Leaders of the BRICS countries, spearheaded by Brazil, Russia, India, China, and South Africa, have amped up their de-dollarization efforts by hinting at the creation of a new multi-currency ecosystem or the possibility of transitioning to a common currency during their recent summit in Kazan, Russia.
Russia Proposes Multi-Currency System and Unilateral Digital Currency Backed by Gold or Bitcoin
As the chair of the BRICS Summit, Russia proposed the idea of a BRICS Cross-Border payment Initiative (BCBPI), which will see member states use their national currency to trade with each other. The organization will likewise establish an alternative messaging system to circumvent the SWIFT system of interbank communication, which is overseen by the United States and is subject to West-led unilateral sanctions that has been affecting Russia.
This multi-currency system will include mechanisms to not only remove the US dollar from trade, but also encourage investment in BRICS member nations and other emerging markets and developing economies. The “basket system” would be comprised of the currencies of the member states and monetary metals, such as gold.
Additonally, the BRICS Clear platform will serve as a new infrastructure for securities accounting and settlement in financial instruments denominated in national currencies.
BRICS is also set to experiment with digital ledger technology (DLT), including blockchain, to promote the use of central bank-issued digital currencies (CBDCs) of member nations so that they can trade directly with each other without requiring the SWIFT system and correspondent banks located in third countries.
There are plans to establish a BRICS Grain Exchnage with an associated pricing agency that allows for trade in commodities like grain, oil, natural gas, and gold, which can be used likewise to settle trade imbalances.
These proposals were outlined in the report titled “Improvement of the International Monetary and Financial System”, co-authored by the Ministry of Finance of the Russian Federation, the Bank of Russia, and consulting firm Yakov and Partners. The report was published on the eve of the BRICS summit in Kazan, held from October 22-24.
BRICS Nations Believe A Common Currency Could Help Circumnavigate Western Sanctions
On October 23, Russian presidential aide Yuri Ushakov confirmed that the leaders of the BRICS nations discussed about transitioning to a common currency, but emphasized the matters discussed during the meeting were confidential.
Russian President Vladimir Putin previously suggested focusing on using nations currencies, developing new financial instruments, and creating a SWIFT alternative would be more practical than a single BRICS currency.
This move by the BRICS nations is an effort to reduce their reliance on Western currencies while bolstering their economic influence. It is also driven by recent global financial instability and aggressive US-led foreign policies, which has instigated tensions among EU member states. The proposed new digital currency will help the BRICS countries mitigate the impact of Western sanctions.
Reports also suggest that the digital currency will likely to be backed by gold, which can be appealing to countries seeking financial sovereignty by providing security and trust. The BRICS research paper stated that gold has long been recognized as a reliable store of value and could also provide a hedge against the inflationary pressures that often plague fiat currencies.
Brazilian President Lula da Silva said that it was “now necessary” to create an alternative monetary relationship between BRICS nations. The potential inclusion of gold was supported by Russia’s proposal to create a precious metal exchange rivaling the international pricing mechanisms for gold, silver, platinum, and other monetary metals.
Could Bitcoin Act As An Alternative To The SWIFT Interbank System?
Another proposal was to use Bitcoin (BTC), with Russian lawmakers suggesting the idea of selling Bitcoin mined in the country to international buyers. The move is expected to position the world’s most valuable cryptocurrency as a viable alternative to traditional financial systems dominated by the US dollar.
As part of this initiative, Russian Bitcoin mining firm BitRiver and the Russian Direct Investment Fund (RDIF) have joined forces to establish crypto and AI data centers across BRICS members states in an effort to reduce reliance on Western technology.
While there is no official timeline confirmed regarding the creation of a new digital currency, discussions are progressing, with Russia and Iran leading the line in advocating for the creation of a such a digital currency ecosystem.
Alessia Amighini, co-head of the Asia Centre department of the Insitute for International Politcal Studies noted that Russia’s military intervention in Ukraine and the subsequent Western sanctions that followed were instrumental in creating the de-dollarization trend across the world.
She highlighted that as a result, global central banks purchased a record 1,136 ton worth of gold in 2023 to reduce reliance on the dollar. Gold reserves are expected to back the BRICS currency as member states increasingly stock up the precious metal.
BRICS was originally founded as a group of emerging markets and developing economies, consisting Brazil, Russia, India, China, and South Africa. Last year, the organization expanded to include six more countries: Egypt, Ethiopia, Iran, Saudi Arabia, United Arab Emirates, and Argentina.
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