- The proposed BRICS cross-border currency represents a significant step in challenging the influence of the US dollar in world trade.
- The BRICS nations seek to promote settlement in local currency as a strategy to diminish the hegemony of the dollar.
- Although there are divergent views on the feasibility of a common BRICS currency, the accelerated growth of local currency settlement is a tangible step towards de-dollarization.
The proposal for a BRICS cross-border currency has generated interest and discussion among the nations that make up this group: Brazil, Russia, India, China and South Africa. According to a report by China’s Global Times, Zhou Yu, director of international finance research at the Shanghai Academy of Social Sciences, sees this initiative as a significant challenge to the dominance of the US dollar. Zhou argues that promoting local currency settlement gives the BRICS countries a competitive advantage by reducing the influence of the dollar in world trade.
The next summit of BRICS leaders, scheduled for August 22, 2023 in Johannesburg, South Africa, will focus on establishing a cross-border currency. This newly proposed theme has generated expectations and will be a focal point of discussions at the event.
Divergent views on the feasibility of the proposed common currency
In an interview with the Global Times, Naledi Pandor, South Africa’s minister for international relations, warned against accelerating the development of a BRICS cross-border currency.
However, Zhou Yu, director of the CCP-backed Shanghai Academy of Social Sciences International Finance Research Center, shared insights on the feasibility of the proposed common currency.
Zhou noted that although it faces significant difficulties, it is not entirely impossible for the BRICS nations to have such a currency unit. However, he noted that currently the approach of the BRICS nations seems to focus on designing a currency unit used specifically for the settlement of cross-border trade, rather than a currency unit to replace other local currencies. This strategy reduces the difficulty of the effort and increases its plausibility, according to Zhou.
The importance of settlement in local currencies and the time required for a unified currency
In recent months, there has been a prominent focus on settling business transactions using local currencies.
Zhou explained that a common BRICS currency would take a long time to develop, similar to the creation of the euro, since the proposal does not compete with existing local currencies.
Unlike local fiat currencies, however, the proposed BRICS currency does not seek to compete, but rather to develop and implement alongside local fiat currencies.
According to Zhou, the accelerated growth of local currency settlement represents the most tangible and momentous step taken by the BRICS nations to diminish the alleged hegemony of the dollar in trade agreements.
Skeptics and contrary opinions
Although the BRICS common currency is hailed as a means to lessen the supremacy of the US dollar in world trade, some skeptics are not convinced of its possible success.
Financial experts like Dave Ramsey and political scientist Ian Bremmer dismiss concerns about de-dollarization.
In a recent opinion piece, Keynesian economist Paul Krugman blamed the de-dollarization trend on people who always predict hyperinflation.
Although there are divergent opinions, the proposal for a BRICS cross-border currency remains a relevant issue in the global economic landscape.