The BRICS Currency Initiative: Reshaping Global Finance in an Age of Economic Polarization

In the intricate tapestry of global finance, the U.S. dollar has reigned supreme for nearly eight decades, serving as the primary reserve currency, medium of exchange, and standard of value in international transactions. However, on the horizon emerges a potential challenger—a proposed common currency for the BRICS nations (Brazil, Russia, India, China, South Africa, and recently expanded members Egypt, Ethiopia, Iran, and the United Arab Emirates). This bold vision represents more than just financial innovation; it symbolizes a fundamental shift toward a multipolar global economic order where emerging markets seek greater autonomy and influence.

The concept has gained momentum against a backdrop of escalating geopolitical tensions, with BRICS members accounting for approximately 45% of the world’s population and 35% of global GDP (based on purchasing power parity)—surpassing the G7’s economic share. Yet, despite the ambitious rhetoric, the path to a unified currency remains fraught with extraordinary challenges that reveal the complexities of international finance and the enduring power of existing systems.

Advantages of a BRICS Common Currency: Strategic Autonomy and Economic Efficiency

1. Enhancing Economic Sovereignty and Sanctions Resilience

For many BRICS members, reducing dollar dependence is fundamentally about gaining insulation from U.S. foreign policy influence. The exclusion of Russian banks from SWIFT following Ukraine sanctions dramatically illustrated the vulnerability of dollar dependency. Similarly, Iran has faced severe economic isolation through financial sanctions. A common currency or alternative payment system would potentially create sanctions-resistant channels for trade, particularly in critical commodities like oil and gas where Russia, Iran, and the UAE play significant global roles.

This motivation has taken on greater urgency as the U.S. has increasingly weaponized dollar access. “BRICS Pay is promoted as a means of reducing costs, enhancing efficiency and potentially shielding countries from sanctions imposed by the West,” notes one analysis. For nations facing Western pressure, this financial autonomy represents a strategic imperative rather than merely an economic convenience.

2. Reducing Transaction Costs and Exchange Rate Risks

The current dollar-dominated system imposes significant costs on emerging economies. When BRICS countries trade with each other, they must typically convert their currencies to dollars and then again to the destination currency, incurring double conversion fees and exposure to dollar volatility. A common currency would eliminate these intermediate steps, potentially saving billions in transaction costs annually.

The efficiency gains could be substantial. As Lauren Johnston notes, “Using local currencies to trade among themselves will lower the transaction costs and reduce these countries’ dependence on foreign currencies”. This is particularly valuable for the increasing intra-BRICS trade, which has seen local currency settlements surge to approximately 90% of intra-bloc commerce in mid-2025, up from 65% just two years prior.

3. Challenging Dollar Hegemony and Increasing Global Influence

Beyond immediate economic benefits, a BRICS currency represents a profound statement about the shifting balance of global economic power. Ramesh Vaidyanathan, former Co-Chair of the IBA Asia Pacific Regional Forum, believes that BRICS initiatives “mark a significant step towards a multipolar global economy, reducing the dominance of the U.S. dollar and creating a more balanced trade environment for developing nations”.

This geopolitical dimension cannot be overstated. With the expanded BRICS bloc representing nearly half of humanity and over one-third of global economic output, the potential emergence of a competing financial architecture could fundamentally alter how developing nations engage with the global financial system. It represents the financial manifestation of a broader movement toward a world less dominated by Western institutions and preferences.

Table: Key Economic Indicators of BRICS Members (Expanded)

Disadvantages and Structural Challenges: Why a BRICS Currency Remains Elusive

1. Vast Economic Disparities and Policy Misalignment

The BRICS coalition brings together economies with dramatically different structures, growth trajectories, and policy priorities. China’s economy alone is larger than all other BRICS members combined, creating inherent imbalances in influence and interests. While China is a manufacturing powerhouse, Middle Eastern members are energy exporters, and Brazil is an agricultural breadbasket. These divergent economic profiles mean member countries have fundamentally different needs for monetary policy—a critical challenge for any common currency.

Furthermore, member economies exhibit wildly different macroeconomic conditions. As of 2025, Ethiopia, Egypt, and Argentina (which was invited but did not join) faced severe dollar shortages and inflation problems, with black market exchange rates nearly double official rates in some cases. Meanwhile, China maintains tight control over its currency value, and the UAE dirham is pegged to the dollar. Such disparities make convergence toward common monetary standards exceptionally difficult.

2. Lack of Institutional Architecture and Financial Infrastructure

The euro’s relative success stemmed from decades of institutional development including the creation of the European Central Bank, harmonized banking regulations, and convergence criteria for fiscal policies. The BRICS bloc currently lacks comparable institutional frameworks for monetary coordination, banking supervision, and financial stability mechanisms.

Critical financial infrastructure remains underdeveloped for non-dollar transactions. While the rand is the only BRICS currency eligible for settlement through the world’s dominant payment-versus-payment (PvP) arrangement, other currencies face significant limitations. Approximately 20-40% of renminbi foreign exchange transactions may be exposed to settlement risk due to inadequate PvP arrangements. Without robust systems to mitigate settlement risk, confidence in non-dollar transactions will remain limited.

3. Currency Stability and Trust Deficits

A currency’s international role depends fundamentally on trust—in its stability, convertibility, and the institutional integrity behind it. Most BRICS currencies suffer from limited convertibility, higher volatility, and concerns about political interference. As one analysis notes, “These factors heavily contribute to low overall trust, and ultimately low adoption rates of the individual BRICS country currencies in existence today”.

The challenge of establishing credibility cannot be overstated. The dollar’s dominance reflects not just America’s economic size but also its deep financial markets, rule of law, and political stability. As Herbert Poenisch of Zhejiang University observes, “The major players trading in these markets are also the ones looking for store of value, hedging positions… There has been little evidence of them abandoning major currencies in favour of Brics national currencies, which are at the whim of political leaders”.

Table: Comparison of Currency Characteristics (2025)

Impact on the Dollar and the US Economy: A Realistic Assessment

Short-Term Minimal Impact vs. Long-Term Erosion

Most experts conclude that any BRICS currency would pose little immediate threat to dollar dominance. The dollar remains involved in 88% of all global foreign exchange transactions, and approximately 58% of disclosed global foreign exchange reserves are dollar assets 26. This entrenched position creates enormous inertia that cannot be rapidly displaced.

However, over the long term, a successful BRICS currency could gradually erode dollar primacy in specific regions and transaction types. Even a modest reduction in dollar demand could increase borrowing costs for the U.S. government and American corporations. Yet somewhat paradoxically, a weaker dollar might not be entirely negative for the U.S. economy, as it could “help U.S. manufacturers by making them more competitive globally [and] help attract tourists to the U.S.”

Sectoral Implications and Strategic Concerns

The commodity markets represent a particularly sensitive arena. The dollar’s privileged role in pricing and settling oil, gas, and other critical commodities represents a cornerstone of its global position. Increased use of alternative currencies in energy trade between BRICS members—such as India-Russia oil transactions in rupees—could gradually diminish dollar centrality in these markets.

From a strategic perspective, reduced dollar dominance could constrain U.S. foreign policy tools. Financial sanctions have proven remarkably effective in pressuring adversarial nations; alternative payment channels could reduce this effectiveness. However, as one analysis notes, adoption would need to extend beyond BRICS themselves to “require widespread adoption from other developed economies before a BRICS currency would truly threaten the status of the dollar”.

Hurdles to Implementation: The Daunting Path to Monetary Unity

1. Political and Governance Challenges

The BRICS coalition encompasses diverse political systems with often competing interests. The rivalry between China and India—including border disputes and competition for regional influence—represents a major obstacle to deep monetary integration. Similarly, Brazil and India have expressed caution about moving too quickly toward currency unification, reflecting concerns about Chinese dominance within the bloc.

Creating a credible common currency would require ceding substantial sovereignty to a supranational monetary authority—a difficult concession for nations that highly value their policy autonomy. As Michael Diaz of Diaz, Reus & Targ notes, “I don’t believe that they will settle on a unified currency, because they all have national security concerns”.

2. Technical and Operational Complexities

The technical challenges of creating a new international currency are staggering. It would require developing:

• A clearing system for settling transactions between currencies
• Liquidity facilities to manage short-term imbalances
• Exchange rate mechanisms to determine relative values
• Regulatory standards for participating financial institutions

Currently, no well-functioning markets for directly exchanging many emerging market currency pairs even exist, making dollar intermediation necessary. Overcoming this structural limitation would require creating deep, liquid markets for BRICS currency pairs—a process that would take years under ideal conditions.

3. The Trust Deficit and Institutional Capacity

Perhaps the most fundamental challenge is establishing trust in the new currency arrangement. This requires not just technical solutions but demonstrated institutional capacity and political stability. Most BRICS members have histories of monetary instability, capital controls, or financial repression that undermine confidence in their currencies as reliable stores of value.

Furthermore, concerns about “financial transparency, data integrity, rule of law, and human rights violations” in some BRICS countries reduce their appeal as currency issuers for the broader international community. These perceptions cannot be quickly altered through technical adjustments alone.

Overcoming the Hurdles: Potential Pathways Forward

1. Incremental Approach Through Local Currency Settlement

Rather than attempting an immediate currency union, BRICS appears to be pursuing a more pragmatic incremental strategy focused on expanding local currency settlement. This approach allows members to gradually build infrastructure and confidence without requiring immediate political unification or monetary policy harmonization.

Successes in bilateral arrangements—such as the reported 90% of India-Russia trade now conducted in rupees and rubles—provide valuable models for broader implementation. These bilateral arrangements can be gradually networked into a more comprehensive system, reducing implementation risk compared to a top-down currency launch.

2. Developing Robust Financial Infrastructure

Critical to any long-term solution is building the financial infrastructure to support non-dollar transactions. This includes:

• Expanding payment-versus-payment (PvP) arrangements for direct currency conversion
• Developing the BRICS Pay initiative as an alternative to SWIFT
• Creating liquidity pools to facilitate currency conversion
• Establishing credit facilities for settlement imbalances

China’s Cross-border Interbank Payment System (CIPS) and similar initiatives provide foundational elements that could be expanded into a more comprehensive BRICS financial architecture.

3. Commodity-Backing and Value Assurance

To build confidence, a BRICS currency might be partially backed by commodities—a particular strength given members’ significant resources. A currency tied to a basket of commodities such as gold, oil, and rare earth minerals could create inherent value and avoid inflationary risks. This would mimic historical gold standards and increase trust in the currency’s long-term stability.

Russia and Iran’s energy resources, South Africa and Brazil’s mineral wealth, and China’s dominance in rare earth elements could collectively provide substantial backing for a commodity-influenced currency arrangement, potentially enhancing its attractiveness compared to fiat currencies alone.

4. Phased Integration and Variable Geometry

A “one size fits all” approach may be impractical given member disparities. Instead, a multi-speed integration process might allow more willing and prepared members to advance faster, with others joining as conditions permit. This approach has precedents in European integration, where the eurozone initially included a subset of EU members.

Such variable geometry could allow China and Russia—perhaps joined by the UAE—to create a deeper monetary arrangement while maintaining looser cooperation with other members. This would acknowledge the different levels of readiness and commitment within the diverse coalition.

An Evolutionary, Not Revolutionary, Process

The vision of a common BRICS currency represents a bold ambition to reshape the global financial architecture toward greater multipolarity. While possessing significant potential benefits for member states in terms of reduced transaction costs, increased sanctions resilience, and enhanced geopolitical influence, the practical challenges remain formidable.

The economic disparities between members, political rivalries, technical complexities, and trust deficits create substantial barriers to immediate realization of a full currency union. As the July 2025 summit in Rio demonstrated, BRICS leaders themselves recognize these challenges, choosing to focus on “local currency settlement, regional payment systems, and financial institution-building” rather than announcing any immediate currency launch.

In the foreseeable future, the dollar’s dominance appears secure due to its deep liquidity, institutional infrastructure, and entrenched role in global trade and finance. However, the incremental progress toward alternative payment systems and local currency settlement among BRICS members suggests a gradual erosion of dollar monopoly in specific regions and transactions.

The most plausible scenario is not the displacement of the dollar but the emergence of a more multipolar currency system where the dollar shares influence with the euro, renminbi, and potentially a BRICS accounting unit in certain contexts. This evolution would reflect the broader diffusion of global economic power in the twenty-first century.

For the United States, the BRICS currency initiatives serve as a reminder that dollar dominance cannot be taken for granted indefinitely. Prudent policy would involve maintaining the dollar’s attractive features—including deep financial markets, rule of law, and monetary stability—while avoiding excessive weaponization of financial infrastructure that might accelerate alternatives.

The BRICS currency project, however ambitious, signals a new chapter in global finance where emerging economies increasingly seek to shape the rules rather than simply accept them. While the dollar’s preeminence will likely continue for years, the world may gradually move toward a more diversified international monetary landscape—with all the opportunities and uncertainties that transformation would bring.