BRICS wants to dump the U.S. dollar

Aug 22, 2023, 12:39pm EDT
REUTERS/James Oatway
Diego Mendoza/

The BRICS conference began in Johannesburg Tuesday with one key issue at the top of the agenda: toppling the hegemony of the U.S. dollar.

While the participants of BRICS — Brazil, Russia, India, China, and South Africa — differ widely on political and cultural values, all have agreed they are eager to edge away from the U.S. dollar and trade in local currencies.

Lending in local currency "has nothing to do with de-dollarization and everything to do with good liability management,"1 economist Michael Pettis argues. Financial crises are caused by balance sheet mismatches, he writes, and borrowing funds in foreign currency that will eventually generate local currency is one of the primary culprits for these mismatches. While he is not confident that BRICS' New Development Bank will succeed as promoted, its promise to lend in more local currency "should be strongly supported."

The dollar won't dominate forever, but "the hype about de-dollarization is much ado about almost nothing"2 because there aren't any solid alternatives, writes economist Paul Krugman. The Chinese yuan’s threat to the dollar may also be overblown, Krugman writes, because not many outside the country use the currency. And China’s capital controls over moving money freely in and out of the country are a barrier to the yuan replacing the dollar as a dominant global currency.

But BRICS members, notably India, are "wary of Beijing's potential dominance,"3 notes the Financial Times' Lex investment column. Attempts to create a common BRICS currency "simply shift the narrative from Western dominance to Chinese dominance – essentially defeating the purpose of a unified, dollar-busting currency,"4 agrees banking expert Toufic Chanbou. Still, "the U.S. should not be complacent about the greenback’s primacy," the FT says, and use global sanctions sparingly. "The dollar’s dominance carries responsibility as well as privilege."