Edited By: Gokul Sundararaghavan
Abstract: The article explores the concept of de-dollarization within the BRICS bloc (Brazil, Russia, India, China, and South Africa) and its potential implications for global economics and geopolitics. It discusses the reasons behind the members' interest in reducing their dependency on the US Dollar and the idea of a BRICS currency to counter the dollar hegemony. However, the feasibility of a unified BRICS currency remains complex and uncertain due to various challenges and differing interests among the member countries. Despite the low likelihood of a new global currency, the wave of de-dollarization signals an upcoming shift in the global economic landscape. The article highlights the significance of this emerging trend and its potential impact on the international financial system.
What is BRICS?
BRICS depicts the combined economies of Brazil, Russia, India, China, and South Africa. It is an important economic bloc representing approximately 41% of the world’s population. It projects an economic and territorial alliance aiming to come together to address political disputes. Among its other aims, BRICS has and aims to play a significant role in reducing Western economic hegemony. Over the past 16 years, since its inception, the growing strength of the member countries has proven to be a formidable force in enhancing world economic development and global governance by focusing on three pillars: Politics and Security, Economic and Financial, Cultural and People-to-People Exchanges. In a bid to project pragmatism amidst the changing world dynamics post the pandemic and the Russia-Ukraine War, 19 countries have officially asked to join BRICS with several others expressing interest. This shows the desire for another forum to discuss the positioning of countries in this new dawn of globalization
Post World War-II, the dollar was the official currency putting itself and the United States in a position of power, providing benefits such as prestige, balance of payments flexibility, capital, and exchange rate gains among others. The dollar has become a symbol of the wealth and power of the United States that several others covet. The leading role played by the US Dollar and the influence it gets the United States in terms of world geopolitics has led many nations to rethink this hegemony and consider alternatives to insulate themselves from fluctuations in the dollar and aggressive US foreign policies (for instance Russian sanctions).
The members of BRICS have varied reasons to consider reducing their dependence on the dollar i.e. de-dollarize. For instance, the primary reason for Russia to de-dollarize would be to counter the impact of US sanctions on their trade and currency. China’s Renminbi reserves and their concerns with the dollar hegemony causing financial turmoil and instability along with their criticism of using sanctions as a foreign policy tool have led them to join Russia in promoting the need to de-dollarize and establish a new BRICS Currency. Brazil’s new approach towards a multilateralist stance also comes along with President Lula da Silva’s concerns over the dollar’s dominance and promoting the idea of trading in one's currency based on his speech at the New Development Bank. Developing countries such as India, South Africa and Brazil will also benefit from their rationale of shifting away from the dollar by boosting financial autonomy, and trade while also insulating themselves from fluctuations due to US Monetary policies and sanctions.
What is the BRICS currency? Is the Dollar getting replaced?
As of yet, BRICS currency is an idea that is primarily spearheaded by Russia and supported by other BRICS members like China whose inception took place to reduce the dependency on the US Dollar. There is an extremely complex web that needs to be untangled to even consider replacing the dollar for any/all international trade. From the perspective of India, several potential clashes may arise within BRICS while launching a common currency. For instance - the Russian preference of the Renminbi over the Rupee despite the Rupee-Rouble mechanism may cause disputes and create roadblocks in achieving the first step of de-dollarization i.e. transitioning to national currencies. Furthermore, recent military standoffs between India and China may hamper the unification in terms of launching a new global currency. Dr S Jaishankar, India’s Minister of External Affairs, has explicitly stated that there is “no idea of a BRICS currency” amidst other agendas that are going to be covered ahead of the summit in August. This shows that even though India might benefit from de-dollarization, spearheading a new global currency may not be the right path for it. ̧Even with the increased momentum of the de-dollarization wave, the dollar is here to stay and it seems unlikely for a new global currency to be launched, let alone completely replace it.
What if? Emergence of a BRICS Currency : A New Global Horizon
In the hypothetical situation of the emergence of a new, gold-backed currency, this section aims to explore the “What if?” aspect of this initiative. A stabilized BRICS currency would boost economic integration and trade among its member nations while mitigating the risk of volatility due to the dependence on the dollar. This may also cause an economic crisis in the United States. A widely adopted BRICS currency would reduce the impact of US sanctions and even cause a shift in the global power structure.
Despite the low traction of establishing a new global currency, BRICS along with several other countries have abundantly expressed their dissent with the current dollar hegemony. There is a wave of de-dollarisation emerging, with several countries entering into agreements to trade in their currencies. While the vision of a BRICS currency may not materialize, there is an upcoming, inevitable shift in global dynamics.