In South Africa, the BRICS are preparing to shake the world of finance

Ahead of the BRICS summit, which will take place from August 22 to 24 in South Africa, the organization announces that it should soon launch its single currency.

This is one of the pre-summit announcements that could have a real impact. While the club, for the moment very closed, of the BRICS meets in Johannesburg in South Africa from August 22 to 24, it is expected that the creation of a common currency will be announced during this appointment which will bring together delegations from South Africa, India, Brazil, Russia and China. And if this may seem trivial, it is far from it. Especially since this common currency could be quickly put in place, if we are to believe sources close to the BRICS.

An important announcement because this currency, if it sees the light of day, should be backed by gold. What undermine the "dollarization" of the global financial sector. And when we know that the countries belonging to the BRICS alone represent 25% of the world's GDP, with an economy stronger than that of the G7 countries, there is reason to fear the worst for the United States. and for Europe. Especially since several countries would like to join the organization.

Towards a “de-dollarization” of trade?

The future currency of the BRICS could have little impact if the member countries of the organization were not exporters of energy or raw materials. An important criterion that could consolidate this new monetary bloc. The other important criterion is the notion of block, precisely. Only China, with the yuan, weighs too little on the global economy, marked by assets in global foreign exchange reserves monopolized by the dollar (60%) and the euro (20%). However, a common currency could change the game.

Could this mean the end of the dollar as the benchmark reserve currency? Probably. But it will take time. In reality, the “de-dollarization” of finance has already experienced some upheavals. In 2018, for the first time in history, an oil contract was concluded in Chinese yuan. Saudi Arabia in the lead, but also Malaysia, are trying to move away from the American currency. Beyond these first historic transactions, the share of the US dollar in central bank reserves has fallen by 10% overall in recent years.

But before the dollar completely collapses, it will take time. Because the United States are, for the moment, lucky to have, facing them, countries indebted in dollars. Even China had, at the time of the creation of the New Silk Road, borrowed in American currency. While Washington's influence has declined, the United States still has a strong economy and remains the world's largest oil producer. What to make sure to still favor the dollar, as long as American oil will flow afloat.

The bond system turned upside down?

Still, finance is a sometimes surprising science. Which depends in particular on the global geopolitical situation. More than a desire to bring down the dollar, the new common currency of the BRICS should at least make it possible to decentralize global finance. A healthy competition, according to William Gerlach, Country manager at iBanFirst, who recalls that “the United States as an economy also suffers from an overly powerful dollar”. This competition would therefore be, he writes, “admittedly bad for the United States as an 'empire' but beneficial for the country and its companies”.

Other economists are more pessimistic. They see in the creation of the BRICS single currency, as at the time of the launch of cryptocurrencies, risks of monetary instability. The future currency could indeed upset the global bond system. It is necessary, affirms Tom Benoît, editorial director of Geostrategy Magazine, “to expect that this new currency will contribute to transposing into the bond chessboard the countries which lend and those which issue debt”. In other words, when the BRICS currency is launched, Western investors could buy government bonds from member countries of the organization.