Reorientation of exports to geopolitically aligned countries grows in global trade
Brazil, currently presiding over the BRICS, has proposed a plan to its member countries aimed at facilitating intra-bloc trade transactions, while carefully avoiding direct references to de-dollarization.
President Lula has indeed expressed his “dream” of a common currency for the BRICS and questioned why “all countries must conduct their trade backed by the dollar, and why can’t we trade based on our own currency?”
This topic has been picked up by Donald Trump upon his return to the White House. Amid the global disruption he causes, Mr. Trump has repeatedly threatened to impose 100% tariffs against BRICS countries if they attempt to create a common currency as an alternative to the dollar. According to Mr. Trump, “There is no chance that BRICS will replace the U.S. dollar in international trade, or anywhere else, and any country that tries should say hello to tariffs and goodbye to America.” He even mistakenly included Spain as a member of the group.
The BRICS seeks to deepen discussions on how to accelerate trade facilitation and reduce risks. However, the proposal Brazil sent to the member countries primarily focuses on efficiently and securely facilitating payments, supported by new technologies such as blockchain and others, to reduce commercial transaction costs. This system would allow direct transactions in local currencies, which also helps cut costs.
The proposal does not involve a common currency, contrary to Mr. Trump’s claims, as stressed by a BRICS insider. It doesn’t even aim to establish a system with embedded guarantees like the Reciprocal Payments and Credits Agreement (CCR) of the Latin American Integration Association (ALADI), which has been cited as an example in some groups in Brasília.
The Brazilian Central Bank actually withdrew from the CCR in 2019, an international payment system through which international trade operations are settled by the central banks of 11 member countries. The Central Bank found that the mechanism had inefficiencies that no longer served the country’s interests, lost importance for settling operations among member countries, transferred risks from the private sector to the public sector, and did not align with modern international payment system practices, as it concentrated credit risk in one institution and deferred payments for up to four months.
Active in the current BRICS discussions, the Central Bank certainly has no nostalgia for the CCR, at least not with its current governance.
Amid the trade disruptions triggered by President Trump, Brazil’s Foreign Minister Mauro Vieira highlighted last week that Brazil “is committed to developing local payment instruments that facilitate intra-bloc trade and investment,” emphasizing that the BRICS “does not have a negative aspect: it works in favor of cooperation and development of its members—not against anyone.”
China, the heavyweight of the BRICS, acknowledges that a change in the monetary order is not imminent. Currently, it is more focused on devaluing its currency to remain competitive and not lose much in the bargaining it will have to do with Mr. Trump.
Various sources say that Chinese authorities are very conservative in financial matters. They prefer de-dollarization to “come naturally” and let others advocate for it. Russia and Iran are the most engaged in quickly seeking alternatives to the U.S. dollar due to sanctions imposed by Washington.
Economist Dmitry Dolgin, the author of a report on the BRICS and de-dollarization published by the Dutch bank ING, sees coherence in China’s position as the largest holder of foreign exchange reserves in the BRICS+, especially considering Hong Kong and Macau, which have separate central banks.
China’s consolidated reserves total around $4 trillion, and the exact currency structure is unknown. However, it is highly likely that the U.S. dollar plays a significant role in this amount, and due to its size, finding an alternative with similar liquidity would be challenging. Another argument against de-dollarization for China is the still high participation of the U.S. in its international trade.
Other BRICS+ members might be in a more flexible position, as their FX reserves are smaller and they have the option to use the renminbi in their international reserves, as Russia does, while China obviously cannot use its own currency as an international asset, he notes.
For the economist, who closely monitors the BRICS, a de-dollarization agenda within the bloc has greater potential to be advanced through foreign exchange reserves and fuel trade (the group is responsible for about half of the world’s energy production).
The BRICS+ controls 42% of central banks’ FX reserves in general, “possibly contributing to the global de-dollarization process.” It points to gold as the most significant potential alternative to the dollar for the bloc. Despite the recent active buying by the BRICS+, the metal still represents only 10% of their central banks’ FX reserves, compared to 20% globally—meaning the BRICS+ central banks have room to accumulate more gold instead of dollars.
The BRICS’ initiatives take on particular significance this year, amidst the shockwave caused by President Trump. Geopolitics is rapidly reshaping international trade, with more reorientation of exports to geopolitically aligned countries.
Valor International
