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Unless the BRICS are willing to give up the power to create money out of thin air and create a currency that is backed 100 percent by gold or other commodities, any new currency will likely suffer the same problems as the dollar and other fiat currencies.

https://mises.org/wire/will-new-brics-currency-change-anything-maybe

Jon Wolfenbarger

Money first originated through the voluntary exchange of commodities, such as gold and silver, in order to eliminate the inefficiencies of barter.

As Austrian school of economics founder Carl Menger explained:

Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state.

However, governments quickly learned that they could gain enormous wealth and power by taking control of money. Ludwig von Mises detailed in his magnum opus Human Action how this control has harmed human progress and noted that “For two hundred years the governments have interfered with the market’s choice of the money medium. Even the most bigoted étatists [statists] do not venture to assert that this interference has proved beneficial.”

Murray N. Rothbard further elaborated in What Has Government Done to Our Money? that

government meddling with money has not only brought untold tyranny into the world; it has also brought chaos and not order. It has fragmented the peaceful, productive world market and shattered it into a thousand pieces, with trade and investment hobbled and hampered by myriad restrictions, controls, artificial rates, currency breakdowns, etc. It has helped bring about wars by transforming a world of peaceful intercourse into a jungle of warring currency blocs. In short, we find that coercion, in money as in other matters, brings, not order, but conflict and chaos.

We see this chaos every day, with the economy bouncing from inflation to deflation and boom to bust. How did we reach this point and could it change going forward?

Devolution Of Money from Gold to Fiat Currencies

Prior to World War II, the British pound was the world’s “reserve currency.” However, after the war, the United States had the strongest economy and largest amount of gold reserves in the world.

At the Bretton Woods Conference in 1944, the US dollar was tied to gold at thirty-five dollars per ounce, and all other currencies were tied to the US dollar at fixed exchange rates. That made the dollar the “world reserve currency,” which means it was the only currency accepted throughout the world for the settlement of international trade accounts.

In the 1960s and early 1970s, the US government’s out-of-control spending spurred a run on US gold reserves by foreign governments. In response, President Richard Nixon ended all ties between the US dollar and gold in 1971. Since then, there has been no commodity backing for any currencies in the world. This led to higher inflation and lower living standards than would have otherwise occurred.

Following the Arab oil embargo of 1973, the US government agreed to provide military support to Saudi Arabia in exchange for Saudi Arabia agreeing to sell oil only in US dollars. This “petrodollar” arrangement helped solidify the dollar as the world’s reserve currency for the past fifty years.

What can compete with the US dollar now?

Rise of the BRICS

“BRICS” is an acronym for five of the largest emerging countries: Brazil, Russia, India, China, and South Africa. The BRICS countries comprise about 42 percent of the global population and 32 percent of global gross domestic product (GDP). By contrast, the US has only 4 percent of the global population and 16 percent of global GDP.

In addition, several countries are rumored to be joining the BRICS alliance in the future, including Saudi Arabia, the United Arab Emirates, Egypt, Turkey, Thailand, and Indonesia.

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