39 min read·17 hours agoThis article examines the BRICS bloc’s ambitious endeavor to reform the global financial system by reducing reliance on the U.S. dollar — a strategy commonly referred to as de-dollarization. Comprising Brazil, Russia, India, China, and South Africa, the BRICS nations are striving for greater financial autonomy through initiatives such as the blockchain-based BRICS Pay, the New Development Bank, and the Contingent Reserve Arrangement, aimed at constructing an alternative financial framework.However, this objective faces significant obstacles. The entrenched dominance of the U.S. dollar in global trade, the limited international convertibility of BRICS currencies, and the bloc’s internal political and economic disparities present formidable challenges to achieving full financial independence. This article critically analyzes these issues, including China’s measured approach to yuan internationalization, Russia’s pursuit of financial alternatives in the face of sanctions, and the broader geopolitical forces shaping the bloc’s efforts.While the U.S. dollar is likely to retain its supremacy in the near term, the persistent initiatives undertaken by BRICS may herald the gradual development of a more balanced and multipolar global financial order.The BRICS bloc — comprising Brazil, Russia, India, China, and South Africa — has increasingly positioned itself as a formidable player in the global economic landscape. Representing a coalition of major emerging markets, BRICS has actively sought to challenge the dominance of Western-led financial institutions, particularly by reducing reliance on the U.S. dollar. This effort aligns with the bloc’s broader strategy to foster a multipolar financial order, strengthening economic sovereignty among its member states.In recent years, BRICS has demonstrated remarkable economic growth, surpassing the G7 in terms of GDP based on purchasing power parity (PPP). As of 2024, BRICS accounts for 35% of global GDP (PPP), compared to the G7’s 29% (1). This increasing economic influence has allowed the bloc to advocate for reforms in global financial governance and establish alternative financial mechanisms to counterbalance Western institutions such as the International Monetary Fund (IMF) and the World Bank.To strengthen financial cooperation and improve economic resilience, BRICS has introduced several initiatives aimed at creating an independent financial infrastructure:New Development Bank (NDB): Launched in 2014 during the 6th BRICS Summit in Fortaleza, Brazil, the NDB was designed to finance infrastructure and sustainable development projects within BRICS and other emerging economies. Unlike traditional multilateral financial institutions, the NDB provides funding with a focus on local currency lending, reducing reliance on external financial systems. By supporting large-scale infrastructure development, the NDB plays a role in enhancing economic stability and connectivity within BRICS nations.Contingent Reserve Arrangement (CRA): Established alongside the NDB in 2014, the CRA serves as a monetary cooperation framework designed to provide liquidity support to member states experiencing balance of payments difficulties. The CRA functions as a pooled financial reserve that BRICS members can access during economic distress, offering an alternative to external emergency funding sources such as the International Monetary Fund (IMF).BRICS Pay: The Latest Initiative More recently, BRICS has introduced BRICS Pay, a digital payment platform aimed at facilitating cross-border transactions among member states using local currencies (2). This initiative reflects the bloc’s ongoing efforts to develop an integrated financial ecosystem that enhances trade and investment flows among BRICS economies. BRICS Pay is designed to offer a seamless transaction system that supports economic engagement without relying on traditional Western financial intermediaries.With the introduction of BRICS Pay, the bloc continues to expand its financial infrastructure, complementing existing mechanisms such as the NDB and CRA. This latest initiative highlights the group’s ongoing focus on strengthening financial cooperation and developing practical solutions to improve economic integration.BRICS Pay represents a strategic initiative aimed at enhancing financial autonomy and reducing dependency on the U.S. dollar. Designed to facilitate cross-border payments among BRICS nations, this system seeks to lower transaction costs while promoting the use of national currencies in international trade (2).The launch of BRICS Pay is part of a broader strategy to create an alternative financial ecosystem and challenge the dominance of Western financial institutions. By leveraging blockchain technology and potentially incorporating digital currencies, BRICS Pay could enhance financial inclusion and strengthen economic integration among member nations.The Functionality of BRICS PayBRICS Pay is a blockchain-powered payment system designed to enable seamless cross-border transactions within BRICS nations. Unveiled at the BRICS Business Forum in October 2024 in Moscow, the platform is regarded as a critical step toward financial independence for the bloc (3).The initial testing phase at the 2024 BRICS Business Forum provided insight into the system’s functionality. Attendees were issued demo cards preloaded with 500 rubles, which could be used for transactions at participating retail outlets (4). This demonstration highlighted the platform’s potential for practical application in various financial transactions, including:Retail payments — Enabling digital transactions for consumers within and across BRICS nations.Cross-border remittances — Facilitating money transfers between member states without relying on intermediary banking systems.International trade settlements — Allowing businesses to conduct trade using local currencies, potentially reducing transaction costs and exchange rate risks.By streamlining and reducing the costs associated with cross-border financial transactions, BRICS Pay aims to facilitate more efficient trade within the bloc, particularly for nations that seek to transition away from dollar-denominated transactions.Blockchain InfrastructureAt its core, BRICS Pay is underpinned by blockchain technology, which offers security, transparency, and efficiency in financial transactions. The project was confirmed by Russian aide Yury Ushakov, who called it “an important goal for the future,” and highlighted its reliance on advanced digital technologies and blockchain (5). By leveraging blockchain, BRICS Pay aspires to create a digitally distributed and secure financial network, providing an alternative to Western-dominated systems such as SWIFT.Although the specific blockchain protocol for BRICS Pay has not been publicly disclosed, it’s widely anticipated that the system will operate on a permissioned blockchain. Such a model would grant transaction validation rights exclusively to authorized entities, such as BRICS-affiliated banks and governmental institutions. This controlled environment aligns with the economic and political priorities of BRICS member states, ensuring regulatory oversight while maintaining independence from external financial systems.BRICS’ Efforts to De-dollarize: A Realistic OutlookWhile BRICS Pay and other financial initiatives introduced by the bloc contribute to reducing reliance on the U.S. dollar, their impact remains incremental rather than transformative. BRICS Pay functions primarily as a regional payment infrastructure, facilitating transactions in local currencies among member states. However, in its current form, it does not provide a comprehensive mechanism for large-scale de-dollarization.Despite these efforts, the U.S. dollar continues to dominate trade and financial flows even within BRICS nations, given its role as the primary global reserve currency and its deep integration into international financial markets. While initiatives like the New Development Bank (NDB), Contingent Reserve Arrangement (CRA), and BRICS Pay offer alternatives to Western financial institutions, they do not yet present a viable substitute for the dollar-centric global trade system.Even if BRICS were to pursue the creation of a single bloc currency, the practical chances of achieving substantial de-dollarization would remain limited. Establishing a common currency would require overcoming significant economic, political, and institutional challenges, including monetary policy coordination, exchange rate stability, and intergovernmental trust.Thus, while BRICS continues to advance alternative financial mechanisms, the practical realization of de-dollarization, whether through payment systems or a single currency, remains unlikely in the near future.As BRICS nations strive to lessen their dependence on the U.S. dollar, a key question remains: can they establish a dominant trading currency among themselves? Despite ambitious initiatives aimed at promoting local currencies, the U.S. dollar continues to dominate trade within the bloc.Many BRICS countries, including Brazil and India, still rely heavily on the U.S. dollar for their trade transactions. This reliance is rooted in the dollar’s entrenched status as the global reserve currency, which offers liquidity, stability, and broad acceptance across international markets. The dollar’s role as a common reference currency simplifies pricing and settlement processes, making it a practical choice for countries engaging in trade. US dollar still dominates global foreign exchange reserves.For instance, Brazil and India, both non-sanctioned members of BRICS, frequently opt for dollar-denominated transactions due to its liquidity and the influence of global financial systems like SWIFT. While there are emerging efforts to facilitate trade in local currencies and develop alternative payment systems — such as BRICS Pay — the transition remains slow and complex. The logistics of converting currencies like the Brazilian real or the Indian rupee into those of other BRICS members presents challenges, reinforcing the dollar’s position as a convenient intermediary.Even as China and India advocate for long-term de-dollarization, their trade practices reveal a reliance on the dollar, especially when dealing with partners outside of specific arrangements. Many of the currencies used within BRICS are not yet fully convertible or trusted on a global scale, prompting these nations to revert to the dollar for smoother transactions.The dollar remains the primary currency for invoicing exports among BRICS nations. For instance, India conducts 86% of its exports in dollars, despite only 15% being directed to the U.S. China processes 47% of its cross-border payments in dollars, with this percentage likely higher for goods and services. Similarly, Brazil invoices nearly all its exports in dollars, while South Africa shows a disproportionately high share of dollar-denominated exports relative to those going to the U.S. (6).Despite ongoing initiatives to promote local currencies, the U.S. dollar continues to dominate trade among BRICS countries. Several key factors contribute to this enduring phenomenon, including the volatility of national currencies and the widespread reliance on global commodity benchmarks primarily priced in dollars. A significant share of global commodity trade, especially for crucial resources such as oil, is conducted in dollars, which greatly affects commodity-dependent economies within BRICS, such as Brazil, Russia, and South Africa. For exporters in these energy-rich nations, transacting in dollars offers a way to stabilize profits and mitigate risks associated with fluctuating exchange rates.The limited convertibility of many BRICS currencies also reinforces the dependence on the dollar. Several national currencies cannot be easily exchanged for others on the global market, as highlighted in the IMF’s “Annual Report on Exchange Arrangements and Exchange Restrictions 2022” (7). For instance, the Brazilian real and the Indian rupee struggle to gain international acceptance, prompting traders to favor the dollar due to its widespread usability. Additionally, strict foreign exchange controls in countries like China further restrict the ability to convert local currencies into dollars or other currencies, solidifying the dollar’s necessity in international trade.The financial infrastructure and institutions within BRICS countries present additional challenges that sustain dollar reliance. Many of these nations’ banking systems are not fully integrated into the global financial network, limiting their capacity to facilitate international transactions using local currencies. Payment systems predominantly operate in dollars, as global financial institutions like SWIFT favor this currency, complicating the adoption of local alternatives.Furthermore, several BRICS-aligned nations, including Saudi Arabia and the UAE, peg their currencies to the dollar, further entrenching its use in international commerce. This peg stabilizes the value of their currencies against the dollar, facilitating trade and reinforcing its status as the dominant currency in global markets. The dollar’s central role in oil trade, a vital export for these countries, ensures a continued preference for dollar-denominated transactions.Recent efforts by BRICS to create local currency bond markets and alternative payment systems, such as Russia’s System for Transfer of Financial Messages (SPFS), reflect a growing desire to diminish dollar dependence. Nonetheless, these transitions are complex and gradual, allowing the dollar to maintain a substantial role in intra-BRICS trade.While BRICS nations are actively seeking alternatives to the U.S. dollar, the intricate dynamics of trade and currency relationships suggest that a swift shift away from dollar dependency will be challenging. The entrenched position of the dollar in global commerce underscores the obstacles ahead for these countries as they navigate their economic futures.The Chinese yuan, or renminbi (RMB), has been promoted as an alternative to the U.S. dollar in international trade and finance. However, its adoption faces significant challenges, both due to China’s internal policies and the geopolitical dynamics within the BRICS nations.China has pursued a cautious and measured strategy in promoting the yuan’s international use, primarily due to its controlled currency system and concerns over financial stability.1. Controlled Currency System and Convertibility IssuesOne of the primary reasons the yuan has not achieved full internationalization is its controlled currency system, which limits full convertibility. Unlike fully convertible currencies such as the U.S. dollar, the euro, or the Japanese yen, the Chinese yuan operates under strict capital controls imposed by the People’s Bank of China (PBOC) and other financial regulators (8). These restrictions mean that the yuan cannot be freely exchanged for other currencies without government oversight, reducing its attractiveness as a global reserve currency.China’s capital controls serve multiple purposes. First, they help stabilize the exchange rate by preventing large-scale speculative attacks, which could lead to sudden devaluations or appreciations. A more freely floating yuan would be subject to the pressures of global capital movements, potentially leading to economic disruptions, especially given China’s reliance on export-driven growth. By managing exchange rates and restricting capital outflows, China aims to prevent financial crises similar to those experienced by emerging markets in the past (9).However, these controls come with significant trade-offs. The lack of full convertibility reduces the yuan’s appeal to foreign investors and limits its role in international trade and finance (10). Multinational corporations, global banks, and institutional investors prefer dealing in currencies that can be freely exchanged without restrictions. The inability to easily move capital in and out of China means that foreign businesses may be hesitant to hold large yuan reserves, undermining its position as a true international currency.Additionally, the controlled nature of the yuan also impacts global liquidity. Major reserve currencies — such as the U.S. dollar — are widely used in international transactions because they are abundant in the global market. China’s currency, by contrast, remains largely confined within its domestic financial system, preventing it from becoming a dominant medium of exchange on the global stage (8).A lack of full convertibility also affects China’s ability to develop deep and liquid capital markets. International financial hubs like New York and London thrive on their openness, allowing free capital flows that facilitate investment, borrowing, and lending. China’s restricted capital account means that foreign investors face difficulties in accessing Chinese assets, further limiting the yuan’s integration into the global financial system (11).If China were to fully liberalize its currency, it could enhance the yuan’s international status, but it would also expose the country to significant financial risks. The possibility of rapid capital flight, currency speculation, and increased exposure to external economic shocks has led policymakers to adopt a cautious approach, prioritizing domestic stability over immediate global integration.2. Desire to Avoid Excessive Exposure to International MarketsAnother key reason China has not aggressively pursued yuan internationalization is the government’s cautious stance on exposure to global financial markets (12). While internationalizing the yuan could offer benefits such as reduced dependence on the U.S. dollar and increased geopolitical influence, it also introduces substantial risks.A more widely used yuan would mean that Chinese financial markets are more directly tied to global economic conditions. This interconnectedness could reduce the government’s ability to implement independent monetary policies, as domestic interest rates and credit conditions would become increasingly influenced by external forces (13). For instance, if the yuan were fully integrated into global financial markets, a financial crisis in another country could trigger large-scale capital movements into or out of China, making it harder for the central bank to manage economic conditions.China’s leadership has also expressed concerns over financial stability. A rapidly internationalized yuan could lead to excessive foreign demand for Chinese assets, inflating asset bubbles and increasing systemic risks. Conversely, in times of global financial stress, foreign investors might rapidly withdraw capital, triggering economic instability within China (8). The 1997 Asian Financial Crisis and the 2008 Global Financial Crisis serve as cautionary tales of how capital market openness can amplify financial volatility.Another major concern is exchange rate volatility. Countries with highly internationalized currencies, such as the United States, often experience fluctuations in their currency value due to market forces beyond their control. The U.S. dollar, for instance, strengthens or weakens depending on global demand for safe-haven assets, investor sentiment, and geopolitical developments. If China were to liberalize its currency markets too quickly, the yuan could become vulnerable to similar external pressures, reducing the government’s ability to maintain economic stability through monetary policy interventions (13).Furthermore, political and economic considerations play a role in China’s measured approach. The Chinese government values its ability to manage economic policy without external constraints. A fully internationalized yuan would require greater transparency in monetary policy, financial regulations, and economic data — areas where China has traditionally exercised tight control. The necessity of adhering to global financial norms and regulatory standards could reduce Beijing’s policy flexibility, compelling it to align more closely with international financial practices that may not always align with its strategic objectives (14).Despite these challenges, China has taken gradual steps toward increasing the yuan’s global role. Initiatives such as the Belt and Road Initiative (BRI), the expansion of offshore yuan markets (e.g., Hong Kong, London, and Singapore), and the inclusion of the yuan in the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) basket in 2016 indicate China’s long-term ambition to elevate its currency’s status. However, these measures are implemented in a controlled manner to prevent excessive exposure to global financial turbulence.As the BRICS nations seek alternatives to the U.S. dollar in global trade and finance, the potential adoption of the yuan as a dominant currency within the bloc faces significant obstacles. These challenges arise from geopolitical tensions, concerns over economic dependency, and the structural diversity of BRICS economies.1. Geopolitical Tensions and Dependency RisksA major impediment to the widespread adoption of the yuan within BRICS is the geopolitical friction between member states, particularly between China and India. These two nations, while both key players in the global economy, have a long history of territorial disputes, including conflicts over the Line of Actual Control (LAC) in the Himalayas (15). Such tensions foster strategic distrust, making India, in particular, wary of deepening financial reliance on China’s currency.Sovereignty and Monetary Policy AutonomyIf BRICS nations were to increase their use of the yuan, it could lead to a shift in financial power within the bloc, giving China greater influence over the region’s economic policies. This is a major concern for member countries, which prioritize maintaining monetary policy autonomy (16). A greater reliance on the yuan in trade settlements, foreign reserves, or central bank holdings could expose these nations to China’s economic decisions, interest rate policies, and financial stability measures.For example, if China were to engage in significant monetary expansion or impose sudden capital controls, BRICS nations holding large amounts of yuan reserves could experience financial instability. Unlike the U.S. dollar, which operates under a relatively transparent and predictable monetary system, the yuan remains subject to the Chinese government’s direct intervention (17)(18)(19), adding an element of uncertainty for other BRICS economies.Economic Leverage and Dependency RisksThere is also concern that widespread use of the yuan within BRICS could create economic dependencies, particularly for smaller economies such as South Africa and Brazil (20). If these nations begin conducting a substantial portion of their trade and financial transactions in yuan, they may become increasingly exposed to China’s economic cycles, policies, and potential financial crises.A relevant example is China’s influence over commodity-exporting nations. Many BRICS countries, including Brazil and Russia, export significant volumes of raw materials to China (21). If the yuan were to become the primary currency for these transactions, these nations would be highly dependent on the stability and convertibility of the yuan, limiting their financial flexibility. A sudden depreciation of the yuan, for instance, could erode the value of their reserves and impact economic stability.2. Economic and Political ConsiderationsThe BRICS nations are highly diverse in terms of economic structures, political governance, and trade priorities. These differences complicate efforts to adopt a single dominant currency, particularly one controlled by a single member state like China.Divergent Economic Models and Trade InterestsEach BRICS country has a unique economic model and set of trade relationships, which affects their willingness to integrate the yuan into their financial systems.China: As the world’s second-largest economy, China has a strong incentive to promote the yuan as a global currency to reduce reliance on the U.S. dollar and enhance its geopolitical influence.India: India has a rapidly growing economy but maintains strict capital controls and a strong preference for financial sovereignty, making it hesitant to align with a currency dominated by a geopolitical rival (20).Russia: Due to Western sanctions, Russia has increased yuan usage but also seeks to promote alternative financial arrangements, including trade in rubles (20) and digital currencies, such as Bitcoin (35).Brazil and South Africa: These economies, reliant on commodity exports, may see some benefit in diversifying away from the U.S. dollar but are also wary of excessive reliance on China’s financial system (20).This economic divergence makes it difficult for BRICS to adopt a unified approach toward the yuan. While some nations may see short-term benefits in increased yuan use, others remain skeptical due to long-term strategic concerns.Political Considerations and Institutional AlignmentUnlike the European Union, which has a strong institutional framework to support the euro, BRICS lacks a centralized financial institution or regulatory body to oversee monetary integration. The absence of a unified political and economic framework further weakens the case for yuan adoption, as member states have differing views on financial governance, regulatory transparency, and monetary coordination (22).For example, while China operates a state-controlled financial system with capital controls, Brazil and South Africa have relatively open markets. Aligning these differing financial systems under a single currency regime would require significant reforms, which may not be politically feasible in the short term.Ultimately, while the yuan plays an increasing role in BRICS trade and finance, deep-seated geopolitical tensions and economic disparities make its full adoption as a dominant currency within the bloc highly challenging. Instead, China seems to be advocating for a diversified, multipolar financial architecture, positioning the yuan as a prominent currency alongside the U.S. dollar and euro, rather than fully replacing them as a global reserve currency (23).The concept of a single BRICS currency, designed exclusively for trade settlements while preserving the individual national currencies of member states, poses several significant challenges. Despite the theoretical feasibility, such a currency would face obstacles in terms of trust, governance, liquidity, and global acceptance.1. Lack of Trust and Global StabilityOne of the most critical factors in the viability of any currency is its trustworthiness and global stability. The U.S. dollar has earned its position as the world’s primary reserve currency due to the stability of the U.S. economy and the confidence placed in the Federal Reserve as its central authority. The dollar’s status as a reliable store of value and medium of exchange is firmly rooted in decades of institutional and geopolitical trust (24).A BRICS trade currency, however, would not have this inherent trust. The BRICS nations — Brazil, Russia, India, China, and South Africa — represent diverse and rapidly developing economies with differing levels of political stability and economic maturity. While these nations are economically significant, they lack the unified economic and political backing that the U.S. enjoys. Without a shared history of stability and a single dominant economic power behind it, a BRICS currency would need to work hard to build the trust necessary for widespread acceptance (25).2. Governance, Policy Disagreements, and Asynchronous Economic CyclesA single BRICS currency would require the establishment of a central governing body, likely a Board of Governors or a central bank composed of representatives from each member country, to oversee its monetary policy. Since the currency would be used solely for international trade between the BRICS nations, its stability and effective exchange rate management would be crucial for ensuring smooth economic transactions. However, the governance and policy coordination required for this system would face significant challenges.Each member nation would retain control over its domestic monetary policies, including decisions on interest rates, which are used to manage domestic issues such as inflation or employment. However, the shared BRICS currency would need to be carefully managed to prevent instability due to asynchronous economic cycles and divergent national priorities. For instance, China’s export-driven economy might necessitate policies that keep interest rates low to support growth, while Brazil might require higher interest rates to control inflation. India may focus on policies to boost domestic consumption, while Russia could push for policies influenced by geopolitical factors. These varying priorities could result in policy conflicts, undermining the effective management of the shared currency (26).Consider below:Sources: World Bank, IMFThe theory of the Optimum Currency Area (OCA), proposed by Robert Mundell (1961), suggests that for a monetary union to be successful, member states should have similar business cycles and economic structures. The BRICS nations have divergent economic structures and often experience asynchronous economic cycles. For example, during a period of economic expansion in China, Brazil’s commodity-dependent economy might face a downturn. If both countries were tied to a single currency, the exchange rate could be too strong for one economy and too weak for the other, leading to imbalances that could destabilize the monetary system (27). These asymmetric economic shocks — where one country faces a crisis while others remain unaffected — could destabilize the entire currency system, especially given that the currency would only be used for trade settlements. A crisis in one BRICS nation could create widespread uncertainty, undermining confidence in the currency and deterring its adoption in global trade (28).In addition to these economic imbalances, the BRICS nations have diverse political systems, which could hinder efforts to reach a consensus on monetary policy. Countries like Brazil, India, and South Africa operate more open-market economies, while China and Russia have state-controlled financial systems. This lack of political cohesion and shared economic goals could make it difficult to craft a unified approach to monetary policy. Without a strong and unified political framework, efforts to align economic interests across the bloc could be further complicated, leading to instability and unpredictability in how the currency would function (29).3. Liquidity and Convertibility IssuesFor a currency to gain widespread use in global trade, it must be highly liquid and easily convertible into other major currencies, especially the U.S. dollar, which dominates global markets. The U.S. dollar’s liquidity is unparalleled due to the size and integration of the U.S. economy into global finance. It is used in international trade, reserves, and investment, making it a reliable and easy-to-use currency.A BRICS trade currency would face liquidity challenges. As it would initially be used primarily within the BRICS bloc, its acceptance and use outside of this group would likely be limited. This could create a vicious cycle: businesses may be hesitant to adopt the currency due to its limited convertibility and potential value volatility, while its limited use would prevent it from achieving the liquidity necessary to become a global standard.Furthermore, any significant fluctuations in the value of the BRICS currency could deter global businesses from adopting it. If the currency loses value during a crisis in one of the BRICS nations, global traders may be unwilling to settle transactions in this currency, reverting to more stable options like the U.S. dollar (30).4. Global Acceptance and Competition with the U.S. DollarThe U.S. dollar is deeply embedded in global financial systems and is the preferred currency for international trade and reserves. A BRICS trade currency would need to offer clear advantages over the dollar to encourage businesses and governments around the world to adopt it. However, the dollar’s dominance in global finance has been built over decades, and shifting away from it would require significant incentives, such as better exchange rates, reduced transaction costs, or stability assurances.In practice, the dollar’s universality and liquidity mean that even if BRICS countries establish a new currency for trade, it is unlikely to replace the dollar without substantial structural changes in the global financial system. Global businesses and governments may continue to prefer the dollar due to its predictability, and they may hesitate to engage with a new, less familiar BRICS currency unless it demonstrates clear, long-term stability and trustworthiness.While creating a single BRICS currency for trade settlements is theoretically possible, the challenges associated with its global acceptance, governance, liquidity, and economic integration make it highly unlikely to succeed in the near future. The U.S. dollar continues to dominate due to the trust and stability of the U.S. economy, the centralized control by the Federal Reserve, and the dollar’s global liquidity. The BRICS nations would need to overcome significant political, economic, and logistical hurdles to create a currency that could rival the dollar’s position in global trade.CBDC Won’t Fix ItA Central Bank Digital Currency (CBDC) is essentially just a digital form of fiat currency issued by a country’s central bank, operating on a permissioned blockchain or similar digital infrastructure. It’s essentially a digital version of money — nothing more, nothing less.While CBDCs are often touted as a way to modernize financial systems, they don’t address the core issues involved in creating a successful shared currency among countries with vastly differing economic structures, policy priorities, and political systems.As we discussed earlier, a single BRICS currency would face significant challenges, including managing divergent economic cycles, differing fiscal policies, and political tensions. A CBDC, even if created for BRICS, wouldn’t solve these problems. It would still rely on the same underlying issues of governance, trust, economic synchronization, and policy conflicts that could undermine the stability of the currency.In short, a CBDC may offer digital convenience but won’t resolve the fundamental barriers to creating a unified BRICS currency for trade. These issues need coordinated fiscal and monetary policies and a strong political framework — elements that a CBDC alone cannot address.Implementing a gold-backed BRICS trade currency for international trade, would function as a clearing mechanism, instead of the USD presents unique and practical challenges beyond those associated with current dollar-based trade systems. While some challenges parallel those of fiat reserves like the USD (e.g., unequal distribution or trade imbalances), others are specific to the nature of gold as a backing asset and the infrastructure required for such a system.Infrastructure for Gold-Backed CurrencyPhysical Gold Reserves ManagementStorage and Security: Establishing and maintaining secure vaults for large quantities of gold would be costly. All BRICS members would need robust facilities to store their gold reserves. Regular verification and authentication of the gold are also required to ensure its integrity and confirm that it has not been swapped, lost, or damaged during the transfer process to the vaults. This adds a layer of complexity that purely digital transactions do not face.Auditing and Transparency: A gold-backed currency system requires regular auditing to ensure the gold reserves actually exist and correspond to the issued currency. However, historical instances reveal challenges in conducting comprehensive audits. For example, the United States has faced scrutiny over the transparency and frequency of its gold reserve audits, with legislative efforts like the Gold Reserve Transparency Act highlighting the difficulties in achieving full accountability (31). These examples underscore the complexities involved in auditing gold reserves, including logistical hurdles and the need for political will to maintain transparency.Governance and ControlA central authority (e.g., a BRICS Reserve Board) would need to manage the issuance, distribution, and backing of the gold-backed currency. However, China with its vast reserves, may push for dominance, creating distrust among other members. Decisions on adjustments to gold-backing ratios or issuance caps could become contentious.During Bretton Woods, the London Gold Pool (1961–1968) was an example of collaborative gold management among major economies, and it highlighted governance challenges. France withdrew from the pool in 1967, citing disagreements over U.S. monetary policy and concerns about losing gold reserves to defend an unsustainable dollar price (32).Integration into Global Financial SystemsA gold-backed currency might face difficulties integrating into existing payment and settlement systems (e.g., SWIFT). Without broad global acceptance, the currency could remain confined to intra-BRICS trade, limiting its utility.Physical Settlement MechanismsIf the system allows for gold redemption, a secure and efficient mechanism would need to be in place to transfer physical gold across borders — a logistical and operational nightmare. Physical gold is heavy, valuable, and requires significant security and infrastructure for transportation. International logistics for gold transport involve customs clearances, secure storage facilities, and high insurance costs, all of which add complexity to the system.Gold-backed systems like the Bretton Woods system faced similar issues. For instance, the International Monetary Fund (IMF) notes that central banks occasionally interfered with the free movement of gold, resulting in changes to transport costs (33).Digital RepresentationConverting gold into a digital token or ledger entry to facilitate trade settlement is an attractive option for improving the efficiency of transactions. However, this approach introduces a number of significant risks and challenges, particularly regarding cybersecurity and governance. Even with the promise of blockchain technology and decentralized governance structures, these solutions cannot fully resolve underlying trust issues. Furthermore, logistical problems persist, as physical gold will eventually need to be moved across borders to settle claims in international trade. While digital tokens can represent ownership or claims to gold, particularly in large-scale international trade or financial agreements, the reality remains that the underlying physical gold must eventually be transferred to fulfill these obligations.While a gold-backed BRICS currency presents an attractive vision of de-dollarization, its practical execution faces major obstacles in infrastructure, governance, and global integration. The historical failures of gold-backed systems such as Bretton Woods and the London Gold Pool indicate that such a currency would be difficult to sustain without major structural reforms. Alternatives like digital tokenization could mitigate some challenges, but political distrust, logistical hurdles, and systemic inertia make a fully functional gold-backed BRICS trade currency unlikely in the near future.The geopolitical fallout from Russia’s invasion of Ukraine in February 2022 has been profound, with Western nations imposing sweeping sanctions aimed at crippling its economy. Chief among these measures was the freezing of approximately $300 billion in Russia’s foreign exchange reserves, predominantly held in hard currencies like the U.S. dollar and the euro and $19 billion of Russian oligarchs’ money. This unprecedented action effectively immobilized nearly half of Russia’s total reserves, cutting the country off from a significant pool of international liquidity (34).In addition to asset freezes, Russia was expelled from the SWIFT global financial messaging system, a cornerstone of international banking that facilitates cross-border transactions. This exclusion significantly disrupted Russia’s ability to process international payments, particularly for its lucrative energy exports. The United States and its allies sought to restrict Russia’s access to global capital and technologies, thereby tightening the noose on its economy (35). These measures have forced Moscow to seek alternative avenues to maintain its financial and trade networks, a necessity for survival amid isolation.Faced with crippling sanctions, Russia has turned to alternative financial instruments and partnerships to mitigate the impact of Western restrictions. Among these efforts is a pronounced pivot toward the Chinese yuan. The yuan’s role in Russia’s trade has expanded dramatically; by May 2023, it accounted for approximately 30% of Russia’s import payments and nearly 25% of its export settlements, a stark increase from negligible levels before 2022 (36). The deepening financial ties between Moscow and Beijing reflect Russia’s broader strategy to circumvent Western financial hegemony.Moreover, Moscow has encouraged domestic businesses to transact in yuan, particularly in sectors such as energy and commodities, where Chinese demand is substantial. For example, Gazprom, the Russian energy giant, has agreed to settle natural gas payments in rubles and yuan with China’s state-owned energy companies (37).Despite Russia’s enthusiasm for the yuan, China has exhibited caution in supplying large quantities of its currency to its northern neighbor. The risks of secondary sanctions from Western nations weigh heavily on Beijing’s calculations. Given China’s reliance on global markets — the U.S. and European Union remain its largest trading partners — the imposition of secondary sanctions could disrupt Chinese financial institutions and destabilize its economy (38).According to a Russian state newspaper, Izvestia, Chinese banks have become increasingly reluctant to engage in transactions with Russian counterparts, leaving numerous deals unresolved for months. By the end of March 2023, approximately 80% of Russian wire payments were being returned due to restrictions imposed by Chinese banks (39). Moreover, the liquidity of the yuan has been putting significant pressure on major Russian banks. Key institutions like Sberbank and VTB are grappling with yuan shortages, making it challenging to meet foreign currency obligations and provide loans (40). In response, the Russian central bank has stepped in, offering yuan through currency swaps. However, this measure is viewed as a temporary fix rather than a sustainable solution (41).Russia’s Central Bank Governor Elvira Nabiullina has publicly acknowledged acknowledged several challenges and limitations regarding the use of yuan currency in Russia. During the press conference, she stated the risks of secondary sanctions and complications in international payments and emphasized the need for collaboration with partners to find solutions to facilitate payments, indicating ongoing challenges with cross-border transactions (42).Russian politicians often wrongly assert that the yuan’s global expansion signals the demise of the dollar. In reality, increased yuan internationalization actually requires China to hold more dollar reserves. The Chinese government relies on U.S. dollars to stabilize the yuan in offshore markets, especially in Hong Kong, which is a key hub for yuan trading. Stability in the dollar is essential for maintaining confidence in the yuan’s global value. As a result, the yuan’s role as a reserve currency does not undermine the dollar; instead, the two currencies complement each other. While China has been making efforts to internationalize the yuan (including initiatives like the Belt and Road Initiative), the yuan’s exchange rate is still heavily managed and influenced by the U.S. dollar. This means that Beijing can’t really help Moscow in its crusade against the dollar (43).Ultimately China’s measured approach also reflects its broader strategy of gradual yuan internationalization. While Beijing seeks to elevate the yuan’s role in global finance, it prioritizes stability over rapid gains. As such, its partnership with Russia is limited by Chinese pragmatism, ensuring that their economic ties do not provoke backlash from the West.These challenges with yuan liquidity and de-dollarization beings Russia to explore other alternatives, specifically cryptocurrencies, which provide decentralized transaction methods and evade traditional financial oversight. The point is that even in the sucessful case of the de-dollarization of the economy, which the Russian authorities are so proud of, essentially translates into “yuanization.” Russia is drifting toward a yuan currency zone, swapping its dollar dependence for reliance on the yuan. This is hardly a reliable substitution: now Russian reserves and payments will be influenced by the policies of the Chinese Communist Party and the People’s Bank of China. Should relations between the two countries deteriorate, Russia may face reserve losses and payment disruptions.Ultimately, cryptocurrencies serve as the relaible instrument for truly independnet trade between BRICS nations and it appears it has caught Russia’s attention, sepcifically Bitcoin.This is clearly evident as in July 2024 Russia has permitted the use of cryptocurrencies in foreign trade and has taken steps to make it legal to mine Bitcoin (44). In fact Russia is one of the global leaders in Bitcoin mining.In December 2024, it has been reported that Russian companies have begun using Bitcoin in international payments, and it’s expected that this will be further exapnded in 2025, according to Finance Minister Anton Siluanov. “As part of the experimental regime, it is possible to use Bitcoins, which we had mined here in Russia (in foreign trade transactions),” Siluanov told Russia 24 television channel. “Such transactions are already occurring. We believe they should be expanded and developed further. I am confident this will happen next year,” he said, adding that international payments in digital currencies represent the future (45).Furthermore, support for Bitcoin appears to be coming from the top, as Russian President Vladimir Putin has himself reiterated support for Bitcoin during investment press conference in Moscow in December 2024, saying that no-one in the world could ban Bitcoin (46).Ultimately, Bitcoin is a strong contender to be an alternative payment option that will grow in the international trade between Russia and other nations, especially among BRICS nations. This is idea is fruther backed by Russian State Duma proposing a law creating a strategic Bitcoin reserve to boost the country’s financial stability, according to state owned newspaper RIA Novosti (47), which according to Russian finance minister Anton Siluanov, is a possibility in “five to ten years.”The utilization of Bitcoin as a trading instrument may not be confined solely to Russia but could extend across the BRICS nations. BitRiver, Russia’s largest operator of mining data centers and importer of mining equipment, maintains close ties to the Russian government and was sanctioned by the Office of Foreign Assets Control (OFAC) in April 2022 (48). BitRiver has partnered with Russia’s sovereign wealth fund, the Russian Direct Investment Fund (RDIF), to establish mining facilities across BRICS member states (49).According to BitRiver’s founder, Igor Runets, “Mining is not just a foundation for digital economy. As Russia catches up with the United States in mining, it means our country cannot be ignored,” Runets stated. “This brings economic growth, settlement liquidity with our partners and creates skilled jobs nationwide.”This development suggests that the expansion of Bitcoin mining within allied BRICS nations effectively positions Bitcoin as a broader trading mechanism, not solely for Russia but potentially for all BRICS economies. The strategic establishment of mining infrastructure is consistent with BRICS members’ broader objectives of developing sovereign financial technology systems (50).Furthermore, BRICS nations have consistently advocated for reducing reliance on the U.S. dollar in international trade, even exploring the concept of a unified currency to facilitate transactions within the bloc. The integration of Bitcoin mining into BRICS’ financial framework may represent an additional step toward achieving greater financial sovereignty and economic independence from Western-dominated financial systems.Bitcoin, a decentralized digital asset, has emerged as a topic of discussion in the context of de-dollarization efforts, particularly in Russia (45). However, it’s crucial to view Bitcoin not as the sole solution but as one of several tools available to BRICS nations as they seek greater financial independence and enhanced trade cooperation.Advantages of BitcoinDecentralization: Bitcoin operates independently of central banks and traditional financial systems, making it an appealing option for nations seeking to reduce reliance on Western financial systems, especially the U.S. dollar.Global Accessibility: Bitcoin enables transactions across borders without requiring a centralized authority, providing countries like Russia and Brazil with greater ease in international trade.Bitcoin’s attributes position it as more than just a theoretical option; it is a tangible, scalable solution that addresses the trust, security, and logistical challenges that BRICS nations face in pursuing de-dollarization. Let’s explore in detail how Bitcoin-backed trade settlements could provide a robust framework for BRICS countries to achieve their economic goals.Decentralization and TrustOne of the main advantages of using Bitcoin for trade settlements between BRICS nations is that no single country controls Bitcoin, making it an inherently neutral and decentralized asset. This solves the core issue that arises with other alternatives, like the yuan or even a BRICS currency — trust.In the case of a yuan-based system, or even a BRICS-issued currency, countries would need to trust China (in the case of the yuan) or the BRICS bloc (in the case of a BRICS-backed currency). This is problematic, as we’ve discussed earlier.Bitcoin, by contrast, operates on a decentralized blockchain where no single country or entity controls it. This removes the risk of any one nation exerting undue influence, ensuring that BRICS countries can use Bitcoin without fear of dominance by a single power.Global Acceptance and LiquidityBitcoin has already achieved a level of global recognition as a store of value and digital asset. While still volatile, it is increasingly viewed as an alternative to traditional currency for transactions and reserves. Bitcoin can be traded almost anywhere, allowing BRICS countries to settle cross-border transactions with minimal friction.Bitcoin can be converted to local currencies with ease through locally regulated cryptocurrency exchanges, ensuring a smooth flow of trade.The decentralized nature also allows BRICS countries to engage in peer-to-peer transactions without needing to rely on a third-party payment system, such as SWIFT or the yuan-based systems, which have limitations in their adoption across BRICS countries.No Physical Storage IssuesThe common issue with physical assets (like gold) or even commodities (like oil) is storage, custody, and transport. Bitcoin, however, is a digital asset stored on a blockchain, meaning there are no physical storage issues. As long as proper security measures are taken (such as multi-sig wallets or hardware wallets), Bitcoin can be stored digitally without the need for physical vaults or warehouses.Transparency and AuditingOne of the biggest issues with traditional financial systems, including the use of fiat currencies and gold-backed systems, is transparency and the ability to verify reserves. Bitcoin’s blockchain, by its nature, offers complete transparency.Each transaction is publicly recorded and verifiable by any participant on the network, meaning that BRICS countries can easily track the total supply of their Bitcoin reserves.This is a significant improvement over the opaque nature of many financial systems, where it’s often hard to tell whether countries’ reserves (whether in USD, gold, or other assets) are fully backed or audited.ScalabilityBitcoin’s evolution into a multi-trillion-dollar asset is not far-fetched. As adoption grows among global institutions and individuals, Bitcoin can offer a highly liquid and scalable foundation for settling trade between nations. Its proven security and increasing market capitalization make it a viable reserve asset for large-scale economic activities.Addressing Scalability ConcernsWhile Bitcoin’s blockchain processes only about seven transactions per second (TPS), this limitation is irrelevant in the context of its potential use for monthly trade settlements. Daily transactions between BRICS countries could be facilitated by a BRICS-backed digital currency with no scalability limits, while Bitcoin serves as the reserve asset for periodic settlement. This separation allows Bitcoin’s robust security and value to underpin trade without relying on it for every transaction.Volatility: A Concern That Diminishes Over TimeA common concern with Bitcoin is its price volatility. However, as Bitcoin’s market capitalization grows and it becomes a larger, globally adopted asset, its volatility is expected to decrease significantly — much like gold. Historically, gold’s price was far more volatile when its market was smaller. Today, as a multi-trillion-dollar asset, gold experiences limited price swings, and Bitcoin is likely to follow a similar trajectory. A mature Bitcoin, with a market capitalization of $20 trillion or more, would exhibit stability comparable to gold, making it a reliable reserve asset for BRICS nations.How It Could WorkBitcoin as a Reserve Asset: If Bitcoin achieves a market capitalization of $10 to $20 trillion, it could effectively back a portion of BRICS international trade. With the annual trade volume among BRICS members estimated at $5 trillion (51), Bitcoin’s value would comfortably support these transactions over time.Monthly Settlement Model: Instead of settling every transaction immediately in Bitcoin, BRICS members could use a BRICS-backed digital currency for daily trade. At the end of each month, aggregate trade balances would be settled in Bitcoin.Favorable Characteristics as a Store of ValueUnlike fiat currencies, which are subject to inflationary pressures and government interference, Bitcoin is deflationary by design, with a fixed maximum supply of 21 million coins. This makes Bitcoin an attractive store of value, especially in times of economic instability or inflation.Countries within the BRICS bloc that are export-dependent or commodity-based could benefit from Bitcoin’s predictable supply and store of value characteristics, which would protect their wealth from devaluation by inflation or monetary manipulation.As Bitcoin’s value appreciates, it could further enhance the BRICS countries’ trade positions and provide them with a reliable and secure means of settling transactions.In order to reduce reliance on the U.S. dollar, BRICS could consider integrating Bitcoin as a supplementary tool within its trade settlement framework, alongside existing efforts to conduct trade in local currencies. This would not entail replacing national currencies or overhauling the financial system but rather introducing Bitcoin as an additional mechanism to enhance financial diversification and flexibility. As a decentralized neutral asset with increasing global adoption, Bitcoin could serve as an alternative means of settlement, complementing local currencies in mitigating exposure to dollar dependency. By expanding the range of settlement instruments, BRICS could adopt a more balanced and resilient approach to de-dollarization, reinforcing financial sovereignty while maintaining stability in international trade.The BRICS bloc’s journey towards de-dollarization and financial autonomy remains a complex and gradual process. While initiatives like BRICS Pay demonstrate the bloc’s commitment to reducing reliance on the U.S. dollar, several factors continue to reinforce the dollar’s dominance in international trade and finance. These include the entrenched status of the dollar as a global reserve currency, the limited convertibility of BRICS currencies, and the existing financial infrastructure that favors dollar-based transactions.The challenges faced by alternative currencies, such as the Chinese yuan, further complicate the transition. China’s controlled currency system and geopolitical dynamics within the BRICS bloc hinder the yuan’s widespread adoption as a dominant trading currency. Additionally, concerns about economic dependency on China make other BRICS nations cautious about increasing their reliance on the yuan.As BRICS continues to expand its membership and influence, the implications for the global financial system could be substantial. However, achieving true financial autonomy for the BRICS bloc will require overcoming numerous economic, political, and structural hurdles. The success of these efforts will depend on the bloc’s ability to build trust, stability, and efficiency in their financial systems, as well as navigate complex geopolitical relationships both within and outside the group.In the near future, it appears that the U.S. dollar will continue to play a significant role in global trade, including among BRICS nations. The transition towards a more multipolar financial system is likely to be a long-term process, requiring sustained effort, innovation, and cooperation among BRICS members and their allies.DISCLAIMER: The information contained in this article is for educational purposes only and does not constitute any form of advice or recommendation by Wheatstones, and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.References:(1) Statista. (2024, July 15). Share of global GDP (PPP) held by G7 and BRICS countries from 2000 to 2024. 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