A BRICS Currency to Shake the Dollar's Throne

EDITOR'S NOTE: The conclusion of the 15th BRICS summit had everyone talking about more than just the six new members welcomed into the fold. The spotlight was squarely on the renewed fervor and controversy ignited by the much-discussed topic of a BRICS trade currency that could challenge the supremacy of the US dollar. Brazilian President Luiz Inacio Lula da Silva's endorsement of the currency project and criticism of the global finance system added fuel to the fire. With Russia now taking the reins of BRICS leadership, President Vladimir Putin's fervent call for de-dollarization and the bloc's efforts to reduce the dollar's role in trade are gaining momentum. But as the bloc expands its influence and economic power, achieving consensus on the common currency becomes a trickier task, raising questions about the future of the dollar's dominance.

The final day of the 15th BRICS summit brought the announcement of six new members, but it also reignited the excitement and controversy surrounding the biggest story going into South Africa: a BRICS trade currency to rival the U.S. dollar.

“The creation of a currency for commercial transactions and investments between BRICS members improves our payment conditions and reduces our vulnerabilities,” said Brazilian President Luiz Inacio Lula da Silva, who has been the most vocal proponent of the common currency project among the five leaders.

Lula also criticized the current system of global finance, which he described as detrimental to developing countries. He said that the bloc’s New Development Bank (NDB) can offer alternatives better suited to the needs of the countries of the global South.

“It is unacceptable that developing countries are penalized with interest rates up to eight times higher than those charged from rich countries,” he said. “We need to increase liquidity, expand concessional financing, and put an end to [these unreasonable] conditions. The multilateral trade system must be revived in order to act once again as a tool for fair, predictable, equitable, and non-discriminatory trade.”

Russia takes the reins

The reemergence of the common currency issue at the close of this year’s BRICS summit is significant, because the BRICS chairmanship now passes to Russia, with next year’s summit to be held in Kazan, the country’s fifth-largest city, in October 2024.

Russian President Vladimir Putin has been the most vocal advocate in favor of de-dollarization at the summit, and it was the Russian embassy in Kenya that kicked off the furor surrounding a gold-backed BRICS currency in June.

Putin has far more incentive to use his position at the head of the bloc to push for a new BRICS currency, as his country has been economically crippled by U.S.-led sanctions which have locked them out of the international banking system and banned them from using the dollar for trade and settlement purposes.

On Tuesday, Putin underlined the bloc’s ongoing move away from the U.S. dollar. “The objective, irreversible process of de-dollarization of our economic ties is gaining momentum, and efforts are being made to work out effective mechanisms for mutual settlements and monetary and financial control,” Putin said. “As a result, the share of the dollar in export-import transactions within the BRICS is declining: last year it amounted to only 28.7 percent.”

And on Wednesday morning, Putin expanded on the theme of de-dollarization and the BRICS countries’ increasing use of national currencies.

“Our ‘five’ has rightfully established itself in the global arena as an authoritative structure, whose influence in world affairs is consistently strengthening,” he told the four other leaders via video. “We are against any kind of hegemony promoted by some countries for their exclusivity and based on this postulate of a new policy - the policy of continuing neo-colonialism.”

Putin said the BRICS’ current guiding economic policy framework, The Strategy for Economic Partnership of the Association States until 2025, is being successfully implemented. “In particular, five-sided cooperation is being strengthened in such areas as the diversification of supply chains, de-dollarization and the transition to national currencies in mutual settlements, the digital economy, support for small and medium-sized enterprises, and fair technology transfer,” he said.

Looking ahead to next year’s summit in Russia, Putin outlined an ambitious economic plan for the bloc built around “the development of new, long-term guidelines for cooperation,” including “the increase in the role of [BRICS] states in the international monetary and financial system, the development of interbank cooperation, the expansion of the use of national currencies and the deepening of interaction through tax, customs, and antimonopoly authorities.”

Bigger BRICS could complicate currency consensus

While the addition of six new countries in 2024 dramatically increases the bloc’s economic and political power on the global stage, the expansion also makes coming to an agreement on the common currency more challenging, no matter how important it is to the host nation.

"It's definitely going to be a problem if they are going to do everything by consensus,” said Patrick Lukusa of Johannesburg's University of the Witwatersrand to Reuters on Thursday. “You need to change the model [...] to majority vote.”

"There are already differences between the five on the common currency,” Lukusa added. “What happens if you have 10 more?"

Originally published by Ernest Hoffman at Kitco