Russia looking for ''fire escape'' currency

New gold-based currency system by BRICS nations can press the dollar-based regime

As Russia's relations with the United States remain strained, the country is trying to distance itself from the U.S. monetary hegemony in the world. In partnership with other BRICS nations, Russia is now considering ways to create a unified system of gold trade. In the last six years, Russian state holdings of gold have more than doubled.

Russian leaders are forming a new currency arrangement in order to avoid constraints and political risks of a dollar-denominated world, says The Daily Reckoning. Despite the national economy has experienced several shocks in the past years, Russia persevered through all manner of external economic roadblocks, says the website's analyst Byron King. Meanwhile, the dollar is in trouble, adds the expert.

Russian officials are deeply concerned with the dollar's impact on the global economy. They consider that the United States abused the status of the dollar as the predominant international reserve currency. In 2011, President Vladimir Putin said that the U.S. is ''living beyond their means and shifting a part of the weight of their problems to the world economy''. Since then, Russia has tried to resist the hegemony of the dollar by diversifying its national reserves. Among other things, the government turned to gold: state holdings of gold have more than doubled in the past six years.

Valentin Katasonov, a professor at the Moscow State Institute of International Relations, approves the Central Bank's policy: ''The (current) price of the precious metal is undervalued, and significantly so. … Investors looking for long-term results are investing in gold.''

First Deputy Chairman of Russia's Central Bank Sergey Shvetsov recently announced that BRICS nations (Brazil, Russia, India, China and South Africa) intended to create a unified system of gold trade that would operate ''both within BRICS and at the level of bilateral contacts''. This new system is supposed to become a parallel worldwide monetary system that can compete with the current dollar-based regime. It can become a ''fire escape'' if the dollar fades in power and influence.

All BRICS members are either large producers or consumers of gold. Photo:

The expert states that the new trade system would be impactful as BRICS member states represent almost three billion people and about 20% of global GDP. He also supposes that it will be based on physical metal in contrast to the current situation when gold trade is based almost entirely on buying and selling large quantities of synthetic derivatives on gold. In case of success, the BRICS gold currency system will spur gold pricing, considers King.

By Anna Litvina