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Doubts Hover Over BRICS Gold-Backed Currency Proposal
Economist Lyn Alden casts skepticism upon the proposed idea of a shared BRICS currency. The plan, which would unify five major countries, faces scrutiny for its ambitious attempt to displace the dominance of the U.S. dollar.
The idea of an international reserve currency was initially unveiled by the Russian President Vladimir Putin at the BRICS summit in 2022. The proposal announced an aim to outshine the U.S. dollar as the global reserve benchmark through a cryptocurrency anchored by gold.
Critique Against The Proposed System
Alden, however, had reservations about its practicality. She noted, "A gold-anchored fractional-reserve banking system only provides a temporary solution since the currency units proliferate at a rate faster than gold’s growth."
A more probable scenario, according to Alden, could be that BRICS nations decrease their dependence on the USD for cross-border transactions by gradually opting for their national currencies in trade, with the Chinese yuan playing a substantial role.
Former Goldman Sachs economist, Jim O’Neil echoed Alden's skepticism in an interview with the Australian Financial Review earlier this month, referring to the idea as "abstract" and questioning the practicality of launching a unified BRICS central bank.
The Future Outlook
Similar sentiments were resonated by India's foreign secretary, Vinay Mohan Kwatra, suggesting a change in focus to augment commerce with their existing national currencies rather than launching a shared one.
The 15th annual BRICS summit, scheduled to occur between August 22 and 24 in South Africa, will discuss pivotal issues related to the creation of shared currency, BRICS Development Bank, global commerce, and the Russia-Ukraine dispute.
Possible Impacts on Bitcoin Amid U.S. Dollar Dominance
Alden further indicated that potential attempts to undermine the supremacy of the U.S. dollar could indirectly pose challenges for Bitcoin. An uptick in U.S. Treasury yields, irrespective of de-dollarization events, could impact Bitcoin adversely due to the typical underperformance of risk assets under such conditions.
Conversely, Alden postulates that Bitcoin's price may escalate if the Federal Reserve is required to rescue more struggling financial institutions.
A related note worth mentioning is the impending launch of gold-backed digital tokens into retail by the Zimbabwe central bank.
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