BRICS Alliance and the Formation of a New Currency

BRICS is an association of the world's five largest developing economies: Brazil, Russia, India, China, and South Africa. These countries have a combined GDP of almost 25 trillion USD and about 41% of the world's population. Since its establishment in 2001, BRICS has been poised to oppose Western financial policies by gaining global political clout.

There have been speculations that BRICS is planning a significant move to block the recycling of Petrol Dollars by extending its membership to Saudi Arabia. This action might result in creating a bilateral currency exchange agreement such that BRICS members would no longer have to purchase crude oil in USD.

The Formation of BRICS Currency

According to Pavel Knyazev, Deputy Director of the Russian Foreign Ministry's Foreign Policy Planning Department, BRICS members seek to establish a new reserve currency to better suit their economic interests. Knyazev revealed that the Yuan, Ruble, Rupee, Real, and Rand would be the basis for the new currency, which will be a basket of the currencies of the member countries.

Knyazev said during the discussion about expanding BRICS influence that "the possibility and prospects of setting up a common single currency based on a basket of currencies of the BRICS countries are being discussed." He added that member states are "actively studying mechanisms" to exchange financial information and develop a trustworthy substitute for international payments.

There have been reports that China has already developed the "M Bridge prototype," an alternative international payment network. This network is said to be a substitute for the digital currency issued by the Central Bank for overseas transactions. This ground-breaking project is a partnership between the People's Bank of China's Digital Currency Institute, the Bank of Thailand, and the Hong Kong Monetary Authority's Innovation Center.

According to some financial commentators, the BRICS currency may be backed by gold to increase its durability and stability. This will also make the currency of very high global value. Gold and Crude Oil will serve as the BRICS currency's building blocks, especially if Saudi Arabia decides to join the multilateral states.

Recent Euro and USD Comparisons Against BRICS Currencies

There have been varying reports on the exchange difference between BRICS countries and the U.S. and Europe. It has been almost impossible to distinguish between the actual details and mere speculations. We decided to compare the exchange rates between BRICS, the Euro, and USD before and after the announcement of the reserve currency. 

Statistics from January 2022 and January 2023 are:

According to the above data, the US dollar and Euro have only lost value relative to the Brazilian Real and the Russian Ruble. (Check our live charts to follow the market movement)

Please note that the USD and Euro exchange rates to other currencies directly influence trade in the financial market. Therefore, as a financial market investor, use a regulated broker with vast trading instruments to preserve the value of your investment. Check our list of best brokers in 2023

The BRICS countries earlier announced they were trying to create a cooperative payment network to reduce their dependence on the Western financial system. Also, the member nations have started using more local currencies in their bilateral trade. 

The Russian Ruble has had the best performance of any currency in the world over the past year, increasing in value by over 30%, despite sanctions and a break in SWIFT service. In April 2022, Russia was the first country to ratify a deal to set up a $100m foreign currency "reserve pool." 

Undoubtedly, a powerful economic bloc is being formed by these emerging superpowers. Reforming global finance is high on BRICS's agenda; hence, the Contingent Reserves Arrangement, also known as the pool, is available to any BRICS member. Access to the emergency reserve will help them maintain their payment schedule and pay off debts.

BRICS members must preserve their financial resources in a stable foreign currency. According to Bakhtiyer Khakimov, the Russian presidential envoy for SCO matters, BRICS members of the Shanghai Cooperation Organization (SCO) are serious about moving to settlements in national currencies. Russia, China, India, Pakistan, Iran, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan are all full members of the SCO, while 13 other countries are members of the ASEAN and CIS trade blocs.

The SCO summit in Samarkand agreed on a roadmap that outlines each step in detail for the steady growth in the proportion of national currencies used in mutual settlements. The objective is serious; the process is, however, projected to be a long-term development plan.

What Does the New BRICS Currency Reserve Mean for You?

Having a foreign currency reserve will stabilize the economy of all BRICS member states. A stable economy and currency reserve promote bilateral and international trade and tourism. It will also have a trickle-down effect on the countries’ unemployment rates. 

As a resident of any BRICS country, you will likely enjoy the benefits of economic stability. Your earnings will sufficiently cover your cost of living, and your quality of life will significantly improve. With a minimum wage earning, you can undertake international vacations and purchase international properties with stable interest rates and property value.

The currency reserve will also affect the consumer confidence of residents of BRICS countries. There will be an increase in national spending and economic growth, leading to more money in circulation. Stock prices and shares will also grow geometrically. In such stable economies with relatively stable currency rates, investments are safer.

It will, however, take some time to ascertain the degree of the economic difference the BRICS' currency reserve will make. Until then, if you have financial stakes in any BRICS member state, your best bet is to consult an international currency broker who can help you secure your investments and safeguard your funds.

The Influence of the New BRICS Currency Reserve on the Forex Market

Globalization has strengthened the interdependence of economies in the global socioeconomic system. As a result, economic influence has shifted from highly developed nations to economies that have embarked on a path of rapid socioeconomic growth, particularly the BRICS emerging markets. 

The BRICS countries' total global output and commerce proportion is worth considering. The multilateral member states have a massive population and per capita GDP growth that cannot be disregarded. As a result, it has become an essential topic of discussion in the financial market, particularly the foreign exchange niche. 

Based on BRICS' turnover in global foreign exchange turnover and the percentage of its currencies in transaction sectors, the statistics differ from conventional financial commentary. According to the data, BRICS' growing involvement in the global foreign exchange market does not correlate to an increase in the value of its currencies in the forex market.

The BRICS group's prominence in the global economy is undeniably expanding, yet, its expansion has not been evident in the forex market. The 2019 market statistics are a clear illustration of this. The BRICS group's currencies were used in just 5% of transactions, while the overall currency turnover of its member states was only 3%. 

It is safe to conclude that the new currency reserve will be comparable to BRICS members' participation in individual market categories, which is steady but generally insignificant. Based on the stability of the forex market since the announcement of a new currency reserve, it is likely that the market will stay the same shortly. 

Final Thoughts

Introducing a shared BRICS currency will not immediately fix all the economic difficulties of the Global South. It is important to note that overcoming economic challenges requires deep financial market development and favorable long-term investment conditions. BRICS states must also prioritize trade and investment liberalization, including capital account openness.

However, the critical point is that similar to other nations and regions, introducing a single currency project may serve as a reinforcing mechanism that enhances the standard of economic policy. Until the plans of BRICS are entirely ascertained, making specific predictions will be difficult. 

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