Dollar crash? Plans for a common BRICS currency worry Western experts

The BRICS countries are trying to hedge their trade against possible US sanctions by creating a common currency backed by gold. This is expected to be the main topic of the summit, which is scheduled to take place in South Africa from 22 to 24 August.

Several Western newspapers have reported that a plan to create a single BRICS currency is being prepared, which should be decided at the upcoming summit.

According to the French newspaper Les Echos, the emergence of a new international currency would accelerate the process of de-dollarization. The population of the five BRICS countries now accounts for more than 40 percent of the world's population. The BRICS countries account for almost a quarter of global GDP and 18 percent of world trade. And that could be enough for the "monetary ambitions to create a multipolar world that is not dominated by the US," according to the French, whose president Emmanuel Macron is reportedly seeking a personal invitation to the BRICS summit in South Africa.

The newspaper Fortune also reported on the monetary policy ambitions of the BRICS. The news agency wrote:

"Over the past year, Russia, China and Brazil have increased the use of their national currencies. Iraq, Saudi Arabia and the United Arab Emirates are actively looking for alternatives to the dollar. And central banks have tried to shift most of their foreign exchange reserves from dollars to gold."

The idea of a common currency for payments within the BRICS countries (Brazil, Russia, India, China, South Africa) deserves attention. But the project is just as difficult to implement as any other idea of a national currency, said the head of the Central Bank of Russia, Elvira Nabiullina, at the financial congress of the Bank of Russia. She went on to explain:

"It requires the agreement of many parties, not an easy project. That's why we're simultaneously working on developing settlements with national currencies and on developing an infrastructure that connects our payment systems – something the business needs now."

The Russian authorities have already supported various ideas for creating a new currency for the BRICS countries. For example, countries could create a new currency backed not by gold, but by real resources such as land and rare earths, State Duma Deputy Chairman Alexander Babakov speculated in March. He explained:

"Neither the euro nor the dollar are backed by anything, and our countries can do what the Bretton Woods system destroyed."

A year ago, Russian President Vladimir Putin declared that an international reserve currency would be worked out on the basis of a basket of BRICS currencies.

The dream of becoming independent of the dollar was voiced, among others, by Brazilian President Luiz Inácio Lula da Silva. In addition, in 2018, the idea of a single BRICS currency was discussed in the Valdai Club. The idea was to create a basket of currencies similar to the SDR (Special Drawing Law), consisting of the national currencies of the BRICS countries. The weight of a particular currency in this basket would depend on the size of GDP, foreign exchange reserves, trade balance, and the size of public debt.

Chinese officials have so far been rather vague. However, Beijing expressed concern about the dollar's dominance, calling it "a major source of instability and uncertainty in the global economy."

The creation of a single currency for mutual payments between the BRICS countries is expected to be one of the main topics of the bloc's summit in Johannesburg on August 22-24. The main objective is to simplify trade and reduce dependence on the dollar and the euro in international payments.

The BRICS countries have been improving their financial infrastructure for several years. In 2014, the countries established the New Development Bank. The following year, the finance ministers of the countries began consultations on the creation of an alternative to the SWIFT payment system. Since 2019, work has been underway to develop a unified BRICS Pay payment system that will work in the five countries and unite their national payment systems. A full rollout is possible in 2025. The creation of a platform for the national currency and stock exchanges is also being considered.

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