Making a dollar detour: Why BRICS isn’t breaking up with the dollar

The latest BRICS declaration does something more revealing than announce a new currency. It just leaves the idea out altogether. The 140-paragraph New Delhi Declaration does not propose a common BRICS currency, nor does it endorse linking members’ central bank digital currencies (CBDCs).

Instead, it backs interoperable payment and messaging systems, settlement in national currencies and greater local-currency financing. MEA Secretary (Economic Relations) Sudhakar Dalela said plainly that “there is no proposal in the BRICS for a BRICS currency, as of now.”

The talk of a BRICS currency has periodically acquired a life of its own. The idea has political appeal in discussions about reducing dependence on the dollar. But the economic and institutional conditions for a common currency simply do not exist within BRICS.


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The declaration points in another direction

The New Delhi Declaration welcomes work under the BRICS Cross-Border Payments Initiative on interoperable payment and messaging channels. It also supports discussions on trade settlement and investment in local currencies, while explicitly recognising that there is “no one-size-fits-all” approach, hinting at the impracticality of an idea like a common currency.

It also deals with cross-border settlement and depositary infrastructure. It encourages the New Development Bank to expand local-currency financing. None of these provisions involves creating a new currency or a common monetary authority.

The absence of any reference to CBDCs is equally important. Proposals for linking national digital currencies have appeared in discussions around BRICS before the Delhi Summit, but they ae not part of the Delhi Declaration. Even if national CBDCs are eventually made interoperable, they would remain sovereign currencies connected through payment infrastructure. That is very different from creating a BRICS currency.

In February, Russian BRICS sherpa Sergei Ryabkov said that a single BRICS currency was not on the agenda and was not being considered as a practical matter. India has similarly emphasised local-currency settlement rather than monetary union.

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The economics rule out a common currency

A shared currency requires countries to surrender control over interest rates and exchange rates. It becomes workable when economies are sufficiently integrated and can live with a common monetary policy, and BRICS is nowhere close.

China's economy is dominated by manufacturing and exports. India has a different growth and financial structure. Russia's economy and currency have been heavily affected by sanctions and commodity prices. Brazil has a large commodity sector while South Africa faces its own inflation and capital-flow pressures. The newer members bring still different economic conditions.

Their currencies are also at very different stages of internationalisation. The renminbi has a much larger international role than the rupee or rand. Several BRICS currencies remain subject to capital controls or restrictions on convertibility.

A common interest rate could therefore be appropriate for one member while being damaging to another. A country facing inflation might need tighter policy while another facing weak growth needs lower rates. Under a common currency, neither could independently adjust its exchange rate.

There is no common fiscal authority capable of transferring resources when an individual member suffers a major shock either. The eurozone's experience shows how difficult monetary union becomes when countries share a currency without fully sharing fiscal and financial institutions. And BRICS has nothing comparable to the European Union's institutional framework.

The political problem is harder still

The question of who would control a BRICS central bank would quickly become unavoidable. China is by far the bloc's largest economy. India has little reason to exchange dependence on the dollar for dependence on a monetary institution in which Chinese economic weight would inevitably be substantial. Russia has different financial priorities because of sanctions. Gulf members retain extensive links with Western financial markets.

The enlarged BRICS also contains countries with sharply different foreign-policy interests. They can cooperate on payments because doing so produces practical benefits. Agreeing on monetary policy would require a degree of political trust and institutional surrender that does not exist.

Why local currencies make economic sense

None of this means BRICS countries have no reason to reduce their reliance on the dollar for particular transactions. They have practical reasons to do so. When two countries have substantial bilateral trade, settling directly in their own currencies can eliminate an unnecessary conversion through a third currency. It can reduce transaction costs and limit exposure to movements in the dollar exchange rate. A company can also receive payment in a currency in which it has expenses, suppliers or other commercial obligations.

The incentives vary from country to country. Russia has an obvious reason to develop alternative payment and settlement channels after Western sanctions restricted its access to parts of the traditional dollar-based financial system. China has an interest in increasing renminbi use because greater international circulation of its currency benefits Chinese banks and companies. India has a different calculation. If Indian and Russian businesses can efficiently settle trade in rupees and roubles, routing the transaction through dollars may simply add a cost without providing a corresponding benefit.

The same commercial logic can apply to Brazil, South Africa and other BRICS members when bilateral trade makes local settlement worthwhile.

That is why describing the policy simply as an attempt to attack the dollar misses the economics of de-dollarisation. While countries are looking for more options, they are not required to abandon the dollar when it remains the most convenient currency for a transaction and the most trusted one across the world too.

The emphasis on interoperable payment systems follows the same logic. India's UPI and Brazil's Pix already handle enormous volumes of domestic transactions. Connecting national payment systems could make cross-border transfers faster and cheaper without requiring countries to give up their currencies or monetary policies.

This is a much more manageable proposition than monetary union. Governments can retain their central banks while banks and businesses gain additional ways to settle international transactions.

Nor does local-currency settlement guarantee that the dollar disappears. If one country's currency is difficult to convert or bilateral trade is badly imbalanced, businesses may still prefer the dollar as an intermediary. Local currencies will gain ground where they offer a commercial advantage.

That is the more realistic meaning of BRICS financial cooperation. The bloc does not need to replace the dollar with a new currency to reduce dependence on it. It can make the dollar less indispensable by giving companies and banks more settlement choices. The New Delhi Declaration reflects that approach. It calls for better connections between existing payment systems and wider use of existing national currencies. It does not call for a BRICS central bank, a common currency or a common CBDC.

For a group whose members differ so sharply in economic structures, monetary policies, financial systems and geopolitical priorities, that is not an accidental omission. A common currency is simply not a practical project BRICS could pursue.