BRICS Cryptocurrency to Pull the Rug from Under the Dollar?

brics cryptocurrency, brics, cryptocurrency, USD

BRICS is developing a cryptocurrency payment system to challenge the dominance of the US dollar.

  • BRICS countries intend to diversify their foreign exchange reserves away from the USD towards other currencies or assets.
  • BRICS seeks to diminish the dollar’s centrality in global trade transactions.
  • The development of an independent payment system by BRICS poses a challenge to the dominance of the SWIFT messaging network.

The BRICS grouping has announced its plans to establish a cryptocurrency payment system based on blockchain technology and digital currencies.

Ever since BRICS (Brazil, Russia, India, China, and South Africa) got together, they have been studying the development of a cryptocurrency to use for trading. The main objective is de-dollarization, meaning to gradually diminish the dominance of the US dollar (USD) in international finance.

There are several ways that BRICS can go about de-dollarizing the world. You know how central banks worldwide hold a portion of their foreign exchange reserves in various currencies, right? Well, historically, the USD has been the currency of choice for many countries since it has always been mostly stable. De-dollarization entails a shift towards holding other currencies or assets in these reserves.

Also, many international transactions are settled in USD, even between countries with non-USD currencies. This means that if the goods are priced in a different currency, the final payment happens in USD. Conducting trade settlements in other currencies will bypass the USD entirely.

Finally, a major part of the USD dominance is tied to the existing global financial infrastructure, particularly the Society for Worldwide Interbank Financial Telecommunications (SWIFT) messaging system. You see, SWIFT is a secure messaging network that allows banks and other financial institutions globally to communicate efficiently and securely when making international financial transactions. This includes payments, trades, and securities transactions. While the network can process other currencies, there has been a longstanding association between SWIFT and the USD.

Kremlin aide Yury Ushakov explained the significance of BRICS’ digital currency endeavor. The development aligns with BRICS’ long-term objective to augment its role in the international financial domain, as outlined in the 2023 Johannesburg Declaration. “The main thing is to make sure it is convenient for governments, common people, and businesses, as well as cost-effective and free of politics,” he said.

If it plays its cards right, BRICS crypto can hit all three nails on the head in one go. First, instead of holding their currencies against the gold standards or the USD, the countries involved in BRICS, which now also include Egypt, Ethiopia, Iran, and the United Arab Emirates, will hold their currencies against the BRICS dollar alternative. This will ensure that each of their own currencies doesn’t plummet while simultaneously ridding the USD of that particular use. Second, instead of trading in USD or a specific fiat currency, these countries will rely on their cryptocurrency instead. China alone exported a total of $3.73 trillion in 2022, according to the Observatory of Economic Complexity. Imagine if all current and future BRICS members decided to forgo the USD in favor of their new cryptocurrency. Finally, by setting up a new successful payment system completely independent of SWIFT, BRICS will force the transactions away from not only the USD but also other reigning currencies like the Euro.

The USD’s dominance was not an overnight achievement. Rarely anything in this world is. So, there’s a question of how long it will take for BRICS cryptocurrency to start rivaling the US dollar rather than just threatening it.

Inside Telecom provides you with an extensive list of content covering all aspects of the Tech industry. Keep an eye on our Cryptocurrency section to stay informed and updated with our daily articles.