Russia is taking a bold step to challenge the US dollar’s dominance as the world’s reserve currency. State Duma Deputy Chairman Alexander Babakov recently urged the BRICS (Brazil, Russia, India, China, South Africa) alliance to explore the creation of their own trade currency, which would reduce dependence on the US dollar. The proposal comes in response to the economic sanctions imposed on Russia by Western powers following its invasion of Ukraine in February 2022. The sanctions wiped off nearly 5% of Russia’s GDP, as commercial banks struggled to settle international transactions after SWIFT shut them out of its settlement platform.
Brazil, Russia, India, China, and South Africa are the five nations that make up the BRICS group. The fundamental goals of the BRICS are to foster collaboration, peace, security, and development among its members. Being a member benefits India significantly in maintaining economic growth that benefits its citizens in terms of job creation, GDP growth, and poverty reduction.
The proposed currency would be backed by gold or rare-earth elements and could potentially be a digital ruble, digital rupee, or digital yuan. Plans for a digital ruble are already underway, with the central bank announcing that it will be unveiled to the public before the end of the year. However, plans for the retail pilot were postponed from April 1, 2023, over the failure of the country to pass a legal framework to give validity to the experiment.
In addition, the country has turned to stablecoins and a central bank digital currency (CBDC), which experts believe will have cross-border payment functionalities.
Russia’s move towards a new trade currency is significant, as it challenges the US dollar’s status as the world’s reserve currency. Babakov (State Duma Deputy Chairman) believes that India and Russia should take the lead in forming a financial relationship that would eventually result in a common currency. This would allow the countries to write new rules in the financial sphere that enable using an already common currency.
According to Babakov, “It doesn’t matter whether it’s a digital ruble, a digital rupee, a digital yuan, or some other currency. But this currency must follow the laws of our respective nations.”
Russia’s proposal has been met with mixed reactions, with some experts saying that it is an attempt to undermine the US dollar’s global dominance, while others believe that it is a practical move to secure Russia’s economic future. Whatever the motive, Russia’s plan for a new trade currency in the BRICS alliance could potentially change the global financial landscape.
China and Brazil have already entered into a bilateral contract to trade in their own currencies, to the exclusion of the US dollar. This move by China is seen as a plot to rival the US in economic hegemony.
Economic hegemony refers to a situation where one country or group of countries has significant influence and control over the global economy. This can be achieved through various means, such as having a dominant currency, controlling key industries or resources, or having a large market share in global trade.
For example, the United States has been considered to have economic hegemony in the post-World War II era, as the US dollar has been the dominant global currency. American companies have significantly influenced industries such as technology, finance, and entertainment.
Ex-Goldman Sachs chief economist Jim O’Neill has supported the use of alternative currencies for trade, saying that the dollar’s supremacy is often adverse to the monetary stability of other nations.
What do you think, which currency out of ruble, rupee, or yuan will replace the US Dollar’s dominance?
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