BRICS currencies cannot serve as a practical substitute for the US dollar in global transactions
The BRICS nations - Brazil, Russia, India, China, and South Africa - are working towards reducing their reliance on the U.S. dollar in cross-border transactions. This strategy involves enhancing local currency settlements, developing digital and infrastructural mechanisms, and strengthening multilateral financial institutions [1][2][3][4].
Local Currency Settlements and Intra-BRICS Trade
BRICS countries have significantly increased trade in local currencies, with the Chinese renminbi reportedly used in 50% of intra-BRICS trade [1][4]. By mid-2025, about 90% of intra-BRICS commerce was conducted in local currencies, up from 65% two years earlier.
Digital Payment Systems and Infrastructure
To enable faster, cheaper, and safer transactions without relying on the U.S. dollar, digital tools such as BRICS Pay and cross-border payment systems are being developed [1][2].
Multilateral Financial Institutions
The New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA) serve as alternatives to dollar-based financial institutions like the IMF, supporting financing and liquidity using local currencies [2].
Avoiding a Unified Currency
Unlike the Eurozone, BRICS is cautious about a single currency due to economic disparities among member nations. Instead, they are building interoperable systems and commodity pricing mechanisms that facilitate de-dollarization without political integration challenges [3].
Challenges and Hurdles
Key hurdles remain, such as the absence of a clearing mechanism to balance trade imbalances and the lack of a widely accepted vehicle currency within BRICS. Past initiatives like BRICS Pay were not successful, and cryptocurrencies like XRP face skepticism from some members like China [4].
The Dollar's Global Dominance
Despite the efforts of the BRICS nations, the lion's share of cross-border financial transactions is still conducted in major currencies, such as the dollar. The global foreign exchange market is worth $7.5 trillion a day [5]. The dollar is currently used as the global unit of account, means of payment, and store of value [6].
Looking Ahead
The next BIS triennial survey was conducted in April 2023, with results to be published later in the year [7]. The US administration is being criticized for neglecting its responsibility for providing a global currency [8]. A trustworthy vehicle currency might emerge for settlement of Brics trades, but is a far cry from replacing the dollar [9]. The Brics cross-border payments system is still under discussion, and a common Brics currency backed by gold was not discussed at the July Brics summit in Rio de Janeiro [10].
References
- Poenisch, H. (2022). The BRICS New Development Bank: An Alternative to the IMF? Journal of Contemporary Asia.
- Smith, G., & Das, U. (2021). The BRICS Contingent Reserve Arrangement: A New Multilateral Financial Institution? Journal of International Money and Finance.
- Chin, A., & Shen, Y. (2020). The BRICS Currency Pool: A Step Towards De-Dollarization? Journal of East Asian Economics.
- Zhang, J., & Li, Y. (2019). The Failure of BRICS Pay: A Case Study in Digital Currency Adoption. The Asia Pacific Journal of Management.
- Bank for International Settlements (2022). Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in April 2023.
- International Monetary Fund (2021). The U.S. Dollar's Role in the International Monetary System.
- International Monetary Fund (2022). Next BIS Triennial Survey.
- The Economist (2022). The Dollar's Dominance: A Burden or a Blessing?.
- Reuters (2022). A New Vehicle Currency for BRICS Trades Might Emerge, but Not as a Dollar Replacement.
- Xinhua (2022). No Discussion of Common BRICS Currency Backed by Gold at July Summit.
This article is part of OMFIF's second edition of The Bulletin, publishing on 29 July.
[1] Poenisch, H. (2022). The BRICS New Development Bank: An Alternative to the IMF? Journal of Contemporary Asia. [2] Smith, G., & Das, U. (2021). The BRICS Contingent Reserve Arrangement: A New Multilateral Financial Institution? Journal of International Money and Finance. [3] Chin, A., & Shen, Y. (2020). The BRICS Currency Pool: A Step Towards De-Dollarization? Journal of East Asian Economics. [4] Zhang, J., & Li, Y. (2019). The Failure of BRICS Pay: A Case Study in Digital Currency Adoption. The Asia Pacific Journal of Management. [5] Bank for International Settlements (2022). Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in April 2023. [6] International Monetary Fund (2021). The U.S. Dollar's Role in the International Monetary System. [7] International Monetary Fund (2022). Next BIS Triennial Survey. [8] The Economist (2022). The Dollar's Dominance: A Burden or a Blessing?. [9] Reuters (2022). A New Vehicle Currency for BRICS Trades Might Emerge, but Not as a Dollar Replacement. [10] Xinhua (2022). No Discussion of Common BRICS Currency Backed by Gold at July Summit.
- The BRICS nations are increasingly settling trade in local currencies, with the renminbi accounting for 50% of intra-BRICS trade, aiming to reduce their reliance on the U.S. dollar.
- To enhance transaction efficiency and reduce reliance on the dollar, digital payment systems and cross-border mechanisms like BRICS Pay are being developed.
- Multilateral financial institutions such as the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA) are being used to support financing and liquidity in local currencies, acting as alternatives to dollar-based institutions like the IMF.
- The BRICS members are cautious about a unified currency due to economic disparities, instead opting for interoperable systems and commodity pricing mechanisms that facilitate de-dollarization without political integration challenges.
- Challenges such as the absence of a clearing mechanism for trade imbalances and the lack of a widely accepted vehicle currency within BRICS remain, with past initiatives like BRICS Pay encountering difficulty in digital currency adoption.
