US President-elect Donald Trump has warned of imposing 100% tariffs on a group of nine nations if they pursue the creation of a currency to rival the US dollar sparking a new debate.
As the global economic order evolves, the BRICS bloc—comprising Brazil, Russia, India, China, and South Africa—has taken bold steps to reshape the financial landscape. At its 16th summit, the bloc outlined a vision for a distinct financial architecture aimed at reducing reliance on Western-led institutions like the IMF and World Bank. From promoting trade in national currencies to establishing independent financial institutions, BRICS is laying the groundwork for a multipolar economic system. This explainer unpacks the bloc’s strategies and their potential implications for global finance.
What is the purpose of the new financial architecture proposed by BRICS?
The BRICS bloc seeks to create a financial system distinct from the Bretton Woods institutions, such as the IMF and World Bank. The objective is to foster financial autonomy for its members, reduce reliance on the US dollar, and support a multipolar economic order. By encouraging trade in national currencies, building independent financial institutions, and reforming existing structures, BRICS aims to empower the global South and promote inclusivity in global finance.
Why does BRICS oppose unilateral sanctions?
BRICS views unilateral sanctions, imposed without UN approval, as illegal. Such measures often have severe humanitarian consequences, as seen in Syria, where sanctions have led to acute child malnutrition and limited access to essential medicines. By opposing these measures, BRICS aims to protect its member states from similar economic coercion and foster a system that emphasizes fairness and multilateralism.
How is BRICS promoting trade in national currencies?
BRICS countries are actively increasing trade in their national currencies to reduce dependence on the US dollar. Russia and China already conduct 90% of their trade in yuan, while India and Russia use a rupee-ruble trade mechanism. With new members like Saudi Arabia and the UAE, who are exploring non-dollar transactions for oil trade, this shift is expected to grow. Additionally, regional initiatives like Africa’s Pan-Africa Payment and Settlement System (PAPSS) and ASEAN’s local currency trade agreements highlight the practicality of such measures.
What role does the New Development Bank (NDB) play?The New Development Bank, established by BRICS in 2014, supports infrastructure and development projects in member countries. Unlike the World Bank, it does not impose stringent conditionalities, allowing members to set their project priorities. About 30% of its loans are disbursed in local currencies, with the rest in dollars and euros. The NDB focuses on gender and social inclusion projects, aiming to improve access to income and jobs, particularly for women. Despite its smaller scale compared to the World Bank, the NDB serves as a model for demand-driven, member-led financial support.
What is the Contingent Reserve Arrangement (CRA)?
The CRA is a BRICS mechanism designed as an alternative to the IMF for providing financial assistance to countries in crisis. While its current reserve of $100 billion is modest compared to the vast resources of the IMF, it represents an effort to offer a non-coercive option for addressing financial insolvency in member states.
What is the BRICS Interbank Cooperation Mechanism (BICM)?
The BRICS Interbank Cooperation Mechanism facilitates local currency credit and development financing among member countries. Established in 2010, it has proven particularly effective during crises like the COVID-19 pandemic. The mechanism supports pragmatic solutions for trade and investment, with the potential for further expansion into new projects and cross-currency exchanges.
How is BRICS enhancing cross-border financial transactions?
BRICS is developing a financial messaging system called BRICS Clear, designed for independent cross-border settlements. Similar to the EU’s Euroclear and China’s Cross-border Interbank Payment System (CIPS), BRICS Clear aims to create a robust infrastructure for seamless financial transactions. Russia and China are leading the development, particularly after Russia’s exclusion from the SWIFT system. The BRICS Bridge platform, launched in February 2024, complements these efforts by digitalizing financial transactions and linking them to Central Bank Digital Currencies (CBDCs).
What are the long-term goals of BRICS in reshaping global finance?
BRICS envisions a gradual democratization of the global financial landscape, where multiple currencies play a significant role, reducing reliance on the US dollar. Plans include creating a new investment platform for the global South, enhancing financial messaging systems, and localizing insurance through reinsurance initiatives. While these measures are voluntary and government-to-government in nature, they collectively aim to strengthen fiscal and monetary sovereignty for participating nations.
How does the new architecture benefit BRICS members?
The evolving BRICS financial architecture offers several benefits, including reduced dependency on the US dollar, enhanced trade in local currencies, and financial autonomy for member states. It pressures existing global institutions like the IMF and World Bank to adopt more inclusive policies and provides alternatives that prioritize the needs of emerging economies. This system underscores the shift towards a multipolar world order in global finance.
