BRICS Back Currency by Oil and Gold: Accelerating Dedollarization

The global financial landscape is undergoing a significant transformation as countries around the world are increasingly repatriating their gold from US, British, European, and Canadian reserves. Nations such as Germany, Venezuela, Switzerland, Nigeria, and several other African countries, along with Belgium, are leading this trend. This movement is closely watched by investors and financial experts as it signals a shift in global economic power dynamics.

One of the critical factors driving this change is the massive accumulation of gold by major economies like China and Russia, particularly the BRICS nations (Brazil, Russia, India, China, and South Africa). The BRICS bloc represents a significant economic force, collectively becoming the world’s largest economy and major producers and exporters of oil and gold. This coalition’s strategic moves have profound implications for the global financial system.

The US dollar has long held the status of the world’s primary reserve currency, largely due to the petrodollar system established in the early 1970s. This system was born out of an agreement between the United States and Saudi Arabia, whereby Saudi oil sales would be conducted in dollars in exchange for US military protection. This arrangement not only bolstered the dollar’s dominance but also contributed to the wealth of American corporations and the Saudi kingdom. However, the landscape is shifting as Saudi Arabia recently joined the BRICS group and indicated it would not renew the petrodollar agreement, effectively decoupling the US dollar from its oil-backed foundation.

A fiat currency, like the US dollar, is one that is not backed by a physical commodity but rather by the government’s declaration that it has value. The shift away from the petrodollar system places the US dollar in a vulnerable position, especially as more countries settle trades in their own currencies and reduce reliance on the dollar. The anticipated introduction of a BRICS currency, potentially backed by gold and oil, poses a significant challenge to the US dollar’s status as the world’s reserve currency.

The BRICS nations are strategically positioning themselves to leverage their substantial gold and oil reserves. For instance, the Shanghai Gold Exchange is emerging as a major facilitator of global gold trade, further consolidating the influence of BRICS countries in the gold market. This move towards a new currency backed by tangible assets like gold and oil marks a departure from the fiat currency model, signaling a potential paradigm shift in the global economic order.

Saudi Arabia’s ability to afford not to renew the petrodollar agreement is bolstered by its membership in BRICS. As part of this powerful coalition, Saudi Arabia enjoys the collective military protection of BRICS nations, which include some of the world’s largest nuclear arsenals. Historically, one of Saudi Arabia’s major threats was Iran, which is now also a member of BRICS. This new alignment reduces the perceived need for exclusive US protection.

While there are discussions about Saudi Arabia signing a new weapons deal with the US to acquire more advanced weaponry, the broader security context provided by BRICS makes American military protection less critical. Additionally, with over 59 countries expressing interest in joining BRICS, any regional adversaries of Saudi Arabia maintain good relations with Russia and China and are unlikely to jeopardize their BRICS membership prospects by antagonizing Saudi Arabia. This geopolitical realignment diminishes the necessity of the US protection scheme embedded in the original petrodollar agreement.

Historically, US President Richard Nixon is often remembered for the Watergate scandal, but his administration’s decision to decouple the dollar from gold and establish the petrodollar system had far-reaching economic implications. This agreement ensured the dollar’s dominance, made American corporations prosperous, and significantly enriched Saudi Arabia. However, with the dissolution of this agreement and the potential rise of a BRICS-backed currency, the era of the US dollar’s unchallenged supremacy appears to be nearing its end.

The global economic landscape is at a crossroads, with the BRICS nations poised to redefine the parameters of international finance. The repatriation of gold by various countries, combined with the strategic accumulation of gold by BRICS members, underscores a growing desire for a more stable and reliable financial system, one that is less dependent on the US dollar and more anchored in tangible assets like gold and oil. This evolving scenario could reshape global trade, investment flows, and economic alliances, heralding a new era in the world of finance.