A BRICS currency backed by gold 'makes no sense whatsoever,' says one market guru

• Creating a BRICS currency backed by gold makes no sense, says a former top Bank of America strategist.
• David Woo questioned what would be achieved by creating "just another gold derivative."
• The group of emerging economies are stepping up efforts to reduce their reliance on the US dollar.

The idea of a common currency for the BRICS nations that's backed by gold "makes no sense whatsoever," said strategist David Woo. 

The group of major emerging economies have called for ways to end the dollar's dominance as the world's premier reserve currency, and some think gold reserves could be used to back a new note. 

However, that approach would mean the new currency tracks the price of gold rather than the BRICS' individual currencies, according to the former head of global interest rates, foreign exchange, and emerging market fixed income strategy and economic research at Bank of America.

"In any event, we have to ask what exactly the BRICS would accomplish by creating what would be essentially just another gold derivative?" Woo said in a video on his Youtube channel. 

He pointed out that gold reserves were finite, and the more gold China used to prop up the new exchange, the less it would have to back its own currency – the renminbi.

"If you think having more gold backing a currency makes it stronger, then the more gold China allocates to the BRICS currency means there is less gold backing the RMB which, if we follow this logic, means a weaker RMB," he added. 

"The bottom line: the BRICS can create a currency backed by gold, but its purpose would be purely symbolic."

In recent months, China and several other countries have stepped up efforts to reduce their reliance on the greenback in international trade and investments – especially with the US leveraging the dollar's global supremacy to impose economic and financial sanctions on countries including Russia and Iran.

The BRICS group – Brazil, Russia, India, China, and South Africa — has been accelerating efforts to dedollarize, and Brazilian President Luiz Inácio Lula da Silva has called for a common trading note.

Even the idea of a BRICS currency was labelled "just ridiculous" by Jim O'Neill, the economist who first coined the BRICS acronym, last month.

The broader dedollarization movement is struggling to gain momentum. SWIFT payments involving the US dollar rose to a record 46% in July, Bloomberg reported.