If the BRICS used only the bric for international trade, they would remove an impediment that now thwarts their efforts to escape dollar hegemony. Those efforts now often take the form of bilateral agreements to denominate trade in non-dollar currencies, like the yuan, now the main currency of trade between China and Russa. The impediment? Russia is unwilling to source the rest of its imports from China. So after bilateral transactions between the two countries, Russia tends to want to park the proceeds in dollar-denominated assets to buy the rest of its imports from the rest of the world, which still uses the dollar for trade,.
If China and Russia each used only the bric for trade, however, Russia would not have any need to park the proceeds of bilateral trade in dollars. After all, Russia would be using brics, not dollars, to buy the rest of its imports. Enter, at last, de-dollarization.
Is it realistic to imagine the BRICS using only the bric for trade? Yes.
For starters, they could fund the entirety of their import bills by themselves. In 2022, as a whole, the BRICS ran a trade surplus, also known as a balance of payments surplus, of $387 billion – mostly thanks to China.
The BRICS would also be poised to achieve a level of self-sufficiency in international trade that has eluded the world’s other currency unions. Because a BRICS currency union—unlike any before it—would not be among countries united by shared territorial borders, its members would likely be able to produce a wider range of goods than any existing monetary union. An artifact of geographic diversity, that is an opening for a degree of self-sufficiency that has painfully eluded currency unions defined by geographic concentration, like the Eurozone, also home to a $476 billion trade deficit in 2022.
If the emerging market nations Brazil, Russia, India, China, and South Africa – BRICS – officially abandon the US Dollar for trade settlements within their multilateral lender, it could have several consequences:
Weakened Role of the US Dollar:
The US Dollar’s status as the dominant global reserve currency could be further diminished if these influential emerging market nations shift away from it.
Strengthening Regional Cooperation:
The BRICS countries may strengthen their regional economic cooperation by relying on their own currencies for trade settlements.
This move could deepen economic ties and foster closer integration among these nations, potentially leading to the establishment of alternative financial mechanisms and institutions.
Diversification of Reserve Currencies
The abandonment of the US Dollar by the BRICS countries might encourage other nations to diversify their reserve currency holdings.
This could lead to a broader range of currencies being used as reserve assets, reducing the concentration of global reserves in the US Dollar and promoting a more multipolar international monetary system.
The shift away from the US Dollar in trade settlements by these influential emerging market nations could have geopolitical ramifications.
It might signal a desire for greater autonomy, independence, and influence in global financial affairs. This could impact the geopolitical balance of power and potentially reshape the dynamics of international relations.
Impact on Global Financial Markets
The reduced demand for the US Dollar in trade settlements among the BRICS countries could affect global financial markets.
Exchange rate fluctuations, capital flows, and investment patterns may be influenced, requiring adjustments in investment strategies and portfolio allocations by international investors.
It’s important to note that the consequences would depend on various factors, including the extent of the shift away from the US Dollar, coordination among the BRICS countries, the response from other global players, and the establishment of alternative financial mechanisms.