New money, new world image from Tweet below.

The BRIC acronym stands for Brazil, Russia, India, and China. But there are now 27 nations, that have little in common with each other, that seek participation. Let’s coin a name, GBRIC (gold BRIC), for the name of the currency,

No Details Hype Headlines

• India Times, June 23, 2022: BRICS Working on New Global Reserve Currency
• Fox, Oct 29, 2022: Russia, China May be Preparing New Gold-Backed Currency
• Business Insider January 17, 2023: Russia and Iran are Working on a Gold-Backed Currency
• DC News, April 8, 2023: New World Currency? How BRICS Nations could impact U.S. Dollar
• Foreign Policy, April 24, 2023: A BRICS Currency Could Shake the Dollar’s Dominance

The above reports all have several things in common. They are all proposals, they are mostly to totally sensational hype, and not a one of them have any meaningful details.

There are literally hundreds of similar reports all speculating on the quick demise of the dollar.

Supposedly, It’s Official!

HUGE

It’s Official

RT (Russia sponsored TV) says the new BRICS-currency will be gold backed pic.twitter.com/YIjKwPTiTw

— Willem Middelkoop (@wmiddelkoop) July 7, 2023

Gold Standard Back!?

BREAKING: The gold standard could be back!
Russia Today just announced that the planned new BIRCS currency will be backed by gold.

We await further information and will be following and live updating on events relating to this. pic.twitter.com/LTs6a3leLu

— In Gold We Trust (@IGWTreport) July 7, 2023

The only thing that is official is more hype without any meaningful details.

Russia Confirms BRICS Will Create a Gold-Backed Currency

Kitco reports Russia Confirms BRICS Will Create a Gold-Backed Currency

Friday, according to state-run RT, the Russian government has confirmed that Brazil, Russia, India, China and South Africa, also known as BRICS nations, will introduce a new trading currency backed by gold. The official announcement is expected to be made during the BRICS summit in August in South Africa.

Thorsten Polleit, chief economist at Degussa, said that while the announcement is a step in the right direction, there is still a long way to go to become reality. “At first glance, a new transaction unit, backed by gold, sounds like good money – and it could be, first and foremost, a major challenge to the US dollar’s hegemony,” he said in an exclusive comment to Kitco News.

However, Polleit added that the devil is in the details. “For making the new currency as good as gold, a truly sound currency, it must be convertible into gold on demand. I am not sure whether this is what Brazil, Russia, India, China and South Africa have in mind,” he said. “Using gold as money, the unit of account would be a true game changer, no doubt about it. It could lead to a sharp devaluation of many fiat currencies vis-à-vis the yellow metal (including the BRICS fiat currencies), and it could catapult up goods prices in terms of fiat currencies. It could be a shock to the global fiat money system. I am not sure that this is what the BRICS wish to achieve.”

Polleit added that another option would be for the BRICS nation to create a new bank for financing foreign trade that would require holding gold as capital.

Echo Chamber

My first thought was the announcement was just more bullsheet. My second thought was the same.

Marc Chandler, managing director of Bannockburn Global Forex, provides my third thought: “Talk of BRICS gold backed currency seems like an echo chamber. They do not have the gold to back a currency meaningfully. Have we not learned anything from the EMU experience of monetary union without fiscal union. Color me profoundly skeptical.“

This echo chamber has been reverberating for years.

Polleit also hits the nail squarely: “For making the new currency as good as gold, a truly sound currency, it must be convertible into gold on demand. I am not sure whether this is what Brazil, Russia, India, China and South Africa have in mind.“

I am sure convertible on demand is not what they have on mind. But let’s assume that it is. And let’s call the new currency a BRIC.

Would You Rather Hold GBRIC or Gold?

If you wanted to hold gold, would you buy gold or GBRIC? Would you really going to trust Russia and China have the gold they say they do?

You answered those in less than a second, didn’t you?

The BRIC nations have nothing in common other than a desire to avoid dollars.

Still More Fairy Tales of US Dollar Demise That Didn’t Happen

Dollar's Dominance Eroded at 10 Times the Pace Seen in Past 2 Decades

“strategists Joana Freire and Stephen Jen calculated that the greenback accounted for about two-thirds of total global reserves in 2003, then 55% by 2021, and 47% last year.” https://t.co/CDeqXEhkTn

— Luke Gromen (@LukeGromen) April 18, 2023

On April 26, I noted Still More Fairy Tales of US Dollar Demise That Didn’t Happen

“Strategists Joana Freire and Stephen Jen calculated that the greenback accounted for about two-thirds of total global reserves in 2003, then 55% by 2021, and 47% last year.”

Brad Setser blasts that notion in a series of 16 Tweets. See the above link for discussion.

Trade is Between Individuals, Not Nations

For starters, Countries Don’t Trade. 

• Only individuals, separately and in voluntarily formed groups such as firms, create or take advantage of economies of scale, of scope, or of both in production; countries, as such, do not.
• Only individuals, separately or in voluntarily formed groups such as firms, spend, save, and invest; countries, as such, don’t.
• Only individuals experience income, wealth, or welfare gains and losses; countries as such experience nothing.
• Of course, we can – and do – talk, for example, about “America trading with China,” about “Germany having a comparative advantage in the brewing of beer,” about “India’s national income rising,” and about “Peru’s trade deficit falling.” But all this talk merely describes the largely unintended, aggregate results of countless choices and actions each made by a particular, flesh-and-blood person.
• And also, of course, governments do perform many of these activities – for example, spend. But no government is a country. Each government is merely a particular organization run by particular, flesh-and-blood persons according to a certain set of formal and informal rules.

Trade Example

• A Brazilian soybean producer sells soybeans to a merchant in China. 
• A Brazilian scooter manufacturer buys Lithium batteries from a Chinese merchant.
• The soybean producer buys nothing from Chinese merchants.
• The Chinese battery producer buys nothing from Brazilian merchants.

Why would the Brazilian soybean producer want to hold yuan, especially given that the yuan doesn’t even float? 

Why would the Chinese battery producer want to hold the Brazilian Real?  

No one is forcing the soybean producer or the battery producer to do anything. By choice they prefer to trade in dollars, which by the way is instantly convertible to any currency the producers may wish to hedge in. 

It is only at the government level, where for political reasons, the governments may wish to make agreements in other currencies. 

Q: How does a GBRIC change the above points?
A: It doesn’t.

Trading Currency

Let’s return to Kitco for a key observation that everyone seems to have missed.

According to state-run RT, the Russian government has confirmed that Brazil, Russia, India, China and South Africa, also known as BRICS nations, will introduce a new trading currency backed by gold.

To me this implies a currency used between nations, not individuals. It’s a currency not redeemable in gold. The details have not emerged, but I suspect something akin to Bretton Woods II.

If so, the pubic may not even get to buy buy or sell the GBRIC. Moreover, the trade between China and the rest of the BRICS is hardly balanced.

Brazil’s President Calls for End to US Dollar Trade Dominance, So What?

On April 14, I commented Brazil’s President Calls for End to US Dollar Trade Dominance, So What?

Given that trade is not between nations, so what? I used the above trade examples in my explanation.

Dollar Weaponization Expands – FDIC Message to Foreign Depositors Is Don’t Trust the US

I discuss the anti-dollar sentiment in Dollar Weaponization Expands – FDIC Message to Foreign Depositors Is Don’t Trust the US

It’s understandable that nations, especially Russia, want to avoid dollars. There is mistrust for many good reasons.

But is that any reason to trust a GBRIC, “trading currency“?

Let’s see the details on how this will work in practice, whether the GBRIC is convertible on demand, and who gets to use it.

Expect to be underwhelmed, but expect more hype anyway. Hype is sexy. So is predicting the collapse of the dollar.

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