Although eliminating the dominance of the dollar seems likely, it may take many years. Therefore, the illusion that the dollar will immediately collapse due to the creation of a currency called BRICS currency can lead an isolated economy to complete disintegration.
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In recent decades, the world has faced numerous challenges in the international financial system. The U.S. dollar, as the global reserve currency, is at the center of this system. However, excessive reliance on the dollar and economic fluctuations caused by U.S. monetary policies have created serious problems for many countries. These issues clearly demonstrate that the need for a new and more diversified financial system is greater than ever before.
One of the biggest problems of the current financial system is the concentration of economic power in the hands of a limited number of countries. This concentration has not only led to economic inequalities but also reduced countries’ bargaining power in global markets. Additionally, unilateral economic sanctions imposed by certain countries can quickly deprive nations of access to global financial resources, leading to economic instability.
Another issue with the current financial system is its lack of transparency and ineffective oversight of financial institutions. The 2008 financial crisis clearly demonstrated how improper operations and excessive risk-taking in the banking sector can lead to the collapse of the entire financial system. Although reforms have been implemented in this area, many of these issues still persist.
In this context, a new financial system that focuses on currency diversification and reduces dependence on a single currency could be an effective solution. BRICS countries have taken a significant step in this direction by proposing the creation of a multi-currency payment system. This system could reduce the risks of currency fluctuations and facilitate international trade.
Ultimately, a new financial system must be based on international cooperation and a commitment to transparency and economic justice. Such a system would benefit all countries and help prevent future financial crises.
BRICS’ Plan to Change the International Monetary and Financial System
The BRICS organization has announced plans to reform the international monetary and financial system and challenge the dominance of the U.S. dollar.
Russia, as the BRICS chair for 2024, has proposed the creation of a BRICS Cross-Border Payment Initiative (BCBPI), allowing member countries to use their national currencies for trade.
BRICS is also developing an alternative interbank financial communication infrastructure to bypass the SWIFT system, which is currently under U.S. control and subject to Western unilateral sanctions.
Using the BRICS Clear platform (a new accounting and securities settlement system), BRICS is defining new mechanisms not only for de-dollarizing trade but also for encouraging investment in BRICS member states and other emerging markets and developing economies.
BRICS will experiment with using Central Bank Digital Currencies (CBDCs) through Distributed Ledger Technology (DLT), such as blockchain, to enable countries to directly manage trade instability without relying on the SWIFT system and third-country banks.
Additionally, BRICS plans to establish a grain exchange and trading hubs for commodities such as grain, oil, natural gas, and gold, which could also help mitigate trade instability.
Western Monopoly Led by the United States Over the International Monetary and Financial System
A report published by the BRICS rotating presidency argues that the International Monetary and Financial System (IMFS) is not only unfair but also inefficient, as it suffers from “over-reliance on a single currency and centralized financial infrastructure.”
The report points out that the current IMFS primarily serves the interests of wealthy Western nations.
According to the report, the IMFS has faced repeated crises, trade instability, rising public debt levels, and increased capital flow and exchange rate volatility.
The monopoly that the U.S. exerts over the International Monetary Fund (IMF) ensures global demand for the dollar and has allowed the country to accumulate massive national debt for decades while using its currency to advance geopolitical interests.
The U.S. government is waging economic warfare worldwide, imposing unilateral sanctions on one-third of all countries, including 60% of low-income nations. Washington and its European allies have also seized hundreds of billions of dollars in assets belonging to their adversaries.
The BRICS report includes a list of countries whose reserves have been frozen by the West, including Russia, Venezuela, Iran, Syria, Libya, Afghanistan, and North Korea.
BRICS Alternatives to the World Bank and IMF: NDB and CRA
To transform the international monetary and financial system, Russia has proposed creating several new institutions, including the cross-border payment system, the BRICS Clear platform, and the BRICS grain exchange.
Russia has also called for strengthening institutions that BRICS has already established as alternatives to the World Bank and IMF: the New Development Bank (NDB), formerly known as the BRICS Bank, and the Contingent Reserve Arrangement (CRA).
The New Development Bank was established to finance developing countries, particularly for infrastructure projects. The NDB has pledged to issue more loans in BRICS national currencies and aims to gradually reduce the use of the dollar in global transactions.
However, there is less optimism regarding the CRA. This institution, which was intended as an alternative liquidity source for countries facing balance-of-payments issues, has not been very active since its inception.
Another serious concern about the CRA is that its operations are monitored by the IMF. The report notes that “the treaty establishing the CRA limits the amount of resources that can be accessed without a parallel agreement with the IMF to 30%,” and every transaction must be accompanied by IMF oversight.
The document adds: “This could lead to a situation where a borrowing country is denied a financial lifeline due to its current status with the IMF, even if BRICS members agree to provide assistance.”
The IMF and World Bank are flawed in that they are entirely dominated by Western powers. The United States is the only country with veto power in both institutions.
When the IMF and World Bank were established at the Bretton Woods Conference in 1944, and the dollar was designated as the global reserve currency, Western powers maintained significant control over these institutions. At the time, much of the world was still officially under European colonial rule.
To ensure Western dominance, an unspoken agreement exists that every World Bank president is a U.S. citizen, and every IMF managing director is European. This pattern has continued to this day, despite significant changes in the global economy.
In 2023, the five core BRICS nations accounted for 32% of global GDP (based on purchasing power parity, PPP), yet they held only 13.54% of the IMF’s voting shares. Meanwhile, the G7 countries, despite representing only 30% of global GDP, controlled 41.27% of IMF voting shares.
The BRICS report highlights these serious concerns and states:
The governance aspect of the International Monetary Fund (IMF) has also been called into question. This system provides a significant advantage to high-income economies that hold key shares in the IMF. The interests of 35 advanced economies are represented by 12 directors, while the remaining 155 countries are either represented by 12 directors from developing countries or fall under the constituencies of advanced economies, where their views and interests are of secondary importance. Directors of advanced economies hold 63% of the votes in the IMF, even though in terms of GDP parity, these economies now constitute only 46% of global GDP.
Given these structural instabilities, this document calls for strengthening the New Development Bank and reforming the Contingent Reserve Arrangement so that they can serve as real alternatives.
Will BRICS Create a Reserve Currency to Challenge the Dollar?
SDR as a Starting Point
The Russian presidency report on BRICS indicates that in the short to medium term, this bloc will strive for de-dollarization by promoting trade and investment in national currencies.
However, there have been many discussions about whether BRICS will eventually create an international currency unit to challenge the role of the US dollar as the global reserve currency.
When the modern financial system was created at the Bretton Woods Conference in 1944, renowned economist John Maynard Keynes proposed an international currency unit, which he called the Bancor.
As the IMF explains in its official glossary:
John Maynard Keynes, a British economist, in his initial proposal for the post-war international monetary system, suggested a world bank (the International Clearing Union or ICU) that would issue the Bancor currency based on the value of 30 primary commodities. All trade accounts would be measured in Bancor, while each country would hold a Bancor account in the ICU with overdraft privileges.
Furthermore, when countries experience large trade deficits, they would have to pay interest to the ICU, ultimately leading to a depreciation of their currency. Conversely, countries with large trade surpluses would also be subject to similar charges and required to increase their exchange rates.
Keynes expected this mechanism to create symmetry and economic balance among countries and prevent global imbalances.
Ultimately, Keynes’ proposal was rejected in favor of the plan put forward by Harry Dexter White, an economist and US representative at Bretton Woods, which established the US dollar as the global reserve currency at a fixed rate of $35 per ounce of gold.
Nonetheless, BRICS’ efforts, along with those of many other countries in the 21st century towards de-dollarization, have renewed interest in proposals like Keynes’.
The Russian presidency report on BRICS has not explicitly called for creating such an international currency but has expressed interest in the concept.
The document states that the closest thing to Keynes’ proposed currency is the Special Drawing Rights (SDR) issued by the IMF. The report also mentions that SDRs have potential as an alternative reserve asset and even a new global currency, but their use remains limited.
According to BRICS experts, the IMF’s SDR, designed as a supplementary international reserve asset, could play a larger role globally. They emphasized that significant efforts should be made to use it in the real economy.
They added: “With the many characteristics and potentials that the SDR possesses as a highly independent reserve currency, it may provide a solution to the long-standing Triffin dilemma. The Triffin dilemma refers to the contradiction where countries issuing reserve currencies cannot maintain their currency’s value while also providing global liquidity.”
However, the SDR has a problem: its value is based on a basket of five major world currencies—US dollar, euro, British pound, Japanese yen, and Chinese yuan. Therefore, even if a country’s reserves in SDR cannot be frozen or seized, borrowing in SDR still carries the risk of exchange rate fluctuations. When the US Federal Reserve and the European Central Bank raise interest rates, as they did in 2022 and 2023, it can put significant downward pressure on the currencies of developing economies, making SDR debt repayments more difficult.
As noted in the Russian presidency report on BRICS, due to the nature of SDR, borrowing costs in SDR are influenced by the high interest rates of the countries comprising the SDR currency basket. Despite this concern, experts argue that an international accounting unit like SDR could mitigate external pressure on developing economies in other ways: “SDR can help eliminate the inherent risks of credit-based sovereign currencies and facilitate global liquidity management.”
The report highlighted that it is not only Moscow that supports increasing the role of SDR, but Beijing also supports it.
The report states that China has examined international reserves, balance of payments, and international investment position data in terms of SDR and yuan and has also issued SDR bonds. However, market participants have not yet started using SDR as a currency unit because the market infrastructure for SDR utilization is not yet in place.
In summary, the Russian presidency’s proposal on BRICS expressed qualified support for the idea of an international currency like SDR and called for promoting the use of SDR in international trade, commodity pricing, cross-border investment, and accounting.
However, the fact that SDRs are managed by the IMF means they are unlikely to become a serious alternative to the dollar in the short term unless the IMF itself undergoes a fundamental transformation.
De-dollarization of Investment and Reserves
In discussing de-dollarization, it is important to distinguish between de-dollarization of cross-border payments on one hand and de-dollarization of savings and investments on the other.
In the international financial system, trade in goods accounts for only a small percentage of total transactions. The vast majority involve capital flows into and out of bonds, equities, and foreign exchange markets, along with hundreds of trillions of dollars ($715 trillion as of June 2023) in outstanding derivatives (financial contracts).
By contrast, total global trade in goods in 2023 was $23.8 trillion, according to the World Trade Organization. In other words, there is a vast gap between global trade and financial transactions. Given this massive disparity, de-dollarizing international trade in goods is easier than de-dollarizing savings and investments.
However, the Russian presidency report on BRICS presented ideas on how to achieve both.
In addition to supporting the creation of the BRICS decentralized settlement platform, this document calls for developing an investment hub and new forms of debt issuance instead of the euro.
The document states that BRICS should create an alternative to ANNA (Association of National Numbering Agencies) that would allow the allocation and maintenance of international ISIN, CFI, and FISN codes for financial instruments in the national currencies of BRICS member states.
The report emphasized that to encourage BRICS members to de-dollarize their reserves, they should hold the currencies of other countries (or a basket of these currencies) as a store of value.
Similarly, the Russian presidency proposed creating a BRICS Digital Investment Asset (DIA), stating: “This digital investment asset will be backed by assets pledged by BRICS members.”
Given the exchange rate risks in many emerging markets and developing economies and the actions of central banks and other investors to hold foreign currencies, the process of de-dollarizing reserves and other savings will be slow and challenging.
For decades, US Treasury securities have been the global reserve asset. The question of what assets should replace them is not easily resolved.
In the short term, BRICS central banks have heavily invested in gold. With such growing global demand, the price of this commodity has already increased and is expected to rise significantly.
The report emphasized that while the global economy has undergone significant changes in recent decades, the international monetary and financial system has not kept pace.
As of 2023, emerging markets accounted for 50.1% of global GDP and 66% of global GDP growth over the past decade.
In 2024, the five core BRICS members accounted for 32% of global GDP (PPP), surpassing the G7’s share.
These developments have been partially reflected in the changes in international trade flows. In 1995, only 10% of global merchandise trade involved trade between emerging markets and developing economies (EMDEs). By 2022, this figure had risen to 26%, and it is estimated to reach 32% by 2032.
However, significant changes in the global economy are not evident in international investment flows, which remain disproportionately in favor of G7 countries.
By 2022, only 11% of global investment flowed into developing economies, compared to 8% in 2010. The vast majority of global investment still takes place in G7 countries, accounting for 63% in 2022. This figure has slightly decreased from 72% in 2010, but despite this modest decline, developing economies accounted for 66% of global growth during the same period.
These statistics indicate that developing economies have not significantly benefited from foreign investment.
As noted in the report on Russia’s BRICS presidency, the profits from growing trade are being invested abroad in more liquid and accessible markets, rather than benefiting domestic economies.
The Need for a New International Economic Order
The structure of the international monetary and financial system currently serves the interests of the world’s wealthy countries, which have turned the world into their colony.
Gaston Nievas and Alice Sodano, economists from the World Inequality Lab research center, concluded in a research paper published in April 2024: “Excess yield, which is the gap between the return on foreign assets and the return on foreign liabilities, has significantly increased for the wealthiest 20% of countries since 2000. Wealthy countries have become the bankers of the world, attracting surplus savings by offering low-yield safe assets and investing these flows in profitable ventures.”
These economists demonstrated that wealthy countries accumulate positive capital gains, improving their International Investment Position (IIP) and investing in lower-risk assets compared to other countries.
They concluded that wealthier countries are the issuers of global reserve currencies and have access to cheaper financial resources (both for the public and private sectors).
They summarized their findings in one sentence: “If the United States is the world’s number one economy, it is because it is financed by BRICS countries.”
When countries are classified into income quintiles (fifths) based on national per capita income, the extraction of wealth from developing to developed countries becomes even more evident.
Currently, the wealthiest countries in the top quintile derive over 1% of their GDP from income generated by foreign investments, while 2-3% of the GDP of the rest of the world must be extracted to provide that 1% GDP for the top quintile nations.
This wealth extraction has worsened since the rise of neoliberalism in the 1970s, particularly following financial deregulation waves in the 1990s.
Nievas and Sodano further explained: “In reality, the central position of wealthy countries in the international monetary and financial system allows them to act as intermediaries, much like global bankers. This role further strengthens their privileges, as they use their advantageous position to attract surplus savings and direct them toward productive investments. This cycle perpetuates their dominance and reinforces their role as key players in the global economic landscape. Efforts should be directed toward redesigning the current monetary and financial system to promote a more equitable regime. While this system has contributed to globalization, trade, financialization, and economic growth, it has failed to address complex challenges such as climate change, technological innovation, rising inequality, long-term demographic shifts, and escalating geopolitical conflicts.”
The two economists further argued: “We contend that the United States did not earn its privileged position in the global economy through its own efforts; rather, this privilege was imposed on the world at the Bretton Woods Conference. While it is true that the rest of the world voluntarily accumulates dollar reserves, the dollar’s initial role as a stable global currency enabled the United States to establish currency hegemony, gain exorbitant privileges, and alter international balance.”
Although Russia’s rotating presidency of BRICS will not resolve all these structural problems, it represents a step in the right direction.
At the end of the BRICS report, it is emphasized that the practical implementation of the above proposals will be a phased approach. The extent to which the current system deviates from the proposed model means that change will take time and require the collective effort of countries around the world. Importantly, this process has already begun: payment systems are being replaced, financial messaging mechanisms are evolving, the use of national currencies for bilateral settlements is growing, and new methods of exchange, including digital assets, are expanding and developing.
As Victor Hugo once said: “Nothing is more powerful than an idea whose time has come.”
Will There Be a BRICS Currency?
Nowhere in Russia’s proposals as BRICS’ rotating presidency for creating an independent economic system is there any mention of establishing a currency called the BRICS currency. No official BRICS specifications for such a currency have been published. In reality, all BRICS initiatives focus on developing platforms similar to SWIFT for currency exchange among member states and creating a joint reserve fund consisting of member countries’ currencies and a central bank digital currency exchange platform. Moreover, after Donald Trump’s election in the United States, BRICS officials explicitly stated that they had no intention of creating a currency to rival the US dollar.
As outlined in the document published by Russia as BRICS’ rotating presidency: “BRICS will seek to create something similar to the International Monetary Fund’s SDR (Special Drawing Rights), whose function is settlement among central banks. It can offset balance-of-payments deficits by expanding the balance sheet of a central bank between central banks, provided that the interests of all member states align.” Finally, it should be noted that this SDR-like asset would be used only for trade settlements and would never penetrate deep into financial markets.
