The US currency has been threatened. This past Tuesday, a summit was held to discuss the threat of the BRICS currency.
The BRICS currency is a common currency for trade and investment. This currency would help reduce vulnerability to the dollar exchange rate fluctuations. The BRICS nations include: Brazil, Russia, India, China, and South Africa. But, it also seems like some nations do not want to rely on the dollar for trade anymore. In fact, many foreign capitals have sought to dethrone the dollar since the 1960s. President Xi Jinping claimed, though, in the summit that it would serve as “the reform of the international financial and monetary system”.
There are up to 40 countries interested in joining the BRICS currency- like Egypt, Saudi Arabia, and Turkey. At the 14th BRICS summit in 2022, President Vladimir Putin talked about creating a new global reserve currency. Furthermore, the BRICS nations have developed over the past 50 years, according to political science professor Oliver Stuenkel. The US dollar has been dominant for decades. The Bank of International Settlements Data claims that the dollar accounts for about 90% of global forex transactions. In addition this current dollar system accounts for approximately 100% of oil trading. Plus, the dollar is used in over 74% of all international trade and is used in up to 60% of all foreign currency reserves held by central banks. But, non-western allies want to shift away from the dollar, especially since Russia’s sanctions-imposed exile from global financial systems.
The BRICS leaders want to shift away from the dollar, because they hope to use their national currencies more than the dollar. At the summit on Tuesday, Putin clearly stated that the objective is to have an “irreversible process of de-dollarisation of [their] economic ties”.
Nevertheless, analysts believe that this currency is flawed and that it would fizzle out because of the economic differences and circumstances between the BRICS nations. What unites these nations is their reluctance about US leadership and their desire to increase their leverage.
The current circumstances of the BRICS nations, though, are obstacles. For instance, there’s a board crisis between China and India, the Russian war against the Ukraine, and China is struggling economically and in a trade war with the US. Nonetheless, many countries find a trade relationship with China as crucial. Some of these BRICS nations that were unfamiliar with China 20 years ago are now desiring trade with China. In addition, Brazil’s pro-Trump president would benefit from this currency because no one would criticize their policies. However, these nations are not clear about producing a different model for currency; they disagree on the extent to which they want to counter Washington. Thus, experts suggest that BRICS currency is flawed because the countries have different economies.
What would be some advantages of this BRICS currency? One benefit would be efficient cross border transactions. This currency would also allow for more economic integration. The standing of the dollar would decrease and dollar dependence would decrease, as well. Yet, experts are not sure about the impacts BRICS currency would have on the dollar dominance. They do believe that it could weaken the power of US sanctions and decline its value. But, it may also inspire creations of other dollar alternatives. Also, industries like oil and gas would be affected. Inflation would increase, too.
Despite such worries, the BRICS currency isn’t coming any time soon, as it requires years of preparation. A new central bank has to be established and there must be an agreement between the 5 nations and their sovereignty currencies. But, the creation of the Euro in 1999 serves as proof that establishing the BRICS currency is possible. Still, setting up a BRICS currency won’t be easy. South African central bank governor Lesetja Kganyago says it would be a political project, a banking union, fiscal union and macroeconomic convergence would be required too. Plus, he mentioned the need for a “discipling mechanism for the countries that fall out of line with it”.
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Sources & References:
https://foreignpolicy.com/2023/04/24/brics-currency-end-dollar-dominance-united-states-russia-china/
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