BRICS, which includes Brazil, Russia, India, China, and South Africa, is a key bloc of emerging countries. After BRICS met in June 2022, Russian president Vladimir Putin said that the bloc is working on a new global reserve currency.
The 2022 meeting was held virtually, against the backdrop of Russia’s invasion of Ukraine. Could BRICS's currency replace the U.S. dollar as the global reserve currency?
The U.S. dollar has been the world’s reserve currency for decades
Over the years that the U.S. dollar has been the world’s reserve currency, there have been multiple instances that the greenback seemed to be losing its relevance. The country’s handling of the COVID-19 pandemic, the Fed's money printing, and China becoming the world’s second-largest economy have put the dollar under the microscope.
Putin discusses a BRICS reserve currency
Putin told the BRICS Business Forum that the bloc is reviewing a global reserve currency that would be based on a basket of BRICS member currencies. BRICS's combined GDP is higher than the U.S. GDP, and in 2021, China’s GDP surpassed the E.U.'s.
Putin is the only BRICS leader to have mentioned a BRICS currency so far. However, as India has been working to settle some of its external trading in its domestic currency instead of the U.S. dollar, it might benefit from a BRICS currency. It would also help the country get around the Western sanctions against Russia.
An alternative global reserve currency could soon become reality
The idea of a global reserve currency has been gaining traction for some time now, and the Euro was even once touted as a dollar alternative. However, the West's crippling sanctions against Russia have brought the idea of a BRICS currency to the forefront. Russia had massive foreign exchange reserves before the invasion, but sanctions blocked it from using them. Meanwhile, China has been experimenting with a digital yuan to challenge the dollar’s dominance.
An alternate global currency with China at the center might not be acceptable to everyone
India hasn’t said anything about the BRICS reserve currency, but given the country’s strained relations with China, the country might not be too keen on a reserve currency with China at the center. After China’s investments in Sri Lanka and Pakistan contributed to those countries' economic collapse, other emerging nations have been wary of dealing with China.