In his recent address to the BRICS Business Forum, Russian President Vladimir Putin stated that the minilateral member states were working on developing a new global reserve currency. It is presumed that this global reserve currency, containing the national currencies of the BRICS member states, will be an alternative to the International Monetary Fund’s Special Drawing Right (SDR). At a time when Russia is facing unprecedented global sanctions in the wake of the Ukraine invasion, Putin’s announcement has underscored the importance of recognising the heterogeneous motives of the BRICS nations to not only facilitate intra-BRICS trade in local currencies, but also firewall their global financial interests.
Brazil
China is Brazil’s largest trade partner and it is beneficial for both countries to use local currencies for bilateral settlements. However, Brazil’s dependence on the dollar is quite evident because approximately 90 percent of Brazil’s export invoicing is denominated in dollars, even when the United States (US) receives only 17 percent of Brazil’s overall exports. This imbalance can prompt Brazilian policymakers to support forming a BRICS reserve currency. Former Brazilian President Lula Da Silva had expressed his anguish of dollar domination in Brazilian trade and encouraged the idea of using BRICS as a de-dollarisation coalition. He also stated that BRICS was not created as an instrument of defence, but as an instrument of attack.
However, Brazil’s stance on de-dollarisation has weakened significantly following its severe economic crisis in 2014, and the rise of the Bolsonaro administration. The Brazilian government under Bolsonaro has moved closer to the Western powers and has been inconsistent in supporting a BRICS reserve currency.
Brazil’s close economic relationship with China and its dependence on the US dollar indicates that Brazil will most likely not be at the forefront of BRICS de-dollarisation plans. However, it recognises that it stands to benefit from such initiatives as it simplifies trade relations with China and other large economies like India and Russia.
Russia
Given its geopolitical interests, Russia has always wanted to leverage BRICS to advance the idea of de-dollarisation. The near-elimination of Russia from the West-led dollar-dominated financial system after the Russia-Ukraine war in early 2022 has further strengthened the concept of an alternative financial system free from Western domination.
The Putin administration supported a de-dollarisation plan to reduce Russia’s dependence on the US dollar by limiting international settlements and conducting business using alternative currencies in late 2018. President Putin has repeatedly emphasised the need to further de-dollarise and protect Russia’s economic sovereignty.
Russia’s former Deputy Foreign Minister Sergei Ryabkov also highlighted the country’s apprehensions over dollar usage for banking and international settlements, stressing that it is vital to becoming less dependent on it. Additionally, he revealed that the BRICS members were ready to cooperate to promote international financial regulation reforms and overcome the excessive domination of a limited number of reserve currencies.
India
Antagonistic to Russia and China, the US considers India a valuable ally and strategic partner in the Indo-Pacific region. The Indian government considers Russia and China’s efforts to reduce dollar usage more ideological than practical and does not explicitly support the mobilisation of BRICS to challenge the dollar’s hegemony. Furthermore, the recent military standoffs between India and China further prevent India from supporting China’s plans to dethrone the dollar.
However, this does not fully encapsulate India’s stance on US dollar dominance. India has explored plans to reduce its dependence on the dollar in the past. For instance, in 2012, India’s Ministry of Commerce and Industry brought together a task force to analyse the idea of using the Indian Rupee in India’s bilateral trade, especially recommending the idea of utilising the rupee to trade with oil exporting countries. The Indian government also created a multi-agency task force with representatives from India’s economic policymaking agencies to compile a list of countries where India could trade in rupees.
Currency volatility and geopolitical events like US’ oil sanctions on Russia and Iran, and China’s plans to internationalise the renminbi have encouraged India to promote greater use of the rupee for international transactions. As one of the most dollarised countries in trade invoicing, the increase in global currency volatility also incentivises India to de-dollarise. However, this will be a challenge, as 86 percent of India’s imports rely on the US dollar invoicing, despite only 5 percent of India’s imports originate in the US. Similarly, 86 percent of India’s exports were invoiced in US dollars, while only 15 percent of India’s exports were to the US.
India is unlikely to play an explicit role in any BRICS plan to reduce the influence of the US dollar, however, it can help minimise dollar dependence by supporting initiatives that promote the use of local currencies in trade and finance.
China
China has persistently criticised the dollar hegemony, however, Chinese policymakers have failed to prepare a precise plan to destabilise its global reserve currency status. The souring of US-China relations has highlighted the strength of the US dollar and its ability to create roadblocks for Chinese trade and technology. Such roadblocks have encouraged China to depart from the US-dominated global system and potentially build a sphere of influence with BRICS nations. China is the world’s largest trading partner and is uniquely positioned to aid de-dollarisation regionally and internationally. China is also a big player in several Asian and African countries for development financing. Additionally, China has utilised the Belt and Road Initiative and offshore markets to internationalise the renminbi.
In the aftermath of the 2008 global financial crisis, former Governor of the People’s Bank of China (PBoC), Dr Zhou Xiaochuan, stated that the spill over effect highlighted the international monetary system’s inherent vulnerabilities and systemic risks. He called for the creation of an international reserve currency that is uncoupled from individual nations. Former Chinese President Hu Jiantao also stated that the international monetary system dominated by the dollar is a “product of the past.”
Similarly, Dai Xianglong, then Governor of the PBoC, critiqued the dollar-based financial system after the Asian financial crisis of 1997. He asserted the need for global reform by disaggregating the role of a few countries’ currencies as the international reserve currency, which is a source of instability in the international monetary system.
South Africa
South Africa has followed Russia and China’s de-dollarisation plans, but has neither directly promoted nor formulated any plans of its own. The relationship between the US and South Africa has improved enormously since US sanctions were lifted in 1991 following the end of apartheid. South Africa may not have a comprehensive de-dollarisation plan, but is mindful of international currency volatilities, especially of the US dollar.
During the 2011 BRICS summit, South African Trade and Industry Minister Rob Davies expressed concerns about exchange volatilities and dependence on unstable international currencies and highlighted the benefits of trading directly in the South African rand. Further, at the 2013 BRICS summit, he reiterated the need to develop protocols to settle trade in local currencies. He demonstrated that currency volatility in developing countries is directly influenced by global economic dynamics, making them price takers whose currency risk can be triggered by macroeconomic conditions beyond their control. The lack of autonomy among developing countries’ economic security is a cause for concern beyond BRICS nations. The transaction and financial risk arising from the US dollar’s hegemony has incentivised South Africa to go along with BRICS’ plans to promote the use of local currencies in trade. Recently, South Africa accepted the broader use of the Chinese renminbi and included it in its foreign exchange reserves to diversify currency risk.
Conclusion
BRICS nations have displayed increased cooperation and intend to change the dollar-dominated financial system. Within BRICS, Russia and China are leading the de-dollarisation initiatives to safeguard their interests stemming from their geopolitical rivalry with the US, and considering the risk of future sanctions against them. India, Brazil, and South Africa have supported statements by BRICS on altering the global financial system and creating more opportunities to promote the use of local currencies for international trade. All BRICS members have taken steps to de-dollarise and improve their autonomy in the global financial system.
The fundamental reason for developing an SDR-like basket currency for BRICS nations is to address the US dollar hegemony and build their sphere of influence and unit of currency within that sphere. It is still unclear if all BRICS members want to transfer foreign reserves to develop this new sphere of influence. De-dollarisation, in one way or another, is a shared interest and priority for all BRICS nations to diversify and reduce the risk of exogenous shocks and currency shocks caused by the US dollar. However, while BRICS member states—collectively and individually—intend to safeguard their global financial interests by developing a reserve currency, over-dependence on the US dollar poses challenges that may make such an idea a distant reality.
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