The US dollar has been the king of global trade for a long time, but its reign is now being challenged by emerging economies like India and China. These countries are starting to trade in their own currencies, which could lead to the creation of a common currency for the BRICS nations. The leaders of Brazil, Russia, India, China, and South Africa are exploring this possibility and could announce a new financial arrangement at the upcoming BRICS summit in South Africa in August 2023.
Initially, domestic currencies would be used in transactions, and later a digital or alternative currency could be explored. This move is significant because it could unite countries with differences, such as India and China. Jim O'Neill, the economist who coined the term BRIC, wrote in the Global Policy journal that the US dollar plays a far too dominant role in global finance. If BRICS expands to include other emerging nations, a more multi-currency global system could emerge.
India is making consistent efforts to replace the US dollar with the rupee as the global reserve currency. China has also set up its own commodity exchange in Shanghai, where oil deliveries are traded solely in the Chinese renminbi. This move could further push back the US dollar from the oil territory.
The US dollar's dominance in global trade is a problem because it is a dominant force in global finance. Approximately half of global trade is invoiced in US dollars, even when neither the barrels of crude nor the parties trading it have anything to do with the US. This disproportionately large reliance on the US dollar destabilizes other countries' economies, with US monetary policy often playing a defining role.
