Russian President Vladimir Putin has announced that the BRICS countries – Brazil, Russia, India, China, and South Africa – are setting up a new gold-backed global reserve currency that experts warn could dethrone the dollar.
“The issue of creating an international reserve currency based on a basket of currencies of our countries is being worked out,” he said at the BRICS business forum.
According to the Russian president, the member states are also developing reliable alternative mechanisms for international payments.
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Earlier, the group said it was working on setting up a joint payment network to cut reliance on the Western financial system. The BRICS countries have been also boosting the use of local currencies in mutual trade.
Thorsten Polleit, chief economist at Degussa, said that while the announcement is a step in the right direction, there is still a long way to go to become 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 US dollar’s hegemony,” he said in an exclusive comment to Kitco News.
However, Polleit added that the devil is in the details. “For making the new currency as good as gold, a truly sound currency, it must be convertible into gold on demand. I am not sure whether this is what Brazil, Russia, India, China and South Africa have in mind,” he said.
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“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.”
Polleit added that another option would be for the BRICS nation to create a new bank for financing foreign trade that would require holding gold as capital.
