The BRICS countries want move away from the dollar as an international reserve currency and tool for global trade. This is entirely understandable given the way that they US government are increasingly weaponising the Dollar and the Swift payment system in order to achieve political objectives. No one could condone the actions of Putin in invading Ukraine. Many lives have been lost and the situation is tragic for the people whose homes have been destroyed. However, the US government are potentially overreaching themselves with the sanctions that they have imposed on dollar assets held by Russians. It is a clear demonstration that dollar holdings can be deleted from a bank’s database whenever the US government forces them to do so. This realization has prompted countries and individuals with wealth held in dollars to reconsider the security of their financial assets.
In response, the BRICS countries are developing their own reserve currency. However, using existing national currencies like the Chinese Yuan or the Russian Rouble poses challenges. Each of these is a centralized ledger currency, similar to the dollar, and there are inherent risks of devaluation due to overprinting. It is likely that they won’t be able trust each other not to print more of a currency that they control. Also there is a risk of complete loss if there is a dispute with the centralised entity that controls the ledger.
Decentralized currencies like Bitcoin offer a potential solution. If the BRICS countries were to adopt Bitcoin for international trade, it would eliminate the need for mutual trust in financial transactions. They would be able to exchange good and services with each other for Bitcoin and be confident that there is no risk of their money being cancelled or inflated away.
Some suggest that gold could serve as a medium of exchange among the BRICS nations. However, the logistical challenges and costs associated with securing and transporting physical gold make it a less practical option for facilitating international trade. This would be a dampener on international trade and would reduce the benefits that each country accrues by specialising in the production of goods and services in which they excel.
The other alternative is to have some form of digital currency that is backed by gold in a vault, much like an upgraded version of the gold standard that operated during the 19th century. The issue here is that gold has to be stored in a physical vault somewhere and the custodians of the gold would have to be trusted to issue the right amount of digital currency units that are backed by the physical gold. Gold is expensive to audit as the only what that it can be truly verified is by melting it down and recasting it. A selected group of human beings will also have to be trusted to verify that they right amount of gold is being held in the right place at the right time. Throughout history banks have engaged in fractional reserve banking where they print more currency backed by reserve assets than they actually hold.
Bitcoin is auditable in a way that is accessible to every man, woman and child in the world that has the Bitcoin address and computer with an internet connection. A block explorer website can be used to see the exact amount of bitcoin held on chain and automatic systems can set up to alert if the assets are moved. Bitcoin is the most transparent and verifiable asset that has ever existed in history and it offers a potential revolution with the creation of a full reserve banking system that can operate independently of any state guarantee.
The cost of transferring Bitcoin across wide distances is very small and transactions can be settled in less than a few hours. It is a finite asset that will never be inflated away the cost of securing it is minimal compared with the cost of maintaining bank vaults. This combination of features makes Bitcoin a compelling option for BRICS countries seeking a reliable and independent medium for international trade.