A BRICS currency will erode dominance of US dollar

2023-07-23 19:19:32
A BRICS currency will erode dominance of US dollar

A BRICS currency would be poised to achieve a level of self-sufficiency in international trade that has eluded the world’s other currency unions, the US-based Foreign Policy magazine said in an analysis.

Because a BRICS currency union—unlike any before it—would not be among countries united by shared territorial borders, its members would likely be able to produce a wider range of goods than any existing monetary union.

An artifact of geographic diversity, that is an opening for a degree of self-sufficiency that has painfully eluded currency unions defined by geographic concentration, like the Eurozone, also home to a $476 billion trade deficit in 2022.

In March, in New Delhi, Alexander Babakov, deputy chairman of Russia’s State Duma, said that Russia is now spearheading the development of a new currency. It is to be used for cross-border trade by the BRICS nations: Brazil, Russia, India, China, and South Africa.

Weeks later, in Beijing, Brazil’s president, Luiz Inàcio Lula da Silva, chimed in. “Every night,” he said, he asks himself “why all countries have to base their trade on the dollar.”

These developments complicate the narrative that the dollar’s reign is stable because it is the one-eyed money in a land of blind individual competitors like the euro, yen, and yuan.

But a BRICS-issued currency would be different. It’d be like a new union of up-and-coming discontents who, on the scale of GDP, now collectively outweigh not only the reigning hegemon, the United States, but the entire G-7 weight class put together.

Foreign governments wanting to liberate themselves from reliance on the U.S. dollar are anything but new. Murmurs in foreign capitals about a desire to dethrone the dollar have been making headlines since the 1960s. But the talk has yet to turn into results.

By one measure, the dollar is now used in 84.3 percent of cross-border trade—compared to just 4.5 percent for the Chinese yuan.

Nevertheless, at least based on the economics, a BRICS-issued currency’s prospects for success are new. However early plans for it are, and however many practical questions remain unanswered, such a currency really could dislodge the U.S. dollar as the reserve currency of BRICS members.

Unlike competitors proposed in the past, like a digital yuan, this hypothetical currency actually has the potential to usurp, or at least shake, the dollar’s place on the throne.


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