Who Benefits From a Future BRICS Reserve Currency?

With international trade on the rise and U.S. sanctions affecting more countries, analysts have started to consider using a future BRICS reserve currency to mitigate these risks. But who would benefit from such a currency? In this post, we’ll explore what a BRICS reserve currency could mean for the economic landscape, and how it could benefit those involved.

The BRICS—Brazil, Russia, India, China and South Africa—are five of the world’s largest emerging markets, with over 25% of the world’s population and a combined GDP of more than $16 trillion. As their economic importance has grown in recent years, so has the need for an alternative reserve currency to the U.S. dollar. The idea is that by uniting under a single currency, these countries will be able to sidestep sanctions imposed by the United States and gain greater control over their own economies.

This post will discuss the implications of a potential BRICS reserve currency and how it could put the power back into countries’ hands when it comes to international trade. We will consider potential advantages and drawbacks for both consumers and businesses alike, providing insight into how this new currency could shape global economics.

So, why is the U.S. dollar so influential in international markets? After all, it only accounts for 8% of global currency reserves and according to the World Bank, only 60% of global trade is conducted in U.S. dollars.

The answer lies in geopolitics. The U.S. dollar is not just a currency, it’s a tool of foreign policy—a means to shape foreign behavior without firing a single shot on the battlefield. Countries can use sanctions to freeze out dissenting countries by blocking their access to the global banking system and by curtailing access to international credit markets—putting huge economic strain on many countries, particularly developing ones who heavily depend on U.S. dollars for trade and investment capital. This has sparked an interest from some countries in forming an alternative reserve currency that sidesteps US dominance and influence internationally—which has led to the rise of BRICS as a potential candidate for replacing the US dollar as a reserve currency in future international transactions.

BRICS Growing Economic Strength

The vast network of economies that make up the BRICS countries has seen a steady increase in their economic strength over the past decade. Combined, these five nations have an estimated population of 3 billion people, and represent almost half of the world’s population. Furthermore, BRICS’ share of world GDP has also grown significantly over time, and currently stands at 42%.

Additionally, the countries who make up BRICS have seen their individual economic growth increase significantly. Russia saw a 5% growth in 2018; India achieved a 6.2% growth in 2019; Brazil grew 2.4%; South Africa increased by 1.4%; and China is currently ranked as the 2nd largest economy in the world due to its 6.3% GDP growth rate in 2019.

These figures show us that BRICS is not only resilient enough to withstand potential sanctions from the US government but is also capable of standing on its own as an independent force in global economy. As a result, these nations may very well be positioned to benefit from implementing a unified reserve currency and sidestepping further U.S sanctions or restrictions on international trade.

BRICS Lack of Unifying Principles and Ideologies

Analysts have raised some concern around how the BRICS nations could form a unified currency and, along with it, a monetary union to compete with the U.S. dollar. While the BRICS countries may share a similar vision for international trade, there are a number of ideological, cultural, and economic differences that complicate the matter.

For example, China is a recognized authoritarian power while Brazil is a democratic country with one of the oldest democracies in the world. As such, their approaches to government and economic interaction can be quite different.

In addition to this ideological gulf, there are also economic differences between BRICS nations that could further complicate matters. China has had much higher economic growth than other BRICS countries over the past few decades while some member countries have struggled with slow or negative economic growth. This could make it difficult for these countries to agree on shared goals and policies within the union.

Although analysts remain divided on whether BRICS might succeed in establishing an alternative reserve currency and creating a competing power block against U.S.-led economies, it’s clear that this potential coalition faces numerous challenges going forward due to ideological and economic fragmentation among its members.

Potential Benefits From a Future BRICS Reserve Currency

So, who stands to benefit the most if a future BRICS reserve currency is adopted?

Increased Autonomy and Sovereignty

As mentioned previously, many countries seeking escape from U.S. economic hegemony and sanctions would gain increased autonomy and sovereignty if they had access to a reserve currency outside of the dollar. Nations may also be able to pursue agendas outside of the ruleset imposed by American economic sanctions.

Lower Costs and Fewer Barriers to Trade

A reserve currency alternative could reduce costs associated with international trade and may create fewer barriers for countries with weaker currencies relative to the dollar. It could also open more opportunities for countries in the developing world that had previously been relegated to second-tier status in terms of global investments and growth opportunities due to a lack of capital.

By reducing costs, eliminated currency risks, and creating more equitable access to global markets, a new reserve currency would be a boon to the global economy—providing stability in times of economic uncertainty, while driving innovation on all sides of the table.

Possible Challenges From Transitioning to a BRICS Reserve Currency

A possible transition to a single BRICS currency may raise some significant challenges. Firstly, the BRICS countries have different economic policies and have not been immune to economic fluctuation and recession. This could affect their ability to establish a unified currency and limit its stability over the long term.

The second issue is related to the initial acceptance of a BRICS currency in global markets. The US dollar has been used for more than 70 years, making it an entrenched international currency. It may take considerable time for a BRICS currency to be widely accepted and trusted in global markets.

Finally, if a single BRICS currency were established, its creation could lead to complex geopolitical issues given the different economic and political trajectories of each member nation. On top of this, it’s likely that other nations would try to keep their own currencies strong by blocking or slowing down international payments in any new Reserve Currency -all of which could potentially make it difficult for a single BRICS currency to gain traction around the globe.