How Will BRICS Currency Affect the US Dollar? Understanding the Potential Impact

For decades, the US dollar has reigned supreme as the world's leading reserve currency. Dominating international trade, currency exchanges, and even the oil market, the dollar's influence is undeniable. But this dominance is facing a potential challenge from an emerging force: the BRICS nations. This bloc, initially composed of Brazil, Russia, India, China, and South Africa, and later expanded to include countries like Egypt, Ethiopia, Iran, and the United Arab Emirates, is exploring the possibility of creating a new currency. The ambition is nothing short of reducing their dependence on the dollar and fostering greater economic independence. But the question remains: how will a BRICS currency affect the US dollar? Is this a real threat to the dollar's long-standing position, or just a distant possibility? This article dives deep into the potential implications of a BRICS currency, exploring its potential impact on the US dollar's value, global trade, and the broader financial landscape. We'll explore the motivations behind this move, the challenges involved, and what it all means for investors and the future of global finance.

A BRICS currency was a topic at the 2025 BRICS Summit that took place October 22 to 24 in Kazan, Russia. At the summit, the BRICS nations continued their discussions of creating a potentially gold-backed currency, known as the Unit, as an alternative to the US dollar.

The Rise of BRICS and the Quest for a New Currency

The BRICS concept emerged as a financial sector grouping of major emerging market economies expected to outpace the G7 nations. This ambitious bloc has been developing an alternative currency for trade between member countries for some time now. Instead of relying on the US dollar, BRICS aims to issue a common currency to trade commodities like oil, grains, and minerals, granting them greater control over their economic destinies. This pursuit is not solely about challenging the dollar; it's also about mitigating the impact of Western sanctions and fostering a more equitable global financial system.

A few days before the 16th BRICS Summit got underway in Kazan in October, Russia, the organizers of this key conclave advised attendees to bring along U.S. dollars and euros as Russian banks

Why BRICS Wants to Challenge the US Dollar

Several factors are driving the BRICS nations' desire to create an alternative currency:

The dollar has been the world s principal reserve currency since the end of World War II, and is estimated to be used in more than 80 percent of international trade. Earlier this year

• Reducing Dollar Dependence: The primary goal is to lessen reliance on the US dollar for international trade and investment.
• Geopolitical Tensions: US sanctions on countries like Russia and Iran have highlighted the need for financial independence.
• Economic Stability: A BRICS currency could provide a more stable and predictable trading environment for member nations.
• Increased Economic Power: By creating their own currency, BRICS nations seek to enhance their economic influence on the global stage.

South Africa's BRICS ambassador, Anil Sooklal, clarified that the goal is not necessarily to ""replace"" the dollar, but to offer an alternative and more balanced system.

Potential Impacts of a BRICS Currency on the US Dollar

The introduction of a BRICS currency could have far-reaching implications for the global financial system and, specifically, the US dollar. While the immediate impact may be limited, the long-term consequences could be significant.

Reduced US Dollar Dependence

A BRICS currency could gradually weaken the US dollar's status as the primary global reserve currency. As more countries adopt the BRICS currency for trade and investment, demand for the US dollar could decrease, potentially leading to a decline in its value.

To put the existing dependency into perspective: the dollar is used in over 74 percent of all international trade, 90 percent of currency exchanges, nearly 100 percent of oil trades and just under 60 percent of all foreign debt. According to the US Federal Reserve, the dollar was used in 96 percent of international trade invoicing in the Americas, 74 percent in the Asia-Pacific region and 79 percent in Europe.

Diversification of Reserve Currencies

Central banks around the world currently hold a significant portion of their reserves in US dollars. A BRICS currency could encourage these central banks to diversify their holdings, reducing their exposure to the US dollar and potentially increasing demand for the BRICS currency.

Impact on US Trade and Investment

If a BRICS currency becomes widely accepted, it could alter trade patterns and investment flows. US exporters may face increased competition from BRICS nations using their own currency, and US investors may find new opportunities in BRICS countries. Additionally, international transactions may become less expensive if they are no longer converted to USD.

Challenges and Considerations for a BRICS Currency

Despite the potential benefits, creating and implementing a BRICS currency presents several challenges:

• Economic Disparities: The BRICS nations have diverse economies and levels of development, which could make it difficult to agree on a common monetary policy.
• Political Differences: Political tensions and differing agendas among BRICS nations could hinder cooperation and progress.
• Technical Infrastructure: Establishing a robust and reliable payment system for the BRICS currency will require significant investment and technological expertise.
• Trust and Adoption: Gaining widespread trust and adoption of the BRICS currency will be crucial for its success. Countries need to be confident in its stability and value.

The BRICS Currency and the Gold Standard

There has been discussion about the BRICS currency being backed by gold or other commodities. This could provide a level of stability and credibility that fiat currencies, like the US dollar, may lack. The impact on the US dollar could be significant in such a scenario.

How a Gold-Backed BRICS Currency Could Affect the Dollar

If the BRICS currency is indeed backed by gold, it could have a dramatic impact on the US dollar. One analyst suggested that if a BRICS currency unit is worth 1 ounce of gold and the gold price goes to US$3,000 per ounce, the BRICS currency unit would be worth US$3,000. The dollar would lose value compared to the BRICS currency as measured by the weight of gold. This scenario highlights the potential for a significant shift in the global balance of power.

However, it's important to note that implementing a gold standard is complex and has its own set of challenges. Maintaining a fixed exchange rate between gold and the BRICS currency would require careful management and could limit the bloc's monetary policy flexibility.

The BRICS Blockchain Payment System

Recently, the BRICS nations announced plans for a blockchain-based payment system. This signals a significant step toward economic independence and a move away from traditional financial infrastructure controlled by the West. Blockchain technology can facilitate faster, cheaper, and more secure cross-border payments, further enhancing the appeal of the BRICS currency.

Benefits of a Blockchain-Based System

• Reduced Transaction Costs: Blockchain technology can eliminate intermediaries and lower transaction fees.
• Increased Transparency: Blockchain provides a transparent and auditable record of all transactions.
• Enhanced Security: Blockchain technology is inherently secure and resistant to fraud.
• Faster Transactions: Blockchain can facilitate near real-time cross-border payments.

BRICS Expansion and its Implications

The expansion of the BRICS bloc to include countries like Egypt, Ethiopia, Iran, and the United Arab Emirates (UAE) further strengthens its economic and political clout. This expansion increases the potential market for the BRICS currency and enhances its influence in global affairs. In 2025, thirteen nations signed on as BRICS partner countries. This further increases the group's influence.

A Larger BRICS Bloc, A Stronger Currency?

The inclusion of major oil producers like Iran and the UAE could be particularly significant. If these countries begin pricing their oil in the BRICS currency, it would create substantial demand for the currency and further erode the US dollar's dominance in the oil market.

Is the US Dollar's Reign Coming to an End?

While it's unlikely that a BRICS currency will completely dethrone the US dollar in the immediate future, it could significantly alter the global financial landscape. The US dollar has been the world’s principal reserve currency since the end of World War II and is estimated to be used in more than 80 percent of international trade. A gradual shift away from the dollar is already underway, and the emergence of a credible alternative could accelerate this trend.

Factors Supporting the US Dollar's Continued Dominance

• Deep and Liquid Markets: The US boasts the deepest and most liquid financial markets in the world, making it an attractive destination for investors.
• Strong Institutional Framework: The US has a well-established legal and regulatory framework that provides stability and security for investors.
• Global Economic Power: The US remains the world's largest economy, and its economic influence continues to be significant.

Challenges Facing the US Dollar

• Rising US Debt: The growing US national debt could undermine confidence in the dollar.
• Geopolitical Uncertainty: Increasing geopolitical tensions could erode the dollar's safe-haven status.
• Emergence of Alternative Currencies: The rise of alternative currencies, like the BRICS currency, poses a long-term challenge to the dollar's dominance.

What Does This Mean for Investors?

The potential emergence of a BRICS currency has several implications for investors:

• Diversification: Consider diversifying your investment portfolio to include assets denominated in currencies other than the US dollar.
• Commodities: A BRICS currency backed by commodities like gold could increase demand for these assets.
• Emerging Markets: Investing in BRICS countries could offer attractive growth opportunities.
• Monitor Developments: Stay informed about the latest developments regarding the BRICS currency and its potential impact on the global financial system.

The 2025 BRICS Summit in Kazan, Russia

The 2025 BRICS Summit, held in Kazan, Russia, was a pivotal event in the discussions surrounding the BRICS currency. The nations continued their discussions of creating a potentially gold-backed currency, known as the Unit, as an alternative to the US dollar.

A few days before the summit, organizers advised attendees to bring along US dollars and euros as Russian banks prepared for the event. Despite the ongoing discussions of alternatives, the US dollar remained a practical necessity for international transactions, highlighting the challenges of immediately replacing the global reserve currency.

Actionable Advice for Businesses and Individuals

Here are some practical steps businesses and individuals can take to prepare for the potential impact of a BRICS currency:

• Assess Your Exposure: Evaluate your business's or personal finances to determine your exposure to the US dollar.
• Explore Hedging Strategies: Consider using currency hedging strategies to mitigate the risk of fluctuations in the US dollar's value.
• Research Alternative Payment Methods: Familiarize yourself with alternative payment methods and currencies.
• Stay Informed: Keep abreast of the latest developments in the global financial landscape and the progress of the BRICS currency.

Conclusion: A Shifting Global Financial Order?

The question of how a BRICS currency will affect the US dollar is complex and multifaceted. While the US dollar still holds a dominant position in global finance, the rise of BRICS and their pursuit of an alternative currency presents a potential challenge. The challenges are significant, including economic disparities and political differences within the bloc. However, the potential benefits of reduced dollar dependence, increased economic independence, and a more balanced global financial system are compelling. The path forward is uncertain, but it is clear that the global financial order is evolving. Investors, businesses, and individuals must stay informed and adapt to the changing landscape. Ultimately, the success of a BRICS currency will depend on its ability to gain trust, facilitate trade, and provide a stable and reliable alternative to the US dollar.