Daily Management Review

Is The US Dollar In Jeopardy And What Is A BRICS Currency?


Is The US Dollar In Jeopardy And What Is A BRICS Currency?
In order to lessen their reliance on changes in the dollar exchange rate, the president of Brazil called on the BRICS countries to establish a single currency for trade and investment.
The suggestion was presented at a BRICS conference in Johannesburg by Luiz Inacio Lula da Silva.
Given the economic, political, and geographic differences between Brazil, Russia, India, China, and South Africa, officials and economists have highlighted the challenges that would be presented by such a project.
Why is a BRICS currency desired by Lula?
The president of Brazil has argued against requiring countries that don't use the dollar to transact in it and in favour of a common currency for the Mercosur group of South American states.
According to him, a BRICS currency "increases our payment options and reduces our vulnerabilities," he said during the summit's opening plenary.
How do the other BRICS presidents feel?
Officials from South Africa had stated that the summit's agenda did not include a BRICS currency.
India's foreign minister stated that "there is no idea of a BRICS currency" in July. Prior to leaving for the conference, its foreign secretary stated that increasing trade in local currencies would be explored.
Vladimir Putin, the president of Russia, announced that the meeting, which he joined via videolink, will discuss moving trade away from the dollar and towards national currencies.
China has not responded to the concept. At the conference, President Xi Jinping advocated for "the reform of the international financial and monetary system".
What are the difficulties in establishing a brics currency?
Lesetja Kganyago, the governor of the South African central bank, said in July that creating a BRICS currency would be a "political project."
"If you want it, you'll have to get a banking union, you'll have to get a fiscal union, you've got to get macroeconomic convergence," Kganyago said.
"Importantly, you need a disciplining mechanism for the countries that fall out of line with it... Plus they will need a common central bank... where does it get located?"
In a blog post for the think tank OMFIF, Herbert Poenisch, a senior scholar at Zhejiang University, stated that trade imbalances are an issue as well.
"All BRICS member countries have China as their main trading partner and little trade with each other."
The American dollar is it in trouble?
The dollar dramatically grew last year as the Federal Reserve boosted interest rates and Russia invaded Ukraine, increasing the cost of dollar debt and numerous imports. Leaders of the BRICS nations have stated that they wish to use their national currencies more frequently instead of the dollar.
Expulsion of Russia from international banking systems due to sanctions last year fueled rumours that non-western allies would abandon the dollar.
"The objective, irreversible process of de-dollarisation of our economic ties is gaining momentum," Putin told the summit on Tuesday.
According to data from the International Monetary Fund, the percentage of US dollars in official foreign exchange reserves hit a 20-year low of 58% in the fourth quarter of 2022 and 47% when corrected for exchange rate fluctuations.
The dollar continues to rule international trade, nevertheless. Almost 90% of all foreign exchange transactions worldwide have it on one side, according to data from the Bank for International Settlements.
Dedollarization would require several exporters, importers, borrowers, lenders, and currency traders to individually elect to utilise alternative currencies on a global scale.