Monopoly is not good for society. This is the basic fundamental and to avoid this there are multiple rules and regulations on every level, from regional to national to international. But as we know for the benefit of some or you can say keep the power in hand US decided US Dollar as the base currency for international trade from 1945.

But now the global financial landscape is undergoing a seismic shift, fueled by rising concerns over the U.S. dollar’s overwhelming influence. This transformation is being spearheaded by the BRICS nations: Brazil, Russia, India, China, and South Africa. 

These countries are not only challenging the dollar’s supremacy but are actively working to create a new financial system that might redefine global trade. 

In this article, we’ll explore the BRICS’ ambitious plans to reduce reliance on the dollar and what it could mean for global economies, particularly developing nations.

Understanding BRICS’ Mission: A Push Against Dollar Dominance

Since the end of World War II, the U.S. dollar has held a central role in global finance. It became the world’s reserve currency through the Bretton Woods Agreement in 1944, making it the backbone of international trade. Nearly 75% of global central bank reserves were once held in dollars, reflecting its dominance.

However, the current scenario is changing as countries begin questioning whether this dollar-centric system is still fair and effective.

BRICS nations argue that the existing financial order benefits developed countries especially the U.S.—at the expense of emerging economies. The U.S. can print dollars to fund its deficits, while developing countries have to earn dollars through exports, take loans in dollars, or attract dollar-based investments, which often leads to economic risks.

This situation puts emerging economies in a vulnerable position during global financial crises or economic sanctions imposed by the U.S.

Introducing the BRICS Pay Card and a New Financial Architecture

The 2024 BRICS Business Forum in Russia marked a significant step in challenging the dollar’s dominance. Russia unveiled the BRICS Pay Card, a new payment system aiming to reduce dependency on the U.S. dollar for international transactions.

The BRICS Pay Card is designed to allow direct currency transactions between member nations, cutting out the need for dollar conversions.

Imagine this: instead of a Brazilian company converting its reals to dollars when importing from China, the transaction could be directly settled between reals and Chinese yuan. This would not only speed up the transaction process but also lower currency conversion fees.

As a result, countries could manage trade without the constant pressure of the dollar’s value fluctuations.

The BRICS Pay Card is just one element of a broader vision. This vision includes a multicurrency trading system that enables countries to trade using their own currencies, thereby promoting a more balanced global economy.

The plan is to establish a network of banks facilitating trade in local currencies, set up direct links between central banks, and leverage blockchain technology for enhanced transparency and security.

Why Developing Nations are Supporting the Move?

One of the main arguments for reducing dollar reliance is that it disproportionately benefits developed economies like the U.S. For decades, emerging economies have struggled with dollar-denominated debt, which can spiral out of control if the local currency depreciates against the dollar.

For example, if an African country borrows in dollars and its local currency weakens, the repayment cost becomes much higher. This creates a vicious cycle of economic instability.

By allowing countries to trade and invest in their own currencies, the BRICS initiative aims to offer more economic independence and stability. Local currency-based trade could help reduce exchange rate risks, making it easier for developing nations to manage their economies.

In essence, the BRICS model promotes a financial system that serves the interests of a broader range of countries, not just those with powerful currencies.

How BRICS Plans to Implement This New Financial System?

The core strategy revolves around creating a multi currency trading network, where transactions can be settled in national currencies without relying on the dollar. To facilitate this shift, BRICS nations are looking into several measures:

A Decentralized Banking Network: Banks in BRICS countries will work together to enable seamless cross-border transactions in local currencies.

Blockchain Integration: Blockchain technology will be used to enhance the security and transparency of transactions, making the system resilient to fraud and external pressure.

Commodity-Backed Payments: To balance trade deficits, countries could use commodities like gold, oil, or raw materials as a form of payment. This means that if a country faces a trade deficit with another nation, it could pay with physical goods instead of converting to dollars.

Central Bank Digital Currencies (CBDCs): Many BRICS nations are developing their own digital currencies, which could be integrated into the BRICS Pay system. This would allow instant, low-cost transactions between member states and even beyond.

Why Is the World Shifting Away from the Dollar?

BRICS has 5 nations in the group and currently 10 countries are part of it. As per latest announcement 30 more countries have expressed their interest to join the organisation.

But still the question is why rest of the countries will follow the BRICS and shift away from BRICS pay.

Critics of the current dollar-centric system point to its flaws, particularly during geopolitical tensions. The U.S. has often used its currency’s dominance to impose economic sanctions on other nations. 

For instance, sanctions against Iran, Venezuela, and more recently, Russia, have had widespread global effects, cutting off these countries from dollar-based financial systems. This has made many nations rethink their reliance on a single currency.

The BRICS nations argue that the world needs a fairer financial system. The introduction of BRICS Pay aims to create a decentralized, multicurrency payment network where countries are less vulnerable to the political decisions of any one nation.

In the long run, the goal is to have a more resilient global financial structure that can withstand shocks and serve the needs of a more diverse range of countries.

The Role of Central Bank Digital Currencies (CBDCs) in the BRICS Pay Strategy

Digital currencies are becoming an integral part of the BRICS strategy. Several BRICS members are already experimenting with CBDCs to create a more integrated financial system. China has been at the forefront, rolling out its digital yuan through large-scale trials. India is developing its digital rupee, while Russia is exploring a digital ruble.

These digital currencies could be the building blocks of a BRICS-wide digital currency, which would offer a genuine alternative to the dollar in international trade. Imagine a system where BRICS countries can trade seamlessly using digital currencies, without relying on banks for currency conversion.

This would not only make transactions faster and cheaper but also reduce the risks associated with exchange rate fluctuations.

Currently, India, Russia, China are experimenting with their digital currency and Brazil is also in the trial phase for their digital currency.

What Could the New Financial Order Mean for Global Trade?

The potential shift away from the dollar could have far-reaching impacts:

Diversification of Reserves: Central banks worldwide might start diversifying their reserves, holding a mix of currencies rather than primarily U.S. dollars. This could make the global economy more stable by reducing the risk of a crisis in one currency destabilizing the entire system.

Increased Trade Among Developing Countries: A multicurrency system could encourage more direct trade between developing countries, boosting their economic growth. It could help reshape global supply chains by enabling countries to bypass the dollar in transactions.

Economic Sovereignty: With less reliance on the dollar, countries could gain more control over their economic policies. For developing nations, this means greater flexibility in managing their economies without the constraints imposed by dollar-denominated debt.

Reduced Sanction Power: A diversified financial system could diminish the U.S.’s ability to impose economic sanctions, as countries could trade without depending on the dollar. This would give countries more sovereignty and reduce the influence of Western financial institutions.

The Challenges BRICS Pay Faces in Building a New System

While the idea of a decentralized financial order sounds promising, it is not without hurdles:

Technical Challenges: Implementing a multicurrency system across 10 diverse economies with different financial regulations is complex. Integrating various banking systems and technologies requires significant collaboration and innovation.

Regulatory Barriers: Each BRICS country has its own financial regulations. Aligning these rules to create a common system will be challenging, especially when ensuring compliance with international standards like anti-money laundering measures.

Trust and Stability: The U.S. dollar has been a trusted global currency for decades. Convincing countries and businesses to adopt a new, untested system will require time and demonstrated stability.

Geopolitical Tensions: Relations between BRICS nations aren’t always smooth. Conflicts, like the recent border tensions between India and China, could potentially derail cooperation in building a shared financial system.

Resistance from Existing Institutions: Western banks and financial institutions, which benefit from the current dollar-dominated system, are unlikely to embrace these changes. They may try to create obstacles or lobby against the adoption of BRICS-based financial systems.

Conclusion: A Multi-Currency World in the Making?

The efforts by BRICS to establish a new financial architecture represent a significant step towards a more multipolar financial world. While the U.S. dollar will likely remain a dominant force for the foreseeable future, the rise of alternative systems like BRICS Pay could gradually level the playing field.

The concept of a multicurrency global economy—where the dollar, euro, yuan, and other currencies coexist as reserve currencies—might lead to a more resilient global financial system.

While this transition is not a zero-sum game, it could lead to a more stable economy, particularly benefiting developing countries. As BRICS continues to develop its financial systems and digital currencies, it will be fascinating to see how these initiatives reshape global trade patterns, economic policies, and financial power dynamics.

In the years to come, we could be looking at a world where financial power is more evenly distributed—a world where the U.S. dollar is no longer the sole player but one of many significant currencies in a diverse and interconnected global economy.