By- Chinese experts predict that efforts by countries to replace the US dollar in international trade will intensify as BRICS nations discuss the feasibility of introducing a common currency at a summit in South Africa later this year.
The BRICS group of nations, comprising Brazil, Russia, India, China, and South Africa, accounts for one-third of global economic output, and their combined output is larger than that of the Group of Seven economies. The move is seen as an attempt to offer better accessibility and fairer treatment in international trade, as the US dollar has caused uncertainty for the world economy by enabling US international hegemony.
According to Zhou Yu, director of the Research Centre of International Finance at the Shanghai Academy of Social Sciences, creating a unified currency for a group of countries is a challenging task but not entirely impossible. Zhou noted that such an effort requires years of cooperation and the phasing out of local currencies, citing the birth of the euro as an example. Despite the difficulties, the BRICS nations’ discussion on introducing a common currency could be the start of a long-term goal towards a currency unit. He said:
However, currently the effort by BRICS nations seems to be focused on devising a currency unit used specifically to settle cross-border trade, rather than a currency unit to replace other local currencies, which reduces the difficulty of such efforts and increases its plausibility.
BRICS countries and other emerging economies are seeking to reduce their reliance on the US dollar. This is due to the impact of US interest rate hikes and geopolitical conflicts on global trade prices in dollars. The freezing of Russian assets by the US and EU has also prompted countries to explore alternatives to using the dollar as a reserve currency. Currently, around 80% of global trade is settled in US dollars.
Brazilian President Luiz Inácio Lula da Silva has supported creating a currency for trading among BRICS countries, questioning the necessity of tying trade to the dollar. Experts warn that the US’s monetary policy has made the dollar increasingly risky.
According to experts, the de-dollarisation trend around the world will accelerate as the US Federal Reserve ends its rate hikes and the US dollar weakens. The BRICS countries have made progress in reducing the dominance of the dollar in trade settlement by increasing their efforts to settle trade in other currencies, exemplified by the fast internationalisation of the yuan.
Local currency settlement is seen as a major development in this trend, with over 70% of China-Russia trade already settled in local currencies. Experts point out that the Chinese government is responsible for the issuance of the yuan, unlike the excessive issuance of dollars by the US, making local currency settlements a fairer and more reliable trend for trade between member countries.
More than 30 countries, including Afghanistan, Algeria, Argentina, Bahrain, Bangladesh, Belarus, Egypt, Indonesia, Iran, Kazakhstan, Mexico, Nicaragua, Nigeria, Pakistan, Saudi Arabia, Senegal, Sudan, Syria, the United Arab Emirates, Thailand, Tunisia, Turkey, Uruguay, Venezuela, and Zimbabwe, have applied to join the BRICS economic alliance.
South Africa’s top diplomat to BRICS, Ambassador Anil Sooklal, has suggested that the alliance is set to expand this year, with a decision to be made at the BRICS summit in August. The potential expansion and the introduction of a new currency would weaken the GDPs of Western nations and the US dollar’s dominance in international trade.