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Digital currencies
OpinionComment
Oriol Caudevilla
Oriol Caudevilla

Opinion | Brics has a better way to de-dollarise than creating a single currency

  • Despite hopeful talk of a Brics currency, the time is not yet ripe for such a move
  • It is more feasible for each state to launch a central bank digital currency and work towards interoperability. Here Hong Kong is in a key position to leverage its expertise

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Illustration: Craig Stephens
Oriol Caudevilla
Brazil’s call for a common Brics currency at the Johannesburg summit last month has reignited the debate over de-dollarisation. In recent years, more countries have moved towards carrying out trade in currencies other than the US dollar.
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This is not new. The dollar’s supremacy has been increasingly questioned – from Latin American states like Brazil to Southeast Asian nations – since the 2008 global financial crisis. But the trend needs to be put into perspective: the dollar remains dominant in global foreign exchange reserves, accounting for 59 per cent in the first quarter of the year, according to the latest data from the International Monetary Fund.

De-dollarisation is the process of reducing reliance on the dollar as a reserve currency, a medium of exchange or a unit of account in the global economy. Aside from the enormous implications this has for global financial markets and international trade, given the dominance of the United States in the global economic system, it also has important political implications.

Some countries seek to de-dollarise to diversify their central bank reserves – that is, by reducing their reliance on the dollar, they could in theory manage more efficiently their currency risks and maintain greater control over their monetary policy. Yet others may have political motivations; for instance, by diminishing the dollar’s influence on their economies, they can reduce their dependence on US policies.

Earlier this year, Brazilian President Luiz Inacio Lula da Silva questioned “why all countries have to base their trade on the dollar”. At the Brics summit in Johannesburg last month, Lula again called for the creation of a common currency for trade and investment between members of the bloc – Brazil, Russia, India, China and South Africa – as a means of reducing their vulnerability to dollar exchange rate fluctuations.
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While Lula did not specify what this common currency might be or how it might come about, most expert agree the options would include a basket of currencies from Brics countries, using gold as a peg for a new potential currency, or digital currencies, be it cryptocurrency (such as a stablecoin) or, even, a common central bank digital currency.
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