the global fiat money system. Since mid-2022, central banks worldwide have been buying gold at a historic pace in part to diversify their reserve away from the U.S. dollar. China’s recent gold purchases are seen as an attempt to bring international credibility to the yuan. For making the new currency as good as gold, it must be convertible into gold on demand. It could lead to a sharp devaluation of many fiat currencies vis-à-vis gold, including the BRICS fiat currencies and the result could be high inflation.
Some analysts expect the BRICS currency to challenge the U.S. dollar’s dominance and would bring stability to the global economy. With the Federal Reserve Board on path of monetary tightening, the BRICS new currency could have enormous consequences on the value of the dollar and the knock-on effects have been dramatic. Certainly not what the BRICS wish to achieve.
How many BRICS nations have the gold to back a currency meaningfully? So against the gold stock, a bank could, say, grant financing loans to exporters, and issue the new currency? Would the BRICS exports will be sold against the new currency and/or gold? Who would be the gold’s custodian? Whom to trust? So many question so little answers. It is too early to come up with a final conclusion where this will lead us to without relevant details.
