Putin’s Push for a Unified BRICS Currency Imminent Challenge to the U.S. Dollar

President Vladimir Putin recently sparked interest with Russia’s push to challenge the U.S. dollar, especially after he was photographed holding what seemed to be a banknote for BRICS currency nations. The Kremlin later clarified that the note, featuring the flags of countries led by Russia and China, was merely symbolic of their partnership. Despite this, many economists argue that a unified currency among these nations is still in its infancy and unworkable.

Trump’s Strong Stance on the Dollar

Despite this, President-elect Donald Trump appears to take the potential threat to the U.S. dollar seriously. Over the weekend, he posted on social media that he would impose 100% tariffs on BRICS nations—Brazil, Russia, India, China, and South Africa—if they establish their own currency or attempt to replace the U.S. dollar as the primary global trade currency. His post emphasized America’s rivals’ efforts to reduce their reliance on the U.S.-dominated global financial system.

The Dollar’s Global Power and Sanctions Leverage

Brad Setser, a former U.S. Treasury official, noted that while a BRICS currency may not materialize, Trump’s volatile actions could motivate countries to seek alternatives to the dollar. The dollar’s global importance gives the U.S. significant leverage, enabling it to freeze assets, restrict transactions, and impose penalties through sanctions, a weapon of growing concern in Washington.

Shifting Reserves and Geopolitical Friendshoring

Interest in alternative currencies is rising, as countries diversify their reserves away from the dollar into gold and other currencies. Dmitry Dolgin, an economist at ING, called this trend “geopolitical friendshoring” driven by the risk of sanctions. Countries now recognize that the dollar can be weaponized, adding to the search for alternatives.

BRICS Expansion and Internal Divisions

The BRICS group expanded this year to include Egypt, Ethiopia, Iran, and the UAE, representing 26% of global GDP. These countries also account for over 40% of the world’s population. However, internal divisions complicate the idea of a unified currency. Brazil and India hesitate to challenge the West due to their political and economic ties.

This Is What the Global Electric Vehicle Market Will Look Like

The global electric vehicle (EV) market has undergone a remarkable transformation in recent years, driven by advancements in technology…

Challenges to a Unified BRICS Currency

A unified BRICS currency faces numerous practical hurdles, such as aligning on issues like currency values and capital controls. Countries like Russia, China, and India have different financial restrictions, making cooperation difficult. Creating a currency to rival the U.S. dollar is no small task, as noted by French Finance Minister Valéry Giscard d’Estaing, who remarked on the “exorbitant privilege” the dollar holds.

The Dollar’s Continued Dominance

Eswar Prasad, a professor at Cornell University, emphasized that the U.S. dollar remains the most liquid currency globally. Despite suggestions that the dollar might lose dominance, it is backed by the strength of the U.S. economy. The dollar represents 58% of global central bank reserves, while the yuan only accounts for 2%. Despite China’s efforts to elevate the yuan, financial restrictions have hindered its broader adoption in global markets.

The Euro’s Declining Relevance

The euro, once considered a potential challenger to the dollar, is losing relevance due to political challenges. The European Union’s ongoing economic struggles contribute to the euro’s diminishing influence in global markets. Meanwhile, the global role of the dollar remains steadfast in the face of rising tensions within the BRICS group. Broader geopolitical dynamics further cement the dollar’s dominance, despite challenges from alternative currencies.

BRICS and the Sanction Impact

At the BRICS forum in Kazan, Russia, in October, Putin was photographed with the proposed BRICS banknote. The official summit website advised delegates to bring U.S. dollars, as Visa and MasterCard wouldn’t work. This was due to Western sanctions imposed on Moscow for its invasion of Ukraine. The incident highlights the ongoing power of the U.S. dollar in global trade. It underscores the resilience of the dollar despite efforts to create alternatives in the global economy.