The BRICS Currency Is Coming: Why The Dollar Should Worry?
The comments below are an edited and abridged synopsis of an article by Luc Jose A., the BRICs Portal
The BRICS countries—Brazil, Russia, India, China, and South Africa—are actively working on creating a single currency, as confirmed by Kazem Jalali, Iran’s ambassador to Russia. This initiative aims to reduce global dependence on the US dollar and promises to disrupt the global economy significantly if it comes to fruition. The establishment of a BRICS currency could dramatically reshape global economic power dynamics and profoundly impact the dollar. Here are three ways the BRICS currency could do just that.
Three Alarming Effects of the BRICS Currency on the Dollar
1. Decreased Demand for the Dollar
The adoption of a common BRICS currency would enable member countries to conduct trade transactions without relying on the US dollar. This shift would lead to a reduced supply and demand for dollars on the international stage, potentially weakening its value. As BRICS countries move away from the dollar for their trade needs, the overall global demand for the dollar could diminish, impacting its strength and stability.
2. Erosion of the Dollar’s Reserve Currency Status
Currently, many countries hold dollar reserves to stabilize their economies. The introduction of a BRICS currency could encourage these nations to diversify their reserves, thereby eroding the US dollar’s position as the world’s primary reserve currency. This diversification would reduce the dollar’s dominance and influence on global financial markets, making way for alternative reserve currencies and altering the balance of economic power.
3. Strengthening of Local Currencies
A common BRICS currency would facilitate internal trade among member countries without relying on the dollar. This shift could strengthen the local currencies of BRICS nations by promoting economic stability and reducing dependence on the dollar. Enhanced local currencies could challenge the US dollar in forex markets, providing new competition and diversifying options for international transactions. This competition could lead to a more balanced and multi-currency global economy.
Towards a New World Economic Order
The BRICS countries aim to free themselves from the dominance of the US dollar by adopting a common currency. This initiative seeks to reduce their dependence on the dollar, which has been the primary medium for international transactions but is increasingly being avoided by these emerging economies. By promoting internal trade and considering a common currency, the BRICS nations are striving to enhance their economic sovereignty and reduce their vulnerability to external financial pressures.
However, the success of this initiative remains uncertain. While the BRICS currency poses a challenge to the dollar, the latter still enjoys global trust and an established financial infrastructure, making it difficult to replace. The dollar’s entrenched position in global finance means that any significant shift away from it would require substantial and sustained efforts.
For the BRICS alliance to achieve its goals, it must overcome numerous obstacles, including gaining the trust of international investors and proving the long-term reliability of its currency. Additionally, the new currency must establish a track record of stability and acceptance in global markets. The path to reducing dollar dependence and establishing a new world economic order will be complex and fraught with challenges.
In conclusion, while the BRICS currency initiative represents a bold step towards altering the global economic landscape, its success is not guaranteed. The potential impacts on the US dollar are significant, but the established dominance of the dollar means that any transition will be gradual and contested. The global economy stands on the brink of potential change, but the journey towards a new economic order will be a complex and uncertain one.
