The BRICS could establish a new bank (the “BRICS Bank”), funded by gold deposits from BRICS central banks. The physically deposited gold holdings would be shown on the asset side of the BRICS bank’s balance sheet—and could be denominated, for example, “BRICS gold,” where one BRICS gold represents one gram of physical gold.
The BRICS Bank can then grant loans denominated in BRICS gold (for example, to exporters from BRICS countries and/or to importers of goods from abroad). To fund the loans, the BRICS Bank makes a credit contract with the holders of BRICS gold: The holders of BRICS gold agree to transfer their deposit to the BRICS Bank for, say, one month, or one or two years, against receiving an interest rate. What is more, the BRICS Bank, and it can also accept further gold deposits from international investors, who can hold (interest-bearing) BRICS gold deposits this way.
BRICS gold could henceforth be used by the BRICS countries and their trading partners as international money, as an international unit of account in global trade and financial transactions. Incidentally, the new de facto gold currency would not even have to be physically minted but could be and remain an accounting-only unit while being redeemable on demand.
The exporters from the BRICS countries and the other member countries would, however, have to be willing to sell their goods against BRICS gold instead of US dollars and other Western fiat currencies, and the importers from the Western countries would have to be willing and able to pay their bills in BRICS gold.
How do you get BRICS gold? Those demanding BRICS gold must either get a BRICS gold loan from the BRICS Bank or purchase gold in the market and deposit it with the BRICS Bank or a designated custodian, and the gold deposit is then credited to his account in the form of BRICS gold.
For example, in payment transactions, the goods importer’s BRICS gold deposits (held, for example, at the BRICS Bank) are credited to the account of the exporter of goods (also held at the BRICS Bank or at a correspondent bank or gold custodian).
However, the transition, the use of BRICS gold as an international trade and transaction currency, would most likely have far-reaching consequences:
(1) It would presumably lead to a (sharp) increase in the demand for gold compared to current levels, with not only gold prices measured in US dollars, euros, etc. but also in the currencies of the BRICS countries increasing (substantially).
(2) Such an increase in the gold price would devalue the purchasing power of the official currencies—not only the US dollar but also the BRICS currencies—against the yellow metal. Also, the prices of goods in terms of the official fiat currencies would most likely skyrocket, debasing the purchasing power of presumably all existing fiat currencies.
(3) The BRICS countries would build up gold reserves to the extent that they run, or will run, trade surpluses. They would presumably be the winners of the “currency switch,” while the countries with trade deficits (first and foremost, the US) would lose out.
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Source: Refinitiv; own calculations. The BRICS gold reserves amounted to 5,452.7 tons in the first quarter of 2023 (market value currently around 350 billion US Dollars).
These few considerations already show how disrupting the topic of “creating a new gold-backed international trading currency” could be: the BRICS could well trigger landslide-like changes in the global economic and financial structure. Still, it will be interesting to see how the BRICS countries intend to proceed at their August 22–24 meeting in Johannesburg, South Africa.