BRICS and its trade currency problem

The BRICS summit is only six weeks away. It is assumed that a new 40% gold-backed trade settlement currency called the UNIT will be on the agenda. I don’t think it will and I offer an alternative.

The half-baked UNIT

Alexey Subbotin, an investor and entrepreneur, and Ji Luo, an investment manager running investment operations for family offices and a computer engineer by training wrote a paper on a proposed BRICS trade settlement currency they called the UNIT

(https://wp.unitfoundation.org/).

It is generally assumed by some of the few western commentators who follow the BRICS story that it will be the basis of a proposal to be put forward at the BRICS summit. A Russian specialist working with a Chinese colleague has the outward appearance of a joint Russian and Chinese government-sponsored project. But given the proposers’ backgrounds, this is not so.

Furthermore, I can find little merit and some serious flaws in the UNIT proposal. We can all agree the sense in 40% gold backing, but with 60% fiat in various currencies without gold conversion facilities but just valued day-to-day in gold is unnecessarily cumbersome, and the redemption proposal is impractical. The inclusion of blockchain technology is unnecessary, exposing a poor understanding of the relationship between money and credit. Proof of this is the absence of any mention of interest rates on the proposed currency.

In any event, for a currency to be credible the arrangements must be as simple as possible and easily understood to maximise confidence in it for its users. The UNIT fails on these grounds alone.

The reason for reviving this topic (which I wrote about in March) is that there is already mounting speculation about this proposal for a trade settlement currency being on the summit agenda. But from various statements (Deputy Foreign Minister Sergey Ryabkov, and Sergey Glazyev with responsibility for the Eurasian Economic Union currency project particularly) we can forget the UNIT and if a trade settlement currency is proposed it will probably be as an aspiration requiring further discussion.