What is the BRICS currency and can it be accepted?

Brazil's president called on countries on Wednesday BRICS to create a common currency for trade and investment with each other to reduce their vulnerability to fluctuations in the US dollar exchange rate. Luiz Inacio Lula da Silva made this proposal at the BRICS Summit in Johannesburg. However, officials and economists have noted the difficulties of such a project, given the economic, political and geographical disparities between Brazil, Russia, India, China and South Africa.

Why does Brazil want BRICS currency?

The Brazilian president does not believe that nations that do not use the dollar should be forced to trade in the currency, and he has also advocated for a single currency in the Mercosur bloc consisting of South American countries.

"BRICS Currency Increases Our Payment Ability and Reduces Our Vulnerability" – said the President of Brazil during the plenary session opening the summit.

What do other BRICS leaders think?

South African officials said the BRICS currency was not on the agenda of the summit. In July, India's foreign minister said:

"There is no idea for a BRICS currency." 

Its foreign secretary said before leaving for the summit that reviving trade in national currencies would be discussed.

Russian President Vladimir Putin said in a meeting he is attending via video link (due to the fact that he is under an international arrest warrant for alleged war crimes in Ukraine) that the transition of trade between member countries from dollars to currencies will be discussed domestic.

China has not commented on the idea. President Xi Jinping spoke at the summit about promoting "reform of the international financial and monetary system."

What are the challenges of creating a BRICS currency?

Building a BRICS currency would be a "political project," South African central bank governor Lesetja Kganyago said in July.

"If you want this, you will have to create a banking union, you will have to create a fiscal union, you will have to achieve macroeconomic convergence" Kganyago said.

"Importantly, a disciplinary mechanism is needed for countries that do not comply ... Besides, they will need a common central bank ... Where to locate it?"

Trade imbalances are also an issue, a team of advisors wrote in a blog post OMFIF (The Official Forum of Monetary and Financial Institutions is an independent think tank organization dealing with central banking, economic policy and public investment. OMFIF was founded in 2010).

Is the US dollar in trouble?

BRICS leaders have said they want to use their national currencies more than the dollar, which appreciated sharply last year as Federal Reserve The United States raised interest rates, and Russia invaded Ukraine, causing an increase in dollar debt and many imported goods.

The imposed sanctions and Russia's banishment from global financial systems last year also fueled speculation that non-Western allies would turn away from the dollar.

"The objective, irreversible process of dedollarization of our economic ties is gaining momentum" – said Putin at Tuesday's meeting of the BRICS summit.

According to data Of the International Monetary Fund the share of the dollar in official foreign reserves fell to a 20-year low of 58% in the final quarter of 2022 and 47% after adjusting for exchange rate changes. However, the dollar still dominates world trade. According to the Bank of International Settlements Data, it is on one side of nearly 90% of global forex transactions.

De-dollarization would require countless exporters and importers, as well as borrowers, lenders and currency traders around the world to independently choose to use other currencies.