It will be very difficult to provide a gold-backed BRICS currency. A common currency would be challenging for Brazil, Russia, India, China and South Africa to set up and maintain, says investment strategist Lynn Alden. But it could affect Bitcoin. To get more information about this news and also to receive the latest news in the field of cryptocurrencies, stay with us on Pooyan Music site.
Macroeconomist Lynn Alden cast doubt on the proposal that the five countries would work together to develop the BRICS common currency. He argues that he would probably have trouble dislodging the US dollar.
A few days before the annual BRICS summit in South Africa, Alden explained that it would be very difficult for BRICS members Brazil, Russia, India, China and South Africa to form a gold-backed currency for widespread expansion.
Russian President Vladimir Putin announced for the first time at the BRICS meeting in 2022 the BRICS proposal to create an international reserve currency to compete with the US dollar as the global reserve standard.
However, Alden argued that this model was flawed. Supporting a banking system with deficit reserves with gold only works temporarily, he said. Because currency units multiply faster than gold.
Instead, Alden sees a more likely outcome for BRICS countries to reduce their reliance on the dollar for cross-border payments by increasingly using their own currencies for trade, particularly the Chinese yuan.
BRICS holds G7 currencies as its reserves and not the other way around. And yet, BRICS has just replaced the G7 in economic size. In an August 15 interview with The Australian Financial Journal, the Goldman Sachs economist called the concept of a fiat currency ridiculous.
They want to create a BRICS central bank? How do you want to do? It’s almost a shame, O’Neill said, that it simply wouldn’t be possible.
On August 21, Indian Foreign Minister Vinni Mohan Kwatra also downplayed the possibility of a BRICS common currency. He stated that member states are increasingly focused on promoting trade using their national currencies.
The countries’ envoys are scheduled to attend the 15th annual BRICS summit held in South Africa on August 22-24. The summit will cover issues related to the formation of a common currency, the BRICS Development Bank, international trade and the conflict between Russia and Ukraine.
Meanwhile, Alden added that potential moves to dominate the US dollar could create headwinds for Bitcoin in the long run. This de-dollarization effort is likely to contribute to a structural reduction in foreign demand for US Treasuries, higher Treasury yields and a requirement for the US Federal Reserve to finance a larger share of the government deficit as a result.
He explained that if U.S. Treasury yields rise due to a mass dollarization event or not, this could cause bitcoin prices to face headwinds as risk assets underperform under these conditions.
On the other hand, Alden also believes that the price of Bitcoin may rise if the Fed needs to bail out more banks to keep them afloat: in the long run, when the Fed needs to provide liquidity support to the Treasury market. Slow down, this will likely be very good for Bitcoin, similar to the rise in Bitcoin when the Federal Reserve was forced to intervene in the US banking system in March.
Liquidity withdrawal usually happens when the bank’s own cash assets are no longer sufficient to fulfill its financial obligations, so the central bank provides them with emergency liquidity.