BRICS Common Currency Proposal Unlikely to Succeed, Says Macroeconomist

Economist casts doubt on BRICS' plan to develop a common currency

A proposal by the BRICS nations — Brazil, Russia, India, China, and South Africa — to create a common currency has been met with skepticism by macroeconomist Lyn Alden. In an interview with Cointelegraph ahead of the BRICS annual summit, Alden argued that forming a gold-backed currency for widespread use would be "very hard" and unlikely to rival the United States dollar.

Gold-backed currency model is flawed

Alden explained that the model of backing a fractional-reserve banking system with gold only works temporarily, as currency units multiply more quickly than the gold does. She believes it is more likely that BRICS nations will reduce their reliance on the USD by using their own currencies for cross-border payments, with a particular focus on the Chinese yuan.

Former Goldman Sachs economist dismisses the idea

Former Goldman Sachs economist Jim O'Neil echoed Alden's sentiment, calling the common currency notion "ridiculous" and questioning the feasibility of creating a BRICS central bank. O'Neil believes that the focus should be on trade using national currencies rather than forming a common currency.

BRICS nations discuss common currency at annual summit

The leaders of the BRICS nations are set to discuss the formation of a common currency, the establishment of a BRICS Development Bank, international trade, and the Russia-Ukraine conflict at the 15th BRICS annual summit in South Africa. However, Indian foreign secretary Vinay Mohan Kwatra downplayed the possibility of a common currency, emphasizing the focus on trade using national currencies.

De-dollarization efforts could impact Bitcoin

Alden warned that moves to reduce the dominance of the US dollar could indirectly affect Bitcoin. She explained that de-dollarization could lead to structurally less foreign demand for US Treasuries, potentially causing higher Treasury yields and requiring the US Federal Reserve to finance a larger share of government deficits. This could result in headwinds for Bitcoin's price, as risk assets tend to underperform under such conditions.

Bitcoin price could rise in the event of a banking crisis

Alden also suggested that the price of Bitcoin may increase if the Federal Reserve needs to bail out more banks to prevent a collapse. She noted that when the Fed intervened in the US banking system in March 2023, Bitcoin's price surged. This intervention occurs when a bank's liquid assets are insufficient, and the central bank steps in to provide emergency liquidity.