With inflation data from the United States and Europe up sharply over the past month, Russia and members of the BRICS nations have revealed that the leaders of the five major emerging economies are in the midst of “creating an international reserve currency.” Analysts believe the BRICS reserve currency is intended to compete with the U.S. dollar and the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) currency.
Vladimir Putin reveals creation of new international reserve currency at 14th BRICS summit–Turkey, Egypt, Saudi Arabia Consider Joining BRICS
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Over the past month, the West has been plagued by red-hot inflation and soaring energy prices. Politicians in the UK, Europe, and the US have tried to blame economic calamities for many things like the war between Ukraine and Russia and Covid-19.
Last month’s data on consumer prices in the U.S. andEuroperose to all-time highs, with many analysts saying the West is in recession or about to experience one. Meanwhile, members of the BRICS nations gathered at the end of June for the 14th BRICS Summit to discuss global affairs.
At the BRICS summit, Russian President Vladimir Putinannouncedthat the five economies of Brazil, Russia, India, China, and South Africa plan to issue a “new global reserve currency.”
Putin said at the time that “the matter of creating an international reserve currency based on a basket of our countries’ currencies is under consideration,”at which timeHe added, “We are ready to cooperate openly with all fair partners.” In addition, Turkey, Egypt, and Saudi Arabia are consideringjoining the BRICS group. Analysts believe that the BRICS’ move to create a reserve currency is an attempt to undermine the U.S. dollar and the IMF’s SDR.
Chris Turner, head of global markets at ING,explained at the end of June that “this is a move to address the IMF’s US hegemony”. It will allow the BRICS to build their own sphere of influence and a monetary unit within that sphere.”
While the news of the BRICS creating a reserve currency may come as a surprise, specific accounts of member countries competing against the U.S. dollar have been in the press for quite some time: in late May 2022, a Global Times report urged members to end their dependence on the dollar’s global dominance. It was noted that.
Russian business relations and BRICS countries intensified– Chinese President Xi Jinping said that countries that “cling to a position of strength” and “pursue their own security at the expense of others” will fall
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President Putinexplained the following month that “contacts between the Russian business community and the business communities of the BRICS countries have been strengthened”. The Russian president further noted that Indian retail chains would be hosted in Russia and that Chinese automobiles and hardware would be imported regularly. Putin’s remarks and comments at the recent BRICS summit have led people to believe that the BRICS members are “not just ‘talking’ anymore.”
In addition to South Africa, Russia has increasedforeign aidand delivered weapons to sub-Saharan African countries. Moreover, Putin and other BRICS leaders have targeted U.S. hegemony and exceptionalism in specific statements released in the media.
At this year’s St. Petersburg International Economic Forum, Putin gave a 70-minute speech in which he spoke about the U.S.’s longstanding domination of the global financial system.” Nothing lasts forever,” Putinsaid. ‘The Americans think they are special. And if they think they are special, then everyone else is second class,” the Russian president told the forum attendees.
Speaking to Russian ambassadors in his biennial address, he said the West has been greatly weakened in terms of economic strength. Putinremarkedto the ambassadors that “domestic socioeconomic problems that have worsened in the developed world as a result of the [economic] crisis have weakened the dominant role of the so-called historic West.” Be ready for any developments, even the most unfavorable ones.”
Russia and Putin have said that U.S. dominance in the financial world has been dying for years now.Speaking at the Valdai Forum in October 2018, Putin said said that U.S. sanctions against certain countries (including Russia) would undermine confidence in the U.S. dollar.
The Russian president noted that most of the fallen empires have made the same mistake.” “It is a typical mistake of empires,” the Russian leader declared at the timeHe added: “The empire always thinks that a few mistakes and extra costs can be forgiven. Because its power is so strong that they mean nothing. But the amount of its costs and mistakes is inevitably greater.” Putin continued.
And there will come a moment when we will not be able to handle them, neither in the sphere of security nor in the sphere of economy.
Further in June, Bloomberg ran a report on the BRICS summit, noting that Chinese President Xi Jinping hadsuggestedthat NATO was responsible for antagonizing the Russian Federation. Xi also said that certain countries that reinforce exceptionalism will stall because they suffer from security vulnerabilities.
“Taking advantage of our dominant position in the global financial system to politicize, instrumentalize, and weaponize the global economy and blindly impose sanctions will not only hurt ourselves but also hurt others and cause suffering for people around the world,” Xi elaborated.” Those who cling to a position of strength, expand military alliances, and seek their own security at the expense of others will only find themselves in a security quandary.”
The financial world is split in half. Alternative settlement rails, gold stockpiles, and the clash between the strong dollar and the ruble
The strengthening of the BRICS countries has been underway long before the Ukrainian conflict began. For example, in 2014 Russia developed a “financial message transfer system” (SPFS) and laterlaunched the Mirsettlement system. That same year, following the annexation of Crimea, Russia began stockpiling vast amounts of gold.
China also amassedlarge amounts of goldas both countries greatly increased their purchases of gold reserves in the pre-war years. Russian banks also joined the China International Payment System (CIPS), making trade between the two countries easier. According to a Reuters reportlast April, China opened its borders to billions of dollars of gold imports
Since World War I, the U.S. dollar has been the world’s reserve currency and the United States has emerged as the largest international creditor. Fast forward to today, the dollar is booming against many other currencies, and the U.S. dollar is the strongest of all generations.125} The U.S. Dollar Currency Index (DXY) has gained over 10% this year, outperforming stronger currencies like the Japanese yen.
The euro also recently achieved parity with the dollar, and other currencies such as the Indian rupee, Polish zloty, Colombian peso, and South African rand have recently stalled against the dollar. However, the Russian ruble has become a strong competitor to the dollar this year and is one of the strongest performing fiat currencies in 2022.
With inflation soaring and interest rates being raised by the Federal Reserve, Kamaksha Trivedi, co-head of Goldman Sachs’ market research group, stressed that it was a “pretty tough combination.” Despite the uncertainty, Goldman Sachs analysts believe the dollar will hold firm, at least for now. But compared to the greenback’s recent surge, most of its gains are in the past, Trivediremarked
because, as Trivedi wrote on July 16, “For now, we still expect the dollar to trade in front.” There may be a little more ahead, but perhaps the bulk of the dollar’s movement may be on the back foot.”
What do you think about the BRICS countries creating a new international reserve currency to rival the US dollar and IMF SDRs? Let us know what you think about this topic in the comments section below.
Image Credits: Shutterstock, Pixabay, Wiki Commons, World Gold Council, Econfact.org, 14th BRICS Summit,
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