BRICS ditching USD, developing fresh reserve currency: Brazil’s Lula
The BRICS Economic Alliance Plans to Abandon the U.S. Dollar
At the 15th annual summit in Johannesburg, South Africa, Brazilian President Luiz Inacio Lula da Silva announced the BRICS economic alliance’s intention to move away from the U.S. dollar in trade settlements. The coalition aims to develop a new reserve currency while promoting the use of local currencies in bilateral trade.
President Lula emphasized the need to challenge the U.S. dollar’s hegemony and create a new reserve currency in the medium to long term. In the meantime, the alliance will encourage the utilization of members’ national currencies to enhance payment conditions and reduce vulnerabilities.
“The creation of a currency for commercial transactions and investments between BRICS members increases our payment conditions and reduces our vulnerabilities,” Mr. Lula stated before the summit audience, adding that developing nations should be hit with higher interest rates than what affluent countries experience.
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8/23/2023
President Lula also highlighted the importance of bolstering liquidity, improving financing terms, and eliminating conditionalities to challenge the policies presented by the International Monetary Fund (IMF) and the World Bank. He emphasized the need to revitalize the multilateral trading system for fair, predictable, equitable, and non-discriminatory trade.
A working group has been established to examine a reference currency for BRICS, confirmed Brazil’s head of state.
The New Development Bank (NDB) of BRICS plans to accelerate its de-dollarization efforts by advancing 30 percent of its loans in members’ local currencies, such as the South African rand or the Indian rupee, by 2026.
“The good news is that we are seeing many countries choosing to trade using their own currencies. China and Brazil, for instance, are agreeing to exchange with RMB (renminbi) and the Brazilian real,” Dilma Rousseff, the former Brazilian president and new head of the so-called BRICS bank, told CGTN in April. “At the NDB, we have committed to it in our strategy. For the period from 2022 to 2026, the NDB has to lend 30 percent in local currencies, so 30 percent of our loan book will be financed in the currencies of our member countries.”
The NDB plans to issue the first rupee and rand bond later this year.
BRICS Expansion
South African President Cyril Ramaphosa announced on Aug. 24 that six countries have been officially invited to join the BRICS coalition: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE).
An expanded “BRICS+” institution will feature other leading emerging markets, aiming to bring about equality on the world stage and within the reformed BRICS.
“BRICS has been borne of a collective desire of countries of the Global South to make the world more just and equitable and to break down the barriers of division,” said Namibia President Hage Geingob in prepared remarks. ”We don’t want the original BRICS nations to be like the UN Security Council with the ‘plus’ without veto rights. Since we are starting a new organization, we want equality where small countries can be part of a reformed BRICS.”
The expansion aims to enhance “development financing” and reform the multilateral trading system to create a conducive environment for fair trade.
“This was part of the founding vision of the New Development Bank,” Mr. Ramaphosa said. “The Bank is playing a leading role in efforts to increase the resilience of the Global South, and to bring fairness to global trading and financial systems by strengthening the use of BRICS currencies.”
Skepticism
While BRICS leaders are confident that this move could undermine the Western-led geopolitical power structure and threaten the dollar hegemony, some observers remain skeptical about its short-term impact.
“I think that as great power competition has sharpened,” said Michael Kugelman, the director of the South Asia Institute, during an Aug. 24 Wilson Center event. “Washington would have to be watching BRICS with more concern.”
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