• Thu. May 23rd, 2024

Expert Lyn Alden Highlights Difficulty Of Introducing Gold-Backed BRICS Currency

Steve Kornacki

BySteve Kornacki

Aug 23, 2023

Crafting a gold-backed currency to unite the BRICS nations – Brazil, India, China, Russia, and South Africa – represents an intricate challenge that might encounter substantial obstacles, according to insights from the distinguished macroeconomist Lyn Alden. This visionary proposal, initially championed by Russian President Vladimir Putin during the 2022 BRICS summit, aspires to introduce a robust international reserve currency that could potentially rival the supremacy of the US dollar.

However, Alden asserts that the complexities that might plague this endeavor could make it fall short of dethroning the dollar as the global reserve currency.

The Feasibility Of A Gold-Backed Reserve Currency

The foundation of Alden’s skepticism is deeply rooted in her analysis of the practicality of linking a fractional-reserve banking system to a finite commodity like gold. In her view, backing a currency with gold might provide a short-term solution, but its long-term sustainability is doubtful.

Alden contends that as currency units continue to multiply faster than gold accumulates, the equilibrium of the gold-backed system could be imperiled. Instead, Alden proposes a more pragmatic way for the BRICS nations to shift away from overdependence on the US dollar for cross-border transactions.

She opined that this shift could be an increased utilization of their respective currencies, with a significant emphasis on the Chinese yuan. Eminent economist Jim O’Neil, formerly associated with Goldman Sachs, lends his voice to the skepticism surrounding the notion of a unified BRICS currency.

O’Neil categorically dismisses the idea as “ridiculous,” underscoring the challenges of establishing a consolidated central bank for the BRICS nations and highlighting its potential impracticality. Echoing a similar sentiment, India’s foreign secretary Vinay Mohan Kwatra downplayed the likelihood of a common BRICS currency.

He opined that the bloc’s inclination would be to bolster trade through bilateral transactions in their national currencies.

BRICS Summit Anticipation

Meanwhile, anticipation rises as emissaries from BRICS nations meet at the 15th annual summit in South Africa. The agenda for the conference encompasses an array of subjects, including establishing a BRICS Development Bank, the potential creation of a shared currency, reflections on international trade dynamics, and contemplation of the ongoing Russia-Ukraine conflict.

These delegates from the member nations should provide deeper insights into the plausibility of the proposed gold-backed currency and its feasibility in the face of prevailing economic complexities. Alden’s assessment doesn’t concern itself with the direct consequences of a common BRICS currency.

Rather, it extends to the potential ripple effects on cryptocurrency, particularly Bitcoin. The top economist believes that the pursuit of de-dollarization, to diminish the preeminence of the US dollar, might indirectly impact Bitcoin’s price trend negatively.

Alden added that this de-dollarization move could reduce foreign demand for US Treasuries. This, in turn, could trigger a surge in Treasury yields, ultimately compelling the US Federal Reserve to take on a more prominent role in financing government deficits.

Given historical trends, heightened Treasury yields tend to exert downward pressure on the price of Bitcoin and other risky assets. However, the economist contends that if the Federal Reserve is confronted with the necessity of bailing out banks to ensure their stability, Bitcoin could experience an upward trajectory in its valuation.

To prove her point, Alden referenced the significant price surge Bitcoin recorded when the Federal Reserve intervened in the US banking system in March 2023.

Steve Kornacki

Steve Kornacki

Steve Kornacki, a respected author at Big Trends Signals, uses his deep online trading acumen to create comprehensive guides and balanced reviews, empowering traders in their digital pursuits.

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