Brics' post-dollar system relies on political trust - but is that possible?

From left, South African President Cyril Ramaphosa, Brazilian President Luiz Inacio Lula da Silva, Indian Prime Minister Narendra Modi, Chinese Premier Li Qiang, and Russian Foreign Minister Sergey Lavrov. BloombergShow less

The Brics emerging markets are once again touting their ambition to build a world less dependent on the US dollar. Leading the latest push is a new guarantee fund, to curb investment risk and support financing in the bloc, something discussed at last week’s Brics summit in Rio de Janeiro.

If formally launched, it will join Brics Pay, the alternative payments system proposed in 2018, to facilitate payments across the bloc in local currencies, and the New Development Bank, launched in 2015 to fund infrastructure and development projects.

At first glance, this all might look like the early scaffolding of a new financial order. But closer inspection shows something less dramatic: not the end of dollar dominance, but an attempt to escape its most painful consequences.

The motivation is clear. The dollar is not just the world’s reserve currency. It is also a powerful lever of US foreign policy. Russia’s partial exclusion from the Swift global payments network in early 2022, over its invasion of Ukraine, severely curtailed its access to global trade and finance. Russian banks lost nearly $25 billion in the first half of 2022 alone. Iran faced similar treatment in 2018 and 2012.

Markets lifted by hopes of trade deals with the US

01:49

China’s central bank governor Pan Gongsheng recently warned that any currency dominated by a single country is vulnerable to being “weaponised” during geopolitical conflicts. So the Brics’ pitch is not just about moving away from the dollar. It is about building a system the West cannot turn off at will.

However, the most eye-catching idea – creating a common Brics currency – is a non-starter. A joint currency implies a level of political trust and economic co-ordination that does not exist in this bloc. Even within the eurozone, managing a single currency across divergent economies has proven difficult.

Now imagine doing that across Brics, a group with far deeper divisions. It brings together authoritarian states like China and Russia with democracies like Brazil and India, whose political systems and policy priorities often diverge sharply.

Even China, the bloc’s most powerful member and world’s second largest economy, has shown little public enthusiasm for a shared Brics currency. Its focus has been on expanding use of the renminbi, as part of its broader push for a “multipolar” currency system. 

The more serious effort – and the more plausible one – is payments infrastructure. Here, the Brics nations are making headway. Swift is overseen by the central banks of the G10 countries, along with the European Central Bank. Nations under sanctions can be excluded from it. That makes it a red flag for China and others who worry they could be next.

Brics Pay is an attempt to address that. Instead of clearing payments through western banks, member countries can transact directly with each other in local currencies. This does not replace the dollar outright. But it does create space for more bilateral trade that avoids it. And that has real consequences.

When two foreign companies with different currencies trade in US dollars, both take on currency risk, since neither is using its own currency. To manage that risk, companies often hedge through local banks, which in turn require access to dollar liquidity. That creates sustained demand for US dollars, prompting central banks to hold large dollar reserves to support their financial systems.

But if Brics economies conduct more trade in local currencies – say, rupees for Indian goods or renminbi for Chinese exports – only one side typically bears the currency risk. This reduces the need for hedging in dollars and, over time, can lower the pressure on central banks to maintain such large greenback reserves.

This shift is already under way at the margins. China has steadily reduced its holdings of US Treasury bonds and is actively encouraging trade partners to settle transactions in renminbi. Some sovereign wealth funds in the global south are beginning to explore non-dollar assets. Egypt, for example, has issued “panda bonds” denominated in Chinese renminbi as part of its broader diversification strategy. The changes are incremental, but they add up.

What the Brics offer is not a replacement of the dollar but an escape hatch, particularly for members that fear being locked out of global finance. And with the return of US President Donald Trump and his erratic policymaking, that fear is growing.

Mr Trump recently passed a tax-and-spending package expected to push public debt beyond $3 trillion over the long term, undermining confidence in America’s fiscal stewardship. At the same time, the dollar has had its weakest start to a year since 1973, falling more than 10 per cent against a basket of major currencies, a slide driven in part by Mr Trump’s trade and fiscal agenda.

In contrast, trade among global south nations has expanded sharply over the past two decades, rising from $2.3 trillion in 2007 to $5.6 trillion in 2023. This long-term growth has laid the groundwork for more local currency trade and a gradual move away from dollar dependence. While momentum has slowed in early 2025, the structural shift remains intact.

Still, challenges remain. Trust among members is limited. The financial muscle of Brics institutions is modest. Beyond payments infrastructure, there is little evidence of serious integration. Without a common legal framework, shared monetary policy, or deep capital markets, the group will struggle to rival the dollar on core metrics like liquidity, convertibility and investor confidence.

So what is realistic?

Expect progress on alternative payments. Brics Pay and similar platforms will likely grow in use, especially for trade between members. The New Development Bank may increase regional lending, especially for infrastructure and green projects, areas where China is already investing heavily.

But the dream of a unified Brics currency is exactly that: a dream. Economically unworkable, politically divisive, and lacking the institutional foundations it would require.

For now, the dollar is not going anywhere. But in a world where finance can be weaponised, the incentive to look for options will only grow.