In 2023, the leaders of Brazil and the other Brics countries at the time – China, India, Russia, and South Africa – discussed collaboration on a new shared currency. The Brazilian president, Luiz Inácio Lula da Silva, has been a vocal proponent of an alternative to the US dollar, the dominant global currency for the past 75 years, and the Russian president, Vladimir Putin, publicly promoted the idea during the Brics summit in October by brandishing a symbolic Brics banknote. The bloc’s new members – Egypt, Ethiopia, Iran, and the United Arab Emirates – would presumably also be included in the new joint currency.
The proposed challenge to the dollar has already drawn the ire of the US president-elect, Donald Trump, who has threatened to impose punitive tariffs of 100% on countries that move away from the greenback. At the end of last month, Trump warned Brics countries against creating or supporting an alternative reserve currency. “We require a commitment from these countries that they will neither create a new Brics currency nor back any other currency to replace the mighty US dollar, or they will face 100% tariffs,” he declared on Truth Social, his social media platform.
This ultimatum follows Trump’s threats to impose a 25% tariff on Mexico and Canada if they fail to curb fentanyl smuggling into the USs, a 60% tariff on Chinese goods, and a 10-20% tariff on other trade partners. Despite Trump’s bluster, these increasingly extreme threats will not result in one of his self-proclaimed successful “deals”.
While Trump’s rhetoric suggests he views a Brics currency as a serious threat, such a project is likely to fail anyway, regardless of his actions or ultimatums.
If the proposed currency is intended to exist alongside Brics countries’ national currencies, it will not gain traction. A successful international currency requires a home base. That is why English, not Esperanto, became the world’s lingua franca, and why the special drawing right (SDR) – the International Monetary Fund’s reserve asset, whose value is based on a basket of major currencies – has not been successful as an international currency.
For a Brics unit to compete with the US dollar, then, member countries would need to form a fully fledged monetary union, relinquishing their national currencies and establishing a unified central bank to oversee the new money.
But the Brics economies differ too much from each other for a monetary union to function effectively. Successful monetary unions are typically formed by small, interconnected economies that trade extensively with one another and share common goals, cultural ties, correlated business cycles and relatively integrated labour markets.
When member economies are too dissimilar, one may enter a recession while another overheats. In a monetary union, member states must give up control over their money supply, interest rates, and the exchange rate, limiting their ability to respond to cyclical economic fluctuations. In the absence of alternative adjustment mechanisms such as increased labour mobility and a strong political commitment, these disparities can lead to significant discord and needless macroeconomic instability.
Examples of successful monetary unions include the CFA franc zones, comprising West African and Central African states that use a common currency pegged to the euro, and the Eastern Caribbean Currency Union, which consists of English-speaking islands such as Anguilla, Antigua, and Barbuda. These unions work because their members are small neighbouring countries that share cultural and historical roots. The largest member of the CFA, for example, is Ivory Coast, whose GDP is smaller than that of Buffalo, New York.
The notable exception, of course, is the eurozone. But although it consists of relatively large economies, its 20 members also share borders, maintain integrated economies, and are bound by a shared commitment to the vision of a peaceful, unified Europe. Even so, European countries such as the UK, Sweden, and Norway have chosen to remain outside the eurozone, and peripheral members such as Greece have struggled to adapt to the constraints of the euro’s monetary straitjacket.
Some regional blocs have long discussed adopting a common currency but made little progress. In 2001, the six-member Gulf Cooperation Council (GCC) announced plans to establish a currency union by 2010, but the plan failed to materialise. If even the small, culturally aligned, and cyclically correlated GCC countries have been unwilling to relinquish their monetary sovereignty, the proposed Brics currency stands little chance.
Many of the Brics+ countries are large. They span four continents. They speak different languages. And their borders have historically been sources of conflict rather than economic integration. China and India, for example, were locked in a protracted military standoff along their shared Himalayan border before reaching a fragile truce in October.
There is also little correlation among the Brics economies’ business cycles. Rising world energy prices benefit oil-producing countries such as Russia, Brazil, Iran, and the UAE, while putting pressure on energy-importing countries such as China and India. This dynamic makes the Brics far less suited for a monetary union than the GCC countries.
To be sure, a gradual global shift away from the dollar is already under way. This process, while slow, has gained momentum in recent years, driven partly by America’s increasingly frequent use of financial sanctions. But if the Trump administration were to retaliate against the Brics with 100% tariffs, the move could backfire, prompting central banks to turn to the yuan, smaller currencies, or even gold for their international reserves.
Trump’s clumsy efforts to enforce the international use of the dollar are at odds with his other stated objectives, such as improving the US trade balance by devaluing the dollar against the yuan and the currencies of other countries that run bilateral surpluses with the US. Talking down the dollar aligns with other inflationary Trump promises, such as his threats to weaken the Federal Reserve’s independence and his proposed mass deportations. But an international reserve currency that is prone to inflation and depreciation is hardly attractive. Trump’s tariff threats won’t resolve that contradiction.
Jeffrey Frankel is a professor of capital formation and growth at Harvard University. He served as a member of President Bill Clinton’s Council of Economic Advisers.
