The introductory levels of new currencies have caused global attention throughout the history of currencies, that has also managed to create news within the currency market. The new currency BRICS has now become the attention grabber within the currency market as the intentions behind the formation of this currency is rather clear and straightforward. The current dominant currency within the currency market – USD owns 84.3% of cross-border trades while the second highest Chinese Yuan is responsible for only 4.5%.
Furthermore, this significant dominance of the USD over other currencies has made it impossible for other currencies to compete against it in the international financial system, whereas approximately 100% of the oil trades are performed in USD.
Reasons Behind the Introduction of BRICS
Even thou it is no secret that the main objective behind the formation of the BRICS is to unseat the USD as the conqueror in the currency market; the BRICS nations – Brazil, Russia, India, China and South Africa are trying are execute a plan that has been looked into since 2001, which was first suggested by Jim O’Neill – a British economist.
The main idea was to empower emerging economies (BRICS economies) and level exchange rates even during the most difficult situations (economic crisis, natural disasters and political instabilities). The exchange rates of the BRICS nations average stands as;
USD/BRL = 4.99
USD/RUB = 78.31
USD/INR = 81.76
USD/CNY = 6.92
USD/KRW = 1323.12
With the introduction of a common currency for all the above-mentioned nations they can easily be stable enough to cover debts for short-term crises and encourage trade that lower the unemployment rates within these nations.
Despite all the logical reasons there are still some challenges that slows down the formation of BRICS as currency;
- Different economic priorities – The principal reason for the introduction of BRICS is that the included nations will have a common currency, but it is undeniable that these five nations have different objectives to achieve through stabilized economies therefore coming to formal terms would take more time than expected.
- Figuring out new exchange rates – The ulterior goal of the new currency reserve has been to level the exchange rate with USD and have a common ground as the USD, yet assigning basic value for a brand-new currency could be tiring and a time-consuming process.
- Geopolitical interferences – As BRICS gained a comparatively high-dose of attention in past months and with 19 more nations accepting to negotiate the terms of the new currency, certain economic giants may have their own issues regarding the ways the currency is going to operate, and how it could affect their dominant markets.
Will BRICS Work?
All the hyper aside, a BRICS currency reserve doesn’t seem to come out anytime soon, as there are many disputes that needs to be settled within the member countries. Moreover, considering all the sacrifices and agreements that nations within have to make, there are no positive predictions on mending a new currency. China being the leading economy of the group has got a generation worth of grudges to pick India starting from the border problems, and no other country can oust China from the deal as they make up to 72% of the group’s GDP, 80% of the Group’s growth and majority of external surplus, not to mention that China has got a dual currency system to regulate the exchange rates.
Despite it looking like a Chinese dominant currency at the moment the main concern for the group is to demise the USD, hence all the necessary arrangements need to be taken to form a currency that can go head-to-head with a currency like USD which is always flexible within the financial markets.
