Dumping the Dollar: Will BRICS trade currency replace the US dollar?


International trade uses the US dollar. People have been talking about making a new currency to replace the dollar and fight against American hegemony.

Since February’s Russia-Ukraine war, de-dollarisation has increased. Last week, State Duma deputy chairman Alexander Babakov said that the BRICS nations are creating a new payment medium that “does not defend the dollar or euro.”

Is BRICS creating a trade currency? Who leads this? India’s gain? Will it succeed? We address all questions about this issue.

Currency’s Collapse

Currency king is the US dollar. The world’s reserve currency since 1944. The Bretton Woods Agreement, 44 Allied nations, made the decision.

The dollar has been powerful since then. It gives the US disproportionate influence over other economies. The United States has historically used sanctions as a method of international policy.

Russia and China want to end dollar hegemony. De-dollarisation reduces the dollar’s global dominance. It involves trading oil and other commodities in US dollars.

De-dollarisation would reduce other countries’ dependence on the US dollar and economy, which could mitigate the impact of US economic and political changes on their economies. Countries can also reduce their currency and interest rate exposure to improve economic stability and reduce financial crises.

Last year, this move accelerated. The International Monetary Fund reported in 2022 that central banks are holding fewer dollars as reserves.

In the last three months of 2018, the dollar’s share of the world’s stablecoins dropped below 59%, extending a decline that has lasted for almost two years. The results of the dollar’s share has decided to drop without a rise in the shares of the british pound, yen, and euro, other long-standing reserve currencies… The dollar has been replaced by the Chinese yuan and smaller reserve currencies.

Last year, western governments froze $300 billion of Russia’s foreign currency reserves, half of the total, and expelled Russian banks from Swift.

Bestinvest chief executive Jason Hollands thinks the dollar “weaponization” has shaken many countries, not just Russia.

“Countries ready to trade with Russia, like India and China, have begun to do so in rupees and yuan,” leading to speculation that the global trading system is becoming de-dollarized.

Brazil and China now trade in yuan, enabling the Chinese yuan become a global currency and dollar rival.

India also wants to leave the dollar. 18 countries—including UK, Germany, Russia, and the UAE—can now trade in Indian rupees. In February, Nouriel Roubini predicted that the Indian rupee could become a global reserve currency.

The BRICS Currency

To facilitate trade, the BRICS nations—Brazil, Russia, India, China, and South Africa—are considering a new currency. The new financial agreement may be revealed at the annual summit in South Africa in August.

Russia is behind the idea because of Western economic sanctions for its invasion of Ukraine.

Alexander Babakov called a common currency for payments the “most viable” option for Russia and India. Babakov suggested a new economic partnership with a digital ruble or the Indian rupee.

He added that China would add 1.4 billion participants to a common currency, making it crucial. He claimed Beijing and Moscow now establish a multipolar world supported by most governments. “Its framework should be founded on introducing new monetary linkages facilitated by a strategy that does not protect the U.S. dollar or the euro, but instead establishes a new currency that can help us achieve our common aims,” they said.

Brazil already accepts yuan trade settlements and investments. India and Russia trade in rupees instead of dollars or euros under the Rupee-Rouble mechanism.

The BRICS nations want to de-dollarize the world by changing the dollar-dominated system.

Effects of BRICS currency

If the BRICS nations create a new currency, it could stabilize their economies. BRICS investors would gain consumer confidence. Spending and GDP would rise.

Read More: Ukraine War: Why Russian “Precision Strikes” on Ukrainian Military Infra Are Missing the Mark

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