What is BRICS Currency and Its Effects on Cryptocurrency?
Global power is constantly shifting, and the BRICS countries are discussing the creation of a currency to challenge the hegemony of the USD. Read this article to learn more.
Imagine a world where the dominance of the US dollar in global trade is challenged by a new kid on the block.
It might not be as far away as you think. Plus, we also discussed the potential collapse of the US Dollar—remember, this is just a speculation.
As we speak, the BRICS countries — Brazil, Russia, India, China, and South Africa — are taking bold steps towards financial autonomy by considering a shared trade currency in a move that could reshape international trade dynamics and shift the balance of economic global power.
In this article, we'll delve further into the potential impact of a BRICS currency on global trade and what it might mean for fiat currencies like the dollar, as well as its potential impact on crypto.
So, without further ado, let’s get started.
What is BRICS?
Brief Overview of BRICS
Founded on June 16, 2009, BRICS is an acronym that refers to a group of five major emerging economies: Brazil, Russia, India, China, and South Africa — all countries that exert significant influence on regional and global affairs, both economically and politically.
Initially formed to foster mutual development and cooperation, the BRICS bloc has grown substantially over the years, becoming a formidable force in today’s international trade landscape.
The concept originally arose from a desire to create a more diversified global economy and reduce reliance on Western-dominated financial mechanisms.
The unity within BRICS rests on common goals of economic growth, shared development, and the importance of forming a cohesive group that advocates for the interests of emerging economies on the world stage.
BRICS Member Countries
At the heart of BRICS are five globally important nations, each with its own unique set of resources, economic strengths, and geopolitical strategies:
- Brazil: Known for its vast agricultural output and booming energy sector.
- Russia: A hotbed of oil and gas production.
- India: A rapidly expanding tech industry and one of the largest workforces in the world.
- China: The second-largest economy globally, with an enormous manufacturing base.
- South Africa: Rich in minerals and a key financial and logistics hub for Africa.
With large populations and sizable contributions to global GDP, each member acts as a critical pillar within the BRICS structure.
Spread across different continents but united by a mission, together they represent a shift away from traditional economic powerhouses and towards a new set of global players, using their collective voice for greater economic independence, relevance, and impact on the world scene.
The increasing influence of BRICS is reflected not just in their combined economic might but also in the collaborative initiatives it gives rise to — including the BRICS Business Council and the New Development Bank, which powers infrastructure and sustainable development projects.
With a BRICS+ expansion on the cards to include countries such as Argentina and Saudi Arabia, the group's influence will only continue to grow, putting it in a position to push for real change in global economics.
Surprisingly, none of these BRICS countries fall within one of the top crypto-friendly countries that we covered.
What Is the BRICS Currency?
The BRICS countries have an expressed mission to disrupt the economic status quo and wrestle back control from Western hegemony. One of the most obvious ways this control manifests is through the dominance of currencies like the USD and euro in global trade. It stands to reason then that any challenge to this position requires a viable alternative currency.
And this is exactly what the BRICS countries have been discussing: a BRICS currency.
The idea of this currency inevitably raises certain questions:
- What will it look like?
- How will it function?
As things stand, the currency is likely to take the form of a basket-based reference currency made up of real, roubles, rupees, renminbi, and rand. The best way to understand it is as a kind of coordination methodology — a system where the national currencies of the BRICS nations are weighted and merged into a single trading unit.
Think of it like the IMF's Special Drawing Rights only for BRICS, a conceptual bridge that allows multiple economies to converse financially under one unifying language set by their agreed values.
Robust mathematical models have been used to simulate the influence such a currency might wield across global trade networks. Using data from the UN Comtrade database and applying a Monte Carlo model of Ising-type interactions, experts are gamifying the hypothetical currency war among the US dollar, the euro, and the possible BRICS currency.
Some results show that even as far back as 2012, as many as 58% of countries would’ve preferred trading in BRICS currency — when only trade relations are taken into account, and political and other aspects are neglected.
While these kinds of results shed a favorable light on the prospects for a BRICS currency in international trade, the global landscape is far more complicated than the economics alone.
The History of BRICS Currency Discussions
Early Discussions and Proposals
Early talks among Brazil, Russia, India, China, and South Africa revolved around enhancing trade and investment, with the idea of a unified currency seen as a distant goal. The focus initially was instead to increase economic cooperation by leveraging the strength of the member nations' currencies.
Nonetheless, even at this early stage, some saw a currency as a necessary step towards reducing dependency on traditional financial systems — the idea being to create an alternative trade network that could operate independently of the US dollar's influence.
The BRICS nations contemplated frameworks similar to the transfer ruble, once used by members of the COMECON during the Soviet era for trading and settling debts. However, this form of regional currency fell victim to the political changes of the time, indicating the sort of challenges any BRICS currency was likely to come up against.
Recent Developments and Progress
As time has gone by, the concept of a BRICS currency, now commonly referred to as the brick, has gained more tangible momentum. Debates and discussions have shifted from theoretical models to more pragmatic talks.
During the 14th BRICS Summit in mid-2022, President Putin announced the planning of a "new global reserve currency." Although no specific details were revealed, the announcement nevertheless marked an important milestone on the journey.
The idea gained further traction during the Brazil–China summit in April 2023, and then again when the 15th summit of the BRICS nations put the possibilities of a BRICS currency on the table for discussion once more, with the expansion to BRICS+ cementing the growing interest in diversifying economic ties and reducing the bloc’s reliance on the US dollar.
Is the BRICS Currency the Symptom of the US Dollar Failing?
The dollar has been the cornerstone of international trade for decades, but the recent momentum behind the idea of a BRICS currency shows that key economic players on the global scene are looking at alternative options. Experts are now speculating whether the creation of a BRICS currency could signal a decline in the US dollar's influence.
In case you missed it, we cited our previous article on the possibility of the US Dollar collapse.
To fully understand the implications of a weakened dollar, it’s important to look beyond economic power and take into account geopolitical influence as well. The US sanctions regime relies heavily on the dollar's position, for example. With a stable BRICS currency in play, these sanctions could lose leverage, potentially altering the geopolitical landscape.
If the BRICS currency gains serious ground, this could lead to:
- Weakening of the power of US sanctions
- A potential decline in the dollar's global value
- A shift in global trade dynamics favoring BRICS nations
The concept of de-dollarization is already in the air, and the BRICS currency is another move in that direction. Should this new currency stabilize against the dollar, the impact could be more than symptomatic; it might mark the beginning of a significant shift in global financial power.
Remember, a BRICS currency isn't there just to exist alongside the dollar, but to stand in opposition to it. While proposed alternatives like the digital yuan aimed to circumvent dollar domination, a collective currency from the BRICS nations is a direct challenge to the dollar’s throne.
How Would a BRICS Currency Impact Crypto?
While cryptocurrencies have no direct link to a BRICS currency, they would most certainly be affected by one.
For a start, a BRICS currency might encourage these nations to explore and adopt digital currencies as part of their financial infrastructure, potentially boosting the global acceptance of cryptocurrencies. Not only that but if the dollar were to diminish in value because of the challenge a BRICS currency poses, this is likely to increase the value of crypto as a currency alternative and help grow market importance.
On the other hand, a BRICS currency could also lead to increased regulation and scrutiny of the cryptocurrency market, as governments seek to maintain control over their monetary policies, stifling the decentralized innovation at its heart.
Any interplay between a BRICS currency and cryptocurrencies is likely to involve a complex blend of cooperation, competition, and regulatory adjustments in the evolving landscape of international finance.
Pros and Cons of a BRICS Currency
Economic Stability and Growth
The introduction of the BRICS currency (BRIC) could present significant opportunities for economic stabilization and growth among its member states, with de-dollarization potentially shielding BRICS economies from any volatility in the US dollar.
With the BRICS, these countries might experience heightened economic coherence, making it easier to manage regional crises collectively.
Enhanced Trade and Investment
A BRICS currency could dramatically deepen trade ties, facilitating simplified transactions and potentially reducing costs for businesses within the bloc. The ease of trading in a single currency may prove to be a powerful tool for BRICS countries to expand their global economic footprint by diminishing reliance on US dollar-based trade systems.
Initiatives such as India's proposed Economic Corridor and efforts towards reducing trade barriers show the potential for an expansive trade network that could rival existing global trade routes.
Any potential BRICS currency is also likely to lead to a rise in intra-bloc investments, as investors may find it less risky and more cost-effective to operate within a unified monetary system.
Challenges and Obstacles to Implementing a BRICS Currency
Differing Economic Strengths and Priorities
One of the main issues around a shared BRICS currency is simply the vast differences between member economies. For instance, India's recent rise to become the fifth-largest global economy showcases its economic prowess, while the likes of Brazil and South Africa have faced financial turmoil. The stability of the bric could be undermined by weaker performing economies unless stringent fiscal policies are put in place.
Although the goals of the nations may be ambitious, that doesn’t necessarily mean they are aligned. Not only that, but the fact that each BRICS nation has its unique developmental stage, economic structure, and policy objectives complicates any possible cohesive currency system even further.
Potential Trade and Investment Difficulties
The success of a common currency in enhancing trade and investment rests on its adoption beyond the BRICS nations themselves. The reality of trading in bric would mean comprehensive agreements on exchange rates, mutual recognition of monetary policies, and consistent financial regulations — challenging prospects given the diversity among BRICS economies.
Furthermore, increased trade within the BRICS might lead to an economic shift where regional trade is preferred over global interaction, potentially isolating the member states from other trading partners.
Political and Regulatory Complexities
Political and regulatory intricacies also impact the feasibility of a BRICS currency. These can range from the need for a common set of standards and values to the establishment of a whole new suite of institutions.
Merging diverse political ideologies into a uniform framework is a monumental task, particularly given the complexity of each country’s domestic and international engagements.
The very structure of governance across these nations varies greatly, and this impacts their ability to work together on financial matters. Economic sanctions and selective exclusions from the global financial system have made Russia and Iran's involvement contentious.
On the other side, India's democratic processes and its global ambitions, highlighted by achievements like the Chandrayaan Moon Mission, paint a different picture of cooperation and leadership ambition.
Another BRIC in the Wall
It’s clear to see the complexities that a BRICS currency faces, from economic disparities to political intricacies and everything in between. Navigating these complexities will be crucial, with unity and shared governance being keys to the success of any such initiative.
The level of integration required may mean a reimagining of international alliances, with technical capabilities and ideologies converging.
As these countries work towards overcoming the many hurdles, the potential for a BRICS currency and its impact on global economics remains a topic worth attention. So, keep an eye on how these nations go about navigating the road ahead — it could mean a significant shift in the international financial landscape going forward.
Frequently Asked Questions
What is a BRICS currency?
A BRICS currency would involve Brazil, Russia, India, China, and South Africa developing a new reserve currency that is backed by a basket of their national currencies.
Can BRICS replace the US dollar as a reserve currency?
While BRICS nations aim to align on common goals and may expand their influence, the varying interests and economic dynamics among member countries make it unlikely for a BRICS currency to fully replace the US dollar as the main reserve currency any time soon.
Who initiated the BRICS alliance?
The BRICS ensemble was originally conceived as BRIC by Jim O'Neill, a Goldman Sachs economist, in 2001. It signified the economic potential of Brazil, Russia, India, and China. South Africa joined the grouping in 2010, making it BRICS.
Which currency is the strongest in the world?
As of its last evaluation, the Kuwaiti Dinar (KWD) holds the title of the world's strongest currency, maintaining the highest value on the global market.
What is the combined economic value of BRICS?
Together, the BRICS countries account for over $30 trillion in GDP, approximately 29% of the global GDP, according to 2023 projections from the International Monetary Fund (IMF).
Toby Bromet
Benedict Clark