US President-elect Donald Trump warned the BRICS nations (Brazil, Russia, India, China, South Africa) with 100% tariffs if they invent a new BRICS currency or update the US dollar as the global reserve currency.

• In the Johannesburg Summit (2023), the President of Brazil proposed a BRICS common currency, asserting that nations that do not use the dollar should not be forced to trade in the currency.
• He has also advocated for a common currency in the Mercosur bloc of South American countries. 
• The BRICS countries have discussed the possibility of reducing their reliance on the dollar.
  • E.g., India and China have increasingly used alternative currencies to settle oil transactions with Russia, bypassing the dollar.
• In the Kazan summit 2024, a symbolic BRICS banknote was revealed.

Benefits of BRICS common currency: 

• Reduced reliance on the U.S. dollar, which dominates global trade and finance in the era of sanctions. 
• Economic sovereignty to BRICS, as it reduces vulnerability to currency fluctuations and enhances BRICS'' influence in global financial governance.
• Facilitate trade amongst BRICS Nations, as a common currency simplifies transactions and reduces transaction costs. 
• Common currency could further strengthen funding by the New Development Bank (NDB). 

Challenges associated with BRICS common currency: 

• Complications in currency integration: The varied economic systems and levels of development which member states of BRICS could complicate currency integration. E.g., adoption of common currency was feasible in the European Union (EU) because of similar levels of development in Europe.
• Political coordination: A global shift away from the US dollar is a complex process. Aligning the monetary and fiscal policies of countries with different political systems and priorities would be complicated.
• Requires coordination among Central banks: Establishing a stable common currency requires robust economic and monetary framework and coordination of Central banks of member states. 

Dollar’s dominance & role as Reserve Currency: 

• Since the end of World War II, the dollar has been the most widely used currency for international trade.
• The U.S. wields a vast geopolitical leverage by controlling the global financial system, through mechanisms like SWIFT (the system banks use to facilitate international payments). 
• Foreign exchange reserves and international trade (particularly trade in oil and oil industry related commodities) are primarily dominated in US dollars. 
• A reserve currency is a foreign currency which the Central banks keep as part of their official reserves.
• Countries prefer to hold reserves in currencies which possess larger and more liquid markets, so that such reserves can be easily tapped.
• The US Treasury market, which is the largest and the most liquid bond market in the world, plays a significant role in supporting the dollar''s dominance.
• Countries that hold dollar reserves can borrow at lower costs and this also helps to keep the borrowing rates low for the US. 
• Drive for de-dollarisation: The world is seeing an increasing push for de-dollarisation, despite the dominance of the dollar, due to both economic and geopolitical reasons.

Future of BRICS Currency and Global Financial Landscape:

• China might dominate BRICS currency initiatives, which could shift the power balance within the bloc.
• India should diplomatically engage with the US to explain its position and promote multipolarity.
• India should support financial reforms within BRICS but maintain strong ties with the US to balance its strategic and economic priorities.
• Efforts to promote digital currencies (CBDCs) and platforms like UPI could position India as a leader in the BRICS currency initiatives.

The global movement toward de-dollarisation is a complex, gradual process driven by geopolitical and economic realities.