While unlikely to replace the US dollar immediately, the BRICS currency could challenge its dominance over time, leading to a more diversified global financial system. The platform was introduced at the forum and is considered a key tool to reduce reliance on Western financial systems. BRICS members, especially Russia and China, have pushed for its adoption to bypass US sanctions and decrease dependence on the dollar. Despite the discussion over central-bank digital currencies, there would inevitably be challenges in any implementation. The central banks of China, Hong Kong, the UAE, and Thailand participated in a BIS trial of the digital-currency system in 2022, but it’s not live yet.
It is believed that the use of national digital currencies would support investment and development, particularly in infrastructure and technology projects across the Global South. While Russian President Vladimir Putin has suggested hard assets such as gold or oil, a new BRICS currency would likely be backed by a basket of the bloc’s currencies. However, this basket could potentially contain gold as well, as Andy Schectman explained to INN. The planned system would serve as an alternative to the current international cross-border payment platform, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system, which is dominated by US dollars. “The development of anything alternative is more a medium to long term ambition. There is no suggestion right now to creates a BRICS currency,” Leslie Maasdorp, CFO of the New Development Bank, told Bloomberg at the time. Amid these concerns, the rise of digital assets presents an additional threat to the dollar’s global dominance.
The potential BRICS currency would allow these nations to assert their economic independence while competing with the existing international financial system. The current system is dominated by the US dollar, which accounts for about 90 percent of all currency trading. Until recently, nearly 100 percent of oil trading was conducted in US dollars; however, in 2023, one-fifth of oil trades were reportedly made using non-US dollar currencies. The BRICS+ nations (Brazil, Russia, India, China, and South Africa, along with other emerging economies) are at the forefront of this movement, actively seeking alternatives to the dollar in international trade and finance.
Rich countries in the top 20% quintile receive more than 1% of GDP worth of net foreign capital income, whereas 2-3% of GDP is drained out of the rest of the world. This drain of wealth from Global South to North is even clearer when the countries are separated into national income per capita quintiles. What this shows is that EMDEs have not significantly benefited from foreign investment, even though these are the fasting growing economies on Earth. In contrast, total global merchandise trade in 2023 was $23.8 trillion according to the World Trade Organization. UNCTAD calculated that world trade in goods in 2022 was roughly $25 trillion, and global trade in services was $6.5 trillion.
“However, market participants (as opposed to sovereign) have not started using the SDRs as a unit of account, and market infrastructure for the SDRs remains elusive”. The SDR can help to eliminate the inherent risks of credit based sovereign currency and make it possible to manage global liquidity. And when a country’s currency is no longer used as the yardstick for global trade and as the benchmark for other currencies, the exchange rate policy of the country would be far more effective in adjusting economic imbalances. This will significantly reduce the risks of a future crisis and enhance crisis management capability. In February 2024, the finance ministers and central bank governors of BRICS met in Sao Paulo, Brazil. There, the Russian representatives said they would prepare a report “for BRICS countries’ leaders with a list of initiatives and recommendations on ways to improve the international monetary and financial system”.
