CashNews.co
-
Brazil’s president urged BRICS countries to develop a new currency and move away from the dollar.
-
That comes as Brazil and China strengthen ties, recently agreeing to use the yuan in cross-border trade.
-
However, analysts see de-dollarization as unlikely, given the lack of good replacements.
Brazil President Luiz Inácio Lula da Silva has urged developing nations to find an alternative currency to the dollar, denouncing the central role of the greenback in global trade.
Thursday’s comments, from a speech made during this week’s state trip to China, lend another voice to growing de-dollarization rhetoric from leaders of BRICS countries — Brazil, Russia, India, China, and South Africa.
“Why can’t we do trade based on our own currencies?” he said, per The Financial Times. “Who was it that decided that the dollar was the currency after the disappearance of the gold standard?”
Speaking at the New Development Bank of Shanghai, Lula called for BRICS nations to establish a common currency to with which they could transact.
“Why can’t a bank like that of the BRICS have a currency to finance trade relations between Brazil and China, between Brazil and other countries? It’s difficult because we are unaccustomed [to the idea]. Everyone depends on just one currency.”
Last year, BRICS countries were reviewing a new currency based on a basket of member currencies. The idea sprung out of incentives to move away from dollar dependence, which proved detrimental after Russia was cut off of its dollar reserves, due to its invasion of Ukraine.
And in January, in another bid to move away from the dollar’s dominance, Lula announced that Brazil and Argentina were looking into the development of a common currency.
His stance also represents warming ties between China and Brazil, as Lula attempts a multilateralist approach to foreign affairs. For instance, while maintaining good relations with the US, Brazil has recently agreed to using the yuan in cross-border transactions with China.
Though it’s been floated that such changes imply an important shift in the currency regime, a number of analysts have found the so-called de-dollarization of global trade highly improbable. While the dollar may weaken as the world’s go-to currency, there are no likely alternatives that would be able to completely replace it.
Even the Chinese yuan, whose role in trade finance has more than doubled since the Ukraine war, is a poor contender. Not only is it virtually pegged to the dollar, China’s tight control of it keeps it from adhering to free market flows.
The prospect of Brazilians casting the dollar off in the near future is also unlikely, FT reported, as the currency holds a crucial role in commodity markets and industries that Brazil is heavily involved in.
Read the original article on Business Insider