A BRICS Common Currency? The New Plans To Challenge U.S. Dollar Hegemony
The creation of a new common currency will be one of the main questions on the agenda at the BRICS summit in South Africa in August. But there are still many obstacles to overcome before breaking free from the almighty dollar.
PARIS — Faced with the dollar's continuing hegemony, the BRICS bloc of non-Western nations — Brazil, Russia, India, China and South Africa — have been loudly calling for an alternative in recent months.
First, it was Brazilian President Luiz Inacio Lula da Silva in April, after the appointment of Brazil's former president Dilma Rousseff to head of the New Development Bank (NDB): "I ask myself every night why all countries are obliged to trade according to the dollar," Lula said.
The group of five countries accounts for over 40% of the world's population, nearly a quarter of global GDP and 18% of global trade. This drives their monetary ambitions, which align with their vision for a multi-polar world no longer dominated solely by American power.
After World War II, the dollar replaced the pound sterling as the world's standard currency, and today it accounts for 58% of the world's foreign exchange reserves. Russia in particular welcomes this proposal, as American sanctions following the war in Ukraine have demonstrated the dollar's political power.
Yet, "it's not really a case of wanting to dethrone the dollar," says Zongyuan Zoe Liu, a researcher at the Council on Foreign Relations and co-author of the study "Can BRICS De-dollarize the Global Financial System?"
"You have to distinguish between wanting to use your own currency to build alternative systems to minimize risk, and absolutely wanting to dethrone the dollar, even at your own risk."
In any case, for the time being the aspiration remains wishful thinking, as the details of the future currency's form are still very unclear. "It's a question we need to discuss," said Naledi Pandor, South Africa's head of diplomacy. "I don't think we can just assume that this idea will work, because the economic issues are complicated, and we have to consider all the countries well." The South African Central Bank has also expressed doubts about the feasibility of the project.
At present, it is unlikely that each country will agree to abandon its own monetary policy in favor of a common central bank, "as their systems are very different", says William Gumede, Professor at the University of the Witwatersrand in Johannesburg.
Trust in the institution or countries behind a currency is a crucial factor.
"China has a state-controlled central bank, as does Russia, while South Africa, Brazil and India have independent central banks: so their monetary policies are very different. And there's also the matter of China's willingness to relinquish control over its own currency."
BRICS institutions' reliability is also a sticking point: "Trust in the institution or countries behind a currency is a crucial factor, especially for a reserve currency," explains Martin Cameron, Director of the Trade Research Advisory at South Africa's North West University. "So even if the BRICS commit to this, completing transactions will probably be a challenge, because in South Africa, for example, the government can't force companies to use this currency."
Not to mention that the question of whether "China will try to manipulate this currency for its own personal gain" will be on everyone’s mind.
Will BRICS countries lead the way in minting a new common currency?
Alternative payment systems
"I don't think we'll choose a Euro-type model," says Zongyuan Zoe Liu, especially given the lack of "monetary stability in several countries in the past". Other models are also being considered, such as a currency backed by a raw material like gold, or the creation of a basket of currencies, provided an agreement can be reached on the weight criteria for each.
Martin Cameron has little faith in the hope that this common currency will increase the still underdeveloped trade between the BRICS: "Instead, we need to look at our productivity: what do we choose to produce, and is there something that our trading partners need?" he says.
I don't rule out the possibility of this currency seeing the light of day.
In the meantime, other paths to independence from the dollar are being explored, including more trade in local currencies: since the beginning of the year, China has largely switched to the yuan to pay for its raw materials purchases from Russia, and Brazil intends to follow suit. These changes go hand in hand with the development of alternative payment systems to the SWIFT model.
The possibility of expanding the group to include countries such as Saudi Arabia, now under consideration, could also reframe the situation. To those who doubt the viability of a common currency, Zongyuan Zoe Liu points out: "Many didn't think that the BRICS would have the resources and political coherence to establish the New Development Bank, and yet they did, so I don't rule out the possibility of this currency seeing the light of day, even if I have serious doubts about the development speed of such a project."
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