A New BRICS Currency Could Replace the U.S. Dollar | July 2023

July 6, 2023

Geoffrey A. Hirt

BRICS, a 5-nation trade alliance between Brazil, Russia, India, China, and South Africa, is preparing to expand. According to Anil Sooklal, the South African ambassador at large, the expansion could begin later this year, transforming BRICS into BRICS+. The trading bloc is in talks to replace the U.S. dollar with a new currency, which would lead to a major shakeup of the global economy and geopolitical environment.

What Is BRICS?

BRICS is a trade agreement that includes Brazil, Russia, India, China, and South Africa, all emerging economies. In terms of economic development, there are industrialized (or developed) nations such as the United States, the United Kingdom, Germany, and Canada, and less-developed countries that are generally not as economically advanced. The term “emerging economy” is used to describe fast-growing, developing countries.

Developing countries represent a potentially huge and profitable market for many businesses. Naledi Pandor, South Africa's Foreign Minister, has criticized developed countries for failing to meet their commitments to developing countries.

The combined population of BRICS is 3.27 billion people, representing more than 41 percent of the world’s population. That is to say, BRICS is a fast-growing and potentially powerful alliance. Trade agreements such as BRICS foster international trade and can help member-nations succeed in global markets.

Ready to Grow

Reportedly, BRICS has received at least 25 applications to join the bloc. Argentina, Bangladesh, Egypt, Indonesia, Iran, Kazakhstan, Saudi Arabia, and the United Arab Emirates are among the countries that have sought to deepen connections with BRICS.

Current and prospective members would need to review guiding principles, membership standards, and more, but expansion could begin soon. The foreign ministers are establishing a framework for welcoming new member nations in time for a BRICS leader summit in South Africa in August.

Dethroning the U.S. Dollar

Currently, the U.S. dollar is the dominant reserve currency held by central banks. A growing concern for the United States is that the 30-member BRICS+ could replace the U.S. dollar as the global reserve currency in favor of a common BRICS currency. The U.S. dollar already competes with the Euro and the Yen, two other international currencies. A BRICS currency would add a fourth competitor.

If this happens, the emerging economies would be less reliant on the U.S. dollar, putting pressure on the currency and greatly disrupting the geopolitical environment. It would effectively shift the balance of power to these developing countries. Sectors likely to be affected include oil and gas, banking and finance, international trade, tourism, and many more.

Some finance experts are skeptical that a common BRICS currency will come to fruition let alone replace the dollar. Case in point, the process of adopting the euro in Europe took nearly 50 years. Regardless, the growth of the BRICS alliance represents the strengthening of emerging economies and a counterweight to the United States’ dominance.

In the Classroom

This article can be used to discuss economic development and trade agreements, alliances, and organizations (Chapter 3: Business in a Borderless World) and money (Chapter 15: Money and the Financial System).