Introduction to BRICS Currency

In recent years, the BRICS countries—Brazil, Russia, India, China, and South Africa—became more openly vocal about setting up a reserve currency. The envisaged currency, with the support of the economic prowess of this bloc of emerging economies, could threaten US dollar hegemony in global trade. But what exactly might it mean to the global financial system, and how might it impact the average investor?

Reasons the BRICS Nationalities Want a New Currency

BRICS seeks a currency because of economic and political parameters, mainly economic independence from a failed US-backed system that gives an unfair advantage to the West over almost half of the global population.

The imposition of US sanctions against Russia and Iran, especially, has stoked the fire for a currency alternative. These countries recognized their economies were already suffering from trade sanctions against the US and were eager for protection against this vulnerability. Setting up a reserve currency could help BRICS nations cut their dependence on the dollar and offer their economies more resilience against external pressure.

The Potential BRICS Currency

The proposed BRICS currency could either consist of a basket of national currencies of the member states or be a digital currency founded on blockchain technology. This currency, in its preliminary term called “Unit,” could also be backed by gold, thus providing an attractive alternative for countries attracted to stability and safety in the face of an otherwise volatile global economic system.

The BRICS countries had made some moves towards reducing the dollar’s impact on bilateral trading in their local currencies. A common currency would be a logical next step in de-dollarization. Although this idea has gained some traction in recent years, a full-fledged BRICS currency is yet a far-off prospect.

Advantages of the Currencies of BRICS

If BRICS nations succeed at developing a new reserve currency, several advantages might accrue, particularly in terms of economic integration and global influence. Strengthening economic ties between BRICS nations, with a new currency, could bring about quicker trade and investment among the nations. This would give countries within BRICS more power over their financial systems because they would no longer depend on Western-instigated or Western-dominated institutions like the IMF or World Bank.

In a broader sense, the BRICS currency would reduce the US dollar’s control over international trade and investment. The dollar now accounts for about 90 percent of global trade, but with the emergence of a BRICS-backed currency, countries might be able to diversify away from it, especially in reserves.

More so, a BRICS currency might allow regional integration between emerging economies and other countries into alliances for reduced dependence on the dollar and increased local currencies. This could achieve a good offset against dollar instability and promote economic cooperation.

Donald Trump’s Views

However, the rise of the BRICS currency has not been without opposition. Former US President Donald Trump granted multiple warnings against the said currency, threatening BRICS nations with tariffs should they march on towards replacing the US dollar with the world reserve currency.

Trump’s “America First” policies attempted to safeguard American interests, and his attack on the BRICS currency serves as witness to this protectionism. Toward the end of 2024, Trump posted on social media a warning to BRICS nations that they should not participate in any currency meant to replace the dollar; otherwise, they would face severe consequences of tariffs. His remarks point to the fact that the US prefers to keep the dollar at the center of international trade.

Read This Also: Trump’s Tariff Threats and the BRICS Currency Challenge: A Shift in Global Economics?

While US government holds on to the idea of a BRICS currency, some experts, however, suppose Trump’s aggressive trade policies will spur the process of de-dollarization, with nations now wary of American at-will exploitation of a large amount of US financial resources for political ends.

How would it affect the US dollar?

Many decades: the global reserve currency is then endowed with multiple superlatives, as the dollar has ruled for far too long, clinching the lion’s share of foreign exchange reserves and international transactions. An introduction of a BRICS-backed currency would therefore not dent the dollar’s position.

If successfully implemented, a BRICS currency could weaken the US dollar’s status as the global reserve currency, resulting in a lower demand for US dollars, leading to a reduced value of the dollar, influencing both global markets and, consequently, the US economy. A weakened dollar would lessen US purchasing power and fuel inflation, hitting American households hard.

But here still lies the question: is the BRICS currency then equipped to face the competition that has established itself within the dollar role? Global dominance of the dollar is so integrated into today’s world financial systems that turning back from the dollar would necessitate a total overhaul of trade, finance, and monetary policy.

Could BRICS Move to Digital Currency?

In the digital age, the BRICS countries are also exploring the prospects of a digital currency. The “BRICS Bridge” project, under development since 2024, will link the financial systems of the BRICS member states using blockchain technology. This platform could act as an alternative to the current SWIFT system, which remains in the hands of the US dollar.

This digital BRICS currency is sexy because it offers low-cost cross-border transactions, lower fees, and financial inclusion for people in emerging markets. Digital currencies will provide great control of BRICS nations in their framework and a reduced reliance on Western institutions.

Bracing Up for the Emergence of the BRICS Currency

The inception of the currency, however, introduces both challenges and opportunities for investors. The new currency is not yet drafted, but investments can continue to follow the trend in BRICS and their potential impact on the global market.

To embrace this change, investors may consider a diversified portfolio, including currencies in addition to the US dollar, including the Chinese yuan, Indian rupee, and even the Russian ruble. Commodities such as gold and silver could also be a hedge against the currency.

Furthermore, with increased economic integration of the bloc, investors will target emerging markets in the BRICS to tap new opportunities. Alternatively, they can consider exchange-traded funds and mutual funds that focus on BRICS economies to diversify their risk.

Conclusion

All in all, as of yet, the BRICS currency concept is still under development, but they could adjust the established order in the international financial system. Amidst the de-dollarization wave, BRICS countries are positioning themselves to be part of the promising future in international trade and finance. While this develops, investors around the world as well as global policymakers will need to keep a close watch on changes ahead, as the distribution of economic power shifts from the US dollar axis.

References:

https://www.cfr.org/backgrounder/what-brics-group-and-why-it-expanding

https://www.dw.com/en/trump-threatens-brics-with-tariffs-if-they-replace-us-dollar/a-71464802

https://investingnews.com/brics-currency

https://www.aa.com.tr/en/world/russia-says-brics-not-discussing-common-currency/3467953