Economists have weighed in on reports that China and Russia could develop a new gold-backed currency that could undermine the U.S. dollar’s status as the world’s leading reserve currency.
Russia and China may develop a gold-backed currency
Several experts have shared their views on the possibility of Russia and China creating a new gold-backed currency, Fox Business reported Saturday, noting that China has purchased huge amounts of gold while Russia has been priced out of the U.S. dollar due to sanctions imposed on the country after its invasion of Ukraine.
The news outlet noted that some experts have warned that these moves, as well as the closer relationship that has developed between Moscow and Beijing, indicate the likelihood that China will attempt to launch a gold-backed currency. However, neither Russia nor China has officially confirmed its intention to create such a currency.
Craig Singleton, a senior fellow at the Foundation for Defense of Democracies and former U.S. diplomat, explained that Chinese leaders have been talking for two decades about reforming the global financial system and reducing the dominance of the U.S. dollar.
“Two components of this strategy revolve around the development of a global commodity trading system based on the yuan and China’s efforts, in partnership with Russia and other like-minded countries, to challenge the dominance of the dollar by creating a new reserve currency” he told Fox News Digital, noting:
In essence, Beijing and Moscow are seeking to build their own sphere of influence and a monetary unity within that sphere, protecting themselves from the threat of U.S. sanctions.
Swiss gold exports to China reached their highest level since December 2016 in July. According to Swiss customs data, Switzerland shipped 80.1 tons of gold worth 4.4 billion Swiss francs ($4.4 billion) to mainland China during the month.
A researcher and economist at the Heritage Foundation’s Center for Asian Studies, Min-Hua Chiang, believes that the appeal of the new Russian-Chinese currency “will be limited” due to the low volume of trade, stating:
Even if both countries use a new currency for bilateral trade transactions, the relatively small volume of trade will limit the impact on the U.S. dollar.
Data from the Society for Worldwide Interbank Financial Telecommunications (SWIFT), a global financial messaging company, showed that 42.6 percent of global payments in August were in U.S. dollars, 34 percent in euros and 2.3 percent in Chinese yuan.
The economist of the Heritage Foundation pointed out that the yuan “is still leagues behind the dollar and the euro“, adding that a multinational currency, like the euro, requires “a level of political and economic coordination and integration that is not present in Asia today“. She believes that:
The USD remains the safest, most convenient and most widely used currency in Asia and the world today. No other currency (gold-backed or otherwise) compares, and this is unlikely to change in the near future.
At the BRICS summit in July, Russian President Vladimir Putin announced that the BRICS economies plan to issue a “new global reserve currency.” The BRICS nations are Russia, China, India, Brazil and South Africa. Analysts believe that the BRICS decision to create a reserve currency is an attempt to undermine the U.S. dollar and the International Monetary Fund’s (IMF) Special Drawing Rights (SDR).