The BRICS countries are working on a plan to move away from dollar-based trade. And, while doing this, BRICS currency, the creation of which is expected in the South Africa summit in August 2023 is seen as an alternative to the dollar by countries across the world. The West too is keen on knowing what makes the BRICS currency and how it plays out.
International trade is currently dominated by the US dollar. The over-reliance of major economies on the dollar, US sanctions on countries like Russia, and Iran and an urge for more freedom in trade are some of the factors that have pushed the countries to look for alternative currencies. India-Russia payments in local currency, Russia-China payment system, India-UAE trade in Indian Rupee and now BRICS currency, are all outcomes of countries looking away from the dollar.
What is BRICS Currency?
BRICS currency is a payment system among the participating countries. BRICS currency will be gold backed. It will be used for cross-border transactions between these countries. This BRICS payment system will avoid the conversion of local currencies into dollars. This has many implications, and among the biggest advantages is the ease of cross-border transactions resulting in better trade and investment.
BRICS currency release date
The group will be starting to discuss the BRICS currency in August 2023 at South Africa Summit. The release of the BRICS currency is expected to be materialised in the coming months.
Why BRICS currency?
There are some reasons that are common for each BRICS country for looking toward its own currency. At the same time, each country has their own reasons for moving toward BRICS currency. Here is a brief analysis of why countries are looking for BRICS currency.
- De-dollarisation movement – All BRICS countries are actively looking for the de-dollarisation of their trade. Russia, China and India are leading this movement. While bilateral trade is being settled in local currencies by some of these countries, BRICS currency will be a single major blow to dollar-based trade. Russia, China, India and Brazil are four major emerging economies that have a big share in international trade. The bilateral trade has the potential to increase manyfold if they opt for BRICS currency and remove the dollar.
- Avoids dollar crisis – US dollar has seen some crises in post-COVID-19. The US economy itself has slowed down and the exchange rates of countries are much determined by the decisions the Federal Reserve of the United States makes. It is clear that a collapse of the dollar in the near future will be a big blow to emerging economies’ trade settlements. So, these countries are now looking to free themselves from dollar-based trade.
- US sanctions – All of the BRICS countries are not happy with the US sanctions that affect their relations with other countries. Take, for example, India and Iran, these countries had a sound bilateral trade relationship. But, once the US imposed sanctions, the India and Iran trade has literally come to a halt. The same goes for India-Russia, Russia-China, and Russia-Brazil trade relations.
- Geopolitical rivalry – This is one big factor driving BRICS countries away from US dollar. US rivalry with Russia and China is a big factor that pushes these countries to free global trade from the dollar. Russia for example was the first member to talk about the de-dollarisation of international trade.
BRICS South Africa Summit 2023
The 15th BRICS summit will be held in August 2023. The host of this summit is South Africa. The agenda of BRICS summit will cover trade, investment, sustainable development, innovation and global governance reform. BRICS currency is also a part of this agenda. It is expected that BRICS summit in South Africa will lay the foundation of new world order.