The Rise Of BRICS Currency : Will It Threaten The Dollar ?

The BRICS project to create a common currency is generating increasing interest among economists and analysts, as it could redefine global financial balances. For decades, the US dollar has dominated as the primary reserve currency, which gives the United States considerable economic and geopolitical power. During their summit in 2024 in Kazan, Russia, BRICS leaders intensified discussions on establishing an alternative named “Unit”, designed to facilitate exchanges within the bloc. This project is part of a broader strategy aimed at reducing their dependence on the dollar, amid rising geopolitical tensions and economic sanctions. At a time when many countries are seeking to diversify their reserves and circumvent constraints imposed by the current monetary system, can this initiative truly shake the supremacy of the dollar ?

A strategic response to dollar hegemony

The US dollar remains the cornerstone of the global financial system. Currently, it represents about 59% of global currency reserves and is involved in nearly 88% of transactions in foreign exchange markets, according to the Atlantic Council. This dominant position gives the United States a considerable strategic advantage, allowing them to finance their public debt at lower costs and exert economic pressure through international sanctions.

In the face of this supremacy, the BRICS aspire to reduce their dependence on this currency. During the Kazan summit in October 2024, the idea of a common currency occupied a central place in the discussions. According to the bloc’s leaders, this currency, potentially backed by a basket of local currencies and gold, could serve as leverage to circumvent dollar domination, often perceived as a tool of economic and political coercion by the United States. Vladimir Putin, the Russian president, stated that “we are not fighting the dollar, but we need to find alternatives when we are prevented from working with it”.

This initiative fits into a context of rising geopolitical tensions, exacerbated by the trade war between the United States and China as well as repeated economic sanctions targeting BRICS members. The stated goal is to strengthen the economic autonomy of the bloc and consolidate their influence in international markets.

On the ground, efforts to reduce dependence on the dollar are already showing notable progress. In 2023, about 20% of global oil trade was conducted outside the dollar, a significantly higher figure compared to previous years. This trend reflects a gradual transition, encouraged by BRICS initiatives to diversify their exchanges.

However, despite these advancements, many challenges remain. The establishment of a common currency entails overcoming major economic divergences between the members of the bloc. According to Anil Sooklal, the South African ambassador to BRICS, “the creation of a common currency is a long-term goal”, as it requires consensus on complex aspects such as governance and reserve allocation. These obstacles highlight the extent of the work still needed before this ambition can materialize.

A real or symbolic threat to the dollar?

Despite the ambitions expressed by the BRICS, a common currency does not seem capable of supplanting the dollar in the short term. The power of a currency lies in its commercial use, as well as the trust it inspires among economic actors. Thus, the dollar remains, to this day, the primary safe haven in times of uncertainty, reinforcing its dominant role in the global financial system.

However, the introduction of a BRICS currency could accelerate an already perceptible trend: the diversification of currency reserves. For several years, countries like China and Russia have favored bilateral exchanges in local currencies, and India has signed agreements to reduce its reliance on the dollar in its international transactions. This dynamic, referred to as “de-dollarization”, reflects a growing desire among certain states to break free from American dominance. Although this trend is progressing, a complete challenge to the hegemony of the dollar remains unlikely in the near future, as its role in global reserves and trade exchanges remains indispensable.

The BRICS project is also hampered by significant economic and political divergences among its members. While China and India are economic engines of the bloc, their monetary visions differ. In October 2023, for instance, Russia proposed that India pay for its oil imports in yuan, a suggestion firmly rejected by New Delhi, which prefers to use the dollar or the rupee. This episode illustrates the underlying tensions within the bloc, where the growing dominance of the yuan could trigger reluctance among other members.

BRICS leaders themselves admit that creating a common currency is a challenge of great magnitude. Thus, Leslie Maasdorp, president of the New Development Bank, recently stated that this project required a “medium to long-term” horizon. The obstacles are numerous, particularly regarding governance, currency stabilization, and establishing sufficient international trust. These structural challenges reinforce the idea that, despite its promises, a BRICS currency cannot currently claim to replace the dollar but could, in time, gradually reshape global monetary balances.

Although the new BRICS currency does not pose an immediate threat to the dominance of the dollar, it embodies a shift towards a more multipolar world economy. Emerging economies are seeking to assert themselves in international financial decisions, through the development of alternatives capable of reducing dependence on the US-dominated monetary system.

For the BRICS, this initiative goes beyond the economic framework and fits into a political strategy aimed at rebalancing global power relations. The creation of a common currency could provide them with increased influence on the international stage and strengthen their weight in global economic negotiations. However, the success of such a project hinges on strict conditions, particularly the establishment of reliable mechanisms to ensure currency stability and instill confidence among economic actors.

In summary, the idea that the dollar could lose its supremacy remains, for now, hypothetical. However, the emergence of a common BRICS currency could mark the beginning of a profound reconfiguration of the global monetary system. This project embodies a growing desire to diversify economic power centers and create viable alternatives to American hegemony. In the face of these ambitions, the United States will need to rethink its strategy to maintain its position in a rapidly changing financial order, where new dynamics are beginning to reshape global balances.