- In late March, Russian officials announced that the BRICS (Brazil, Russia, India, China, and South Africa) countries are working on creating a new currency for use in international trade.
- BRICS has developed deep ties since its inception in 2009 through expanded access in trade, annual diplomatic summits, and the creation of the New Development Bank.
- The close economic cooperation between the five emerging economies is a concern for USD’s (U.S. dollar) status as the world’s reserve currency, as its decline can lead to economic and geopolitical disadvantages for the United States.
A top Russian official stated at the St. Petersburg International Economic Forum in March that Russia and India are working together on a central digital bank currency (CDBC), with the assistance of other BRICS nations (Brazil, Russia, India, China, and South Africa). State Duma Deputy Chairman Alexander Babakov stated that the currency “should be based on establishing new financial ties based on a system that does not safeguard today’s dollar and euro, but rather creates a new currency capable of serving our goals.” This announcement marks a significant progression in the BRICS bloc following the creation of the New Development Bank in 2014 and the five nations projected economic growth in the forthcoming decades.
Formation of BRICS
The “BRIC” term was first coined by former Goldman Sachs economist Jim O’Neill in 2001. In his piece titled Building Better Global Economic BRICs, O’Neill described the economic potential of Brazil, Russia, India, and China (BRIC), their projected collective share of world GDP, and the overall global economic landscape through 2050. He suggested that the continued development of the four BRIC countries necessitated their inclusion in global cooperation in economic policy.
While initially just an acronym coined by O’Neil, BRIC (and later BRICS) has turned into one of the world’s strongest economic and geopolitical blocs. The foreign ministers of BRIC first met in 2006 on the margins of the United Nations General Assembly in New York City. In 2009, they held their first formal diplomatic summit in Yekaterinburg, Russia centered on economic cooperation and reform of global financial institutions. In 2010, South Africa joined the bloc to form BRICS.
Economic Cooperation in the Bloc
In 2014, BRICS announced the creation of the New Development Bank, a multilateral effort established to “support public or private projects through loans, guarantees, equity participation and other financial instruments.” Each country initially provided $10 billion for 20% equity in the bank, but has since welcomed minor investments by Bangladesh, Egypt, UAE, and Uruguay.
The creation of an alternate currency to counter the West (USD and EUR) has been a top priority of the bloc. The idea was first raised at the inaugural BRICS summit in 2009 and a read-out afterwards called for “a stable, predictable and more diversified international monetary system.” The currency would be a basket of the five BRICS currencies: Brazilian Real, Russian Ruble, Indian Rupee, Chinese Yuan, and the South African Rand. BRICS believes that their currency would lessen American influence on the global marketplace and attract investment from nations looking to rely less on USD. For now, this belief would appear to be true, as “dozens” of additional nations are interested in joining the BRICS bloc including Iran, Afghanistan, Saudi Arabia, and Syria.
Concerns for USD and the United States
Since the conclusion of World War II, USD has remained the world’s dominant reserve currency. USD’s status as the standard foreign reserve currency gives the United States economic advantages in both borrowing and lending. Its status also gives the United States a massive geopolitical advantage through the ability to enforce sanctions on specific parties by restricting transactions with the dollar. Throughout the 1970s, USD was more than 80% of the world’s reserve currency but dipped to under 50% by the end of the 1980s due to the energy crisis and stagflation. Despite the crash, the USD recovered to over 70% of the world’s reserve currency by the turn of the century. Since then, USD has slowly decreased throughout the 21st century and accounted for just 58.36% of foreign reserves in 2022.
Efforts to “de-dollarize” by BRICS and other nations opposed to USD are rapidly progressing, fueled partly by high inflation and rising interest rates in the United States. In addition to the proposed development of a BRICS-backed currency, the bloc has made many efforts to reduce the usage of USD in the international marketplace.
- China has signed agreements with Brazil, India, and Russia to conduct trade with each other’s currencies.
- The Association of Southeast Nation Countries (ASEAN) recently discussed conducting financial transactions in their local currencies through a cross-border digital payment system.
- China is putting pressure on Saudi Arabia to trade petroleum in yuan.
- India and Malaysia have agreed to trade in Indian rupees.
- Russia and Iran are negotiating a deal to issue a joint stablecoin to evade stringent Western sanctions.
Alongside these agreements, economists and USD-proponents worry a BRICS currency could hurt USD’s status even further. While only China’s yuan is held in substantial amounts in foreign reserve markets currently, the bloc is continuing to increase its presence in the global economy.
|Currency||Percentage of Global Reserve||Value in Global Reserve (In billions)|
|U.S. Dollar (USD)||58.36%||$6,471.28|
|Japanese Yen (JPY)||5.51%||$610.85|
|British Sterling (GBP)||4.95%||$548.68|
|Chinese Renminbi (CNY)||2.69%||$298.44|
|Canadian dollars (CAD)||2.38%||$263.68|
The lack of a substantiative reserve currency to USD or EUR is the main factor in the desire to create a BRICS currency. While it may seem farfetched that the bloc will be able to successfully catch USD, the bloc contains some of the largest and fastest developing economies in the world and accounts for more than one-fourth of the world’s GDP.
|Country||GDP in 2000||Rank||GDP in 2021||Rank|
|China||$1.2 trillion||#6||$17.7 trillion||#2|
|India||$468 billion||#13||$3.1 trillion||#5|
|Russia||$259 billion||#20||$1.7 trillion||#11|
|Brazil||$655 billion||#10||$1.6 trillion||#12|
|South Africa||$151 billion||#29||$419 billion||#32|
While BRICS has only been a formal alliance for fifteen years, its swift emergence has given it great influence in global markets. The bloc has promoted de-dollarization efforts over the past decade through the creation of the New Development Bank and several multilateral agreements to conduct international trade in local currencies, rather than USD. The development and potential use of a shared BRICS currency advances their de-dollarization efforts and could threaten the hegemony of USD as a reserve currency, thus weakening the economic capacity and geopolitical influence of the United States.
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