Brics coy about de-dollarisation

Despite the strident calls for de-dollarisation by a few members, the Brics grouping of 11 countries as a whole is coy when it comes to formally pushing the idea of challenging the greenback's dominance.

The formal Brics position outlined in a joint statement after a meeting of finance ministers and central bank governors of Brics nations in Mumbai on Friday brings out the divergences in the group that spans four continents.

There is no mention in the statement of a common Brics currency or a formal call for replacement of the US dollar. Instead, the statement enunciates its position couched in more incremental and technocratic language the bloc has used since long, particularly in the Rio de Janeiro and Kazan (Russia) Brics summits: interoperable payment systems, local-currency settlement and voluntary cooperation among members.

The statement acknowledges efforts of the BPTF towards exploring "pragmatic solutions for efficient cross-border payment mechanisms" but stops short of de-dollarisation.

The latest Brics statement said "we encourage the BPTF to continue discussions, building on the ongoing work, to facilitate practical solutions for cross-border payments among Brics countries, which are fast, low-cost, more accessible, efficient, transparent and safe."

This is in sharp contrast to the remarks on Friday by Iranian President Masoud Pezeshkian and Russian President Vladimir Putin, whose countries have been subjected to American sanctions, at the Brics Business Forum in New Delhi.

India too has supported greater use of local currencies and more efficient cross-border payments.

Pezeshkian made the most direct case for moving away from the USD. Speaking at the Forum, he wanted the Brics to develop a more resilient network of trade, investment and financing and expand the use of national currencies.

The Iranian President argued the international financial system's concentration around a limited number of currencies leaves economies vulnerable to political shocks.

"One of the most important steps is to expand the use of national currencies in trade among the members. This step must be accompanied by the establishment of the necessary instruments for managing currency risks and reciprocal settlements since the current financial system is vulnerable to political shocks due to its concentration on a limited number of currencies," Pezeshkian said.

He cited the Brics New Development Bank and said its financial capacity should help facilitate transactions among members without reliance on the US currency.

Iran's keenness for a Brics currency has particular urgency as it is under extensive US sanctions and sees greater use of national currencies, alternative payment mechanisms and Brics institutions as a way of reducing exposure to financial restrictions imposed through the dollar-based system.

Putin's message at the same Forum was broader but pointed in the same direction.

The Russian President said attempts were being made to restrict international trade through sanctions, secondary sanctions and other measures and contended that Brics should build what he described as a "new, sustainable platform for global growth."

Russia has a particularly strong incentive to develop financial channels outside Western systems after sanctions dramatically restricted its access to parts of the dollar- and euro-based currencies.

At the Brics Business Forum, Indian Commerce and Industry Minister Piyush Goyal called for Brics countries to link payment systems and increase trade in local currencies while highlighting India's Unified Payments Interface as an example of payment infrastructure that could facilitate wider cross-border connectivity.

The joint statement in Mumbai explicitly asks the New Development Bank to expand local-currency financing and diversify its funding sources. It also supports the Brics Multilateral Guarantees initiative, which is intended to improve project creditworthiness, lower financing costs and attract private capital into development projects.

But replacing the USD is easier said than done. The USD's position is underpinned by the depth and liquidity of US financial markets, its role in global trade and commodity pricing, and the size of dollar-denominated financial markets.

Brics members also face their own obstacles. Their currencies are at different stages of internationalisation. Many are not even fully convertible and trade between members is often heavily skewed.

These imbalances create a fundamental problem for local-currency trade: a country that accumulates another member's currency needs somewhere to invest or spend those holdings. Without sufficiently deep markets, the transaction can ultimately require conversion into a third currency.