Brazil's president called on BRICS countries to create a common currency for trade and investment among themselves as a means of reducing their vulnerability to dollar exchange rate fluctuations.
Luiz Inacio Lula da Silva made the proposal at a BRICS summit in Johannesburg.
But officials and economists have pointed to the difficulties involved in such a project, given the economic, political and geographical disparities between Brazil, Russia, India, China and South Africa, the Telegraph reports.
But why does Lula want a BRICS currency?
The president of Brazil does not believe that nations that do not use the dollar should be forced to trade in the US currency.
A BRICS currency "increases our payment options and reduces our vulnerabilities," he was quoted as saying at the summit's opening plenary session.
What do other BRICS leaders think?
Despite Lula's request, South African officials had said a BRICS currency was not on the agenda for the summit.
While in July, India's foreign minister said: "there is no idea of a BRICS currency."
And its foreign secretary emphasized before leaving for the summit that the promotion of trade in national currencies would be discussed.
Meanwhile, Russian President Vladimir Putin emphasized that the meeting, in which he participated via video link, will discuss the change of trade between member countries from the dollar to national currencies.
China, on the other hand, has not commented on the idea. President Xi Jinping spoke at the summit about promoting "reform of the international financial and monetary system."
What are the challenges of creating a BRICS currency?
Building a BRICS currency would be a "political project," South African central bank governor Lesetja Kganyago said on a radio station in July.
"If you want it, you will need to have a banking union, you will need a fiscal union, you will need to have macroeconomic convergence," Kganyago said.
"Importantly, you need a disciplinary mechanism for countries that don't comply with it... Plus they will need a common central bank."
Trade imbalances are also a problem, wrote Herbert Poenisch, a senior fellow at Zhejiang University, in a blog for the OMFIF institute.
"All BRICS member countries have China as their main trading partner and little trade with each other."
Would there be trouble for the US dollar?
The dollar has been the world's main reserve currency since the end of World War II and is estimated to be used in more than 80 percent of international trade.
But BRICS leaders have said they want to use their national currencies more instead of the dollar, which strengthened sharply last year after the Federal Reserve raised interest rates and Russia invaded Ukraine, making dollar-denominated debt and many imports more expensive.
The imposition of sanctions on Russia by global financial systems last year also fueled speculation that non-Western allies would move away from the dollar.
However, the dollar still dominates global trade. It is on one side of almost 90% of global transactions.
And “de-dollarization” would require countless exporters and importers, as well as borrowers, lenders and currency dealers around the world, to independently decide to use other currencies.
Therefore, experts estimate that even if BRICS creates a common currency, it could function similarly to the Euro, which has not seriously challenged the dominance of the dollar. /Telegrafi/
