Macroeconomist Lyn Alden has expressed skepticism about the feasibility of a proposal that aims to establish a common currency for the BRICS nations – Brazil, Russia, India, China, and South Africa. In an interview with Cointelegraph ahead of the BRICS annual summit in South Africa, Alden explained that the development of a gold-backed currency for widespread use would face significant challenges.
The idea of a common currency for BRICS was first put forward by Russian President Vladimir Putin during the 2022 BRICS summit. The currency would serve as an alternative to the U.S. dollar as the global reserve standard. However, Alden argued that backing a fractional-reserve banking system with gold would only work temporarily, as the currency units would multiply more quickly than the limited supply of gold.
Instead, Alden proposed that the BRICS nations could reduce their reliance on the U.S. dollar by using their own currencies for cross-border trade, with a particular focus on the Chinese yuan. She argued that this approach would be more feasible and could lead to a gradual decrease in the dominance of the U.S. dollar.
Alden’s skepticism about the common currency proposal aligns with the views of former Goldman Sachs economist Jim O’Neil, who described the idea as “ridiculous” in a recent interview with the Australian Financial Review. O’Neil questioned the feasibility of creating a BRICS central bank and dismissed the notion as embarrassing.
Furthermore, India’s foreign secretary, Vinay Mohan Kwatra, downplayed the possibility of a common currency for BRICS and highlighted the member states’ emphasis on using their own national currencies to boost trade.
The topic of a common currency is expected to be discussed at the 15th BRICS annual summit held in South Africa. The summit will also address other issues, including the establishment of the BRICS Development Bank, international trade, and the ongoing Russia-Ukraine conflict.
Alden’s remarks also touched on the potential impact of reduced demand for U.S. dollars on Bitcoin. She explained that if moves to de-dollarize gain momentum, it could result in higher Treasury yields and decreased foreign demand for U.S. Treasuries. This, in turn, might require the U.S. Federal Reserve to finance a larger share of government deficits. Alden cautioned that these developments could create headwinds for Bitcoin as risk assets tend to underperform under such conditions.
However, Alden also noted that a potential scenario where the Federal Reserve needs to bail out more banks could have a positive effect on Bitcoin’s price. She drew parallels with the market rally that occurred when the Fed intervened in the U.S. banking system earlier in 2023, suggesting that a similar situation could boost Bitcoin in the long term.
As the BRICS nations prepare for their annual summit, the feasibility of establishing a common currency remains uncertain. While some experts, including Alden, are skeptical about the practicality of such a currency, the ongoing discussions among BRICS members indicate a desire to explore alternatives to the dominance of the U.S. dollar. The outcomes of these discussions could have far-reaching implications for global financial markets and may shape the future of international trade.
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