Brazil, Russia, India, China, and South Africa—the so-called BRICS bloc—have invited six other nations to join. South African President Cyril Ramaphosa announced the offer at the bloc’s annual summit in Johannesburg to Saudi Arabia, the United Arab Emirates, Iran, Egypt, Ethiopia, and Argentina to join. Most will likely accept. According to Egyptian President Abdel Fattah el-Sisi, the enlarged bloc will “raise the voice of the global south.”
The announcement hardly caused ripples of interest in the media. The BRICS bloc after all has done little of international significance over the years. What did gather attention was the simultaneous proposal from Brazilian President Luiz Inácio Lula da Silva for the enlarged group to issue common currency. This prospect renewed recurring speculation that the U.S. dollar will soon lose its status as the world’s main medium of international exchange and the premier reserve currency. In just the past year or so, such speculation has whirled around China’s yuan as a replacement for the dollar. The reaction is understandable, but for all the interest, neither the yuan nor a new BRICS unit will dethrone the dollar anytime soon, if ever.
President Lula has tried to challenge the dollar before this. He has pressed the Mercosur bloc of South American countries to establish a common currency and trade in it instead of in dollars. In neither that case nor the BRICS one—especially the BRICS one—is he likely to make much headway. Certainly, Mr. Lula cannot arrange both common currencies at once except in the highly unlikely event that the members of the Mercosur and BRICS bloc agree to form around a single currency.
Even if the BRICS bloc surprised and settled on a common currency, the new unit would have little chance of supplanting the dollar in its global role. Such an arrangement might deny the dollar a role in trade among the BRICS membership, but even then, any member with an interest in trading outside the bloc—which is all of them—would have to deal in dollars. In time, perhaps, as the economic and financial power of the BRICS bloc grows, its common currency could command attention outside its circle. The International Monetary Fund (IMF) might even give the BRICS unit a role in its officially recognized basket of reserve currencies, as it has granted China’s yuan such recognition. But even then, the new unit to gain traction would need to turn long-standing trade custom that gives the dollar dominance in some 90 percent of international trading whether an American is involved or not.
Another important aspect of the matter would defend the dollar—from a challenge by a BRICS unit or the yuan. The dollar gains huge support from America’s broad and deep financial markets. Because importers and exporters, as well as their financial backers, must maintain large holdings of any currency serving as a global medium of exchange, such a currency must offer them a wide range of financial vehicles for those holdings as well as facilities to move into and out of that currency quickly and easily. Financial markets in the United States do that for the dollar. None of the existing or prospective members of the BRICS bloc can offer anything close, and some, such as China, exercise considerable control over financial flows.
For some time now, political figures and journalists have speculated about what will dethrone the dollar. When the euro was created late in the last century, it became the subject of such speculation. When in the 1980s and 1990s Japan seemed an unbeatable economic machine, its yen received this kind of attention. More recently, China’s spectacular economic rise has brought its yuan to the fore. And the speculation is understandable. The United States has lost a lot of the relative economic power and stability that helped the dollar establish its global role decades ago. But for all the dollar’s lost glory, it remains the only currency with the economic reach and financial support to serve in this role. Someday, something will come along to dethrone the dollar from its global status, but not anytime soon—and certainly not an improbable BRICS unit.
