Brazil, Russia, India, China and South Africa (BRICS) put together now hold 20 percent of the world's total gold reserves. Reportedly, the data was revealed in a recent report by the World Gold Council (WGC). On October 18, just days ahead of the BRICS Summit in Kazan, Russia on 22 October, the price of Gold in the world markets soared to a dizzying new lifetime high of USD 2,737.80 an ounce (28.3495 grams).
In India, where the retail buying of gold may pip some of the world's central banks each year, the price of the yellow metal soared to a new high of Rs 79,420 (approximately USD 945) per 10 grams last week. In 2024 so far, Gold has rallied nearly 32 per cent, beating some of the world's top equity benchmarks from the US to India. It is the gold's biggest rally in a year since 2007, when it had rallied 31.5 per cent that year. In 2023, Gold had gained by 13 per cent and did not see much price gains in 2022 and 2021. So what is fueling such an enormous rally in the yellow metal in 2024? Other factors apart, it is the talk of the BRICS nation's plan to reset the global trade related financial transactions and monetary system, which is fueling the rally in gold.
Until recently, nearly 100 per cent of global crude oil trades were conducted in USD (US Dollar). But in the past couple of years, nearly one-fifth of oil trades were reportedly made using non-USD currencies. Among the key reasons is the US sanctions on Russia, one of the largest producers of oil. India has been buying oil from Russia in its national currency Rupees and Russia in turn uses that currency to purchase other goods and agricultural products from India - since the pilot has achieved some success, it is now seen as a precursor to the changing structure of USD dominant global trade. In July 2022, the Reserve Bank of India (RBI) allowed international trade settlements in Rupees, which simply means that buyers and sellers can settle cross-border trade and transactions in Indian currency instead of the USD.
In the BRICS summit that starts this week (just ahead of the US elections), the likely list of projects to be discussed include the Unit of Account (Unit), a platform for international settlements in BRICS digital currencies (Bridge), a payment system (Pay), a settlement depository (Clear), an insurance system (Insurance), and a BRICS rating alliance among other things. Andrey Mikhailishin, Head of Task force on Financial Services, BRICS Business Council, confirmed the likely agenda in an interview to the Russian news agency TASS, which was carried on September 6 on its platform. All this is nothing but an ecosystem that the BRICS may be developing to counter USD dominated Society for Worldwide Interbank Financial Telecommunication (SWIFT).
The news report also gives a glimpse of how the new BRICS trade settlement platform may look. According to Mikhailishin, the ‘Unit’ aims to create an alternative to the dollar-dominated global financial system. "The Unit stands for ‘United New International Trade,’ and it's to get away from U.S. dollar dominance,” he told TASS. Mikhailishin further said that the "Unit" could be pegged 40 percent to the value of gold and 60 percent to a basket of BRICS national currencies. Mikhailishin noted that BRICS Clear will “use blockchain to record securities and exchange them.”
Russia and China, both of whom are facing US sanctions, are poised to go ahead with digital trade from mid-2025, acting in some way as a trial for -the rest of the BRICS nations. Depending on what is the outcome of the US elections in November and how the India-US relations shape post the elections, a full time BRICS financial trading platform covering all the nations could become a reality by 2006-27. Also, the proposed BRICS currency may be fully operational in the next couple of years, reports suggest. If this happens, it could mean that the Western sanctions on Russia may lose its sheen from mid next year as alternative systems and new technologies surpass SWIFT disconnection.
"At this point of time it (a BRICS currency) is a long-term prospect. It is not under consideration. BRICS will be cautious and act gradually, moving slowly. The time has not come yet," Putin told a select group of senior editors from the BRICS member states at a media interaction last Friday at his official residence in Novo-Ogaryovo, about 50 km from Moscow. The Russian President also told the editors that BRICS was now studying the possibility of expanding the use of the national currencies and creation of instruments that would make such work safe.
Putin could be underplaying the new BRICS currency for obvious reasons but clearly, the Gold bulls are not buying it. If financial transactions and payments-related platforms have to be finalised in the upcoming summit, then a common currency between the BRICS nations may not be too far in the future. The October 22 Summit will be the first-ever meeting after the BRICS expanded with the entry of Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates (UAE).
The huge amounts of gold purchases by the central banks of Russia, India and other nations and India's recent move of nearly 50 per cent reduction in the import duty on gold is anything to go by, then there are indications of a 'Gold Backed' common BRICS currency to counter the 'Debt Backed' USD. Import duty on gold in India may be fully curbed in the coming years. The BRICS payments system and a prospective common currency that challenges the USD is among the key reasons that explain the current US regime's bitterness towards Prime Minister Narendra Modi - the incumbent US government's bitterness towards the Modi regime is an open secret.
As per the IMF, USD currently represents 58.8 per cent of the share of currencies held in global foreign exchange reserves in the first quarter of this year. This is compared to nearly 73 per cent in 2001. In such a scenario, all eyes are on the U.S. elections and the BRICS summit.
Gold Reserves
Gold is a key asset for central banks because it has no credit or counterparty risks, and its inverse relationship with the US dollar can help protect reserves during market volatility.
Among the BRICS nations, Russia's and China's central banks top the list and account for around 74 per cent of central bank gold reserves among the BRICS nations. Russia has 2,340 (representing 8.1 per cent of the global central bank reserves) and China follows closely with 2,260 tons, contributing significantly to the BRICS gold hoard (though China's gold hoard could be much more than official data). In comparison, India's central bank has gold reserves to the tune of 840 tons. All the BRIC nations have added a large chunk to their stockpiles only in the past decade and the pace has been accelerating. This apart, there is a rush among other central banks in the world to add gold to their reserves. Data from WGC suggests that at the end of 2023, global central banks had a total gold reserve of 36,699 tonne. But the U.S. Treasury is still the world's largest stockist of gold reserves.
While the Gold Standard hasn’t been used in the US since the 1970s, when Donald Trump was president from 2017 to 2021, there was speculation that he was supportive of the idea to bring it back. In 2018, Donald Trump's Treasury Secretary Steven Mnuchin became the first Treasury Secretary to visit Fort Knox, U.S. government's gold vault, since John Wesley Snyder in 1948. Mnuchin said he visited Fort Knox with Kentucky elected officials to review the bullion depository containing government-owned gold. In the coming years, even if the U.S. revalues its Gold to support the USD, the rally in Gold may continue.
_20240618152530_original_image_13.webp)