At this point in history, the U.S. dollar is the world's primary reserve currency. It is also the most commonly used currency in the context of international trade.

The dollar features in around 90% of foreign exchange transactions, half of global trade, three-fourths of trade in the Asia-Pacific, and over 50% of foreign reserve holdings. However, a proposal by BRICS (the informal coalition of Brazil, Russia, India, China, and South Africa) seeks to change that.

Apparently, global trade has become too dependent on the U.S. dollar, and it’s high time to switch to a cryptocurrency-based payment solution that lets countries transact without worrying about the Federal Reserve.

In a recent interview with the TASS, Russia’s oldest news agency, a Kremlin aide shared plans to create an independent BRICS payment system based on digital technology and the blockchain. Such a currency would reduce dependency on the U.S. Dollar for international trade settlements, shifting power away from the West and back to … the East? The common people? Other former and aspiring world powers? That part remains to be seen, but what the Kremlin did clarify was that the payment solution would have to be cost-effective, convenient for governments, citizens, and businesses, and most importantly, politics-free.

When you talk of currency that’s accepted internationally, accessible to everyone, and free of political influence, the first thing that comes to mind would be, of course, crypto. Especially now that we’re in the middle of a bull run and Bitcoin has recently broken its previous all-time high of $69,000 from November 2021.

The question is, are BRICS member countries planning to campaign for widespread Bitcoin and altcoin adoption, or will we actually be seeing a EURO 2.0 — digital version?

‍

First of all, what is BRICS?

BRICS originally started as a coalition between Brazil, Russia, India, China, and South Africa meant to explore trade opportunities between its member nations. The group held its first summit back in 2009, and since then, it has grown into a major geopolitical organization — think the likes of NATO, OPEC, ASEAN, APEC, and the EU.

On January 1, 2024, four more members — Egypt, Ethiopia, Iran, and the United Arab Emirates — formally entered the organization, and Saudi Arabia is considering joining as well. BRICS is now gearing up to be a worthy rival to the G7 (Canada, France, Germany, Italy, Japan, United Kingdom, United States), or Japan plus the countries that typically come to mind when you talk about the West.

For context, around 30% of the world’s land area, over 40% of the global population, and 25% of the world’s GDP is concentrated within BRICS’ member nations. Currently there are around 1.6 million millionaires in the region, with the number expected to surge by 85% in the next decade. In light of China’s continued economic and military expansion, India’s rapid economic growth, and the possible entry of other globally significant economies like Saudi Arabia, analysts see great potential for BRICS countries to be counted among the largest and most influential economies in the world. This means that a significant chunk of global purchasing power stands to be affected by this new payment system.

The proposal to create an alternative payment solution is not new. Back in 2015, BRICS shared its plans to establish an alternative credit rating agency and an alternative to the global SWIFT funds transfer system. The organization successfully launched BRICS Pay, a cloud-based international payment system and mobile banking platform that uses a digital wallet for cryptocurrencies and fiat accounts.

BRICS Pay is blockchain-based, but so far it does not utilize a Central Bank Digital Currency (CBDC) or its own native cryptocurrency. Instead, it allows BRICS members to use their own national currencies to settle financial transactions without the need for the U.S. dollar, Euro, or the Western-dominated SWIFT financial system. Its reach isn’t just limited to its member countries; the UK-based Standard Chartered Bank has already included BRICS Pay in its payment services.

‍

What prompted the shift away from the dollar?

During last year’s BRICS summit, Brazil President Luiz Inacio da Silva said that establishing a common currency for trade would help member countries increase their payment options and reduce their vulnerabilities. It would also be a milestone in the path to de-dollarization, a move with the potential to shift the global center of power away from the U.S. and Western Europe.

This comes in the wake of:

1. The Federal Reserve’s aggressive interest rate hikes that affect the GDP of economies worldwide
2. China’s ongoing trade war with the United States and its continued push to establish the Yuan as a currency for cross-border trade
3. Major economic sanctions imposed on Russia ever since it invaded Ukraine
4. Russia and Iran getting cut off from SWIFT

For years, Russia and China have been in talks to develop alternative payment systems using local currencies to reduce their dependence on the West. Considering China’s deteriorating relationship with the U.S. (case in point: Trump’s response to COVID-19 and the ongoing Philippine Sea issue) and Russia’s recurring economic and military tension with the U.S. since the Cold War, it’s no surprise that these world powers are on the lookout for a way to overthrow the now-flagging grip the United States has had on the global economy since World War II.

There is only so long a political entity can stay on top of the world order, after all. The British, Spanish, German, Roman, Mongol, Ottoman, Russian, and other empires throughout history have all split apart and shrunk since their glory days. Perhaps we’re at the precipice of yet another major political power shift.

‍

What role does crypto play in this power struggle?

As a decentralized payment solution, crypto has the potential to achieve the following:

• Free trade across the world without the risk of crippling economic sanctions. We saw this play out on a small scale during the Russia-Ukraine war, where Russians and Ukrainians alike were able to send and receive funds via crypto despite losing access to banking and financial services.

• Less dependence on a single political entity. Instead of keeping tabs on how the U.S. elections might affect the Peso-Dollar rate, perhaps we’d be checking on a more globally-influenced Bitcoin-Peso rate?

• More purchasing power. Programmed to be deflationary in nature, crypto is a viable solution to the effects of high inflation, especially in developing countries. This is the main reason why El Salvador adopted Bitcoin as legal tender in 2021, although the positive benefits of this decision remain up for debate.

• More secure and accessible banking for all, regardless of nationality or socio-economic status. Imagine a future where you can be transacting with someone at the center of an international military or economic conflict and still not have to worry about the funds getting blocked because one country or group of countries decided to impose sanctions.

Depending on how it plays out, creating a cryptocurrency to rival the dollar may be either beneficial or detrimental to the value of existing currencies. Unless it ends up replacing national currencies — which isn’t in the publicly disclosed BRICS agenda anyway — such a move likely won’t be as tumultuous and pivotal as the creation of the Euro.

As for BRICS and their crypto plans, their priority right now is to expand the use of national currencies in international trade settlements, strengthen banking networks, and increase their role in global finance. So perhaps we shouldn’t be expecting any kind of blockchain-based, exclusive international digital currency to be released this year?

Stay tuned.