When the Russia/Ukraine conflict first ignited, I hypothesized that Russia and China might introduce their own gold-backed currency. Back then, this idea seemed implausible and was met with criticism. Today, however, it has materialized, and it appears that over 41 countries may be preparing to return to a gold standard.
Over the weekend, international broadcaster RT was emblazoned with headlines such as “New Money, New World” and “Gold Standard Will Be Of Great Benefit To Strengthening New Single Currency”. It was reported that the official proclamation is anticipated at the upcoming BRICS summit in South Africa in August.
According to Degussa's Chief Economist, the gold-backed transaction unit might initially seem like a good form of money, and could potentially challenge the hegemony of the US dollar. He speculated whether the BRICS countries - Brazil, Russia, India, China, and South Africa - plan to make their new currency convertible into gold on demand, a move that would undoubtedly change the game.
Meanwhile, US Treasury Secretary Janet Yellen seemed almost nonchalant about the development. She reiterated her belief in the continued dominance of the US dollar in international transactions and as a reserve currency, an assertion that seemed oddly out of touch with the emerging realities.
The unveiling of this new currency from the BRICS countries signifies a crucial milestone in the broader process of dislodging the US dollar from its position as the world's reserve currency. It reaffirms the role of gold as real money and presents the most substantial public challenge to the US dollar in recent times.
During an in-depth interview, it was suggested that the countries showing interest in joining BRICS all have substantial gold holdings. The interviewee anticipated a pivotal moment when OPEC, BRICS nations, and Saudi Arabia would announce their acceptance of other currencies for oil, causing a torrent of dollars to flood back to the U.S.
Central banks are currently buying more gold than ever before. The explanation for this could be that they are capitalizing on Western suppression of gold prices to de-dollarize. The impact of a world without needing dollars to purchase oil would be enormous.
The case for de-dollarization is not a product of unpatriotism or a wish for the US to fail. Instead, it's a rational response to the misuse of the dollar's reserve currency status, particularly during the Russia/Ukraine conflict.
When a gold-backed currency enters the global trade stage, it will be taken seriously. This understanding is becoming increasingly common worldwide. Regardless of the doubts expressed by dollar bulls, it's clear that the machinery for this significant shift is already in operation.
As the prospect of a BRICS gold-backed currency looms, the United States must take proactive steps to bolster its currency's position. A comprehensive strategy should involve strengthening domestic economic fundamentals, pursuing sound monetary policies (i.e. return to the gold standard), and encouraging innovation and productivity growth. Key economic reforms that foster a vibrant and resilient economy can play a critical role. A balanced fiscal policy, including prudent management of public debt, would boost confidence in the sustainability of U.S. economic policies.
In the international arena, the U.S. should deepen its engagement with trade partners and maintain its commitment to a rules-based international financial system. Further, it's essential for the U.S. to advance technological leadership, particularly in emerging fields such as digital currencies and blockchain technologies. By adopting these measures, the U.S. could help solidify the dollar's standing and buffer against the potential impact of a BRICS gold-backed currency.
What could be the potential economic and geopolitical ramifications if the new gold-backed currency introduced by BRICS nations successfully challenges the dominance of the US dollar as the world's reserve currency?