The BRICS Alliance's Plan to Develop a New Currency

Key Takeaways

• A recent survey shows a growing interest in cryptocurrency among Russian households.
• Economic powers are moving away from US dollar dominance
• China seeking to establish the yuan as the dominant international currency and the BRICS alliance exploring a new currency.
• Blockchain technology is a key driver behind the shift towards alternative financial systems.

Russia Shift Focus to Crypto

The recent survey conducted by the Central Bank of Russia has brought attention to the growing interest in alternative investment options among Russian households. As per the report, a larger proportion of Russian households' funds are held in cryptocurrency wallets than in gold investment accounts or mutual funds. Additionally, the median average of the fiat value of crypto holdings among Russian households was 17,500 rubles, indicating a substantial number of households with significant crypto funds.

The increasing number of reports, similar to this one, shows a growing trend among economic powers to move away from the dominance of the US dollar. The trend is marked by China's long-term goal of establishing the yuan as the dominant international currency and the BRICS alliance's plan to develop a new currency.

BRICS Alliance Plan New Currency to Dethrone the West

The BRICS alliance, consisting of Brazil, Russia, India, China, and South Africa, has been exploring the issuance of a joint reserve currency as an alternative to the US dollar and other major Western currencies. Although it is not a formal trade bloc, members are encouraged to align their trade policies and exchange resources. There is a push for exploring substitutes to SWIFT, a secure messaging system utilized by global banks for transferring funds. Additionally, they established a US $50 billion New Development Bank as an alternative to the International Monetary Fund and the World Bank in 2014, and also set up a shared liquidity reserve to guarantee members would be able to fulfill their debt obligations.

What Impact Could the New BRICS Currency Have Globally?

The BRICS alliance's plan to develop a new currency could significantly impact the global economy. The new currency is expected to enable BRICS members to bypass the US dollar and other major Western currencies, facilitating simpler trade among member nations. The shift may also diminish the US's impact on the global economy as the US has a history of employing sanctions as a political tool.

The significance of creating a fresh payment medium has been emphasised by Alexander Babakov, Deputy Chairman of the State Duma. According to him, digital payments could be the most practical and promising option, and such a currency could be advantageous to China and other BRICS nations, rather than the West. In addition, Babakov suggested that this novel currency would be supported by gold and other commodities, including rare-earth elements.

China’s Goal of Yuan Being the Top Currency

China's long-term goal of establishing the yuan as the dominant international currency is evident in its recent deal with Brazil to bypass the US dollar when paying for trade goods. Under the deal, Brazil and China can directly exchange payments without converting their currencies through an intermediate trusted economy, resulting in cost savings. However, China's primary objective is to reduce its dependence on the US dollar and safeguard itself from international pressure.

Challenges of a New Alternative Financial System

The rise of alternative financial systems is not without its challenges. One of the most significant challenges is the lack of trust among emerging economies. While the BRICS alliance has made progress in developing a new currency, there are still concerns about the trustworthiness of the alliance's members.

There is also the question of how the new currency would be regulated and how its value would be determined. These concerns must be addressed to ensure the success of alternative financial systems. Another significant challenge to the establishment of alternative financial systems is the US's economic power. United States has significant influence over global financial systems and could use its economic power to prevent emerging economies from establishing alternative financial systems.

The US has already imposed sanctions on countries that have tried to distance themselves from the US dollar, such as Russia and Iran. As such, it is crucial for policymakers to develop a regulatory framework that supports the development of alternative financial systems and enables emerging economies to establish financial systems that are more equitable and inclusive.

What Role Does Blockchain Technology Play?

One of the key drivers behind the shift towards alternative financial systems is the rise of blockchain technology. Blockchain technology enables secure, transparent, and decentralized transactions, making it easier for countries to bypass traditional financial systems dominated by the US. Blockchain technology eliminates the need for intermediaries, enabling transactions to occur more efficiently and with lower transaction costs. This has significant implications for emerging economies seeking to establish financial systems that are more equitable and inclusive.