Economist Analyzes Challenges of BRICS Currency Competing With US Dollar – According to the analysis shared by an economist, the possibility of a common BRICS currency competing with the U.S. dollar hinges on the availability of foreign exchange reserves and gaining the trust of the investment community.
The economist pointed out that among the BRICS economic bloc nations, only China currently possesses such a reserve currency. Nicky Weimar, the chief economist of Nedbank, a South African financial services firm, recently discussed the potential of a unified BRICS currency challenging the dominance of the U.S. dollar, as reported by Independent Online.
The BRICS group includes Brazil, Russia, India, China, and South Africa. Noting that the economic bloc seeks to create a reserve currency on par with the U.S. dollar and reduce its dependency on the USD, Weimar emphasized that to achieve this goal: “You need foreign exchange reserves and you need the trust of the investment community.”
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The economist clarified that the reason the U.S. dollar attained the status of a global reserve currency was because of the support it received from the Federal Reserve, which instilled trust within the market.
“The U.S. has never defaulted on its debt. It’s given many people scary moments, but it’s never actually defaulted on its debt. The same cannot be said for any of the countries in the BRICS grouping. That’s the first problem,” Weimar described. Recently, the U.S. managed to avoid defaulting on its debt obligations amid a debt ceiling crisis.
The second problem was that the only country in the BRICS economic bloc to carry such a reserve currency was China, Weimer described, adding: “But China has capital controls. You cannot have a reserve currency if you have capital controls. So China in order to make this possible would have to undergo enormous financial liberalisation if they really want to compete with the dollar.”
Furthermore, the economist stressed: “They also can’t do it and then change course. They would have to do it and stick with it to gain the trust of the investor. So this is miles away because, ultimately, you must gain the trust of the investor. A currency only has value if people believe it has value. And that trust has got to be there. So they’ve got a long journey ahead of them.”
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Noting that China has the ability to do this, but huge changes must be implemented, she opined: “I don’t actually see them talking along those lines. It’s almost like they haven’t made that connection yet that you need to let go of some of the control. You also need to always be willing to provide it.”