Will BRICS’ Hoped-For Unit Rival the U.S. Dollar?

We’ve discussed why BRICS, the loose coalition of Brazil, Russia, India, China and South Africa, now with the addition of new members Egypt, Ethiopia, the U.A.E. and Iran, are hoping to launch a new currency to rival the U.S. dollar as a benchmark currency for the world’s trading partners. But can BRICS really launch such a currency, and keep it stable? What will they use to back it? How will it be traded, and which countries could be enticed to actually trade in it?

The recent devaluation of the Russian ruble has shown that Putin’s trading partners are willing to risk limited sanctions from the West, as long as Russia sells its goods, primarily crude oil, in the currency of the buying nation. That means China and India are forcing Russia to buy their currency in order for those countries to then be able to buy Russian crude. This has caused a massive drop in the value of the ruble, and a follow-on response from the Russian central bank to halt foreign currency buying until some time in early 2025.

These retrenchments to individual government-backed currencies shows the difficulty BRICS countries will face in trying to get its members to agree on a common currency, and to give it precedence over their own currency.

The second problem is getting nine nations to simply agree on a common currency. While the Indian rupee is strong on its own, and the Chinese yuan is based on the world’s second strongest economy (though China’s economy is facing many crises), the other BRICS nations don’t have the kinds of economic policies and histories that would make their fellow BRICSters comfortable. This was another problem India had with admitting too many neighbors too soon: the difficulty in getting multiple nations and their various governments to agree on anything has always been a challenge. 

The third problem the BRICS nations must face is what to back their new currency with. Currently, the US dollar is backed by two things: its ability to generate steady revenue either through taxes or by taking on more debt, and by the U.S.’ ability to demand that its trading partners make transactions using dollars, rather than their own currency. That’s where the BRICS nations hope to make their inroad. 

Following the October 2024 meeting held in Kazan, Russia, it was announced that a new joint currency was being planned, called “the Unit.” There are no definite plans for the currency to be rolled out just yet, but it’s intended to be backed by 40% gold held jointly by the various countries, and 60% backed by a conglomeration of BRICS currencies that would theoretically be convertible into gold. This agreement to include all of the different members’ currencies presents a challenge, as the economies of some member nations might be in a recession while other economies are doing better. This could create a situation where some currencies might appear to be doing the heavy lifting to support other members whose currencies might be struggling.

But the BRICS decision to use gold as part of its support reveals an additional problem: that of limiting their economic freedom. 

Until 1971, the dollar was backed by gold, when President Richard Nixon took the U.S. off the gold standard so that the economy could “float.” This move allowed the U.S. government to print as much money as it needed to pay for things like an expanded military budget, which was needed for the Vietnam War. Later during the Reagan administration, such flexibility allowed the U.S. to outspend the Soviet economy with Regan’s two big-ticket items: a planned increase to an 800-ship navy, and his aborted Strategic Defense Initiative, nicknamed the “Star Wars” program. 

The 800-ship navy fell far short, only reaching approximately 600 ships, But that massive building program combined with the huge planned cost of S.D.I. helped bring a crushing end to the Soviet Union by putting a strain on their already struggling economy during the latter years of the Cold War.

The ability for the U.S. to simply outspend the U.S.S.R. shows the problem modern countries have when relying on gold to back its currency: for one, the lack of enough gold to back all of the currencies means that each BRICS nation may have to limit its economic policies. In addition, the volatile nature of gold, which has climbed from $2,000 an ounce in January 2024, to an all time-high of $2,800 an ounce in October 2024 means pegging any currency to its price comes with a big risk. Some analysts have suggested gold may rise to $3,000 an ounce by the end of 2025, which is the figure the BRICS nations are hoping to reach for their combined holdings of gold to meet its target of 40% of the Unit’s backing. 

But gold has since slipped from its October high down to $2,672 an ounce in December. Such volatility in the value of gold means the BRICS Unit could suffer an equivalent level of volatility. 

Even Vladimir Putin seems to have walked back his previous calls to “de-dollarize” their economics, saying at the October summit: “"We are not refusing, not fighting the dollar, but if they don't let us work with it, what can we do? We then have to look for other alternatives, which is happening." The collective assessment of the post-summit attitude seemed to be that the goal of the BRICS member nations is not to move away from the current SWIFT banking platform, dominated by the dollar, but instead to develop alternative systems for using their countries’ currencies in financial transactions between themselves and their trading partners.

It’s notable that seven of Russia’s largest banks have been banned from using SWIFT, the international banking messaging system, since 2022, following its invasion of Ukraine. This has severely limited how Russia can conduct international trade, especially currency trading. This has led Russia especially to push for alternatives to SWIFT, though the BRICS members have not yet created any meaningful alternative.

Due to these challenges and constraints, the future of a BRICS Unit remains unclear, and its future cloudy. The next year, with threats of tariffs and trade embargoes, will no doubt see a massive change between the U.S. dollar and its rivals around the world, a world in which alternatives to the dollar may seem increasingly valuable to countries that are not so strongly linked to the U.S.