A dual-currency model with gold-backed banknotes could help developing nations boost stability, reduce dollar reliance, and strengthen financial sovereignty
Before President Franklin D. Roosevelt’s April 5, 1933, recall of gold-backed currency, the U.S. Treasury had been circulating gold Certificates since 1865. These notes were backed by equal gold coin and redeemable upon demand. When the U.S. left the Gold Standard, the Federal Reserve Bank (FED) destroyed most gold certificates. After that day, the FED became the sole issuer of U.S. banknotes.
In July 1944, 44 allied countries met in Bretton Woods, U.S., to avoid the second great depression and World War III. During these 22 days in July 1944, the New World Monetary Order was established; the World Bank and the International Monetary Fund (IMF) were created. Under the Bretton Woods system, the U.S. Treasury guaranteed convertibility of foreign governments’ and central banks’ gold bullion at US$35 per troy ounce (0.88867 grams of fine gold per U.S. dollar). So, the U.S. dollar has become the “Reserve currency.” The IMF has started to monitor exchange rates and lend reserve currency to countries with deficits in payments. After Bretton Woods, the U.S. held $26 billion in gold reserves, an estimated total of $40 billion (approximately 65% 65% of world gold reserves).
Because of the dollar’s tremendous growth in the last two decades, on August 15, 1971, the U.S. ended the dollar’s convertibility to gold, effectively ending the Bretton Woods system and rendering the dollar a floating currency. Shortly thereafter, many fixed currencies also became free-floating, and floating exchange rates have characterized the subsequent era.
Common currency idea
At the beginning of 2023, Brazil’s and Argentina’s leaders revived the idea of a Common Currency proposed by country economists to boost trade and reduce the region’s reliance on the U.S. dollar. However, the idea was unlikely to be implemented anytime soon since economists could not introduce a more reliable currency than the U.S. dollar. BRICS+ is an intergovernmental organization comprising ten countries: Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran, and the United Arab Emirates. Even though it is not true, some economists and politicians consider BRICS+ institutions as an alternative to those led by nations of the G7 bloc – the world’s leading economies – and describe it as a grouping of countries with increasingly anti-Western and anti-American objectives. BRICS+ has implemented competing initiatives such as the New Development Bank, the BRICS Contingent Reserve Arrangement, BRICS PAY, the BRICS Joint Statistical Publication, and the BRICS basket reserve currency.
A BRICS currency was a topic at the 2024 BRICS Summit. At the summit, the BRICS nations continued their discussions of creating a potentially gold-backed currency, known as the “Unit,” as an alternative to the U.S. dollar. The potential BRICS currency would allow member nations to assert their economic independence while competing with the existing international financial system. The current system is dominated by the U.S. dollar, which accounts for about 90 percent of all currency transactions and trading. If the BRICS nations establish a new reserve currency, it would significantly impact the U.S. dollar, potentially leading to a decline in demand for the U.S. dollar or what’s known as de-dollarization. This would have implications for the U.S. and global economies. At the 2024 summit, Russian President Vladimir Putin appeared on stage, holding a possible BRICS banknote prototype. It was not a call to move away from the U.S. dollar-dominated SWIFT platform, but rather to introduce alternative systems for using local currencies in financial transactions between BRICS countries and trading partners.
On the other hand, U.S. President Donald Trump’s America-first policies are expected to drive up the dollar’s value compared to its global counterparts. This could push these BRICS member nations to look for new paths to move away from the U.S. dollar. The ongoing U.S. trade war with China, Europe, and others, as well as U.S. sanctions on several countries, could be a push for alternative U.S. solutions.
Double currency proposal
U.S.’s “Reserve Currency” position will continue since the American economy is enormous and almost all foreign currency and trade transactions are carried out in US$. However, this situation is not a bottleneck for a single country that is introducing a second(or maybe third) currency, which could be traded in parallel to the U.S. dollar and the country’s existing currency. This idea is not an argument to compete with the dollar, but an addition to the country’s existing currency (if any). To be more clear, developing countries already have two currencies in circulation inside their country: the U.S. dollar and their local currency. For example, in my country, Türkiye, the official currency is Turkish Lira, and both U.S. dollars and Turkish Lira are accepted as payment mediums.
Developing countries’ vulnerable position
As is known, a developing country’s foreign reserve is the total of its reserve currency accounts plus gold bullion holdings of the country’s Treasury and/or the Central Bank.
Both foreign currency and gold bullion holdings of the developing country’s central banks have not been able to be assessed at high rates. Usually, gold reserves earn zero percent interest, and foreign reserves in reserve currency are held at a minimum interest rate by the respective country’s central bank(e.g., the Fed). This situation means that a developing country’s foreign reserves cannot be considered for growth purposes, but only to attract foreign investments and guarantee the payment of the country’s foreign debt.
Issuing gold-denominated banknotes
My proposal for developing countries is to issue “Gold Denominated Banknotes,” which will be in circulation parallel to the country’s existing banknotes.
For example, in Türkiye, Turkish Lira banknotes and Gold Turkish Lira banknotes will be accepted as payment mediums. According to the proposed system, Gold Turkish Lira banknotes would be issued with the following terms and conditions:
- Backed by a hundred percent gold reserves.
- They will not be gold certificates but direct banknotes for daily use.
- Only banknotes are going to be issued, not coins.
- The Central Bank will decide on denominations.
- l The amount of gold banknotes would gradually increase over time.
- l The total amount of banknotes will not exceed the total amount of the country’s gold reserves minus the security margin.
- l An international committee will audit and supervise the amount of the country’s existing gold reserves and gold Turkish Lira banknotes.
- l Authorized exchange offices and banks can convert gold Turkish Lira into Turkish Lira or foreign currency at prevailing market rates.
- l Large amounts of Gold Turkish Lira could also be traded on Stock Exchanges.
- l Authorized banks can open deposit accounts against the Turkish Lira as well.
- l The Central Bank of the Republic of Türkiye must pay gold or an equivalent amount of Turkish Lira on demand.
- l Gold Turkish Lira banknotes could be used for import or export transactions.
- l The Central Bank of the Republic of Türkiye will follow necessary policies to keep monetary expansion on target.
The proposal mentioned above was only an example for a developing country. It is not a return to gold-backed currency or issuing gold certificates. Of course, the U.S. dollar’s position as “Reserve Currency” will continue. Also, this idea is not an argument to compete with any other currency.
Yaman Törüner is the former Governor of the Central Bank of Türkiye and a prominent figure in Turkish finance. He previously served as Chairman and CEO of the Istanbul Stock Exchange, held key positions at the IMF and World Bank, and was a Member of Parliament and State Minister. A longtime Akbank Board Member, he has also contributed to academia and media as a professor and columnist.
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