BRIC by BRIC

BRICS Summit 2024: Will a New Gold-Backed Currency Challenge the U.S. Dollar?

The annual summit meeting of finance and prime ministers of the BRICS nations is scheduled for next week. There have been rumors of a plan to offer an alternative currency for use in trade between member nations. Will this happen? And will that "currency" include a gold anchor? 

The idea of a "dollar alternative" has been discussed quite frequently over the years since The Great Financial Crisis of 2008. The need for a financial structure that operates outside of the U.S. dollar reserve currency system has seemingly accelerated over the past two years after the G7 reaction to Russia's invasion of Ukraine. If anything, the events of 2022 have spurred on central bank gold demand, as you can see in the charts below:

The 2024 BRICS summit is set to begin next Tuesday, Oct. 22, in Kazan, Russia. Over the course of the three-day meeting, many policy discussions will be held and many speeches will be made. Will any of these events include a mention of a new trading currency and settlement system? Some analysts believe that this will be the case. Here's a summary from May, where independent journalist Pepe Escobar discussed something he called "The Unit":

• https://time-price-research-astrofin.blogspot.com/2024/05/welcome-to-unit-de-dollarization.html

Here's another link, this one from last month: 

• https://asiatimes.com/2024/09/bric-by-bric-de-dollarization-only-a-matter-of-time/

And here's one more, this one from a U.S. market site:

• https://www.nasdaq.com/articles/how-would-new-brics-currency-affect-us-dollar-updated-2024

Gold's Role in the BRICS Currency: Is the Dollar's Dominance at Risk?

Much of the speculation surrounding "the Unit" focuses on a possible gold anchor. Similar to the Special Drawing Rights (SDR) used by the International Monetary Fund as an international reserve asset, the Unit is expected to be comprised of up to a 60% weighting in BRICS member countries’ fiat currency. However, in a move to add heft, confidence, and gravitas to the "Unit", there is speculation that it will also be weighted 40% with physical gold.

• https://www.jpost.com/business-and-innovation/precious-metals/article-822549

This plan, if it were to come to fruition as rumored, would not be a direct and renewed monetization of gold. The gold in the "Unit" would only be there to give confidence to the countries that would use the new vehicle for cross border trade. However, even without a remonetization, the demand for physical gold that the Unit would bring might be substantial and it would have lasting impact.

Could we already be seeing this impact in 2024? As I type, the dollar price of gold is up about 30% year-to-date, despite rising U.S. interest rates and a strengthening dollar (as measured by the dollar index). Central bank gold accumulation continues at a torrid pace in 2024—but why? Are these global central banks actively preparing for the epochal change that a U.S. dollar alternative will eventually present?

Will BRICS Challenge the Global Dollar System? A Look at 'The Unit' and Gold’s Role

So keep an eye on the headlines out of Russia next week. Maybe there will be an announcement of discussions regarding a new trading currency? Maybe there won't? But it certainly seems that the groundwork is being laid for a U.S. dollar alternative in the years to come, and the impact on the gold price, whether direct or indirect, is likely to be quite positive.

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