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BRICS Faces a Historic Turning Point: Gold or Crypto for Their Common Currency?

Tue 28 Nov 2023 ▪ 8 min of reading ▪ by Luc Jose A.
Getting informed Payment

BRICS member countries plan to launch a common currency for their organization in the near future. As of now, there is no detail on the support for the envisaged currency. Among analysts, there is a debate on whether crypto or gold could be the support. Answering this question is not straightforward. Data shows that crypto has advantages to be considered for the role as the currency base of the BRICS. The same goes for the precious metal, gold. In this analysis, we will attempt to shed light on what’s being said about this.

What support for the BRICS currency between crypto and gold?

Crypto or Gold: A Not-So-Obvious Choice for the BRICS

We know that BRICS are looking to introduce a common currency to the group of countries. Recently, a Russian official has mentioned that this prospect is well on its way to materialize in the near future.

What we still do not know is the form, or the support that will be prioritized(e) to underpin the currency envisaged by the BRICS. But two solutions are emerging as the most probable options. These include gold on one side, and crypto on the other. Which of the two would be chosen?

The BRICS Currency Backed by Gold, a Good Bad Idea?

Experts have tried to highlight the benefits of gold relative to crypto within the framework of the BRICS monetary project. In their view, opting for a gold-backed currency would imply stability and reliability in connection with the universally recognized value attached to the precious metal. The approach eliminates the need for unified fiscal policy or a bond market between the BRICS nations.

However, there is a snag. The option of gold to support the BRICS currency is not so obvious to implement. This possibility seems to run into considerable difficulties. Challenges that make some say that, in fact, the issue by the BRICS of a gold-supported currency is an unfeasible project.

The reason is that the dominance of the US dollar in international transactions, central bank reserves, and commodity trade remains unmatched. This is despite tensions between the United States and some BRICS countries.

It should be known that the economic influence of the BRICS is still overshadowed by their limited contribution to global production and trade. Therefore, some analysts believe that the idea of this new currency becomes thus less relevant. In addition, logistical difficulties related to the management of gold reserves, fundamental differences between the BRICS countries and the necessity of a single central bank constitute major obstacles.

Furthermore, historical facts, particularly the failure of the Bretton Woods system and the downsides of the gold standard, underscore the instability associated with gold-backed currencies. Indeed, studies show that the impact of the gold standard on inflation, economic growth, and financial stability reveals greater volatility than after the Bretton Woods era.

Moreover, a gold-backed currency would also limit the capacity of a central bank to act as a lender of last resort. This weakness could lead to banking panics. Not to mention the limited gold supply, the slowness of extraction rates, and the deflationary pressures that would result would further compromise the viability of such a monetary option. In essence, a BRICS currency backed by gold is seen as futile because it leads to increased volatility and instability in various economic aspects. But the appeal of a currency backed by a crypto cannot be ignored.

Crypto, a Potentially Relevant Support for the BRICS Currency?

In the context of the considerable complexities linked to the deployment of a BRICS currency, crypto appears to be a pragmatic solution. For a good reason, it meets criteria of trust, transparency, and economic diversity.

For analysts, its decentralized nature is an asset that ensures fair competition conditions preventing the domination of a single nation as is the case with the United States today.

Furthermore, its global recognition simplifies trade between the various BRICS economies. This has the advantage of bypassing complexities related to exchange rates. Not to forget that the blockchain technology on which this crypto is based reinforces trust and transparency, reducing the fraud that prevails in the traditional monetary ecosystem.

In addition, opting for crypto would be a unique opportunity to meet the challenge of financial inclusion in the BRICS countries. Digital wallets and peer-to-peer transactions could integrate underserved populations into an economic landscape without extensive banking infrastructure.

Yet, there are obstacles to the issuance of a BRICS currency based on a crypto. These include price volatility and the need for central banks to yield some control. Despite this, experts tend to believe that a well-structured digital currency, designed in collaboration with reputable crypto exchanges, could mitigate these concerns.

Ultimately, the benefits of a BRICS currency based on crypto, including economic efficiency, transparency, and financial inclusion, outweigh the difficulties. Thoughtful design and strategic implementation could make this vision a reality, bringing substantial benefits to the BRICS and their populations.

A Revolutionary Choice Either Way!

As we can see, each asset offers unique benefits. Advantages that the future currency of the BRICS should leverage if it is to be relevant and competitive against the American currency, the dollar.

For some analysts, the shift in favor of gold or crypto as the support for the BRICS currency does not matter much. Because, whether they opt for one or the other, the chosen path will mark a decisive turning point in the history of the global economy.

Indeed, the introduction of a BRICS currency represents a bold step towards dedollarisation. It fundamentally challenges the dominance of the US dollar in the global financial ecosystem. Especially since this decision has the potential to reshape the dynamics of international trade and monetary markets. This would pave the way for a new era of financial cooperation among emerging economic powers.

Conclusion

In conclusion, the decision between crypto and gold as the support for the future BRICS currency remains delicate. While gold offers stability and reliability, logistical challenges and the dominance of the dollar pose major obstacles. On the other hand, crypto presents benefits such as decentralization, transparency, and supports financial inclusion despite the risk of price volatility. A thoughtful deployment and collaboration with relevant crypto exchanges could dampen these worries. No matter the choice, the introduction of a BRICS currency marks a decisive turn towards dedollarisation, which could potentially reshape global trade and monetary dynamics.

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Luc Jose A. avatar
Luc Jose A.

Diplômé de Sciences Po Toulouse et titulaire d'une certification consultant blockchain délivrée par Alyra, j'ai rejoint l'aventure Cointribune en 2019. Convaincu du potentiel de la blockchain pour transformer de nombreux secteurs de l'économie, j'ai pris l'engagement de sensibiliser et d'informer le grand public sur cet écosystème en constante évolution. Mon objectif est de permettre à chacun de mieux comprendre la blockchain et de saisir les opportunités qu'elle offre. Je m'efforce chaque jour de fournir une analyse objective de l'actualité, de décrypter les tendances du marché, de relayer les dernières innovations technologiques et de mettre en perspective les enjeux économiques et sociétaux de cette révolution en marche.

DISCLAIMER

The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.