Changes in global trade and financial dynamics have intensified the search for a stable and widely accepted unit of account for international payments. Geopolitical tensions have led to outcomes such as Russia’s exclusion from the Swift payment system, accelerating efforts to find alternatives to the dollar. The BRICS countries are seeking to create a common currency that is partly pegged to gold and partly to a basket of national currencies. The initiative, which relies on distributed ledger technology, has already attracted harsh criticism.
US President-elect Donald Trump has threatened to impose 100% tariffs on BRICS countries if they pursue currencies that challenge the dollar’s dominance. It remains unclear whether he will continue with that policy after taking office on January 20th.
The Brics have undeniable economic power, accounting for approximately 40% of the world’s population, over 30% of the world’s gross domestic product, and slightly surpassing the G7 in terms of economic output. Despite this, both countries’ currencies remain undervalued in global trade, and the dollar dominates foreign exchange transactions.
However, intra-UK trade accounted for 37% of total trade in 2022, an increase of 56% on 2017, underscoring the bloc’s determination to strengthen its financial independence. For Brics Group, a gold-backed digital currency could be a game-changer. Lower transaction costs and reduced exchange rate volatility are among the tangible benefits. If 50% of intra-BRICS trade moved to such a currency, cost savings of 1% to 2% per transaction would add up to billions of dollars. These savings could be reinvested to foster economic growth and increase trade efficiency. DLT provides the transparency, security, and efficiency needed to support such currencies.
By tokenizing gold reserves, each digital unit is backed by a tangible asset stored in a secure vault and regular audits ensure accountability. Smart contracts have the potential to dynamically adjust currency weightings to reflect trade patterns and economic conditions. This enables real-time settlement, reduces delays, and fosters trust among participants. Such a system could even attract outside countries seeking alternatives to the dollar-dominated network, potentially increasing the BRICS bloc’s global trade share beyond its current 18%.
Several elements of this vision have been introduced. As of mid-2024, BRICS countries collectively held 5,700 tonnes of gold, equivalent to 16% of global reserves. Over the past two decades, these foreign exchange reserves have tripled, reflecting efforts to reduce dependence on the dollar and strengthen the country’s fiscal stability. However, the balance of gold power remains heavily skewed towards the G7 countries, which hold a total of 17,500 tonnes, or 49% of the world’s reserves.
Although we can see some potential benefits of gold-backed digital currencies, implementation is not easy. Alongside investment in technological infrastructure, effective coordination between Brics countries is needed. Geopolitical obstacles such as potential sanctions and tariffs add further complexity. Nevertheless, the Brics group, with its strategic gold reserves and economic clout, is likely to continue promoting ideas that reshape global finance and provide an alternative to the dollar-centric order.
Alexej Jordanov is a content architect at GoldRepublic.
This article was featured in OMFIF’s 2024 report “Gold and New World Disorder.”
