From October 22 to 24, 2024, BRICS held its annual summit in Kazan, Russia. Among other topics, the group was expected to discuss the potential creation of a currency that could significantly affect the U.S. dollar and the value of gold.
To understand how a BRICS gold-backed currency could affect your wallet and the world, it’s important to understand what BRICS is and how its currency could work.
The BRICS Gold-Backed Currency Explained
BRICS is an intergovernmental organization that currently includes Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates (UAE). In addition, Saudi Arabia, although not a member at present, has been invited to participate in BRICS activities. Dozens of other countries — mostly in the Southern Hemisphere — have expressed interest in joining the bloc.
Since its creation in 2006, BRICS’s goal has been to challenge the economic and political influence wielded by wealthier countries in Western Europe and North America.
Certainly, creating a currency with the potential to devalue the U.S. dollar (as well as the euro) would go a long way toward that aim.
Is BRICS Creating Its Own Currency?
The bloc has discussed the idea of a BRICS currency for years. However, at their annual summit in 2023, the BRICS members agreed to seriously consider the feasibility of creating a common currency.
Unlike the EU’s euro, which replaced the currencies of many member states, the BRICS currency would be used primarily for trade between countries.
Currently, the U.S. dollar is the most widely used currency in the world. According to the International Monetary Fund (IMF), the dollar accounts for nearly 60% of the world’s foreign exchange reserves. The dollar also accounted for roughly 80% of all oil trades in 2023.
However, BRIC nations have begun pulling away from their dependence on the dollar, or “de-dollarizing.” This has been spurred on by U.S. sanctions, which prevent some BRICS nations from trading in dollars. As well, other member countries have started trading with each other directly in their own currencies rather than bothering with dollar conversions.
By taking this trend a step further and creating their own shared currency, the BRICS countries could theoretically declare their economic independence while streamlining trade.
The Role of Gold in the Proposed BRICS Currency
Currently, the creation of a BRICS currency is still hypothetical. Still, it’s a good idea to be aware of what implications the currency could have on the gold market.
Although details of a BRICS currency are up in the air, one possibility is that the new currency could be backed by gold. It’s unlikely that these countries would mint gold coins; instead, it’s likely that the BRICS gold-backed currency will be digital—denominated in gold and backed by the countries’ reserves of the precious metal.
Currently, the central banks of six BRICS countries — Brazil, Russia, India, China, South Africa, and Egypt — have gold reserves. China, India, and Russia have among the top 10 central bank gold holdings in the world.
How Could a BRICS Currency Affect Gold Values and the Dollar?
Again, any forecast made about the economic effects of a BRICS currency is speculation. That said, it’s likely that the creation of a gold-backed BRICS currency would have a positive impact on gold values — and a potentially negative one on the value of the U.S. dollar.
That’s because the BRICS nations and any other countries that want to trade with them would need to bulk up their gold reserves. It can be expected that the quantities of gold trading hands would be huge. For example, in 2023 alone, China’s central bank added 102 metric tons of the precious metal to its reserves. Meanwhile, Russia added more than 31 metric tons to its own gold store.
This increased central bank demand would certainly cause the prices of gold to rise.
In addition, a BRICS currency could drive down the value of the dollar while giving gold prices more opportunities to grow. Because a BRICS currency would significantly diminish the demand for dollars from member states and their trade partners, the value of the U.S. currency would indeed drop.
Traditionally, a weaker dollar has led to higher gold values as individuals and organizations look to the precious metal as a safer haven from currency risk.
Would the BRICS Currency Affect Silver Values?
It’s unlikely that a BRICS gold-backed currency would have a direct impact on silver values. However, it could have an indirect effect. That’s because the silver market tends to be influenced by the gold market, as well as other economic trends. Rising demand for gold could lead to increasing demand for other precious metals as well. In addition, silver may also be used by investors as a safe haven from de-dollarization.
Do Any Other Countries Back Their Currencies With Gold?
Currently, there are no currencies backed by gold. The gold standard, which was once the basis for practically all global trade, has been abandoned in favor of fiat currencies. These currencies, which are issued by governments, are not backed by gold or any other physical commodities.
However, many countries do maintain gold stores to use as a hedge against fiat currency risk.
Who Is Funding BRICS?
BRICS is an intergovernmental group that is self-funded. The bloc has created its own bank, the New Development Bank, which member states can use to support projects.
Would a BRICS Currency Bring Back the Gold Standard?
The creation of a gold-backed currency would mean the reimplementation of the gold standard. However, it’s unlikely that this development would lead other countries around the globe to discard their fiat currencies — at least in the short term. However, a BRICS gold standard could lead to increased sentiment and demand for the precious metal worldwide.
Should You Purchase Gold Before a BRICS Currency Becomes Reality?
Buying gold before the BRICS bloc creates a gold-backed currency can be a good move.
In the event that the BRICS group does move ahead with this possibility, demand for gold from central banks would rise, driving up prices for the precious metal. In addition, de-dollarization trends will make gold even more attractive to investors who want to protect their portfolios from currency risk.
Even if the BRICS group doesn’t create a gold-backed currency, the value of gold is still headed upward over the long term. Precious metal has been a trusted tool for both wealth creation and protection for centuries. Call CMI Gold & Silver to learn more about gold’s potential today.