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BRICS' Attempt to Adopt Common Currency: An Uphill Battle



The BRICS countries, Brazil, Russia, India, China, and South Africa, recently made a significant declaration about their aim to lessen their reliance on the US currency when making loan advances to their members.


Although this action is being hailed as a plan to lessen the dollar's sway, it raises concerns about the viability of these countries adopting a single currency to challenge the dominance of the US dollar on the international scene.


This new strategy was presented by Dilma Rousseff, the president of the New Development Bank (NDB), and it calls for the BRICS Bank to issue 30% of its loans in South African rands, Brazilian reals, and Indian rupees. As the BRICS Bank plans to allocate between $8 billion and $10 billion in loans for the year 2023, this decision aims to reduce the exchange rate risks brought on by the volatility of the dollar.


Despite the BRICS countries' objectives, a number of underlying causes indicate that their attempt to create a single currency and overthrow the US dollar may fail:


Economic Disparities

The BRICS countries' economies varied widely in terms of size, pace of growth, and stage of development. For instance, whereas some members of the group, such as South Africa, have relatively smaller economies, China is a global economic powerhouse. Concerns about the viability of creating a unified currency that would meet the various economic needs of different countries are raised by this great economic imbalance.


Diverse Monetary Policies

Each of the BRICS countries has its own monetary framework, fiscal plan, and inflation rate. These nations would need to coordinate their policies and economic objectives to make a common currency work efficiently in order to avoid economic instability. It is important to recognise the complexity of coordinating these policies because it could result in disputes and conflicts among the member nations – just like what’s happening among the EU countries.


Absence of a Uniformed Political System

The adoption of a unified currency demands a level of political unanimity that the BRICS countries currently lack, which goes beyond economic reasons. These nations have various governmental structures, worldviews, and geopolitical objectives. Their capacity to efficiently handle a shared currency may be hampered by the lack of a united political framework.


Historical Precedents and Current Tensions

In the past, efforts to create a common currency across nations with different economic and political systems have run into many difficulties. A useful reminder is provided by the example of the Eurozone, which had severe problems continuing to use a single currency. The introduction of a single currency may also be hampered by existing disputes among several BRICS states.


The US dollar is firmly established as the main reserve currency in the global economic environment. Decades of international trade norms and financial institutions that have developed around the dollar sustain this status. The global financial ecosystem would need to undergo significant structural adjustments, which would take a long time to complete.


Although the BRICS countries' desire to depend less on the US dollar is an exciting development, the road to establishing a single currency to challenge the dollar's dominance is difficult. This ambitious project faces significant challenges from the widening economic divides, varied monetary systems, fragmented political structures, historical antecedents, ongoing tensions, and the established global economic environment.


Although the BRICS countries' initiatives show a desire for a more multipolar financial system, it's crucial to understand that the global economy is not yet prepared for such a radical change.

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