The coalition poses little threat to the U.S. dollar
By Bradford Kimball ’24
Brick by brick, stone by stone, BRICS has been steadily expanding its alliance and trying to challenge the ubiquity of the U.S. Dollar. In 2023, BRICS, the alliance between the developing economies of Brazil, Russia, India, China, and South Africa, announced that it was adding six new members. Though BRICS is an emerging power in the world economy, it presents little threat to the hegemony of the U.S. dollar and American economic power.
To understand what BRICS is, it is vital to know that BRICS is a construct. The term “BRICS” was coined in 2001 by a Goldman Sachs economist to describe five emerging markets. Since then, BRICS has evolved into a loose economic alliance to encourage trade between the member states. In 2023, however, BRICS made the world news as it invited six new members to join and hosted a global summit to discuss reducing reliance on the U.S. dollar. At the summit, Vladimir Putin said that the decline of the U.S. dollar is “irreversible” and “gaining pace.”
But why does all of this talk about the dollar matter? Right now, the U.S. dollar makes up eighty percent of the world’s reserve currencies or the money that countries hold in reserve. This use of the dollar worldwide allows the U.S. to borrow money at a low cost, as other countries want to get their hands on dollars. It also means the U.S. has foreign policy leverage over other countries, as it can use “dollar diplomacy” to influence diplomatic negotiations. All of this is to say that the ubiquity of the U.S. dollar is good for America but bad for countries like China and Russia, who seek to become economic superpowers.
However, BRICS’ quest to dethrone the U.S. dollar is doomed to fail. There have been talks of creating a Euro-style currency between BRICS members (and their new additions), but this is a highly unlikely scenario. Creating a new BRICS currency would force all of the member states to give up the power of having their own local currency. It would also require the construction of new institutions to regulate this currency.
While other BRICS members propose bolstering the use of local currencies to reduce reliance on the dollar, those proposals are also going to fail. Right now, as many as 90% of global trade transactions are conducted with the dollar; de-dollarization would require BRICS countries to convince the vast majority of global merchants to switch to another currency. And without a BRICS currency, those merchants would have to switch to a smaller, local currency, like the Yuan or Rupee.
While BRICS’ expansion and rhetoric over the dollar is some cause for concern for American economic hegemony, it is mostly bark, with very little bite. From its start, BRICS has been a coalition of loosely affiliated countries trying to battle the world’s most powerful economic player. As of now, BRICS does not stand a chance.