The idea of a new BRICS currency—potentially aimed at reducing dependence on the U.S. dollar—has been making waves in the global financial community. The five major emerging economies of Brazil, Russia, India, China, and South Africa (BRICS) represent a significant portion of global trade, and their recent expansion efforts have raised questions about the future of the U.S. dollar’s global dominance.
In August 2023, at the 15th BRICS Summit, South African President Cyril Ramaphosa announced that Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates had been invited to join the organization on 1 January 2024. This expansion reflects the growing influence of BRICS and its ambitions to reshape the global economic order. However, the challenges and complexities of this expansion also provide the U.S. dollar with an opportunity to further solidify its long-term strength.
Despite the initial enthusiasm, on 30 December 2023, the new government of Argentina officially declined the offer to join BRICS, signaling the difficulties some nations face in aligning with the bloc's objectives. Similarly, Algeria, which applied for membership in 2023, withdrew its application in September 2024, making it the second country to opt out after Argentina. These events underscore the internal struggles within BRICS as it expands, and highlight the complexities that could hinder its ability to challenge the dollar's dominance in the short term.
1. Diversification Can Make the Dollar More Resilient
While BRICS countries are exploring a new currency to reduce reliance on the U.S. dollar, this initiative also highlights the global demand for diversification in reserve currencies. The invitation for more countries to join BRICS, including Turkey, which officially applied in September 2024, demonstrates the bloc’s growing ambition to establish a multipolar world order.
However, the political and economic environments in many BRICS and newly invited countries can be less stable than in more developed economies. For example, Iran and Turkey face significant internal challenges, from sanctions to geopolitical complexities. This instability may limit the appeal of a new BRICS currency, providing the U.S. dollar with a distinct advantage. The dollar’s long-established reputation for stability and liquidity continues to make it a preferred global reserve currency, even as BRICS expands.
World Bank economists have pointed out that despite diversification efforts, the U.S. dollar retains about 60% of global foreign exchange reserves. This dominance is reinforced by the relative instability in BRICS economies, where political unrest or changes in government policies can impact market performance.
2. Strengthening U.S. Financial Markets as Safe Havens
One of the core reasons the U.S. dollar dominates global trade and finance is the depth, liquidity, and transparency of U.S. financial markets. The recent BRICS expansion, which includes countries like Egypt, Ethiopia, Iran, and the UAE, brings together economies that vary significantly in terms of political stability and financial development.
While BRICS seeks to create a new currency to challenge the U.S. dollar, these nations' internal challenges may limit the effectiveness of a new currency. For example, Ethiopia faces ongoing civil unrest, and Iran continues to face severe economic sanctions. These factors increase the risks associated with a BRICS currency, making U.S. financial markets a more attractive and secure option for global investors.
According to the International Monetary Fund (IMF), more than half of all cross-border debt is denominated in U.S. dollars, underscoring how deeply entrenched the dollar is in global finance. U.S. policymakers can capitalize on this by ensuring that U.S. markets offer the highest levels of transparency, stability, and liquidity, making them more attractive in the face of BRICS competition.
3. Encouraging Economic Reforms to Improve Long-Term Competitiveness
The potential for BRICS countries to develop a unified currency highlights the necessity for the U.S. to invest in its own economic future. Rather than merely responding to the BRICS initiative with defensive measures, the U.S. can use this as a motivator to undertake domestic economic reforms that strengthen the dollar’s global role. This includes focusing on issues like:
Reducing national debt: Lowering debt levels and improving fiscal discipline would send strong signals to global markets, increasing confidence in the dollar.
Infrastructure investment: A strong domestic infrastructure supports long-term economic growth, which in turn strengthens the global appeal of the dollar.
Boosting innovation: The U.S. should continue leading in tech innovation, from artificial intelligence to clean energy. A dynamic and innovative economy supports a strong currency.
A report by the Council on Foreign Relations in 2020 noted that “domestic economic policy is the bedrock of the dollar’s global role.” This shows that by addressing internal economic challenges, the U.S. can secure its currency’s place at the top of the global financial system.
4. Expanding Dollar-Based Digital Finance
One of the most significant emerging threats to the U.S. dollar’s dominance is the rise of digital currencies and central bank digital currencies (CBDCs). While BRICS countries, including China, may experiment with digital currencies, the U.S. can use this development to accelerate its own digital currency initiatives.
If the U.S. Federal Reserve introduces a digital dollar (CBDC), it could reinforce the dollar's position as the world’s primary currency by improving cross-border transactions, reducing fees, and increasing access to U.S. currency in developing regions. In turn, this would allow the U.S. to expand its influence in the global digital economy, maintaining its competitive edge over any emerging BRICS currency.
A Bank for International Settlements (BIS) report shows that over 80% of central banks are actively exploring digital currencies. By developing a digital dollar that integrates smoothly with existing systems, the U.S. could outpace competitors and ensure that it remains at the forefront of global finance, even as the world transitions to digital payment systems.
5. Maintaining Strong Diplomatic and Trade Relations
Despite the expansion of BRICS, which now includes key economic players like Saudi Arabia and the UAE, the U.S. remains an indispensable trading partner for many of these nations. Even within BRICS, many countries continue to rely on U.S. markets for trade and investment opportunities. By maintaining strong diplomatic and trade relations, the U.S. can ensure that the dollar remains the preferred currency for international trade.
For example, Turkey’s application to join BRICS in September 2024 adds complexity to its geopolitical positioning, as it remains a NATO member and a candidate for EU membership. Turkey’s balancing act between BRICS, NATO, and the EU suggests that economic ties with the U.S. will remain a priority for years to come.
The U.S.-China Economic and Security Review Commission found that despite trade tensions, the U.S. and China are heavily interdependent in key areas such as manufacturing and technology. These economic ties can serve as leverage for the U.S. to maintain dollar dominance even in the face of new currency initiatives like those from BRICS.
Conclusion: BRICS Currency as an Opportunity for U.S. Strategic Growth
While the expansion of BRICS and the idea of a new BRICS currency could be seen as a threat to U.S. dollar dominance, it also presents an opportunity. By addressing global concerns about dollar reliance, promoting economic reforms, and investing in innovative financial technologies like digital currencies, the U.S. can further cement the dollar’s long-term global leadership.
With the diverse political and economic challenges that BRICS members face, from internal unrest to foreign policy tensions, the U.S. dollar’s stability and reputation provide a solid foundation for remaining the world’s currency of choice. By embracing these opportunities, the U.S. can continue to lead in a rapidly changing global financial landscape.
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