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In the midst of escalating U.S. interest rate hikes and the concurrent strengthening of the U.S. dollar, BRICS countries find themselves increasingly susceptible to the resultant repercussions. As a response, these nations are amplifying their efforts to reduce their reliance on the U.S. dollar. This drive has been particularly accentuated due to the ongoing conflict in Ukraine, compounded by Western-imposed financial sanctions against Russia. These circumstances have intensified the push among BRICS countries to establish autonomous financial systems, thereby mitigating potential risks associated with “dollar sanctions.”
The entwining of a nation’s currency with the U.S. dollar demands meticulous alignment with American monetary policy and substantial financial investments to maintain exchange rate stability. This commitment becomes especially taxing when substantial trade volume is involved, leading to exorbitant costs in dollar-denominated remittances. The adoption of local currencies, however, offers the advantage of diminished transaction expenses, lowered susceptibility to currency fluctuations, and reduced exposure to vast U.S. dollar holdings within foreign exchange reserves. In light of these dynamics, the proposal to introduce a shared currency within the BRICS consortium has gained significant traction.
Reports had earlier surfaced about the BRICS countries deliberating the potential adoption of a new “Common Currency.” Notably distinct from the Eurozone’s endeavour to replace individual national currencies with a single unit, the BRICS’ “Common Currency” envisages coexistence with the member nations’ existing local currencies.
The prospect of a “Common Currency” within the BRICS bloc has aroused considerable concern in Western circles. This concept is perceived as a strategic instrument aimed at challenging the dominance of the West-led, rule-based international order. Despite reassurances from figures such as Sukarno, who asserted that de-dollarization isn’t an explicit goal for the BRICS, and Lula, who emphasised the currency’s role in fostering intra-BRICS trade rather than undermining national currencies or boycotting the U.S. dollar, it is undeniable that the introduction of a new global reserve currency by the BRICS would inevitably undermine the preeminent status of the U.S. dollar.
However, the much-anticipated “Common Currency” announcement at the South Africa Summit’s final BRICS declaration remained unfulfilled. This absence underscores the significant challenges that the BRICS countries continue to grapple with. Foremost among these is the requirement for substantial economic integration as a precursor to establishing a shared currency. This integration is essential to establishing unhindered free trade, a feat that demands a remarkable degree of economic freedom. In this regard, the BRICS member states still have considerable ground to cover before achieving the necessary level of economic convergence.
