Why the BRICS Currency Might Not Succeed: An In-Depth Analysis

The BRICS nations, consisting of Brazil, Russia, India, China, Egypt, Ethiopia, United Arab Emirate and South Africa, have been exploring the creation of a new shared currency to challenge the dominance of the US dollar in global trade. While this bold initiative aims to reduce dependence on the US and offer an alternative to the dollar-centric global financial system, several challenges make its success uncertain. Here, we explore why the BRICS currency may not live up to its ambitious goals.

1. The Problem of National Currencies

One of the major hurdles the BRICS countries face in creating a new currency is their existing commitment to their national currencies. Countries like China, India, and Russia have built strong economic identities around their respective currencies, and introducing a new currency could risk destabilizing these economies. By encouraging trade in a joint BRICS currency, these countries could weaken their own currencies, potentially hurting their economies in the long run.

For example, Russia’s ruble has faced sharp depreciation due to ongoing international sanctions, with the ruble losing more than 50% of its value against the dollar since 2014​

Replacing it with a BRICS currency could add more uncertainty to Russia’s already fragile economic situation. Similarly, India’s currency, the rupee, has faced pressure with a rise in inflation and external debt​

Moreover, there is a large-scale reluctance within each BRICS nation to relinquish control over their monetary policies. If the BRICS currency were to replace or undermine their national currencies, it could reduce their ability to respond to domestic economic challenges like inflation or unemployment.

The economic power of the US dollar lies not just in its widespread acceptance but in the global trust in the US economy. According to the International Monetary Fund (IMF), as of 2023, the US dollar accounts for around 59% of global foreign exchange reserves, and over 80% of international trade transactions are conducted in dollars​

The BRICS countries would need to first overcome these staggering figures to even begin to challenge the dollar’s dominance.

2. Authoritarian Leadership and Geopolitical Concerns

The leadership of the BRICS countries also raises significant concerns about the future of this currency. The key advocates of this initiative, such as Russian President Vladimir Putin, Chinese President Xi Jinping, and Iranian leaders have been criticized for their authoritarian styles of governance. As a result, the BRICS currency could be seen as a geopolitical tool used by these nations to exert influence over smaller countries and shape the global financial system to their advantage.

In the past, authoritarian regimes have used financial systems as a means of leveraging power, and the BRICS currency could follow a similar pattern. This may deter potential partners who would prefer not to be caught in a financial system that could be weaponized for political purposes. The growing distrust in Chinese economic and political influence has already led some countries to avoid or limit their reliance on Chinese investments and infrastructure projects, such as the Belt and Road Initiative​

3. Potential for Weaponization

A currency developed under the BRICS framework could easily be used to advance political and military agendas. Smaller nations that are part of the BRICS bloc could be pressured into accepting the currency or risk losing access to trade or financial resources. Moreover, there is a real possibility that the BRICS currency could be used as a tool for funding groups or projects that are seen as destabilizing, particularly in volatile regions.

The weaponization of financial tools is not a hypothetical scenario. The US has repeatedly used sanctions as a foreign policy tool, blocking countries like Iran and North Korea from accessing the international financial system, and even targeting companies that trade with these nations​

The BRICS currency could present a new avenue for countries that feel threatened by such actions to bypass Western financial systems. This could further divide the global financial community and impede the BRICS currency’s chances of widespread adoption.

This weaponization of the currency could discourage other countries from adopting it and would likely impede the currency’s growth and credibility in the global market. The world’s financial institutions are unlikely to embrace a currency that could be so easily manipulated for political gain.

4. The US Dollar’s Long-Standing Stability

Another key reason the BRICS currency is unlikely to succeed is the enduring stability of the US dollar. The US dollar remains the world’s dominant reserve currency, and it plays a central role in international trade. For many countries, particularly those in the global south, the dollar remains the default currency for transactions.

Unlike the BRICS currency, which would need to be adopted by each country individually, the US dollar is already universally recognized. This established stability and trust in the dollar make it incredibly difficult for any new currency, no matter how well-intentioned, to dethrone it.

In 2021 alone, $6.6 trillion worth of US dollars was transacted globally, underscoring the dominant role of the greenback in international commerce​.

The US Federal Reserve also provides a strong regulatory framework and a history of reliability, which has made the dollar the default currency in nearly every global market, from energy to commodities and bonds.

Moreover, countries already holding large reserves of US dollars are unlikely to abandon them in favor of a BRICS-backed currency without considerable financial incentives. The perceived security of holding dollar-based assets remains a top priority for global central banks.

5. Reluctance to Trade in the BRICS Currency

Even if the BRICS nations succeed in launching their currency, individual countries may be reluctant to use it for trade. Take China, for example: it is unlikely that China would prioritize a BRICS currency over its own currency, the yuan, especially in export markets. The Chinese government has invested heavily in promoting the yuan in international trade, and giving up this control in favor of a BRICS currency would be a step backward.

For instance, as of 2023, the Chinese yuan accounted for only about 2.5% of global foreign exchange reserves, a far cry from the dominance of the US dollar​

Despite ongoing efforts to internationalize the yuan, including its inclusion in the IMF’s Special Drawing Rights (SDR) basket in 2016, China has been focused on promoting its own currency over any alternative, including the BRICS currency.

Similarly, other BRICS countries may prefer to rely on their own currencies or the dollar for their trading relationships, particularly if the BRICS currency lacks the international infrastructure and backing necessary to support such a global shift.

Advantages and Disadvantages of the BRICS Currency

The idea of a BRICS currency a unified monetary framework among Russia, India, China, Brazil, South Africa, Egypt, Ethiopia and United Arab Emirate has sparked extensive global discussion. Proponents see it as a bold step toward reducing dependence on the US dollar and creating a more balanced global financial system. However, skeptics argue that the initiative faces significant economic, geopolitical, and logistical hurdles that could limit its effectiveness and impact. As the world watches this initiative unfold, weighing its potential benefits against its challenges provides crucial insight into its feasibility and future trajectory.

Advantages of the BRICS Currency

1. Reduced Dependence on the US Dollar
   • One of the key advantages for BRICS nations is the ability to reduce reliance on the US dollar for international trade. Countries such as Russia, China, and Brazil have faced sanctions or pressure related to their use of the dollar, which has limited their financial autonomy. A BRICS currency could provide an alternative and reduce vulnerability to the US financial system.
2. Promotion of Trade Within BRICS
   • A shared currency could help increase intra-BRICS trade by eliminating currency exchange risks and costs. This could make trading between BRICS nations smoother, especially for countries like India and China, who are already major trading partners within the bloc.
3. Geopolitical Influence
   • If successful, the BRICS currency could shift the balance of power in the global financial system. By offering an alternative to the US dollar, it could give these countries more influence, especially in regions where the US has a dominant economic presence. This could particularly impact countries in Africa, Latin America, and Asia that may want to diversify away from US-dominated systems.
4. Support for Emerging Economies
   • The BRICS currency could help emerging economies outside the bloc by offering a stable alternative to volatile regional currencies. It could foster more stability and economic growth for smaller nations that may be struggling to access credit and investment from global markets.

Disadvantages of the BRICS Currency

1. Challenges of Consensus Among Diverse Economies
   • The BRICS nations have very different economic landscapes. While China and India are large, rapidly growing economies, countries like Brazil and Russia face political and economic challenges. This diversity in economic stability and policy priorities can create difficulties in designing and maintaining a unified currency.
2. Risk of Weakened National Currencies
   • Countries in the BRICS bloc have their own national currencies that they are unlikely to abandon without significant drawbacks. A shared currency could weaken their local economies by reducing control over domestic monetary policy. This could lead to inflation, currency devaluation, and decreased economic autonomy.
3. Geopolitical Tensions and Authoritarianism
   • The key leaders behind the BRICS currency—such as Vladimir Putin, Xi Jinping, and others—are often viewed as authoritarian. This raises concerns about the currency being weaponized for political purposes or used as a tool to assert influence over smaller countries. Nations could be reluctant to join or adopt the currency if they perceive it as a political move to further the ambitions of the BRICS leaders.
4. Resistance to the Currency by Key Economies
   • Even within the BRICS bloc, countries may resist using the BRICS currency in favor of their own. China, for example, is highly invested in internationalizing its own currency, the yuan, and would likely be hesitant to undermine its global ambitions in favor of a new shared currency. Other countries, such as India, have shown little interest in abandoning their own national currencies for a regional alternatives and Market Confidence**
   • For the BRICS currency to gain widespread adoption, it would need to instill confidence in global markets. This means it must have a robust financial infrastructure and solid backing. Without these, countries and investors may be unwilling to switch from the established US dollar, which remains stable, well-regulated, and trusted globally.

The BRICS Currency Faces Uphill Battle

While the BRICS currency initiative has the potential to reshape global trade dynamics, the challenges it faces make it highly unlikely that it will replace the US dollar anytime soon. From the risk of destabilizing national economies to the geopolitical concerns surrounding the leadership of the BRICS countries, there are numerous barriers to success. Additionally, the longstanding stability of the US dollar, coupled with the reluctance of major nations to adopt a BRICS-backed currency, further complicates matters.

As it stands, the BRICS currency faces an uphill battle to gain the trust and acceptance needed to rival the US dollar, and its future remains uncertain.