Brics expansion could hasten move away from dollar

August 29, 2023

The addition of six new countries to the Brics bloc – including some of the world’s largest oil exporters – is likely to expedite the decline in the US dollar’s prominence in global trade, according to a Dubai financial analyst.

Saudi Arabia, the UAE, Egypt, Iran, Argentina and Ethiopia have all been accepted as members from 2024.

While a base currency for the new, larger, group is not a “feasible solution” Vijay Valecha, chief investment officer at Century Financial, said a gold-backed currency could act as a potential challenger to the US greenback.

“The most logical thing would be for it to be a gold-backed currency. As the precious metal is in fixed supply, it could regulate the currency,” he said.

“It’s still a very challenging task because these are huge countries with very big populations,” Valecha said.

“So far we are only talking about a petrodollar. But a shift away from dollar will mean that all other trades will also happen in other currencies,” he said, noting that the GCC and Asia have tried, and failed, to create base currencies in the past.

Brics nations have also been discussing using digital sovereign currencies that will enable them to exchange financial data and transactions without having to go through the global Swift transactional system.

China’s Cross-border Interbank Payment Systems (Cips) offers clearing and settlement services for cross-border yuan transactions. In 2022, Cips processed 96.7 trillion yuan worth of transactions, a 21.5 percent increase year on year, according to the Chinese central bank.

Emerging economies have been quick in mobilising digital payments, with examples including India’s Unified Payment Interface (UPI), Brazil’s Pix and Africa’s M-Pesa.

“I believe a blockchain-based digital currency is coming from each country,” Valecha said. He said the UAE is one of the frontrunners, with its creation of The Digital Dirham.

“Digital currencies make the supply and control of money easier, as not only can you transfer it fast, but you can trace it to infinity. That makes a huge difference, especially when it comes to reducing corruption,” he added.

Watch the full video to understand how the shift away from dollars has already begun