BRICS devise an alternative currency to the US dollar following Trump's threat
US President-elect Donald Trump will demand promises from the countries that make up the BRICS group (Brazil, Russia, India, China and South Africa) that they will not launch a new currency as an alternative to the US dollar and repeated his threats to impose 100% tariffs to punish countries that seek to be part of bilateral trade in currencies other than the dollar.
Trump also declared that ‘the idea of the BRICS countries trying to move away from the dollar while we stand by and watch is over’ and added: ‘We are asking for a commitment from these countries that they will not launch a new BRICS currency or support any other currency to replace the strong US dollar. Otherwise, they will face 100 per cent customs duties and should say goodbye to sales in the wonderful United States’.
New reserve currency
The BRICS countries are looking to create a new reserve currency. During the BRICS 2024 summit, held on 22-24 October in Kazan, Russia, the countries continued discussions on the creation of such an alternative currency to the dollar. This currency, known as ‘the unit’, would be backed by gold.
The benefits that the new currency would bring to the BRICS would be manifold: increased efficiency of cross-border transactions and greater financial inclusion. In addition, due to the use of blockchain technology, digital currencies and smart contracts, the currency would constitute an innovation within the global financial system.
But, on the other hand, this would have a significant effect on the US dollar, generating what is known as ‘de-dollarisation’, which could lead to a decrease in demand for the dollar that would affect the US and global economies.
Kremlin spokesman Dmitry Peskov pointed out that this is not just an idea of the BRICS countries, but that ‘more and more countries are beginning to use their national currencies, external trade and economic activities’ and believes that if the White House resorts to ‘force’ to stop it, the trend will even be ‘reinforced’. Peskov also said that the US dollar is beginning to ‘lose its attractiveness as a reserve currency’, according to Russian news agencies.
Reasons to create a new currency
Currently, 90% of all foreign exchange transactions are conducted in US dollars. Until recently, approximately 100% of oil trade was even conducted in US currency, but by 2023 it was already envisaged that one fifth of oil trade will start to be conducted in other currencies.
The BRICS countries have different reasons for creating a new currency. Due to recent global financial challenges and US foreign policies, these countries have explored alternatives and possibilities to adjust to their economic interests and also to reduce the global dependence on the US currency and also the euro.
At the moment, there is still no planned launch date for this currency, but during the summit that took place in mid-2022, the possibility was discussed and Vladimir Putin mentioned that the countries of the group ‘plan to issue a new global reserve currency’ and are ready to operate with all fair trade partners. Before the BRICS summit in 2023 there was speculation that the announcement of this new currency might be on the table, but it turned out to be only a positive idea.
Regarding the creation of a new currency by the BRICS, experts believe that it is a ‘flawed idea’ because it would link countries with very diverse economies and, consequently, could lead to non-member countries becoming more dependent on the Chinese yuan.
Financial experts believe that one solution to reduce dependence on the US dollar is blockchain technology, which supports all cryptocurrencies and related products, as these reduce the cost and time of cross-border transactions. In addition, this technology helps reduce the risk of fraud.
