BRICS CURRENCY EFFECT ON US DOLLAR

For decades, the US dollar has reigned supreme as the world's undisputed reserve currency, a position that grants the United States significant economic and geopolitical power. Should the BRICS nations establish a new reserve currency, it would likely significantly impact the US dollar, potentially leading to a decline in demand, or what's known as de-dollarization. InBut on the horizon, a potential challenger is emerging: a unified currency backed by the BRICS nations (Brazil, Russia, India, China, and South Africa), now expanded to include new members.The discussion around a BRICS currency has intensified, fueled by a desire to reduce reliance on the dollar and create a more balanced global financial system.This isn't just idle chatter; at the 2025 BRICS summit in Kazan, Russia, leaders doubled down on exploring alternatives like the proposed ""Unit"" currency for trade within the bloc, a move that has sent ripples of both excitement and concern through financial markets. Given the recent expansion of the BRICs countries to include five new members, will the US dollar remain the world s reserve currency? Franklin Templeton Institute s Kim Catechis looks at the implications for investors.The core question remains: How might a BRICS currency impact the US dollar? Calls for a global shift away from dollar dominance are not new, nor are they unique to BRICS, but experts say recent geopolitical shifts and growing tensions between the West and Russia andWill it trigger a decline in demand, otherwise known as de-dollarization? It has been 80 years since the Bretton Woods Conference, when the U.S. dollar became the central pillar of the world economy and of U.S. economic statecraft.This article dives deep into the complexities of the situation, exploring the potential ramifications for the US dollar, global trade, and the future of international finance.

The Rise of BRICS and the De-Dollarization Narrative

The BRICS nations, representing a significant portion of the world's population and economic output, have increasingly voiced concerns about the dominance of the US dollar in international trade and finance. The BRICS grouping of major emerging economies is holding its fifteenth summit later this month. Up for discussion: an expansion of the bloc, greater use of local currencies and the possibility of a BRICS currency which may have the potential to challenge the dominance of the US dollar.Calls for a shift away from dollar hegemony are not new, but recent geopolitical shifts, including growing tensions between the West and Russia, have added fuel to the fire.This movement is not unique to BRICS either, with nations around the globe exploring alternative currencies and payment systems to reduce their reliance on the dollar. Additionally, 13 nations signed on as BRICS partner countries at the 2025 summit, including Algeria, Belarus, and Nigeria, among others. Potential Impacts. A BRICS currency could have far-reaching implications: Reduced US Dollar Dependence: It could weaken the US dollar's status as the primary global reserve currency.The focus on innovation within the BRICS alliance is aimed at reshaping the entire international system, challenging established norms and power structures.

The ambition to create a BRICS currency stems from a desire to:

• Reduce dependence on the US dollar: A BRICS currency could allow member nations to bypass the dollar in trade transactions entirely.
• Challenge US economic power: The dollar's status as the primary reserve currency gives the United States considerable leverage. The potential impact of a new BRICS currency on the US dollar remains uncertain, with experts debating its potential to challenge the dollar s dominance. However, if a new BRICS currency was to stabilize against the dollar, it could weaken the power of US sanctions, leading to a further decline in the dollar s value.A BRICS currency could erode this power.
• Promote a more equitable global financial system: Proponents argue that a BRICS currency would provide a more level playing field for developing nations.
• Mitigate the impact of US sanctions: A BRICS currency could allow nations to circumvent US sanctions, reducing their effectiveness.

Understanding the Mechanics of a BRICS Currency

The proposed BRICS currency is envisioned as an alternative reserve asset, possibly backed by a basket of member nations' currencies or commodities like gold. The BRICS alliance has catalyzed a significant shift away from US dollar debt and toward RMB bonds, and at the same time, Japan buys Russian oil despite various major international sanctions. This represents an accelerated currency shift within BRICS nations, spearheaded by concerns over globalThis backing would theoretically provide stability and intrinsic value, making it attractive to countries seeking to diversify their foreign exchange reserves.The exact structure and mechanism of the currency are still under development, with various proposals on the table.

Some potential models include:

• A currency basket: Similar to the IMF's Special Drawing Rights (SDR), the BRICS currency could be based on a weighted average of the member nations' currencies.
• A commodity-backed currency: Backing the currency with gold or other commodities could provide stability and appeal to investors seeking a hedge against inflation.
• A digital currency: Utilizing blockchain technology could enhance transparency, security, and efficiency in cross-border transactions.

The adoption of a blockchain-based payment system by BRICS nations is already underway, signaling a move towards embracing digital solutions to facilitate trade and financial transactions.This technological approach could streamline processes and reduce reliance on traditional banking infrastructure, further empowering the BRICS alliance in the global financial landscape.

Potential Impact on the US Dollar: De-Dollarization Scenarios

The potential impact of a BRICS currency on the US dollar is a complex and hotly debated topic.While it is unlikely to dethrone the dollar as the world's primary reserve currency in the immediate future, its creation could have significant consequences.A key concept to grasp here is de-dollarization, the process of countries reducing their reliance on the US dollar in international trade and finance.

Scenario 1: Gradual Erosion of Dollar Dominance

In this scenario, the BRICS currency gains traction slowly but steadily. Should the BRICS nations establish a new reserve currency, it would likely significantly impact the US dollar, potentially leading to a decline in demand, or what s known as de-dollarization. In turn, this would have implications for the United States and global economies.As more countries begin using it for international trade and investment, the demand for US dollars gradually declines. Overall, given the low base for BRICS FX in all areas and clear limitations on the reserve currency side, it appears more likely that at this point the conglomerate of national currencies or a hypothetical synthetic currency will not be a direct challenger to the US dollar, but potentially to other DM currencies.This could lead to a weakening of the dollar's value and a reduction in its share of global reserves.For example, if several nations start using the BRICS currency to trade oil, it will reduce the need to hold US dollars for these transactions, creating downward pressure on the dollar.This is exactly what we are already seeing, with over 65% of trade among BRICS members settled in local currencies.

Scenario 2: Accelerated De-Dollarization

This scenario involves a more rapid shift away from the dollar, potentially triggered by geopolitical events or a loss of confidence in the US economy.A significant crisis, such as a major financial meltdown in the United States, could accelerate the adoption of the BRICS currency as countries seek safer alternatives. For decades, the US dollar has dominated as the primary reserve currency, which gives the United States considerable economic and geopolitical power. During their summit in 2025 in Kazan, Russia, BRICS leaders intensified discussions on establishing an alternative named Unit, designed to facilitate exchanges within the bloc.Additionally, if the BRICS currency stabilizes against the dollar, it could weaken the power of US sanctions, leading to a further decline in the dollar's value.

Scenario 3: Limited Impact

It is also possible that the BRICS currency has a limited impact on the US dollar.This could occur if the BRICS nations fail to fully implement the currency, if it lacks credibility among international investors, or if the US economy remains strong and stable. But a BRICS-issued currency would be different. It d be like a new union of up-and-coming discontents who, on the scale of GDP, now collectively outweigh not only the reigning hegemon, theOverall, given the low base for BRICS FX in all areas and clear limitations on the reserve currency side, it appears more likely that the new currency will challenge other DM currencies (Developed Market) before tackling the US Dollar directly.

Factors Influencing the Outcome

The ultimate impact of a BRICS currency on the US dollar will depend on a number of factors, including:

• Credibility and stability of the BRICS currency: If the currency is perceived as unstable or unreliable, it will fail to attract widespread adoption.
• Economic strength of the BRICS nations: The economic power of the BRICS nations will influence the currency's value and its ability to compete with the dollar.
• Geopolitical landscape: Growing tensions between the West and Russia, as well as other geopolitical factors, could accelerate the shift away from the dollar.
• US economic policies: The US government's fiscal and monetary policies will play a crucial role in maintaining the dollar's strength and stability.

Challenges and Obstacles for the BRICS Currency

Despite the potential benefits, the creation of a BRICS currency faces significant challenges.The BRICS nations have diverse economic structures, political systems, and levels of development, which could make it difficult to reach a consensus on the currency's design and implementation.

Some of the key obstacles include:

• Lack of political cohesion: Differing political agendas and priorities among the BRICS nations could hinder cooperation on the currency project. We'll look at why the USD remains the preferential currency for trade and how any BRICS expansion may impact that. We'll dive deeply into the issue of de-dollarisation and how likely any changes to the status quo are going to be.A recent public spat with government contracts exemplifies such tensions.
• Economic disparities: The vast differences in economic development among the BRICS nations could create imbalances and instability in the currency system.
• Technical challenges: Designing and implementing a new currency system requires significant technical expertise and resources.
• Resistance from the US: The United States is likely to resist any attempts to undermine the dollar's dominance, potentially through diplomatic pressure or economic sanctions.

The US Dollar's Strengths: Why it Remains a Force

Despite the challenges posed by a potential BRICS currency, the US dollar retains several key advantages that make it difficult to displace as the world's primary reserve currency.The dollar's strength lies in the fact that it is backed by the world's largest economy, a deep and liquid financial market, and a stable political system. Moved Permanently.Its prevalence in global trade finance and central bank reserves further solidify its status. The potential introduction of a BRICS currency could significantly affect the US dollar s dominance in global trade and finance. While it is unlikely to dethrone the dollar in the immediate future, the creation of this new currency could challenge the status quo and create a more diversified financial system.The US dollar benefits from network effects; since it's already the dominant currency, it makes sense for most businesses to continue to use it.

Here are some of the US dollar's key strengths:

• World's largest economy: The United States has the largest and most diversified economy in the world.
• Deep and liquid financial markets: The US financial markets are the most liquid and sophisticated in the world, making it easy to buy and sell dollars.
• Political stability: The United States has a long history of political stability, which inspires confidence in the dollar.
• Global reserve currency status: The dollar is held by central banks around the world as a reserve asset.

Implications for Investors

The evolving global currency landscape has significant implications for investors. A united BRICS currency could boost trade and global influence, and reduce reliance on the US dollar. Critics warn of potential economic inequalities and political strife.Diversification of portfolios across different currencies and asset classes is crucial to mitigate risk and capitalize on emerging opportunities.Investors should monitor the developments surrounding the BRICS currency and its potential impact on the US dollar.

Here's how investors can prepare for the possibility of a changing global currency landscape:

1. Diversify currency holdings: Consider allocating a portion of your portfolio to currencies other than the US dollar.
2. Invest in emerging markets: Emerging markets like those in the BRICS nations may offer attractive growth opportunities.
3. Hedge against inflation: Consider investing in assets that tend to perform well during periods of inflation, such as gold or real estate.
4. Stay informed: Keep abreast of the latest developments in the global currency landscape and adjust your investment strategy accordingly.

The Bretton Woods Legacy and a Multipolar Future

It has been over 80 years since the Bretton Woods Conference, where the US dollar became the central pillar of the world economy. This month, the BRICS nations will meet to discuss, among other matters, a new currency that will rival the US dollar as the global reserve standard (Wu Hong/AFP via Getty Images) During the 2025 BRICS summit, Russian President Vladimir Putin announced that the bloc was working to create an international reserve currency . This will againThis system, established in the aftermath of World War II, solidified the dollar's dominance.Now, the ambition for the BRICS currency signals a shift towards a more multipolar world, where economic power is distributed among several nations or blocs rather than concentrated in a single entity.Whether this shift leads to a more equitable and stable global financial system remains to be seen, but the potential for change is undeniable.

While the dollar’s dominance is facing challenges, this is a long game.A new currency needs widespread trust, acceptance, and stability, aspects that take time to build. Talk of a joint BRICS currency feeds into decline of the dollar rhetoric. But it is the economic bloc s focus on innovation that will reshape the international system.It is not enough to simply announce a new currency, but to implement it in such a way that it is seen as a viable alternative to the US dollar.

BRICS Expansion and its Currency Implications

The recent expansion of the BRICS countries to include five new members further complicates the dynamics of a potential BRICS currency. Although it appears to be a long road ahead for a new BRICS currency to become a threat, at some point a new currency could become large enough that it would start to impact the U.S. dollar. If many countries began to use an alternative currency for their international trade, eventually the dollar would likely lose some of its value due toWith more nations involved, the economic and political diversity within the bloc increases, potentially hindering consensus-building on currency-related matters. The BRICS nations are interested in creating a new currency to compete with the US dollar, and recently announced plans for a blockchain-based payment system. Learn about the developments thus far and how investors can prepare for the possibilityHowever, a larger BRICS alliance also represents a greater collective economic power, potentially giving the currency more weight and influence on the global stage. The BRICS nations, originally composed of Brazil, Russia, India, China and South Africa, have had many discussions about establishing a new reserve currency backed by a basket of their respectivePotential Impacts. The US dollar stands at a pivotal time in history where its dominance is being challenged by developing countries. Read here to know how many sectors in the US will be affected if BRICS ditches the dollar for trade. Also Read: Russia Provides Major Update on BRICS Currency Launch. BRICS: 65% of Trade Among Members Settled in Local CurrenciesA BRICS currency could have far-reaching implications including a potential Reduction in US Dollar Dependence where it could weaken the US dollar\'s status as the primary global reserve currency.

BRICS Summit 2025: A Turning Point?

During their summit in 2025 in Kazan, Russia, BRICS leaders intensified discussions on establishing an alternative named Unit, designed to facilitate exchanges within the bloc. A BRICS currency would provide a powerful alternative to the US dollar, enabling member nations to bypass the dollar in trade transactions entirely. This potential currency could serve as a symbol of BRICS commitment to reducing the dominance of the US-based financial system and provide a more equitable foundation for global trade.This announcement served as a catalyst for further exploration into mechanisms for reducing dollar reliance within the BRICS economic sphere. A huge public spat on Thursday saw threats fly over government contracts. Brazil's President called on Wednesday for the BRICS nations to create a common currency for trade and investment betweenThe 2025 summit will likely go down as a pivotal moment in BRICS history, even if an immediately viable currency is not the result.

Frequently Asked Questions (FAQs)

Here are some common questions related to the BRICS currency and its potential impact on the US dollar:

Will the BRICS currency replace the US dollar as the world's reserve currency?

It is highly unlikely that the BRICS currency will completely replace the US dollar as the world's reserve currency in the near future.However, it could challenge the dollar's dominance and contribute to a more diversified global financial system.

How will a BRICS currency affect the US economy?

A BRICS currency could lead to a decline in demand for US dollars, potentially weakening the dollar's value and increasing the cost of imports for Americans.It could also reduce the United States' economic and geopolitical power.

How will a BRICS currency affect global trade?

A BRICS currency could facilitate trade between member nations and reduce their reliance on the US dollar.This could lead to a more balanced and equitable global trading system.

Is it good idea for the BRICS nations to establish a new reserve currency?

Whether or not a new reserve currency is good for the BRICS nations is open to interpretation.A currency would increase trade and global influence.However, some critics warn of potential economic inequalities and political strife.

Conclusion: Navigating a Shifting Global Financial Landscape

The prospect of a BRICS currency represents a significant challenge to the long-standing dominance of the US dollar.While it is unlikely to dethrone the dollar in the immediate future, the creation of this new currency could accelerate the trend of de-dollarization and reshape the global financial landscape.The potential effects of a BRICS currency depend on various factors, including its credibility, stability, and the geopolitical context.Investors need to stay informed and diversify their portfolios to navigate this evolving landscape effectively.The BRICS' move to create a new currency highlights a growing desire for a more multipolar world, challenging the dollar's long-held reign as the undisputed king of global finance.