Brazil’s President Lula assents to common BRICS currency to counter US dollar’s dominance

Brazil’s President Luiz Inácio Lula da Silva made an impassioned call to his BRICS counterparts, that include Russia, India, China, and South Africa other than Brazil, to replace the US dollar with their own currencies. Lula’s comments come amid efforts by India, China, and Russia to set up streams for trade in their own currencies and expanding calls amongst BRICS nations to launch a potential common currency mechanism to trade amongst themselves. 

Combined, the BRICS bloc has a GDP slightly more than the United States. The five major economies constitute 41 per cent of world population, 24 per cent of the world GDP and 16 per cent of global trade flows.

“Every night I ask myself why all countries have to base their trade on the dollar,” Lula said at the New Development Bank in Shanghai, also called the BRICS bank. 

“Why can’t we do trade based on our own currencies,” he added, as a crowd of Brazilian and Chinese dignitaries applauded the Brazilian president’s call in Shanghai on Thursday, April 13.

“Who decided that our currencies were weak, that they didn’t have value in other countries?,” Lula said. 

“Why can’t a bank like that of the BRICS have a currency to finance trade relations between Brazil and China, between Brazil and other countries? It’s difficult because we are unaccustomed [to the idea]. Everyone depends on just one currency,” Lula said further, adding an apparent Brazilian assent to the calls for a common BRICS currency for trade amongst themselves. 

 

WION first reported on April 3, that as India and China step up to counter US dollar’s dominance, a common BRICS currency for trade between the countries forming the bloc may very well be on the way. Brazilian President Lula’s comments add another note of consensus among the BRICS nations towards a common currency to counter the dominance of the US dollar. 

At the forthcoming BRICS summit in South Africa, a new financial arrangement, seen with a potential to translate into a common BRICS currency, is expected to be announced. 

According to Switzerland-based Bank for International Settlements, approximately half of global trade is invoiced in US dollars despite the United States accounting for just over a tenth of global trade. 

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The greenback’s dominance in global trade means the burden of dollar-denominated debt for other nations rises and falls with the exchange rate. This destabilises the economies of the countries with US monetary policy often playing a defining role than its own domestic decisions. At the same time, the economic culture in the United States of imposing financial sanctions on countries Washington deems unfriendly, is often seen as a source of economic instability. 

Apart from Russia and its Ruble, countries in the developing world, therefore, spearheaded by China and India, are ramping up efforts to respectively set up trade streams based on Chinese Renminbi and Indian Rupee respectively. Brazil, Russia, India, China and South Africa, banded together in BRICS, will meet in South Africa in August 2023 where de-dollarisation is expected to lead the agenda of the bloc. 

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