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(Kitco News) –
Deteriorating relations between the world’s two most populous countries threaten to set back the BRICS currency project and undermine the bloc’s dedollarization goals.

As Indian Prime Minister Narendra Modi prepares to host world leaders at the G20 summit in New Delhi this weekend, relations with China, which have been tense for some time, appear to have deteriorated further. Earlier this week, China announced that President Xi Jinping would not attend the G20 summit and would send Prime Minister Li Qiang instead. This is the first G20 summit Xi has missed since coming to power in 2013, and no explanation has been given for his absence.

The divide between the two Asian giants was also evident at the recent BRICS summit in Johannesburg, South Africa. Xi and Modi did their best to present a united front, but after Chinese and Indian diplomats held discussions over their disputed border region, where conflict erupted in 2020, both countries issued contradictory statements about who called the meetings and agreed what happened. The result was a diplomatic breakdown at the highest levels.

Russia will now take over the chairmanship of the BRICS in the new year, and no country on earth is more motivated to accelerate the ongoing process of de-dollarization and advance the creation of a new financial infrastructure for international trade and settlement, including a new commodity-backed currency, which is intended to replace the US dollar.

But without the full support of the world’s second and fifth largest economies, a gold-backed BRICS currency will never take off. While China’s $18.3 billion economy trails only that of the United States and is twice that of the other BRICS countries combined, India’s $3.5 billion economy is still much larger than Russia’s 2, $1 billion. And while Russia’s economy is in decline after 18 months of sanctions over the Ukraine war and China’s economy continues to slow, India’s economy is expected to grow 6.1 percent this year.

China and Russia also have the dubious distinction of having two of the worst demographic profiles of any nation, meaning economic growth could also benefit India in the medium and long term.

Another sticking point is India’s participation in the Quadrilateral Security Dialogue (QSD), commonly known as the Quad, a strategic security dialogue between Australia, India, Japan and the United States. Given China’s membership, it is not surprising that this dialogue focused on containing China’s territorial and military ambitions in the Eastern Hemisphere. India has been a participant in the Quad since 2007 and would find these talks only more important after the events of 2020.

Then there is technology, with China and Russia outside of Western high-tech supply chains and exchange arrangements, while India continues to align itself more closely with the United States and its allies. India’s successful moon landing during the BRICS summit, which came just days after Russia’s own spacecraft created a new crater, further highlighted what could be a growing technological divide between BRICS members.

Speculation that China and Russia could set aside some of their massive gold production to support the new BRICS currency could prove true. China and India now account for almost 50% of total gold demand and both are expected to remain important players on the precious metals purchasing side. But security almost always comes before economics, and alliances, borders, technology, trade and demographics are increasingly driving India and China apart.

Unless the two countries engage in high-level diplomacy at the G20 and maintain even a semblance of unity in the name of the trading bloc, all the gold in the world will not make the rival BRICS currency a reality.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, neither Kitco Metals Inc. nor the author can guarantee its accuracy. This article is for informational purposes only. It is not an invitation to exchange goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article shall not be liable for any loss and/or damage arising from the use of this publication.

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