BRICS Hits Indian Glitches in New Currency Planned to Reduce Reliance on US Dollar
The implications of a BRICS currency on the dominance of the US dollar remain uncertain, as experts engage in debates regarding its potential to challenge the dollar's supremacy.
India's External Affairs Minister, S. Jaishankar in a press conference held on July 3, 2023 says that India has no plans to back a BRICS currency.
He says a month before the summit that India might back out from creating the new currency destined to fight back against the US$.
The BRICS nations, consisting of Brazil, Russia, India (minus), China, and South Africa, are currently exploring the idea of establishing a novel currency specifically designed for cross-border trade.
The primary objective behind this initiative is to decrease their dependence on the US dollar and the euro, while simultaneously developing an integrated payment system that facilitates efficient cross-border transactions.
This new currency would be utilized by the BRICS nations themselves, as well as their potential trading partners. The potential advantages of adopting this currency include streamlined cross-border transactions and enhanced financial stability for the BRICS countries.
Reduced reliance on US$
For more than a decade, the BRICS nations have been actively seeking alternatives to reduce their reliance on the US dollar, and the Western sanctions imposed on Russia following its invasion of Ukraine have further accelerated this process. The BRICS nations have multiple reasons for desiring the establishment of a new currency, including recent global financial challenges and assertive foreign policies pursued by the United States.
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The implications of a BRICS currency on the dominance of the US dollar remain uncertain, as experts engage in debates regarding its potential to challenge the dollar's supremacy. However, if a new BRICS currency were to gain stability against the dollar, it could weaken the influence of US sanctions, potentially leading to a decline in the value of the dollar. It is important to note that the BRICS nations have been striving to diminish their reliance on the dollar for more than a decade, and the Western sanctions on Russia have expedited this process.
If the BRICS nations were to establish a new reserve currency, it is likely that the US dollar would be significantly impacted, potentially resulting in decreased demand. Nevertheless, it is crucial to acknowledge that the US dollar remains the dominant global reserve currency, accounting for approximately 60% of all foreign currency reserves held by central banks. Consequently, while a BRICS currency has the potential to weaken the US dollar's status as a global reserve currency, the magnitude of its impact remains uncertain.
Although the notion of a BRICS-issued currency has the potential to displace the US dollar as the reserve currency within BRICS member states, it is still in its early stages of development, leaving several practical questions unanswered. In order to convince others of the currency's reliability and attain global recognition, the BRICS nations would need to demonstrate a robust track record of joint currency management.
It is worth noting that a BRICS currency union would not be restricted to countries connected by shared territorial borders, allowing its members to produce a wider range of goods compared to existing monetary unions.
The Uncertainty of a global reserve currency
The likelihood of a BRICS currency becoming a global reserve currency remains uncertain and is contingent upon various factors. While the BRICS nations have been contemplating the possibility of creating a new currency to reduce their reliance on the US dollar and the euro, the concept is still in its early stages, with numerous practical questions yet to be addressed. To establish the new currency's credibility, the BRICS nations must establish a solid track record of unified currency management that instills confidence in others.
Furthermore, since a BRICS currency union would not be limited to countries with shared territorial borders, its members would likely have the ability to offer a wider array of goods than any existing monetary union. However, according to Pavel Knyazev, Deputy Director of the Russian Foreign Ministry's Foreign Policy Planning Department, the BRICS nations are actively working towards establishing a new reserve currency that aligns with their economic interests.
The proposed currency would be based on a basket of the currencies of the five-member bloc: the Chinese RMB Yuan, the Russian Ruble, the Indian Rupee, the Brazilian Real, and the South African Rand. Consequently, while the possibility of a BRICS currency becoming a global reserve currency cannot be discounted, its realization remains uncertain and contingent upon several factors.
In summary, the BRICS nations are actively exploring the possibility of establishing a new currency to reduce reliance on the US dollar and the euro. This initiative aims to enhance cross-border transactions and financial stability. While the impact on the US dollar's dominance remains uncertain, the BRICS countries are committed to pursuing their economic interests and creating a currency that could potentially reshape the global financial landscape.