Source: The post BRICS Plus seeks alternatives to US dollar has been created, based on the article “Brics payments system: A real threat to dollar?” published in “Business Standard” on 30th January 2025
UPSC Syllabus Topic: GS Paper2- International Relations-Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.
Context: The article discusses BRICS+ efforts to reduce reliance on the US dollar by using local currencies for trade. It highlights challenges like economic diversity, regulatory issues, and US resistance. It emphasizes BRICS+ developing digital payment systems to strengthen financial independence and trade.
For detailed information on India should quit the Brics read this article here
What is BRICS+ and Its Expansion?
- BRICS+ is a group of emerging economies originally consisting of Brazil, Russia, India, China, and South Africa.
- In 2024, the United Arab Emirates, Egypt, Ethiopia, and Iran joined, followed by Indonesia in January 2025. This expansion brings its total to 10 members and nine partners.
- Together, they represent about 55% of the global population and 40% of the global GDP at purchasing power parity.
Why is BRICS+ Looking for Alternatives to the US Dollar?
- Reduction of Dependence: BRICS+ aims to minimize reliance on the US dollar due to the economic sanctions that affected Russia during the Ukraine crisis, where access to SWIFT was denied.
- Diverse Economic Engagement: By settling trade in local currencies, BRICS+ countries aim to enhance economic sovereignty and reduce transaction costs, improving trade efficiency among members.
- Developing Financial Alternatives: The introduction of digital payment systems and the push to use the Chinese RMB, which accounts for about 2% of total cross-border transactions, reflects a strategic move to diversify financial interactions beyond the dollar.
What Are the Challenges Facing BRICS+?
- Diverse Political and Economic Systems: Members have different governance models and economic structures, making cooperation difficult.
- US Dollar Dominance: The dollar accounts for most global forex reserves and trade invoices, limiting alternatives.
- Risk of US Sanctions: The US has threatened 100% tariffs if BRICS+ pushes de-dollarisation.
- Limited RMB Use: The renminbi is used in only 2% of global transactions, restricting its global impact.
What Is the Future Potential of BRICS+ Initiatives?
- Cross-Border Payments: BRICS+ is developing a payment system to reduce reliance on the US dollar. This is important after the West blocked Russia from SWIFT.
- Digital Payment Growth: China, India, Russia, Brazil, and Indonesia have advanced digital payment systems. India’s Unified Payments Interface supports local currency trade.
- Regional Trade Expansion: RMB usage is rising in Asia, Latin America, and Africa, strengthening financial independence.
- Risk Diversification: BRICS+ payments aim to reduce trade risks, not replace the dollar immediately.
Question for practice:
Examine the reasons behind BRICS+ efforts to reduce reliance on the US dollar and the challenges they face in achieving this goal.
