This group’s common currency plan comes amid global market stresses. Under this pressure, Central banks of several countries seek to diversify their holdings to minimise their exposure to the dollar.
Some have switched to conventional assets such as Swedish krona, South Korean won, and non-traditional assets like Renminbi.
Increasing US sanctions against Russia and China have swung world’s currency markets. The swings threaten US dollar’s dominance as international reserve currency.
Sanctions announced recently could inflict severe financial and economic losses on many countries. Economists say the latest round of sanctions on Russia by the US may be the last straw that breaks the camel’s back.
At one of the BRICS forums, President Vladimir Putin said Russia, China and other BRICS nations will launch a new global reserve currency, comprising a basket of currencies of member countries.
BRICS block could extend its influence with the new currency. It could be digital currency. They may either back it with gold, oil or other asset as an alternative to replace the dollar.
Success of this new reserve currency has major outcomes. It will threaten US dollar’s supremacy. The question arises, will Saudi Arabia join the BRICS alliance and be part of a common currency (may be digital) at the cost of antagonising the US?
If yes, what happens to the Petrodollar? Will the move impact dollar supremacy? Does the BRICS reserve currency stand a chance to replace the greenback? Yes, definitely.
Data shows, the existing five BRICS economies currently comprise 41 per cent of the world population. They have 24 per cent share in world GDP and 16 per cent share in world trade. Add other members like Saudi Arabia, Iran, and Argentina then their combined GDP jumps to nearly 35 per cent of the world GDP.
Such a group could grow into a major trade entity. It justifies a reserve currency comprising a basket of Real, Rouble, Rupee, Renminbi, Rand, and Riyal (6Rs).
The new currency could work like game changing sixers in the last over of a T20 cricket match! The six Rs could be an alternative to the IMF’s Special Drawing Rights (SDR) — a basket of currencies of the world’s major economies, including US dollar, euro, yen, British pound, and Renminbi.
Key members of the block, China and Russia have amassed gold for years to back their currency. This is a strategic move to address the perceived US hegemony of the IMF.
Note the volume of global trade of commodities produced by BRICS members.
The expanded BRICS nations produce nearly 26 per cent of global oil output and 50 per cent of iron ore production used to make steel. They produce around 40 per cent of global corn production and 46 per cent of global wheat production.
If they trade these commodities in the new reserve currency, it would become a strong pillar of the global economy. This will challenge the US, a service and consumer-based economy that produces little of the global output.
Some experts see no threat to the dollar’s dominance, at least soon, given some serious concerns of investors, such as controls related to conversion.
Chinese Renminbi and other currencies of the BRICS nations are not fully convertible in international exchanges, and traders need prior approval from regulators in case of large amounts.
(The author has more than 15 years of experience in business and economics journalism. He has worked for leading newspapers in India and Qatar.)
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