Byline: Hannah Parker
According to Pavel Kunyazev, a senior Russian diplomat and BRICS representative, the BRICS alliance of Brazil, Russia, India, China, and South Africa, is working on creating its reserve currency. This development could lead to a new world order as these economic powerhouses seek to distance themselves from the US dollar. It is reported that the new currency will be based on a basket of the currencies of the five-nation bloc.
During the St. Petersburg International Economic Forum in India, Alexander Babakov, Chairman of the State Duma in New Delhi, emphasized the importance of both nations working together to establish a new payment medium. He suggested that digital payments could be the most promising and viable option, benefiting China and other BRICS members rather than the West. Chairman Babakov stated that the new currency should be designed to align with shared objectives rather than defending the US dollar or euro and should form a new competent currency.
Reports also indicate that the proposed new currency would be backed by gold and other commodities, including rare-earth elements. Jim O’Neil, the former Chief Economist of Goldman Sachs, called for the BRICS bloc to expand and challenge the dominance of the US dollar in a paper published in the Global Policy journal. O’Neil highlighted the significant role played by the US dollar in global finance and its impact on currency values during periods of monetary tightening or loosening by the Federal Reserve Board. He argued that the dollar’s dominance burdens nations with dollar-denominated debt as their monetary policies become destabilized by exchange rate fluctuations. The BRICS countries represent 42% of the global population and hold less voting power in both institutions, according to the Institute for Security Studies in Pretoria.
In summary, the BRICS alliance’s exploration of creating its reserve currency signifies a potential shift in the global financial landscape. Pursuing a new currency aims to reduce dependence on the US dollar and establish a medium that aligns with the shared objectives of the BRICS nations. This development, supported by discussions on backing the currency with gold and other commodities, reflects the bloc’s efforts to challenge the dollar’s dominance and promote stability in international finance.
BRICS’ discussions about a new currency
During the 11th annual BRICS Summit in 2019, discussions were held regarding creating a new cryptocurrency. Kirill Dmitriev, the Director General of the Russian Direct Investment Fund (RDIF), highlighted the potential of an efficient BRICS payment system to facilitate settlements in national currencies and ensure stability in transactions among the member countries — a development supported by various digital currencies and companies such as 7Bitcoins Official. Developing and integrating a single payment system were important factors in strengthening economic partnerships within BRICS, particularly in the face of non-market risks in the global payment infrastructure.
It is not only the BRICS member nations that are considering the creation of a new cryptocurrency. The Association of German Banks emphasized the need for a clear and strict identification standard for users of a digital euro, in line with existing legal frameworks to combat money laundering and terrorist financing.
Recent developments indicate that Brazil and China have agreed to trade in their respective currencies, bypassing the need for the US dollar as an intermediary. This move strengthens both countries’ ability to distance themselves from the world’s reserve currency. The agreement enables direct financial transactions and trade between Brazil and China, with the Brazilian real and Chinese yuan being exchanged directly instead of going through the US dollar.
During the 14th BRICS Summit in 2022, Senior Russian Diplomat Pavel Knyazev mentioned the discussions around the possibility and prospects of creating a single shared currency based on a basket of currencies from the BRICS countries. The member states actively explore mechanisms to exchange financial information and develop a reliable alternative for international payments. Russian President Vladimir Putin also expressed the BRICS plan to issue a new global reserve currency during the summit, emphasizing their readiness to collaborate with fair partners.
Despite challenges posed by the pandemic and conflicts, BRICS remains committed to building and strengthening economic ties within the bloc, increasing trade turnover, and reducing reliance on the euro and dollar. Deputy Chairman Babakov did not dismiss the potential emergence of a unified currency among BRICS nations. Several other nations, including Iran, Indonesia, Turkey, Saudi Arabia, Egypt, and Argentina, have expressed interest in joining the economic bloc. The next BRICS summit is scheduled for August 2023.
In summary, discussions within BRICS regarding creating a new cryptocurrency and exploring alternative currencies reflect the member nations’ efforts to enhance economic partnerships, reduce reliance on the US dollar, and establish more stable payment systems. The agreements between Brazil and China to trade directly in their currencies further solidify these ambitions. The next BRICS summit holds the potential for further progress and expansion within the bloc.