The shifting dynamics of global trade and finance have intensified the search for a stable, universally accepted unit of account for international settlements. Geopolitical tensions, leading to results such as Russia’s exclusion from the Swift payment system, have accelerated efforts to find alternatives to the dollar. The Brics nations are exploring the creation of a common currency that would be pegged partly to gold and partly to a basket of their own currencies. The initiative, which would leverage distributed ledger technology as its foundation, has already drawn sharp criticism.
US President-elect Donald Trump has threatened 100% tariffs on Brics nations if they pursue a currency that challenges the dollar’s dominance. It remains unclear whether he will pursue that course after taking office on 20 January.
The Brics bloc wields undeniable economic power, accounting for roughly 40% of the world population and more than 30% of global gross domestic product – slightly ahead of the G7 in economic output. Despite this, their currencies remain underrepresented in global trade, with the dollar dominating foreign exchange transactions.
Yet intra-Brics trade accounted for 37% of their total transactions in 2022 – up by 56% since 2017 – underscoring the bloc’s determination to strengthen financial independence. For the Brics group, a gold-backed digital currency could make a big difference. Lower transaction costs and reduced exchange rate volatility are among the tangible benefits. If even 50% of intra-Brics trade shifted 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 fuel economic growth and enhance trade efficiency. DLT offers the transparency, security and efficiency necessary to underpin such a currency.
By tokenising gold reserves, each digital unit would be backed by tangible assets stored in secure vaults, with regular audits ensuring accountability. Smart contracts could dynamically adjust currency weightings, reflecting trade patterns and economic conditions. This would enable real-time settlements, reduce delays and foster trust among participants. Such a system might even attract nations outside the bloc seeking alternatives to dollar-dominated networks, potentially increasing the Brics bloc’s global trade share beyond its current 18%.
Some elements of this vision are in place. As of mid-2024, Brics nations collectively held 5,700 tonnes of gold, representing 16% of global reserves. Over the past two decades, these reserves have grown threefold, reflecting an effort to reduce dependence on the dollar and bolster their own nations’ financial stability. But the balance of gold power is still skewed heavily in favour of the G7 countries, which hold a combined 17,500 tonnes, or 49% of global reserves.
Some potential benefits of a gold-backed digital currency are discernible, but implementation will not be straightforward. Effective coordination among Brics nations is required, alongside investments in technological infrastructure. Geopolitical obstacles, including potential sanctions and tariffs, add further complexity. Nevertheless, with its strategic gold reserves and economic clout, the Brics group is likely to continue advancing ideas to reshape global finance and offer an alternative to the dollar-centric order.
Alexej Jordanov is Content Architect at GoldRepublic.
This article featured in OMFIF’s 2024 report, ‘Gold and the new world disorder’.
