Economist Analyzes Challenges of BRICS Currency Competing With US Dollar

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An economist has shared her analysis of how a common BRICS currency could compete with the U.S. dollar. “You need foreign exchange reserves and you need the trust of the investment community,” she explained, noting that the only country in the BRICS economic bloc to carry such a reserve currency was China.

Economist on Chinese Yuan and Reserve Currency

The chief economist of South African financial services firm Nedbank, Nicky Weimar, discussed how a common BRICS currency could challenge the U.S. dollar’s hegemony last week, Independent Online reported. The BRICS group comprises Brazil, Russia, India, China, and South Africa.

Noting that the economic bloc seeks to create a reserve currency on par with the U.S. dollar and reduce its dependency on the USD, Weimar emphasized that to achieve this goal:

You need foreign exchange reserves and you need the trust of the investment community.

The economist explained that the U.S. dollar became the global reserve currency due to the backing of the Federal Reserve, which the market trusted.

“The U.S. has never defaulted on its debt. It’s given many people scary moments, but it’s never actually defaulted on its debt. The same cannot be said for any of the countries in the BRICS grouping. That’s the first problem,” Weimar described. Recently, the U.S. managed to avoid defaulting on its debt obligations amid a debt ceiling crisis.

The second problem was that the only country in the BRICS economic bloc to carry such a reserve currency was China, Weimer described, adding:

But China has capital controls. You cannot have a reserve currency if you have capital controls. So China in order to make this possible would have to undergo enormous financial liberalisation if they really want to compete with the dollar.

Furthermore, the economist stressed: “They also can’t do it and then change course. They would have to do it and stick with it to gain the trust of the investor. So this is miles away because, ultimately, you must gain the trust of the investor. A currency only has value if people believe it has value. And that trust has got to be there. So they’ve got a long journey ahead of them.”

Noting that China has the ability to do this, but huge changes must be implemented, she opined: “I don’t actually see them talking along those lines. It’s almost like they haven’t made that connection yet that you need to let go of some of the control. You also need to always be willing to provide it.”

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