Home Finance News What is BRICS currency and is US dollar in jeopardy?

What is BRICS currency and is US dollar in jeopardy?

What is BRICS currency and is US dollar in jeopardy?

During the recent BRICS summit in Johannesburg, Brazil’s President Luiz Inacio Lula da Silva proposed the creation of a common currency for trade and investment among BRICS nations. He believes that such a currency would reduce their vulnerability to fluctuations in the US dollar exchange rate. However, officials and economists have pointed out the challenges involved in this project, given the economic, political, and geographic disparities between Brazil, Russia, India, China, and South Africa.

Lula’s proposal for a BRICS currency stems from his belief that nations that do not use the US dollar should not be forced to trade in it. He has also advocated for a common currency among South American countries in the Mercosur bloc. According to Lula, a BRICS currency would increase payment options and reduce vulnerabilities for member nations.
Leaders of other BRICS nations have expressed differing opinions on the matter. South African officials have stated that a BRICS currency was not on the agenda for the summit. India’s foreign minister mentioned that there was no idea of a BRICS currency, while its foreign secretary stated that discussions on boosting trade in national currencies would take place. Russian President Vladimir Putin, who attended the summit via videolink, discussed the possibility of switching trade between member countries away from the dollar to national currencies. China has not provided any comments on the idea.

Setting up a BRICS currency would entail significant challenges. According to South African central bank governor Lesetja Kganyago, it would require a banking union, fiscal union, macroeconomic convergence, and a disciplining mechanism for countries that fall out of line. Additionally, a common central bank would need to be established, raising questions about its location. Trade imbalances among BRICS member countries are also a concern, with China being the main trading partner for all countries and little trade occurring between member nations.

The proposal for a BRICS currency comes as these nations express a desire to reduce reliance on the US dollar. Fluctuations in the dollar’s exchange rate and the strengthening of the currency in recent years have prompted leaders to explore alternatives. However, despite the decline of the dollar’s share of official foreign exchange reserves, it still dominates global trade. De-dollarization would require a significant shift in behavior among exporters, importers, borrowers, lenders, and currency traders worldwide.

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