Brics, an open door to replace the US dollar or bricked up?

Eventually the dollar, like the pound sterling before it, will fall from being the global reserve currency. Perhaps by then the Brics will have a digital alternative to the dollar backed by gold?

Jeremy Blatch

Tuesday, 4 March 2025, 16:52

In 2001, chief economist of Goldman Sachs, Jim O’Neill, created the Brics acronym to describe the world’s developing growth economies, Brazil, Russia, India, and China. Two decades later, China and India can no longer be considered developing economies because they are successfully competing with the industrialised nations of Europe and the US.

The end of World War 2 in 1944 saw the birth of the International Monetary Fund (IMF) and the World Bank to rebuild Europe and Japan. To the victor the spoils. The victorious allies appointed a US national over the World Bank and a European over the IMF. The status quo continues today with these institutions led by an American and a European. The Brics, led by Russia and China, have raised their voices against being excluded from the top table of these two influential institutions. Fed up with the way the US have weaponised the US dollar by imposing sanctions to bring regimes they dislike to heel, Russia, China, and India have fuelled rumours of a common currency to free them from the dollar.

Recent facts contradict this speculation. Prime Minister Modi of India has thrown in the towel - if India was ever really in the fight. President Putin has stated that he has no plans to move to a single Bric currency and President Chi has remained silent. The People’s Republic of China has been locked in a currency war with the US for three decades, so nothing new here. Both Russia and the PRC are fighting an economic migraine. The rouble has collapsed against the dollar. The tsunami of liquidity pumped by the PRC's central bank into the Chinese economy, initially lifting all boats, quickly receded, leaving a bleak financial landscape with severely damaged bond and share markets.

Because 54% of global trade is denominated in US dollars, the idea that the Brics would produce a currency to replace the US dollar was at best fanciful. However, since 1916 the dollar has lost 96% of its value against gold. It is no coincidence that the central bank of PRC has been the most aggressive buyer of gold bullion since the pandemic. What do they know that others don't?

The Fiat (money printing) experiment began in1971 when President Nixon took the dollar off the gold standard, allowing central banks to print as much paper money and mint as many coins as they wished. All developed economies today are awash with debt, more than at any time in history. There is no political capital, and little political will to balance the public budget, and the US central bank, the Federal Reserve, has never been audited!

Eventually the dollar, like the pound sterling before it, will fall from being the global reserve currency. Perhaps by then the Brics will have a digital alternative to the dollar backed by gold? For now, however, the Fiat dollar remains king and the Brics are left to dine alone.

The author (jb@ehh.gi) is a member of the Society of Trustees and Estate Practitioners and an investment counsellor. The comments and observations by the author are a reflection of his opinion and do not constitute an offer to buy and hold securities, nor does he receive any remuneration of any kind from names referred to.

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