Leaders in all of the BRICS countries have chafed at the dollar’s international dominance at one time or another…
At the 2023 summit of the leaders of the BRICS (Brazil, Russia, India, China, and South Africa), Brazil’s President Luiz Anacio Lula de Silva broached the idea of a common BRICS currency to reduce the influence the US dollar plays in the international trading and financial life of the bloc. President Vladimir Putin was even handed a prospective BRICS banknote. Nevertheless, Lula’s proposal met with a cool response from the other BRICS leaders and later received a vociferous rejection from President-elect Donald Trump who threatened 100% tariffs on BRICS members if they pursued an alternative to the dollar. Ultimately a common BRICS currency would run aground on the same shoals that animate the BRICS frustration with the dollar–national autonomy and sovereignty.
The other BRICS members share Lula’s skepticism and even hostility to a dollar-centric system. Leaders in all of the BRICS countries have chafed at the dollar’s international dominance at one time or another, and Lula and other Brazilian leaders have shown a steady interest in a single currency in different guises, such as a single unit of account, with Argentina or for MERCOSUR. The basis for their concerns is the predominant role of the US dollar in the world economy. In 2022, the dollar was the overwhelming preferred currency counterparty for South Africa (88%), China (94%), Brazil (95%) and India (97%). Weaning themselves from the dollar for international transactions might be difficult, but de-dollarization is an ambition of all BRICS members. It is worth exploring what long-term challenges might confront the successful launch of the so-called “R-5”—named after the five currencies of the BRICS members, the Real, Ruble, Rupee, Renminbi, and Rand—as a common currency as an alternative to the dollar. A comparison of this proposal with the earlier creation of the euro illustrates the complex interactions among national security and economic policy.
International monetary cooperation and integration often has a geopolitical impetus that coincides with economic considerations. The European Economic and Monetary Union (EMU) received a major boost at the end of the Cold War when European countries sought to embed a reunited Germany into European political and economic institutions. Creating a common European currency, the euro, that was collectively managed avoided the risk of German economic domination via the deutschmark. However, obtaining German acquiescence to such an arrangement came at the cost of other EU states accepting Germany’s institutional and economic priorities for central bank autonomy and currency stability. At the same time, the long-term success of the euro was contingent on fulfilling underlying monetary realities that are absent in the case of the BRICS.
Contrary to the primary objective of de-dollarization for the BRICS, Europeans saw the benefits of monetary union as exchange rate stability, economic efficiency and growth, price stability, consolidated public finances, ability to adjust more easily to economic shocks, and a modest benefit of having a major international currency. Because the BRICS economies lack a similar shared intent, phase of development and economic similarity, political coherence, and structural balance among members, their economic and interests in a common currency are ultimately misaligned.
The model for most proposals for a common multi-national currency is the European Union’s successful introduction of the euro in twenty of its member states. Since its launch in 1999, the euro has achieved international stature second only to the dollar as a unit of account, means of payment, and store of value. 49% percent of Euro-area exports were denominated in euros in 2022, 42% of euro-area imports were similarly invoice, and 21% of international central bank reserves are in euros. In contrast, dollar-denominated invoices comprised 32% of euro-area exports and 50% of the euro bloc’s imports; 60% of international central bank reserves consist of dollar.
Even with a more broad-based rationale for its existence, the decade-long road to monetary union in Europe provides an outline of issues that should concern the BRICS members if they were to seriously pursue creating the R-5. The concept of an “Optimal Currency Area” underpinned the creation of the euro. It held that political entities like states find utility in having their own individual currencies so as to adjust to domestic economic divergences from the rest of the world through their exchange rates rather than having the full burden of adjustment fall on employment, wage reduction, and prices. In the absence of strong political institutions capable of fiscal redistribution, to be good candidates for a common currency with a common monetary policy, countries would need to be similarly affected by economic shocks.
Since the inception of the acronym BRICs as a clever phrase for Golman Sachs to encourage investment in emerging economies and encourage reform of international economic institutions, the then four BRIC countries were seen as similar—large emerging market economies with growth rates exceeding that of the established G-7 economies. Unfortunately for President Lula’s ambitions, this initial impression of the BRICs has proved to be a mirage as the current BRICS (South Africa was added for a capital ‘S’ in 2010) are quite diverse across most relevant measures—be it economic structure, income levels, trade levels, demographic structure, institutional structure, as well as political culture and foreign policy. Combined with their disparate economic weight, these differences create potential political conflicts between the putative R-5 participants that could prove fatal to surrendering national autonomy over monetary policy.
A single currency requires a single interest rate and the interest rates necessary to maintain existing price levels in the BRICS are radically different and headed in different directions
South Africa and Russia, and to a lesser extent Brazil, are commodity dependent economies while China and India and major importers of raw materials. Increases in raw material and energy prices will lead to surges in export revenue for Russia and South Africa while increasing the costs of imports and industrial costs in China, Brazil, and India. Likewise, rates of economic growth across the BRICS are not in synch. While South Africa’s economy has barely grown in the last decade (1.5% in 2024), Russia is largely isolated from western international markets with low growth (1.3%), Brazil has had more modest growth (2.2%), and both China (4.5%) and India (6.5%) have experienced robust expansion. Sluggish economies require lower interest rates while fast-growing economies need higher interest rates to deter inflation.
A single currency requires a single interest rate and the interest rates necessary to maintain existing price levels in the BRICS are radically different and headed in different directions: China (3.10% and dropping) and Russia (21% and rising) are at the extremes but even India (6.5% and headed higher), South Africa (7.75% and dropping) and Brazil (12.25% and rising) are far apart. All the BRICS members have wide disparities of incomes domestically and with each other—the contrasting economic and political interests between vibrant, wealthy metropoles (Shanghai, Moscow, Johannesburg, Bangalore, and Sao Paulo) and isolated, impoverished areas (Qinghai, Dagestan, Soweto, Bihar, and the Amazon) make running a common monetary policy a challenge domestically even with the institutions for redistribution available to their national governments.
These differences exacerbate the resolution of a major issue confronting the R-5—the unequal economic weight of the members and the political consequences of that disparity. In terms of their shares of the BRICS’s populations, India (44%) and China (43%) are evenly balanced while outpacing the three less populous members: Brazil (7%) Russia (4%), South Africa (2%). However, China produces 70% of BRICs economic output with India trailing at 13%, followed by Russia at 9%, Brazil at 7%, and South Africa at 2%. The imbalance in BRICs participation in world trade almost exactly maps their share of GDP. In contrast, as the European Union was moving towards Economic and Monetary Union in 2001, the largest economy, Germany, had 27% of the future eurozone’s population in 2001 and 31% of its economic output, and 30% of its merchandise trade. France and Italy each had approximately 20% of the eurozone’s population and France accounted for 22% of the eurozone’s GDP and Italy 18%. France had 17% of the eurozone’s merchandise trade, Italy 13%, and the Netherlands 12%. While being the leading economy in Europe, Germany was far from holding a dominant position over the other 11 eurozone members. Even so, other Europeans were wary that German economic dominance would mean that European monetary union would be, in the words of a Germanophobic British cabinet minister, “all a German racket designed to take over the whole of Europe”.
China’s relative economic dominant position within the BRICS vastly exceeds Germany’s relative position in the EU in the 1990s and is starting to translate into political influence within BRICS institutions. While the BRICS New Development Bank (NDB) has equal votes for each member, China has a 40% share of the voting rights in the BRICS $100 billion Contingent Reserve Arrangement (CRA) . The Brazilian and Indian populations all have a net negative view of China with majorities feeling that Chinese foreign policy does not take account interests of countries like theirs; even South Africa, whose citizens maintain a net positive image of China, has seen a stark increase in negative attitudes towards China in the past decade. If the R-5 had CRA-style weighted decision-making rules, the other members might consider shackling themselves to a Chinese-dominated monetary policy no improvement over their current frustration with the US-dominated international financial system. In many ways it might be worse, rather than being buffeted by the swing in the dollar, they would be tied directly to the needs of the Chinese economy rather than their own domestic considerations. If a BRICS central bank followed the equal vote share rules of the European Central Bank and the NDB, it would likely come up with monetary policies that were divergent from the needs of its largest economic member, China.
Geopolitics can also undermine the degree of political cooperation and trust necessary to manage a single currency. It was over 50 years after the two largest members of the eurozone, France and Germany, engaged in hostilities when the euro was launched. In contrast, two BRICS members— India and China—have had their most recent conflicts with each other as recently as 2022. Russia’s war with Ukraine has led to the isolation of the Russian economy from international financial markets. While a common currency with major partners such as the other BRICS would mitigate that isolation, it would also create its own tensions as Russia now requires high interest rates to sustain the value of the ruble, a concern that would clash with the Chinese desire for lower interest rates to reignite growth. The root of the BRICS frustration with the dollar is the loss of domestic autonomy over economic policy. While they can agree that a dollar-centric system is frustrating, the individual monetary outcomes they prefer differ depending on their economic structure and point in the economic cycle. The R-5 would put each member in political conflict with the other members over their preferred policy for interest rates, inflation, and exchange rate stability. The outcome of those struggles would neither improve their situation nor increase their autonomy. Indeed, a common BRICS currency would have precisely the opposite result. Since it cannot deliver on these political and economic objectives it is ultimately a non-starter.
Mark Duckenfield is the Dwight D. Eisenhower Chair of National Security and a Professor of International Economics in the Department of National Security and Strategy at the U.S. Army War College. Prior to joining the USAWC, he taught at the Air War College, the London School of Economics, and University College London. He holds an MA and Ph.D. in political science from Harvard University. He has held research appointments at the Max Planck Institute (Cologne) and Birkbeck College. His is the author of Business and the Euro and editor or The History of Financial Disasters, 1763-1995.
The views expressed in this article are those of the author and do not necessarily reflect those of the U.S. Army War College, the U.S. Army, or the Department of Defense.
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