The BRICS group has launched a working prototype of a gold-backed trade currency known as the “Unit”, as the world’s leading emerging markets search for a way to ditch the dollar, the Institute for Economic Strategies of the Russian Academy of Sciences (IRIAS) reported on December 4.

The Unit is a digital trade instrument backed by a reserve basket composed of 40% physical gold and 60% BRICS national currencies, equally weighted between the Brazilian real, Chinese yuan, Indian rupee, Russian ruble, and South African rand. The pilot was initiated IRIAS which issued 100 Units on October 31, each initially pegged to 1 gram of gold.

As bne IntelliNews recently reported in a deep dive into dedollarisation, the Global South have been long been unhappy with the dominance of the dollar in global trade, which gives the US a powerful geopolitical lever, but central bankers around the world were freaked out by the imposition of the SWIFT sanctions on Russia only days after Russia’s invasion of Ukraine in February that threatens every country in the world’s ability to trade freely.

Since then, they have been hunting for an alternative. Many countries have since switched to settling their mutual trade in national currencies. Russia and China now settle nearly all their trade in yuan and rubles. India and China have also switched to national currencies. And almost all the trade in the Eurasian Economic Union (EUU) is now done using each member’s own currency. However, while China and Russia's mutual trade balance is relatively balanced, making using national currencies easy, India runs a $60bn trade deficit with Russia thanks to the oil trade, making the relationship more difficult.

The BRICS countries have been looking at cryptocurrencies for a solution and introduced the BRICS Pay coin at the Kazan summit last year. Not a true cryptocurrency, BRICS Pay is based on digital versions of a digital ruble, rupee, yuan, etc as each government has been setting up a virtual version of their national currencies. Russia and others have already floated the idea of a gold-backed mechanism, particularly for bilateral trade

Russia ran trials for the digital ruble earlier this year, testing it in the domestic banking system. The BRICS ‘Unit’ is the first working prototype for a gold-referenced trade currency.

While not yet official policy, its existence is a direct step toward dedollarisation and a significant bullish signal for long-term gold demand. The value of the Unit is designed to fluctuate daily in line with movements in the component currencies against gold. By December 4, market fluctuations had adjusted the value of the reserve basket to 98.23 grams of gold, effectively bringing the Unit’s value to 0.9823 grams of gold per Unit.

Although currently limited to a test pilot phase, the instrument is being closely monitored by policymakers and central banks, particularly in the Global South. Several countries in Africa are also watching developments closely.

The aim of the initiative is to facilitate trade settlement without the use of the dollar, while also enabling countries to maintain gold reserves within their own borders. All the emerging markets have been aggressively buying gold in the last years and the Unit would make trading gold less cumbersome and increase the liquidity of the gold market.

The project is not yet officially adopted by the BRICS bloc or its central banks, but the experiment has been driven by select member states seeking alternatives to the current dollar-dominated financial architecture.