Outlook for BRICS Common Currency

The prime objective of formation of BRICS, in my opinion, is to “end the US hegemony by getting rid of involvement of US currency in trade and above all US dominated settlement system”. It is not an easy task because creation of an alternative currency and dependable settlement system is a mammoth job, especially because United States would not like to see end to its hegemony.

De-dollarization of the global financial system is the long-term goal of the bloc amid Western economic sanctions on several members. For example, Saudi Arabia and the UAE might face rising pressures to sell oil to China and India in a currency acceptable and dependable. Trade in general is set to be increasingly carried out in the bloc’s currencies. Nonetheless, a common BRICS currency is not an easy task given the Gulf countries’ heavy links with the West and the Petrodollar, large economic disparities among members, and the strength of the Western financial system. 

BRICS economies will remain heterogeneous, with marked differences in their stage and pace of development, and in economic size and structure. For example India, Egypt and Ethiopia will grow at the fastest rates, boosted by great catch-up potential. China will benefit from its high-tech manufacturing sector. Non-oil diversification strategies will buttress activity in Saudi Arabia and the UAE. In contrast, Brazil, Iran, Russia and South Africa are set to grow at underwhelming clips due to lackluster progress on structural reforms. 

The western analysts believe, “Expansion will bolster the BRICS geopolitical significance—provided the group can reconcile its internal tensions—and its combined economic muscle, but the direct economic impact will be small. The BRICS group is unlikely to become a solid geopolitical and economic construction, regardless of how many bricks are added to the wall.” 

 The biggest agreement is, “Despite some pressure, the Petrodollar will remain the preferential currency for trade. A greater role of BRICS and other emerging markets in global trade may create more natural demand for alternatives to Petrodollars, but this has not happened so far. The higher share of CNY in trade invoicing doesn’t seem to be dethroning Petrodollar, but rather pushing out second tier developed market FX, such as GBP. One direction in which Petrodollar could be challenged given the geopolitical confrontation is the higher focus of BRICS trade on other emerging market economies.”