The BRICS unveiled the first functional prototype of a digital currency for trade, known as the "Unit," paving the way for potential de-dollarization. According to the Institute of Economic Strategies of the Russian Academy of Sciences (IRIAS), this new digital unit is backed by a reserve basket composed of 40% physical gold and 60% of the national currencies of the BRICS member states: the Brazilian real, the Chinese yuan, the Indian rupee, the Russian ruble, and the South African rand, all equally weighted. The pilot program began on October 31 with the issuance of 100 Units, each initially linked to 1 gram of gold.
De-dollarization and global geopolitics
The dollar’s dominance in global trade has caused dissatisfaction in the Global South, as it gives the US significant geopolitical advantages. The imposition of SWIFT sanctions on Russia just days after the invasion of Ukraine demonstrated the potential for sanctions to restrict the free flow of trade transactions, which prompted many states to seek alternatives.
Several countries have already begun settling bilateral trade in national currencies, with Russia and China mainly using the ruble and yuan, and India facing challenges due to a deficit in oil trade. The BRICS had previously introduced the BRICS Pay coin, which is based on digital versions of national currencies, while Russia had conducted experiments with the digital ruble within the banking system. The "Unit" is the first real prototype of a gold-referenced currency for international trade.
Operation and pilot phase
The value of the Unit is calculated to fluctuate daily according to the changes of the constituent currencies relative to gold. By December 4, market fluctuations had adjusted the basket's value to 98.23 grams of gold, bringing the value of each Unit to 0.9823 grams of gold. Although currently limited to a pilot phase, the development is being closely monitored by central banks and politicians, particularly in the Global South and African countries.
The goal of the project is to facilitate trade without using the dollar, while countries can simultaneously keep their gold reserves within their borders. The Unit is expected to make transactions with gold less complicated and enhance the liquidity of the gold market. Despite not being officially adopted by the BRICS bloc or central banks, the move signals a serious intention to reduce dependence on the dollar and may significantly impact long-term demand for gold.
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