BRICS expands with six new members but no common currency

BRICS adds six countries but lacks a common currency

Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates join BRICS effective January 2024. The bloc, announced by South African President Cyril Ramaphosa at the Johannesburg summit, represents, according to circulating estimates, 47% of the world's population and 36% of global GDP. The image is powerful: Iran and Saudi Arabia, declared enemies, sitting at the same table. However, the fine print of the communiqué includes no new currency, no common central bank, and no free trade agreement. What unites these countries, according to dominant analysis, is the desire to create a global governance that avoids US power abuses through the dollar and the Bretton Woods successor institutions, the IMF and the World Bank. The rest is mere choreography.

What do Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE have in common?

Very little, and that is precisely what fuels skepticism. Some argue the bloc's glue is shared resentment: countries feeling the squeeze of the end of the oil era like Russia, Saudi Arabia, Iran, and the UAE; a China beginning to feel its real estate bubble burst and the withdrawal of Western offshoring; overpopulated nations on the brink of bankruptcy like Ethiopia and Egypt; and recognized economic disasters like Argentina and South Africa. They do not get along. Argentina's entry, in fact, was met with mockery: a country that swaps its currency for the US dollar and votes in line with Washington is unlikely to sustain a de-dollarization project.

The opposing argument also holds weight. Geopolitics trinc timeless rules, one of which is the tendency toward a balance of power. The antiestéticar among other actors of losing sovereignty to the dominant power pushes them to unite. Survival is the primary goal of any state. It was only a matter of time before a group of countries positioned themselves to re-establish the balance lost with the fall of the USSR. In this context, Iran and Saudi Arabia setting aside their differences is not a diplomatic miracle: it is a structural necessity.

Trade in local currencies and gold as collateral

This is the technical core of the matter, and where the analysis becomes most interesting. There will be no common currency. It is too complex to reach an agreement among nations that wish to maintain their sovereignty, including monetary sovereignty. What is being articulated is a bilateral trade system using each country's own currencies, with a common collateral to settle deficits. That collateral is gold.

The scheme already used by Russia and Iran is the most advanced. Each country keeps its fiat currency for domestic use and tax payments. To manage foreign trade accounting, there is a private cryptographic database whose units of account are redeemable in gold at a fixed rate. It is not legal tender, nor does it intend to be. It is an auditable real-time ledger that allows for the simultaneous verification of issued tokens and physical gold stocks in custody. If a country has a trade deficit, it delivers gold. If it has a surplus, it receives it. The mechanism forces adjustment: a country without gold can only export until its balance becomes positive again.

The classic objection is David Ricardo's theory of comparative advantage. If you give the same currency to two countries with different productive structures and a fixed exchange rate, one of the two economies will collapse. The historical example cited is the British pound in the 1920s, tied to a semi-gold standard that strangled the British economy. The counterargument is that there is no fixed exchange rate between the ruble and the rial here: each floats, and gold only acts as a unit of account for foreign trade. These are two different things that are often confused.

How much gold is there and where is it?

The debate over gold as collateral hits an uncomfortable question: is there enough accessible gold? The answer depends on whom you ask. It is estimated that 220,000 tons of gold have been mined to date. The sum held by all the world's central banks is around 35,000 tons. The rest is in private hands. In India alone, it is estimated that the population holds more than 20,000 tons], while its central bank holds less than 900. In Turkey, individuals accumulate more than 5,000 tons, ten times what its central bank holds. German citizens hold about 9,000 tons, 2.7 times more than the Bundesbank, which is the second central bank with the largest gold reserves in the world.

The counter-objection is that this private gold is not in auditable vaults nor refined to four nines. In countries with devalued currencies, gold is popular savings, domestic hoarding, not monetary collateral. That is not the case in the West. The dollar, the euro, and the pound concentrate 85% of the world's central bank reserves. The question is how long they will maintain that weight.

The dollar isn't falling, but the others are rising

The dollar remains the world's largest liquid market and the most abundant currency: more than 60% of physical banknotes are outside the US, and between 80% and 90% of international commercial transactions are made in dollars. The yuan represents between 6% and 8% of global reserves. The strategy is not for the yuan to rise, but for the others to fall. There is no need to rise if the others retreat.

The development of an alternative system itself implies a loss of value for the dollar by ceasing to be indispensable for international trade. It is a self-reinforcing process: as soon as the risk of holding dollars in the new environment is perceived, dollars are liquidated for gold. The dynamic feeds itself. This is where the Cantillon effect comes into play, explaining how new money first benefits those who receive it and harms those who receive it later. The global economy has functioned under this effect for decades, with the tertiary sector parasitizing the primary and secondary sectors. A change in the monetary pattern would redistribute this flow, and it is not clear in whose favor.

What is not on the table

There will be no classic gold standard. There will be no single BRICS cryptocurrency. There will be no common central bank. What exists is a network of bilateral agreements, a development bank intended to be used to evade sanctions, and a waiting list of 23 countries wanting to join. The bloc is growing because the US is gaining enemies, not because BRICS has a secret plan tucked away in a drawer.

The incorporation of six new members does not resolve the fundamental contradiction: Argentina and China will never share a currency, and South Africa is not the future Zimbabwe, but it is not Germany either. What does change is perception. When 47% of the world's population and 36% of global GDP sit at the same table, even if just to sign nothing, the message to the markets is that the dollar is no longer the only door. And that, in finance, moves more money than any treaty.