Although BRICS share the ambition of reshaping the world order and challenging the monopoly of the dollar with a gold currency, they have a long way to go…

The BRICS: an alliance of outsiders against a backdrop of disagreements

The BRICS summit held in Johannesburg from 22 to 24 August 2023 highlighted the complexity and challenges facing this group of emerging countries. While the enlargement of the bloc was at the heart of the discussions, with the forthcoming addition of six new members (Argentina, Egypt, Iran, Ethiopia, Saudi Arabia and the United Arab Emirates), the BRICS are above all the ‘outsiders’. Although these countries account for 42% of the world’s population and 30% 1/4 of global GDP, they are mainly united by a common desire to challenge the dominance of the United States and the European Union on the international stage.

However, despite this shared ambition – which is based more on a common rejection than on a project for a strong alliance – there are still many disagreements within the bloc, notably because of the political, economic and geographical differences between its members.

The BRICS are made up of democracies, authoritarian regimes and everything in between. For example, India is the world’s largest democracy, while China is governed by a single party. Similarly, some members of the BRICS have border disputes or historical tensions – India and China, for example, or Ethiopia and Egypt, who have been squabbling over a dam on the Nile for a decade. Not to mention the fact that the newcomers include Iran and Saudi Arabia, who are hardly the best of friends in the Muslim world.

De-dollarisation: a major challenge

The BRICS’ main aim is therefore to free themselves from dependence on the dollar. Once again, an ambitious goal, but one riddled with pitfalls. Each country in the bloc has its own economic policy. For example, while states such as China and Russia can impose restrictions on their companies (and even then, Putin had great difficulty in forcing Russian companies to abandon the dollar at the start of the war in Ukraine), others, such as India and Brazil, have a more liberal approach. The dollar, as the world’s reserve currency, offers stability and confidence, and convincing companies to move away from it will be no easy task.

Especially as this currency will probably have little connection with the real economy. If it were to see the light of day, this currency would not be usable by private individuals, but would above all enable these countries to conduct their trade without using the dollar (note that Russia is already trading in yuans with China); at best, it would be a sort of unit of account facilitating mutual trade or serving as the basis for a system to secure payments, competing with the Swift system used in the West.

A common currency: a distant dream?

The idea of a common currency for the BRICS, while interesting on paper, seems a distant dream. Firstly, as we have said, the group is extremely diverse. But above all, most of these countries are particularly sovereign and there is little chance that they will be able to agree on who will be in charge of the others. And we can already guess that, with its colossal economic weight (70% of the group’s total GDP), China will be the main player in the management of such a currency. We can bet that all the other countries, including the newcomers, will be rather reluctant to become China’s subjects.

The experience of the euro shows that introducing a common currency is a complex process, requiring deep economic and political integration. A real challenge, even for a geographically and politically unified ‘coalition’ such as the eurozone. So what are we to make of a project for a unified monetary economy for countries with such different political, fiscal and economic systems?

Gold: a solid foundation for a common currency?

Finally, some were already seeing this new international “meta-currency” as an opportunity to give gold back its full monetary weight. But using the precious metal as the underpinning of a common currency for the BRICS once again comes up against a major problem.

Although Russia and China have increased their gold reserves in recent years, the majority of gold held by central banks is in the hands of Western countries. Of the 34,000 tonnes currently held in the vaults of the world’s central banks, the United States, Germany, France, Italy, Switzerland and the IMF already own 21,000 tonnes. Even if we include the six new countries that will join the group in 2024, as well as the forty or so smaller states that support the project, the gold held by the BRICS and consorts will barely exceed 6,000 tonnes (a little more if we consider that the 2,092 tonnes of gold held by China are undervalued).

Consequently, with less than 20% of the world’s reserves at their disposal anyway, creating a gold-based currency would do little to change the economic balance of power that currently pits the BRICS against the West. It might even strengthen the position of the Americans and Europeans, which would ultimately be the opposite of what the BRICS are aiming for.