The Emergence of BRICS Currency: A Paradigm Shift from the Dollar as the Default Choice

**Could a new currency challenge the dominance of the dollar?**
In August 2023, South Africa will host the leaders of Brazil, Russia, India, China, and South Africa – collectively known as BRICS – to discuss various issues, including the creation of a joint currency. While a new BRICS currency may face obstacles, the discussions surrounding it highlight the group’s efforts to shake up international affairs and coordinate policies. De-dollarization has gained momentum in recent years, with countries like Russia, China, and Brazil taking steps to reduce their reliance on the U.S. dollar. However, establishing a single BRICS currency similar to the Euro would be challenging. Instead, the focus is on creating an integrated payment system and introducing a new currency later on. Although past initiatives have faced challenges, BRICS countries have defied expectations in the past and have a strong network of collaborations. A new global economic order may not emerge overnight, but the commitment of BRICS to coordinate policies and innovate could play a significant role.

**De-dollarization and the BRICS’ Concerns**
With 88% of international transactions and 58% of global foreign exchange reserves conducted in U.S. dollars, the dominance of the dollar is undeniable. However, de-dollarization efforts have accelerated, particularly after the Russian invasion of Ukraine. The BRICS countries have been pursuing initiatives to decrease their reliance on the dollar, such as increasing the use of non-dollar currencies in their cross-border transactions and exploring dollar alternatives. Criticisms of the dollar’s dominance vary among the BRICS nations, with Russian officials championing de-dollarization to mitigate the impact of sanctions, Brazil seeking to reduce dependence on the dollar, and China pointing out the dollar’s instability and its use as a geopolitical weapon.

**Prospects of a BRICS Currency**
While the idea of a BRICS currency has gained momentum, details about the proposed models are limited. A Euro-like single currency, as seen in the European Union, would be challenging to negotiate due to economic power asymmetries and complex political dynamics within BRICS. A successful currency would require an exchange rate mechanism, efficient payment systems, and a well-regulated, stable, and liquid financial market. Additionally, BRICS would need to demonstrate a strong track record of joint currency management to gain trust from other countries. However, a BRICS version of the Euro is unlikely in the near future, as none of the member countries show a desire to discontinue their local currencies. Instead, the focus is on building an integrated payment system and exploring the possibility of a new currency.

**Building Blocks for a BRICS Currency**
The BRICS nations have already taken steps towards an integrated payment system. The BRICS Interbank Cooperation Mechanism was launched in 2010 to facilitate cross-border payments between BRICS banks using local currencies. Efforts to develop “BRICS pay,” a payment system for transactions among BRICS countries without converting to dollars, are underway. Additionally, discussions have taken place regarding a BRICS cryptocurrency and strategic alignment of Central Bank Digital Currencies to promote currency interoperability and economic integration. As many countries express interest in joining BRICS, the de-dollarization agenda is likely to expand.

**Challenges and BRICS’ Determination**
Past ambitious initiatives by BRICS to establish major projects have faced challenges or never materialized. However, the group’s determination to act should not be overlooked, as they have managed to develop joint policies and survive major crises. BRICS has deepened cooperation, invested in new financial institutions, and expanded the range of policy issues it addresses. While there may be obstacles to de-dollarization, the focus should be on the coordination of policies and potential for new financial collaborations that BRICS offers.

**Emerging Global Economic Order**
Focusing solely on a new BRICS currency can overshadow the bigger picture. The emergence of a new global economic order will not happen overnight with a new currency or de-dollarization. However, the BRICS currency initiative represents their commitment to coordinating policies and innovating, which can play a significant role in shaping a new economic order. Although diversifying away from the dollar is important, it is the broader efforts of BRICS that have the potential to bring about change.

In conclusion, the discussions surrounding the creation of a new BRICS currency highlight the group’s efforts to reshape international affairs and coordinate policies. De-dollarization is gaining momentum, with countries like Russia, China, and Brazil reducing their reliance on the dollar. However, establishing a single currency similar to the Euro faces challenges due to economic and political complexities. Instead, the focus is on building an integrated payment system and exploring the possibility of a new currency. Past initiatives have faced hurdles, but the determination of BRICS should not be underestimated. Their commitment to coordination and innovation can contribute to a new global economic order, even if it does not happen overnight.