BRICS Unveils Gold-Backed Crypto to Challenge the Dollar

The Rise of the BRICS "Unit": A Gold-Backed Trade Currency

In a significant development, the BRICS group has unveiled a working prototype of a gold-backed trade currency called the “Unit.” This initiative marks a step toward reducing global reliance on the U.S. dollar and is being closely watched by policymakers and central banks worldwide.

The Unit is a digital trade instrument backed by a reserve basket consisting of 40% physical gold and 60% of BRICS national currencies. These currencies include the Brazilian real, Chinese yuan, Indian rupee, Russian ruble, and South African rand, each equally weighted. The pilot project was initiated by the Institute for Economic Strategies of the Russian Academy of Sciences (IRIAS), which issued 100 Units on October 31, with each initially pegged to 1 gram of gold.

Why the Move Away from the Dollar?

For years, the Global South has expressed frustration over the dominance of the U.S. dollar in international trade. This dominance gives the United States a powerful geopolitical advantage. However, the situation escalated when SWIFT sanctions were imposed on Russia following its invasion of Ukraine in February 2022. These sanctions raised concerns among many countries about their ability to conduct free trade.

Since then, several nations have sought alternatives to the dollar. For instance, Russia and China now settle nearly all their trade in yuan and rubles. India and China have also shifted to using their national currencies. Similarly, most trade within the Eurasian Economic Union is conducted using local currencies. While China and Russia maintain a balanced trade relationship, India faces a $60 billion trade deficit with Russia due to oil imports, making this transition more complex.

Exploring Cryptocurrencies as a Solution

BRICS countries have explored cryptocurrencies as a potential solution. At the Kazan summit last year, they introduced the BRICS Pay coin. Although not a true cryptocurrency, BRICS Pay is based on digital versions of national currencies like the ruble, rupee, and yuan. Each government has been developing virtual versions of their own currencies.

Russia has already tested a digital ruble within its domestic banking system. The BRICS “Unit” represents the first working prototype of a gold-referenced trade currency, signaling a shift away from the dollar.

Implications for Gold Demand

Although the Unit is not yet an official policy, its existence is a clear step toward dedollarisation and a positive sign for long-term gold demand. The value of the Unit fluctuates daily based on movements in the component currencies relative to gold. By December 4, market fluctuations had adjusted the value of the reserve basket to 98.23 grams of gold, effectively bringing the Unit’s value down to 0.9823 grams of gold per Unit.

Potential Benefits and Challenges

The initiative aims to facilitate trade settlements without relying on the U.S. dollar while allowing countries to maintain gold reserves domestically. Emerging markets have been aggressively purchasing gold in recent years, and the Unit could make trading gold more efficient and increase the liquidity of the gold market.

Despite these benefits, the project is not yet officially adopted by the BRICS bloc or its central banks. Instead, it is being driven by select member states seeking alternatives to the current dollar-dominated financial architecture.

Future Outlook

Currently limited to a test pilot phase, the Unit is under close scrutiny by policymakers and central banks, especially in the Global South. Several African countries are also monitoring the developments closely.

As the world continues to seek alternatives to the U.S. dollar, the BRICS "Unit" could play a pivotal role in reshaping global trade and finance. Its success will depend on continued experimentation, collaboration, and the willingness of participating nations to embrace this new financial model.