Impact of Proposed BRICS Currency on the US Dollar
In the ever-evolving world of global finance, the BRICS nations - Brazil, Russia, India, China, South Africa, and a growing number of member states - are making significant strides towards establishing a new digital currency. This potential currency, known as the "Unit," is intended to be a gold-backed alternative to the US dollar, marking a potential shift in the international financial landscape.
Currently, the US dollar dominates the global financial system, accounting for approximately 90% of all currency trading. However, recent developments suggest that this dominance may be gradually eroded. In 2023, one-fifth of oil trades were reportedly made using non-US dollar currencies, signalling a growing trend towards diversification.
The BRICS nations discussed establishing a new reserve currency at the 2024 BRICS Summit in Kazan, Russia. Since then, efforts have been accelerated to develop currency mechanisms and cross-border payment alternatives, such as the mBridge platform, which aims to reduce reliance on the US dollar.
The mBridge platform, a collaboration between several organizations, has reached a significant milestone by completing its minimal viable product stage (MVP). This platform can undertake real-value transactions and is compatible with the Ethereum Virtual Machine (EVM).
The central bank digital currencies traded on the mBridge platform would be backed by gold and local currencies minted in member nations. This move towards the use of national currencies in intra-BRICS trade has increased significantly, with the Chinese renminbi reportedly accounting for about 50% of intra-BRICS trade settlements.
However, no single BRICS currency or vehicle currency has been established yet. Issues remain in settling imbalances and creating a reliable clearing mechanism. Despite this, the BRICS Bridge payment system, a BRICS blockchain-based payment system, is in development. This system is intended to connect member states' financial systems using payment gateways for settlements in central bank digital currencies.
The potential BRICS currency or payment system initiatives aim to reduce the dominance of the US dollar in trade among BRICS nations and in their broader economic interactions. This move is particularly significant in light of concerns over "weaponization" of the dollar in sanctions and geopolitical conflicts.
Despite these efforts, the US dollar remains dominant globally, being involved in 88% of global foreign exchange transactions and most financial settlements. The BRICS efforts are likely to gradually dismantle the dollar’s monopoly in these countries’ trade, but they will probably only affect a portion of global transactions and take years to develop and gain trust.
The potential establishment of a BRICS currency or broader multi-currency system could increase financial independence for member nations, diversify global currency reserves, and challenge the dollar’s hegemonic role over time. However, a wholesale dethroning of the US dollar is not imminent.
In summary, the proposed BRICS currency is an evolving project with pilot phases underway, aiming to complement or partially replace dollar use within BRICS economies. Its potential impact is significant for dollar reliance but will unfold gradually amid numerous financial and political challenges. The BRICS nations are not seeking to abandon the US dollar-dominated SWIFT platform, but rather to deter its "weaponization" by developing alternative systems for using local currencies in financial transactions between BRICS countries and with trading partners.
[1] BRICS Nations Discuss Gold-Backed Digital Currency [2] BRICS Nations Plan to Challenge Dollar Dominance with Gold-Backed Cryptocurrency [3] BRICS Nations Advance Plans for Gold-Backed Digital Currency [4] The BRICS Currency: A Challenge to the Dollar's Dominance [5] The BRICS Currency: A Step Towards Financial Independence
- The BRICS nations are planning to challenge the dollar's dominance in global finance by advancing plans for a gold-backed digital currency, which could potentially serve as an alternative to the US dollar in international transactions.
- In their quest for financial independence and diversification, the BRICS nations are discussing the creation of a gold-backed digital currency, which could impact the international financial landscape, particularly the role of the US dollar.
