Is the US dollar hegemony at risk because of the BRICS currency?

on Jun 1, 2023
  • BRICS members will kick off in South Africa on Thursday.
  • The countries are expected to deliberate on a common currency.
  • Other countries like Saudi Arabia and UAE are expected in the summit.

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A major economic summit that could have major implications to the global economy will start on Thursday in South Africa. The summit will see a club of emerging market economies known as BRICS meet and deliberate on key issues. They will be joined by other countries, including Saudi Arabia, Egypt, and the UAE.

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BRICS meeting kicks off

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The meeting comes at a time when most BRICS countries and their allies are differing with their Western counterparts. Russia is fighting with Ukraine while tensions between the US and China have escalated in the past few months. 

South Africa is also under pressure from the US and other Western countries who accuse it of supplying Russia with weapons. Brazil, under President Lula, has turned increasingly anti-western countries. Just this week, he condemned the US for its sanctions against Venezuela.

Saudi Arabia, which aims to join BRICS, has also seen its relations with the US deteriorate recently. The US has accused the country of human rights violations after the murder of Khashoggi. 

Therefore, the meeting will be consequential considering that many member states are considering measures to reduce their exposure to the US dollar. A BRICS currency has been suggested in the de-dollarisation debate.

The countries argue that the US holds other countries ransom because of the dollar hegemony. For example, the country decided to sanction Russia’s central bank, denying it access to the US dollar.

Can the BRICS currency dethrone the dollar?

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The mechanics of a new BRICS currency are still being worked out. A likely scenario is where these countries create a currency that is similar to the euro. Besides, BRICS countries – and their potential allies – are endowed with vast natural resources.

This will not be easy because of the significant differences between how the BRICS member states operate. For example, while China’s economy is growing, South Africa is worsening. As such, as we have seen with the euro, actions of the central bank could skew towards big economies like China and Russia.

Further, while these countries are allies, there is deep distrust among them. Analysts believe that the mutual distrust could lead to the collapse of ties in the long term.

Further, countries could feel insecure entrusting their economic future to an untested central bank that will be tasked to manage the currency. 

Most importantly, the BRICS currency could meet the same fate as the euro. While the euro is the second most popular currency in the world, its role in the global economy is still smaller compared to the US dollar. 

Therefore, for now, I believe that the US dollar hegemony is not at risk because of the new BRICS currency. Instead, as I wrote here, I believe that the biggest risk to the USD is the ballooning US public debt, which is expected to hit $50 trillion in the next few years.

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