Given the profound changes in the international order and governance system, the diversification of international finance is an inevitable trend. Demand for an alternative global currency is becoming increasingly urgent.
Recently, U.S. President Donald Trump has pursued hard-line tariff policies against Brazil and India, both key members of the BRICS community. In response, Brazilian President Luiz Inscio Lula da Silva proposed a BRICS currency for international trade. This has once again captured global attention, after Russian President Vladimir Putin first unveiled a prototype during last year’s BRICS summit in Kazan, Russia. In Trump’s view, the BRICS organization is tantamount to an anti-American bloc, and the pursuit of de-dollarization has crossed a red line for him. Against this backdrop, the journey toward a BRICS currency is bound to be long and fraught with challenges.
Dollar resilient in short term
Since World War II, the dollar has dominated the international monetary system, bolstered by the leadership of the United States in the Western alliance. It has become the principal currency for international transactions and the mainstay of central banks reserves globally. The World Bank and the International Monetary Fund are the twin pillars that underpin the dollar-centric framework. Although the dollar crisis and the U.S. economic crisis brought down the Bretton Woods system in the 1970s, the dollar’s hegemony did not vanish. It remains the preeminent global hard currency.
In the new century, the collective rise of emerging economies, such as the BRICS nations, has significantly altered the global power structure, but the international financial order and monetary system remain largely unchanged, with the dollar-centric system dominating the landscape. This is evident in five key areas:
First is an imbalanced power structure. The U.S. retains veto power in major international financial institutions, which means this imbalance in the distribution of power is unlikely to change in the near term.
Second, the dollar continues to dominate international trade payments with a share of nearly 49 percent; it constitutes 57.7 percent of global foreign exchange reserves, far ahead of the euro, pound and yen.
Third, the dollar’s status as a global currency is underpinned by America’s strong economic, technological and military capabilities, with the independent Federal Reserve providing institutional and credit guarantees.
Fourth, the U.S. has the world’s most developed financial markets, including the New York Stock Exchange, which attract global capital and reinforce the dollar’s central position.
Fifth, the United States controls the SWIFT system, which dominates the global cross-border payment network, further solidifying the dollar’s hegemony.
It is evident that, despite the recent weakness of the U.S. dollar against the euro and the RMB, the foundation of the dollar-centered system remains unshaken: The authority, reliability and stability of the U.S. dollar have not undergone any substantive changes. As the strongest currency in the BRICS group, the RMB accounts for 3.5 percent of international trade payments and 2.12 percent of global foreign exchange reserves.
Both the theory and history of international finance and currency demonstrate that the exit of any dominant international currency from the stage is not something that happens overnight. The U.S. dollar will continue to be at the center of the international monetary system for a considerable period of time.
BRICS currency constrained
While the idea of a BRICS currency is an excellent top-level design that can curb the U.S. dollar’s hegemony while offering Global South countries an alternative global currency that would enhance global financial governance, its launch still faces numerous internal and external obstacles.
First, BRICS countries are not a cohesive bloc. Differences between member states on de-dollarization have become public. For example, India, despite facing steep U.S. tariffs, still hopes for improved relations with the United States and is unwilling to strengthen BRICS cooperation at the expense of alienating the it. India doesn’t support a BRICS payment system, let alone a BRICS currency.
Second, political instability in some BRICS countries hinders cooperation. Brazil, the current BRICS chair, is a case in point. The left- and right-wing elements of the government have divergent attitudes towards BRICS. If the right wing wins the presidential election next year, it is unlikely to pursue any de-dollarization initiatives. Argentina’s right-wing government, which abandoned the country’s BRICS membership, is another example.
Third, a unified currency is unlikely to emerge before the establishment of a larger BRICS market framework. Trade barriers for BRICS countries are significant, and non-tariff barriers continue to arise. Brazil, for instance, is bound by the MERCOSUR and cannot independently conclude free trade agreements with other nations. Given that the conditions for BRICS trade and investment liberalization are not yet mature, the premature launch of a BRICS currency would face substantial internal resistance.
Fourth, Trump’s “targeted pressure” poses the most significant external challenge for the emergence of a BRICS currency. Trump has repeatedly warned that any BRICS cooperation aimed at undermining the U.S. dollar’s status would face unprecedented tariff sanctions. In fact, Brazil’s exposure to aggressive U.S. tariffs is closely tied to Lula’s de-dollarization rhetoric.
Financial cooperation options
Although the BRICS currency faces challenges both from external pressure and internal obstacles, this does not preclude financial cooperation among BRICS countries. In the current international political and economic landscape, several pragmatic steps can be taken to enhance this:
First, strengthen the New Development Bank. Over the past decade, the NDB has achieved significant milestones and earned an AA+ rating from major international rating agencies. To further enhance its role, the NDB should broaden its scope by admitting developed countries and engaging in trilateral or quadrilateral cooperation with other international financial institutions, such as the World Bank and Asian Development Bank. This would make it a more representative and integrated part of the global financial system.
Second, leverage the Contingent Reserve Arrangement. The CRA has been in place for over 10 years but has seen limited progress beyond emergency drills. Moving forward, BRICS countries should use this platform to establish a BRICS equivalent of a monetary fund organization. This would strengthen the BRICS financial safety net and improve existing international monetary and financial mechanisms.
Third, increase local currency trading. Given the challenges in introducing a BRICS currency and payment system, increasing the trade of local currency is a pragmatic approach. This would reduce reliance on the U.S. dollar and enhance the economic resilience of BRICS countries.
Fourth, utilize the Multilateral Central Bank Digital Currency Bridge, or mBridge. Initiated by China, the United Arab Emirates, Thailand and others, the mBridge has attracted significant attention. It has more than 20 observer countries. BRICS countries can leverage this platform to achieve more efficient, secure and cost-effective cross-border payments and settlements. This would be a significant step in enhancing the efficiency and security of international financial transactions.
To sum up, the U.S. dollar-centered system is a product of its era, and its dominance and eventual decline will be shaped by the complex interplay of historical and contemporary factors. While the dollar’s core position remains unassailable in the short term, the extreme trade policies of the United States and its astronomical national debt are steadily eroding the foundations of its credibility.
Against the backdrop of profound changes in the international order and the global governance system, the diversification of international finance is an inevitable trend, and demand for alternative world currencies is becoming increasingly urgent. Although the emergence of a BRICS currency faces structural obstacles, the journey, though long, will reach its goal with steady strides.
