Analysis: BRICS countries focus on gold-backed digital currencies, which may reshape global trade and shake the status of the US dollar

Goldrepublic content architect Alexej Jordanov wrote that the BRICS countries have shown strong interest in developing a gold-backed digital currency as part of efforts to reduce international trade's reliance on the US dollar. The article was published by the Official Monetary and Financial Institutions Forum (OMFIF) on Friday. Jordanov discussed how geopolitical changes, including Russia's exclusion from the SWIFT payment network, have prompted the European Union to explore alternative settlement systems. If the proposed single currency is implemented, it will likely be pegged to gold and a basket of BRICS currencies, with distributed ledger technology (DLT) providing transparency and security. US President-elect Trump has said he may impose a 100% tariff on BRICS countries if they launch a currency that challenges the dominance of the US dollar. Whether this stance will lead to concrete action after Trump takes office remains to be seen. "For the BRICS countries, a gold-backed digital currency can bring great benefits. Reduced transaction costs and reduced exchange rate volatility are some of the tangible benefits." He detailed that the BRICS countries account for 40% of the world's population and generate more than 30% of global GDP, slightly more than the G7. Despite their economic strength, the U.S. dollar still dominates global trade, with BRICS currencies playing a smaller role. Intra-BRICS trade has grown 56% since 2017 and accounts for 37% of total transactions within the group in 2022. Jordanov believes that if a gold-based currency is implemented, transaction fees and exchange rate risks could be reduced. The article outlines how the system would work: "By tokenizing gold reserves, each digital unit would be backed by a tangible asset stored in a secure vault and regularly audited to ensure accountability. Smart contracts could dynamically adjust currency weights, reflecting trade patterns and economic conditions. This would enable real-time settlement, reduce delays and foster trust between participants. Such a system could even attract countries outside the BRICS that seek alternatives to the dollar-dominated network, potentially increasing the BRICS group's share of global trade to more than the current 18%." He noted that the BRICS hold a total of 5,700 tons of gold, or 16% of global reserves, while the G7 holds 17,500 tons, or 49%. Jordanov acknowledged the potential benefits but also highlighted the challenges, stating: “Some of the potential benefits of a gold-backed digital currency are clear, but implementation is not easy. Effective coordination among the BRICS countries is required, along with investment in technological infrastructure. Geopolitical obstacles, including potential sanctions and tariffs, add further complexity. Nonetheless, with its strategic gold reserves and economic clout, the BRICS group is likely to continue to advance the idea of ​​reshaping global finance and offering an alternative to the dollar-centric order.” (Bitcoin.com)