As leaders of the BRICS nations-Brazil, Russia, India, China and South Africa prepare for the group’s summit from August 22-24 in South Africa, discussions of creating a new BRICS currency to offset the dominance of the US dollar are gaining momentum.
“One of the main topics on the agenda, other than the group’s expansion, is a push to conduct more trade among BRICS nations in local currencies and reduce the reliance on the US dollar,” Alarabia reported.
The bloc has been working to reduce its reliance on the US dollar for more than a decade, but after Russia invaded Ukraine, when the US imposed severe economic sanctions on Moscow, the concept of de-dollarization—or lessening the US dollar’s dominance in international trade and finance—became more popular.
“The BRICS countries are trying to accelerate the process of reducing their reliance on the dollar,” Papa, a Senior Fellow at the Fletcher School, Tufts University, told Al Arabiya English. “While Russia has always been committed to de-dollarization due to sanctions-related risks, now we see other countries, especially Brazil, becoming more vocal about acting on this agenda.”
Although the movement towards de-dollarization is gaining momentum, it is neither simple nor quick, given the numerous economic and political obstacles that still need to be overcome. For instance, the US dollar makes up 58 per cent of the world’s foreign exchange reserves and more than 80 per cent of all international trade.
Despite the dollar’s dominance, some analysts believe it is plausible to envision a new BRICS currency being used for trade.
“It (de-dollarization) might work this time because their (BRICS) ambition for an actual currency seems to have scaled down. It is no more this fanciable notion of a shared currency like the Euro; instead, they seem to be focusing more on the use of the currency in international trade, which is why it is more seriously a viable possibility,” Jo Sullivan, a former White House economist, told Al Arabiya English.
According to Sullivan’s analysis in a Foreign Policy piece, each of the BRICS countries is an “economic heavyweight” in their respective regions and can, therefore, cover all their import costs independently.
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