New Delhi, July 10:Â A recent tweet by the Russian Embassy in Kenya suggests that BRICS countries are considering introducing a gold-backed trading currency to challenge the global dominance of the US Dollar.
An emerging economic bloc, BRICS, comprised of Brazil, Russia, India, China, and South Africa, has been increasingly vocal about challenging the existing global financial system.
A new BRICS currency is expected to take center stage in the discussions at the upcoming BRICS leaders’ summit in South Africa.
Need for a separate BRICS Currency
The US dollar currently holds a dominant position in global trade, accounting for nearly 60% of foreign exchange reserves and over 80% of global foreign exchange trading.
The US attained this status in 1944 through the Bretton Woods Agreement, effectively replacing the gold as a global reserve currency.
The US has leveraged this dominance to impose unilateral economic sanctions on adversaries, a phenomenon known as the “Weaponization of the Dollar.”
This misuse of economic sanctions has frustrated countries like Russia, Iran, and their allies, leading to a desire to challenge the global dominance of the dollar.
Additionally, fluctuating foreign exchange markets and sudden US monetary policy changes have caused payment and foreign exchange crises in several countries.
Rising economic powers, China and India seek to challenge the US-led global economic order and increase the usage of their national currencies in global trade.
These factors are driving non-Western countries towards de-dollarization.
This trend is further fueling the push for a common new currency that would allow these countries to bypass the dollar in bilateral trade.
Progress Towards a BRICS Currency
While the idea of de-dollarization has been present for some time, recent events have fueled its momentum.
Countries like Russia have begun bypassing the US dollar in trade exchanges by utilizing their national currencies, while India and China aim to internationalize the rupee and yuan, respectively.
Reports indicate that 18 countries so far have agreed to trade in Indian rupees, and the Chinese yuan is gaining global acceptance for payment in Chinese imports.
Brazil’s President Lula has also expressed support for de-dollarization and proposed new currency for South American regional cooperation.
The upcoming BRICS summit in South Africa is expected to include discussions on a potential new BRICS currency, with Russia, China, and Brazil officially supporting the launch, while India and South Africa maintain a non-supportive stance.
Challenges in Challenging the Dollar’s Domination
The global dominance of the dollar in reserves and trade makes it challenging for any alternative currency, including a potential BRICS currency, to gain widespread acceptance.
The existing international economic system is heavily dollar-dominated, and a shift towards a new currency is unlikely in the near future.
Fluctuating currency exchange rates pose additional difficulties in providing a viable alternative mechanism.
Furthermore, any potential BRICS currency would likely be dominated by the Chinese Yuan, which could raise concerns among India and South Africa due to fears of potential Yuan weaponization by China.
However, as China and India are attempting to regain their historical economic influence and seek to reduce their dependence on the US dollar, the de-dollarization could naturally evolve.
The actual progress regarding a new BRICS currency will be closely observed during the August BRICS leaders’ summit in South African capital of Johannesburg.
