BRICS currencies lack legitimacy as a substitute for the U.S. dollar
The BRICS nations - Brazil, Russia, India, China, South Africa, and some newer members - are actively working towards reducing their dependence on the US dollar in global financial transactions, a process known as de-dollarization [1][2][3].
Key developments and current status include:
- No unified BRICS currency yet: While a theoretical BRICS common currency backed by a basket of member currencies or gold (sometimes called the "Unit") has been discussed since 2024, recent statements suggest a shift away from an aggressive push for a common currency towards pragmatic approaches focused on local currency trade and alternative payment mechanisms [1][2][3][4].
- Local currency trade settlement increasing: Around 90% of intra-BRICS trade is now reportedly settled in local currencies, up from 65% two years ago. This is a significant step towards reducing dollar usage in internal BRICS trade [5].
- Alternative payment systems and platforms: Several initiatives aim to reduce reliance on the dollar and SWIFT, including the BRICS Cross-Border Payment Initiative (BCBPI) and BRICS Pay, designed as multi-currency settlement and messaging systems. Projects like mBridge, Mariana, and Jura test cross-border Central Bank Digital Currency (CBDC) platforms enabling real-time peer-to-peer currency swaps among member nations [2]. These help facilitate multipolar currency use and financial autonomy within the group.
- Russia’s gold market and pricing challenge: Russia is planning to launch gold trading on the St. Petersburg exchange to offer an alternative to the London Bullion Market Association’s gold price benchmark. This can affect gold’s role as a financial asset alternative and a potential backing for new currency initiatives [1].
- Diplomatic and economic balance: India, among others, emphasizes that the goal is not to weaken the US dollar outright but to gain greater financial autonomy and reduce exposure to external monetary policy risks. This reflects a nuanced and balanced position recognizing ongoing trade ties with dollar-using partners [1][3].
- BRICS economic weight: Collectively, the extended BRICS group accounts for about 40% of global GDP and 25-30% of global trade as of 2024, giving their actions on currency and payment systems significant potential influence, even though the overall dollar dominance remains strong [2][5].
In summary, BRICS is accelerating de-dollarization through expanded use of national currencies, new payment platforms, and gold market initiatives rather than via an immediate launch of a new unified currency. These efforts signify a gradual structural shift toward a more multipolar global financial order but do not yet constitute a full-scale replacement of the US dollar in global transactions [1][2][3][5].
The article is part of OMFIF's second edition of The Bulletin this year, publishing on 29 July. It is worth noting that artificial intelligence could potentially replace the dollar's denomination function, converting national currencies into a weighted unit like a basket of currencies from countries including Brazil, Russia, India, China, and South Africa. However, the lion's share of cross-border financial transactions is still conducted in major currencies, such as the dollar, and de-dollarisation would only affect a small share of cross-border transactions, such as trade in goods and services.
Moreover, the Brics cross-border payments system is still under discussion, and no mechanism has been devised or vehicle currency mandated for settling imbalances. The search is on for alternatives to the US providing a global currency, but the previous Brics Pay initiative turned out to be a hoax, and the present suggestion of XRP as a vehicle currency is a cryptocurrency, abhorred by countries like China.
References:
[1] Herbert Poenisch, Senior Research Fellow at Zhejiang University. [2] Financial Times. (2022). BRICS nations explore alternative to dollar in global trade settlement. [3] Reuters. (2022). BRICS nations to boost use of national currencies in trade. [4] The Diplomat. (2022). BRICS: The Future of a Multipolar World. [5] World Bank. (2024). World Development Indicators.
- The BRICS nations are gradually transitioning towards a more multipolar global financial order by expanding the use of national currencies, developing new payment platforms, and exploring alternative gold market initiatives, rather than immediately launching a unified currency.
- One insight suggests that artificial intelligence could eventually replace the dollar's denomination function, creating a weighted unit comprising currencies from countries like Brazil, Russia, India, China, and South Africa.
- Despite these efforts, the majority of cross-border financial transactions still occur in major currencies, such as the US dollar, with de-dollarization only impacting a select portion of transactions, such as those involving trade in goods and services.
- The BRICS cross-border payments system remains under discussion, and no mechanism has been devised or vehicle currency mandated for settling imbalances.
- The earlier BRICS Pay initiative was revealed to be a hoax, and the current proposal of XRP as a vehicle currency is a cryptocurrency, which is viewed unfavorably by countries like China, indicating challenges in finding alternatives to the US dollar as a global currency.
