Bricks Common Currency: What to Expect from Upcoming Summit

The upcoming Bricks summit in Kazan, Russia on October 22-24 is generating significant interest and speculation about potential announcements regarding a new common currency system. While concrete details remain uncertain, there are strong indications that the Bricks alliance is moving towards establishing an alternative to the US dollar-dominated global financial system.

Key points to watch for at the summit:

• Potential expansion of Bricks membership beyond the current core group
• Updates on the proposed "Unit" currency backed by gold and a basket of Bricks currencies
• Progress on Project mBridge, a multi-CBDC platform for cross-border payments
• Efforts to reduce reliance on the US dollar for trade and reserves

Background on Bricks De-Dollarization Efforts

The Bricks countries (Brazil, Russia, India, China, South Africa) have been actively working to reduce their dependence on the US dollar in recent years:

• Increasing bilateral trade in local currencies
• Developing alternative payment systems like Russia's SPFS and China's CIPS
• Accumulating gold reserves at record levels
• Reducing holdings of US Treasuries and dollar reserves

These efforts have accelerated following Western sanctions on Russia, which highlighted the risks of over-reliance on dollar-based systems.

The Proposed "Unit" Currency

According to reports, the Bricks are developing a new currency called the "Unit" that would be:

• Backed 40% by gold and 60% by a basket of Bricks currencies
• Used for trade settlement between Bricks nations
• Potentially tradable on the mBridge multi-CBDC platform
• Designed to reduce exchange rate volatility

While full implementation is likely still years away, the summit may provide more clarity on the development roadmap.

Project mBridge and Cross-Border Payments

Project mBridge is a multi-CBDC platform developed by central banks in China, Hong Kong, Thailand, and the UAE with support from the Bank for International Settlements. It aims to enable efficient cross-border payments using central bank digital currencies.

Key features of mBridge:

• Allows direct transactions between central banks in different currencies
• Reduces reliance on correspondent banking and SWIFT
• Enables near-instant settlement
• Saudi Arabia recently joined as the 5th full member

The Bricks may leverage mBridge or a similar system for transactions in the proposed Unit currency.

Potential Impact on the US Dollar

If successfully implemented, a Bricks common currency system could pose a significant challenge to US dollar dominance:

• Reduced demand for dollars in international trade
• Decreased holdings of US Treasuries by foreign central banks
• Erosion of the dollar's status as the primary global reserve currency

However, the dollar's entrenched position and network effects mean any transition would likely be gradual.

US Response and Policy Options

The US has limited options to directly prevent Bricks de-dollarization efforts. Potential policy responses could include:

• Improving fiscal/monetary management to maintain confidence in the dollar
• Accelerating development of a digital dollar
• Using diplomatic and economic pressure to discourage adoption of alternative systems
• Revaluing US gold reserves to strengthen the dollar's backing

However, heavy-handed responses could backfire and accelerate moves away from the dollar.

Outlook and Implications

While major announcements are not guaranteed at this summit, the trend towards reduced dollar reliance among Bricks and aligned nations is clear. Key developments to watch:

• Concrete implementation plans for the Unit currency
• Expansion of mBridge or similar systems
• Additional countries joining de-dollarization efforts
• Changes in central bank reserve allocations

Even gradual shifts could have major long-term implications for the global monetary system, potentially leading to a more multipolar financial order. Individuals and institutions may need to reassess currency exposures and consider increasing allocations to gold and other hard assets as a hedge.

While the exact timeline remains uncertain, prudent observers should closely monitor developments from the Bricks summit and beyond for signs of accelerating change in the international monetary landscape.

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