The BRICS countries (Brazil, Russia, India, China, and South Africa) have been working towards creating a new reserve currency as an alternative to the US dollar for many years. Especially since the financial crisis of 2008 BRICS countries have decried the dollarization of the global economy. Source
BRICS heads of State. Source
Problems of the current reserve currency
Since USD is the global reserve currency it is problematic for countries especially at times when Western nations (Western Europe, the US) demands consistency in foreign policy. Countries that are not in sync with Washington find their monetary system frozen and the financial pain of their citizens being used as a source of internal instability. Moreover, in such situations as in the case of the current Europe and US Russia sanctions the isolated state cannot pay debts, receive revenue or even settle accounts. “Rogue” governments, their institutions and their citizens find that their funds can be seized by Western central bankers under the influence of primarily US political elites.
Similarly, victim countries or countries with diminished infrastructure have no way of obtaining commodities if they lack access to the global financial markets. The monetary system therefore acts as a gateway to true freedom for a country and its people.
The Specter of Financial Collapse
Regardless of the political situation the financial collapse of 2008-2009; the Russia-Ukraine War in 2022 and the host of sanctions upon nations like Cuba since the 1960’s, Iran since the 1970’s, Venezuela and China in the 2000’s is pointing towards a need for states that are rational actors to have some type of currency solution. it is prudent for independent countries to have alternative approaches to banking and currency management than dollarization. It is therefore in the best interest of free nations and individuals to create currency arrangements that are “censorship resistant.”
Recent reports suggests that BRICS countries may be moving towards an accelerated development of the new R5 or R+ currency. R+ or R5 is based on the first letters of the BRICS currencies all of which begin with the letter R (real, ruble, rupee, renminbi, rand). Source 1 Source 2
The BRICS countries have grown increasingly frustrated with the dominance of the US dollar and the influence of the US on the global financial system. As China's President Xi Jinping stated in a speech at the BRICS summit in 2022,
We should support greater the development of the New Development Bank and a steady process to admit new members and improve the Contingent Reserve Arrangement to cement the BRICS financial safety net and firewall. We should also expand BRICS cooperation on cross-border payment and credit rating to facilitate trade, investment and financing among our countries. Source.
By creating the New Development Bank (2015) a "Contingency Reserve Arrangement" this group was already on the way to a new currency order. With their own development bank and a contingency reserve fund - a kind of lending pool they were positioning themselves to build what Xi calls a "financial safety net" and "firewall."
Source *- Assistant, a language model developed by OpenAI
In a way countries have been trying to push for this in different ways for many years. In 2009 on the back of the financial crisis developing countries tried to use the IMFs Special Drawing Rights (SDR) as a kind of global currency reserve. This move was rejected by the US and Japan considering that the IMF has no way of covering the value of its special drawing rights outside of the contribution from countries like the US.
Another way of looking at this is that countries are also trying to create a kind of “stable coin” that allows them to maintain predictability over monetary policy. In the current context, we see that the US federal reserve raises interest rates and lowers interest rates primarily to support US imperial policy. In many cases this serves to inflate the US currency often at the expense of the savings and value of citizens as well as the currency of other nations.
The creation of a new reserve currency would help to promote economic stability and reduce the risk of financial crises. As Russia's President Vladimir Putin noted in a speech at the St. Petersburg International Economic Forum in 2015,
""The whole world can see that the dollar's monopoly is precarious and dangerous for many." Source
BRICS countries ultimately believe that a new reserve currency would help to promote greater economic integration and cooperation among emerging economies. At the recent BRICS meeting their is a repeated sense that especially in the context of the current financial order, more needs to be done to build a "firewall" against Western Hegemony.
There are additional discussions around the use of SDRs or Substitute Dollar Reserves again for developing countries to use as a reserve currency. The fact is that these will not work because such currencies are not backed by anything but either central bank fiat, government coercion through taxation or international elites through charity from powerful elites.
In a way as the world develops more consciousness around money and monetary policy, the more it is likely that digital blockchain currencies will rise to the top as a more effective approach.
- Assistant, a language model developed by OpenAI - thanks for the clarification and inspiration @gtg
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References
Xi Jinping, "Full Text of President Xi Jinping's Speech at BRICS Summit,", June 24, 2022.
Yaroslav Lissovolik, "A BRICS Reserve Currency: Exploring the Pathways,", December 21, 2022.
Cenk Sidar, “Venture Capital Prepares For An Uncertain, Multipolar Future,” December 22, 2022.
Mercopress, South Atlantic News Agency, "BRICS countries agree to deepen financial, customs cooperation", June 8th 2022.