Enterprise Explains: BRICS members are pursuing de-dollarization — but is it possible? The USD has long been solidified as the dominant global currency for trade, but several BRICS members are working towards reducing their dependence on the greenback in trade and economic transactions in the pursuit of self-sufficiency in international trade.

Why move away from the USD? As the invoicing currency of the world, when the USD appreciates, other currencies typically depreciate. High US interest rates have helped strengthen the USD against a wide range of currencies, which recently subdued world trade volume and value growth — resulting in inflationary pressures and higher debt services and import costs abroad.

The potential impact: Building a BRICS currency would be a “political project,” South African economist Lesetja Kganyago told Reuters last July. De-dollarization has the potential to have various impacts on the global monetary system including a shift in FX stability, trade behaviors, and challenges for the established status quo. It could also lead to the creation of new economic alliances and partnerships based on common interests and alternative financial structures.

Who’s in, who’s out? China, Russia, and India have reduced their use of the greenback in bilateral trade by 95%, using their own currencies instead. China and Brazil agreed to carry out bilateral trade in their own currencies in 2023. Brazil’s President Luiz Inacio Lula da Silva called on BRICS nations to create a common currency for trade and investments to reduce their vulnerability to FX fluctuations.

De-dollarization has long been an objective of BRICS, a goal that has been strengthened by geopolitical developments including the heightened tensions between the West and Russia and China. For the US, de-dollarization means the loss of its dominant role in global trade. For other countries — especially emerging economies — de-dollarization means reducing their vulnerability to dollar exchange rate fluctuations.

Is it possible? Despite the long-standing discontent by BRICS members with the world’s dominant monetary and financial architecture, ditching the USD is harder than it seems. The USD continues to dominate foreign reserve holdings, trade invoicing, and global currency transactions — making its position in the short and medium terms secure.

But it isn’t impossible: “It [de-dollarization] might work this time because their [BRICS] ambition for an actual currency seems to have scaled down. It is no more this fanciful notion of a shared currency like the EUR, instead they seem to be focusing more on the use of the currency in international trade, which is why it is more seriously a viable possibility,” former White House economist Jo Sullivan told Al Arabiya English last August.

So, what needs to be done? A BRICS currency will need support from a commodity such as gold or other rare metals like copper, senior fellow at the Fletcher School Michaela Papa told Al Arabiya English. In order for the currency to work, there needs to be an agreed upon exchange rate mechanism, efficient payment systems, and a well-regulated and liquid financial market.

Consensus is paramount: Achieving de-dollarization or creating a single BRICS currency would not be possible without consensus among the BRICS nations. The discussions are in their early stages, but bilateral and multilateral agreements could form the basis for a currency exchange platform. Agreements still face challenges in scalability because they were negotiated individually. “There needs to be a consensus among BRICS that is economically and politically desirable. Any new currency, if they can agree to it, will need to start small, operate in parallel with local currencies and take a long time to become both trusted and global,” Papa told al Arabiya English.

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