Commodities-backed BRICS currency?

Okay. So the BRICS summit is underway right now in South Africa, and it is expected, that they will at least make some progress, in setting up a new trading currency mechanism. Though it's, I think, probably unlikely that this will be completely sorted out by the end of this summit. Inshallah, they will make some progress on it. Now, just for clarification, this is not going to be like an actual currency like the euro, for example.

It's not going to be creating a single currency block like the euro Zone. This this isn't gonna be the type of money that you would carry around in your wallet and go shopping. This is just gonna be a trading mechanism that will sort of replace the dollar for cross border trade between BRICS members. Setting up this type of mechanism, the idea of it is it it will release countries from their dependence on US dollars. Now, as I've talked about before, this is a good thing on its own, but it's not something that can actually be taken on its own.

It's a step in a process of what I think is trying to just recreate and reposition the Bretton Woods system for the global south. Now if it's gonna be a commodities backed currency, which is what they're talking about, then that means that the amount of currency that a country can hold will be dependent on the amount of raw materials that it possesses. The if they possess the commodities to back the currency, then they'll have more access to the they'll have access to more of the currency. So right off the bat, some countries will be richer than others. So, like, when the dollar was backed by gold, theoretically, you could exchange your dollars for their equivalent value in gold.

So if you have a commodities backed currency for bricks, then theoretically, you could exchange your bricks currency, for the their equivalent value in those commodities. So that being the case, you can immediately see how this could get very messy very quickly, particularly when you take into consideration the impact of speculation on the price of commodities, which would then of course impact the value of the BRICS currency itself. Now most of global trade is not in commodities. Roughly 70% of global trade is not commodities trading. So if you have a country whose trade is primarily not in commodities, because they don't possess any, and if they if that country for instance, developed a trade surplus against a country which possesses more of the commodities that back the BRICS currency, then it could lead very quickly to the depletion of that country's raw commodities as they have to suction them off to pay trade deficits.

Do you see what I mean? Country a exports textiles to country b. Country b pays for those textiles in commodities backed by its currency, commodities that country a does not naturally possess. Now country a will have a claim on country b's commodities because the currency itself that's used to buy the textiles is based or is backed by those commodities. So in other words, a country without commodities like gold or oil or rare earths could gain access to gold, oil, and rare earths simply by holding BRICS currency that they earned through trading in non commodities goods and services.

So diversified economies, industrialized economies, will potentially be able to bankrupt commodities dependent economies very quickly, particularly if, again, speculators were to drive down the market value of the commodities that are backing the currency, and if the commodities that are backing the currency can still be traded in dollars. I mean, the idea hypothetically is that the commodities backed BRICS currency would instantly make countries that possess a significant amount of raw materials, it will make them instantly richer overnight. They will suddenly possess significant trade currency reserves because of their immense surplus of raw materials. But without diversification of their economies and without industrialization, it seems to me that they would just be putting themselves into a position, to have their commodities depleted faster than ever before. So this is a very tricky path, and I'm afraid that, I fear that the rush to dedollarize could make people and leaders and politicians and governments too hasty to consider the long term implications of establishing a commodities backed currency.

And if they do establish this sort of trade mechanism, then every country, particularly in Africa, holding significant reserves of raw materials is going to have to very urgently implement a complex set of policies to protect themselves and to protect their raw materials. So that's just a few thoughts for now.