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Delivery of Gold-Backed BRICS Currency Poses Significant Challenges

Macroeconomist Lyn Alden has expressed skepticism regarding the viability of a proposed common BRICS currency among Brazil, Russia, India, China, and South Africa.

Alden argues that the creation of a gold-backed currency for widespread use within the BRICS nations would face significant challenges.

The concept of a gold-backed currency was initially announced by Russian President Vladimir Putin during the 2022 BRICS summit as an alternative to the dominant role of the U.S. dollar as the global reserve standard.

However, Alden contends that this model is inherently flawed.

Alden points out that backing a fractional-reserve banking system with gold can only be sustained temporarily,

as the currency supply tends to outpace the growth of gold reserves.

Instead, Alden suggests that a more realistic scenario would involve the BRICS nations reducing their reliance on the U.S. dollar by increasing the use of their own currencies for cross-border trade,

with a particular emphasis on the Chinese yuan.

Expert Critiques BRICS Currency Idea, Echoing Goldman Sachs Economist.

Macroeconomist Lyn Alden’s skepticism regarding the proposed BRICS common currency aligns with the views expressed by former Goldman Sachs economist Jim O’Neil.

In an interview with the Australian Financial Review on August 15,

O’Neil dismissed the notion of a common currency among the BRICS nations as “ridiculous.”

These recent comments from both Alden and O’Neil underline the challenges and doubts surrounding the feasibility of implementing a unified currency within the BRICS’s framework.

BRICS Shifts Focus to National Currencies as Common Currency Prospects Dim, India’s Foreign Secretary Affirms

BRICS’s Common Currency Unlikely, Focus Shifts to National Currencies, Says India’s Foreign Secretary.

India’s foreign secretary, Vinay Mohan Kwatra, dampened expectations of a common currency within BRICS,

emphasizing that member states are increasingly prioritizing trade using their respective national currencies.

Kwatra’s comments on August 21 further contribute to the skepticism surrounding the formation of a unified currency among BRICS nations.

As emissaries from the member states convene at the 15th BRICS annual summit in South Africa from August 22 to 24,

discussions will encompass various topics, including the prospects of a common currency,

the BRICS’s Development Bank, international trade, and the ongoing Russia-Ukraine conflict.

In the midst of these deliberations, Lyn Alden, the macroeconomist, cautioned that any attempts to undermine the dominance of the U.S. dollar could indirectly pose challenges for Bitcoin.

“This attempt at de-dollarization is likely to contribute to structurally less foreign demand for U.S. Treasuries, higher Treasury yields, and the requirement for the U.S. Federal Reserve to eventually finance a larger share of U.S. government deficits as a result.”

Alden explained that if U.S. Treasury yields rise, whether due to a mass de-dollarization event or other factors,

it could create headwinds for Bitcoin as risk assets tend to underperform under such circumstances.

However, Alden also noted that Bitcoin’s price might see an upswing if the Federal Reserve needs to intervene and provide additional support to struggling banks through liquidity backstops.

“In the longer-term, when the Fed has to provide a liquidity backstop for the Treasury market, that would likely be very good for bitcoin, similar to how bitcoin shot up when the Fed had to intervene in the U.S. banking system back in March 2023.”

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