BRICS Financial System: A Work in Progress!

A Cautious Approach to De-Dollarization

The BRICS nations, comprising Brazil, Russia, India, China, and South Africa, have been exploring ways to reduce their reliance on the US dollar and build a more equitable global financial system. However, experts caution against expecting a rapid and radical overhaul of the current system.

Yuliya Abukhovich, an economic expert, highlights that while there is growing interest in alternative payment mechanisms, the BRICS nations are taking a cautious approach. The Kazan Declaration, issued after the recent BRICS summit, acknowledges the importance of reforming the existing international financial system but does not advocate for a complete break from the US dollar.

The Challenge of De-Dollarization

One of the primary challenges in creating a unified BRICS financial system is the diverse economic interests and geopolitical considerations of its member states. While countries like Russia are actively pursuing de-dollarization, others, such as India, are more cautious. India, for instance, is wary of becoming overly dependent on China and may prefer a more gradual approach to reducing its reliance on the US dollar.

A Step-by-Step Approach

To overcome these challenges, the BRICS nations are likely to adopt a step-by-step approach to building a unified financial system. Some of the key steps include:

Expanding the Use of Local Currencies: Encouraging the use of local currencies in bilateral trade and investment can reduce reliance on the US dollar.
Developing Payment Systems: Creating efficient payment systems that allow for cross-border transactions in local currencies can facilitate trade and investment.

Establishing Financial Institutions: Establishing financial institutions such as development banks and investment funds can help to mobilize resources and promote economic development.
Exploring Digital Currencies: The development of central bank digital currencies (CBDCs) could revolutionize cross-border payments and financial transactions.

While the BRICS nations have the potential to create a more equitable and balanced global financial system, significant challenges remain. Political differences, economic disparities, and the dominance of the US dollar will continue to shape the future of the global financial order.