Russia is ready to develop a new global reserve currency alongside China, South Africa, and other BRICS nations, in a potential challenge to the dominance of the US dollar.
President Vladimir Putin signalled the new reserve currency would be based on a basket of currencies from the group's members: Brazil, Russia, India, China, and South Africa.
"The matter of creating the international reserve currency based on the basket of currencies of our countries is under review," Putin told the BRICS Business Forum on Wednesday.
The dollar has long been seen as the world's reserve currency, but its dominance in share of international currency reserves is waning. Central banks are looking to diversify their holdings into currencies like the yuan, as well as into non-traditional areas like the Swedish krona and the South Korean won, according to the International Monetary Fund.
Following the launch of the “special military operation” against Ukraine on February 24, a series of western sanctions were unleashed on Russia that aimed at imposing a financial cost upon Moscow. This also adversely affected other major economies like South Africa that have trade links with Russia but were unable to make payments in dollars. The role of national currencies and an alternative global reserve currency were discussed in this context.
The Western sanctions are shaking the international monetary system with the U.S. dollar and the Euro at the core. As a consequence of the sanctions, the global market players, investors and third parties not related to the sanctions may try to avoid using related currencies.
The abuse of financial hegemony by the U.S. seriously threatens the stability of the international monetary system. It is also leading to the escalation of international contradictions and the acceleration of the process of "de-dollarization.
There have already been signs of de-dollarization and de-euroization in the world. Its manifested mainly in currency regionalization, local currency internationalization, currency swaps, currency digitization and gold monetization.
The alternative reserve currency would present an opportunity to developing countries in Africa to increase their influence in the global system and better achieve their objections which are different from western countries.
The BRICS countries, along with other developing countries and emerging market countries, pay more attention to development, hunger, survival, and stability. They also pay more attention to post-pandemic recovery, sustainable development, global financial stability, and other issues.
Since the establishment of the BRICS cooperation mechanism in 2006, the proportion of the total economic output of the five countries in the world economy has increased from 11.7 percent in 2006 to 25.9 percent in 2021. In the same period, the proportion of the total trade volume in world trade has increased from 11 percent to 19 percent, contributing more than 50 percent to global economic growth.