The BRICS countries (Brazil, Russia, India, China, and South Africa) have been hailed as the top emerging markets with huge potential. They have been discussing about creating a common currency for several years now.
However, on 3rd July 2023, India announced that it has no plans for a BRICS currency, pouring cold water on the hype surrounding it. What does this all mean for us? How will this affect gold prices? Let’s find out.
The US dollar is currently the world’s reserve currency, meaning it is the most widely used currency for international trade and finance. This gives the US plenty of economic clout.
However, the rise of China and other emerging economies has led to calls for a new reserve currency. The BRICS currency could potentially become a rival to the US dollar, balancing out the powers on both sides of the sea. This currency was supposedly going to be backed by gold, giving it stability during economic uncertainty.
Granted this currency was supposed to be an alternative to the US dollar globally, it would be fronted by BRICS, hence the gold used to back the currency would have to be stored in the BRICS countries. However, how much would each country store? This logistics issue would turn into a political issue considering 2 of the major players in BRICS are what we call frenemies.
Looking from this perspective, India’s recent disinterest in the project could not be considered a surprise. This has implications on gold as it means one less competitor to the US dollar. While the US dollar hegemony is considered somewhat stable, it is known that it runs on debt, which gives it an element of uncertainty. Thus it could lead to increased uncertainty in the global economy, which could boost gold prices.
Currently these are all speculation on our part and only time will tell if this plays out as we forecast or if something else happens in the near future that changes a variable in this speculative formula. In these interesting times we live in, protecting our wealth to be our biggest priority in the financial decisions we make. Consult a financial expert before making major decisions.
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