Economics in action Will the BRICS create a dollar rival as a currency?
Although officials have said there are currently no plans yet to create a common currency, there have been growing talks about BRICS nations mulling over a new reserve currency.
Why would a BRICS currency be necessary? The move would make it more convenient for intra-trade among member countries and they’ll shed the high dollar conversion costs of transactions.
So perhaps we should first look at what has happened to fuel this discussion about need for a BRICS currency when the US dollar has been a global reserve currency for decades.
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One very important reason is that the behaviour of the United States over the years has eroded the confidence of many countries in this superpower.
The US has clearly used the dollar as a weapon against many countries and people it doesn’t like or those who refuse to support its conduct across the world.
Many countries are facing financial sanctions imposed by the U.S., which prevent countries and companies from trading with them.
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But perhaps the most recent sanctions against Russia for launching a special military operation against Ukraine could be seen as the latest driver for renewed talks of a BRICS currency.
Russia has had to use other currencies including its ruble, Renminbi and rupees when trading with its partners in order to bypass sanctions.
Also, when the Afghan government dissolved in 2021, it left about $10 billion in Central Bank assets on deposit at the US Federal Reserve Bank.
Since the Taliban took over power, the US has refused to hand over the assets to be used to help Afghanistan people who are now are faced with one of the worst humanitarian crises in the world.
It now plans to spend the money while the Afghani people suffer.
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All these moves by the U.S. have left countries thinking about the same potentially happening to them, and thus thinking of an alternative to the dollar as an option for many countries.
The Russia case has emboldened several countries to venture into testing the waters with using other currency like RMB in their foreign trade.
Argentina has started using the yuan to settle part of its International Monetary Fund debt, while Bolivia has started using the Chinese currency to pay for imports and exports.
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For BRICS countries, Brazil, Russia, India, China, South Africa plus new members, a new currency to replace the dollar will make trade between the group members easier.
Russia, Venezuela, Iran, Cuba, Zimbabwe and many others that face sanctions from the United States would be relieved of the burden of trying to find ways to trade with other countries.
So, the US should take the responsibility for the move towards de-dollarization and to create a new currency.
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Actually, many organizations and groups have lost confidence in the US.
Earlier in August, Fitch announced that it had cut the U.S. long-term foreign currency issuer default rating to AA+ from AAA.
It was the first downgrade of its kind since 1994.
In Fitch's view, there has been a steady deterioration in standards of governance over the past two decades, including on fiscal and debt matter.
Fitch also noted that a combination of tightening credit conditions, weakening business environment and a slowdown in consumption could lead the economy into a 'mild' recession.
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