BRICS (Brazil, Russia, India, China, South Africa) has proposed ambitious financial reforms, including the creation of a common currency. The BRICS New Development Bank and regional development banks are seen as key players in promoting mutual trade and reducing reliance on the dollar. Proponents argue that a common BRICS currency, potentially backed by gold or other resource assets, could transform the global monetary system and strengthen economic ties within the bloc.

De-dollarisation refers to the reduced dominance of the US dollar in global transactions, tracked through its declining share in areas such as international reserves, cross-border lending, debt securities, derivatives, and payments. To accurately assess trends, currency shares are adjusted for exchange rate fluctuations.

BRICS+, an informal bloc of nations, consists of the core five members (Brazil, Russia, India, China, South Africa) and four recent additions (Egypt, Ethiopia, Iran, UAE), collectively representing 37% of global GDP (by PPP) and 44% of the world’s population. Numerous countries, including Azerbaijan, Bangladesh, Turkey, and Venezuela, have applied for membership, contributing an additional 5% of GDP and 8% of the global population. Saudi Arabia, producing 11% of the world’s oil, has been invited but has yet to respond.

The de-dollarisation process has notably benefited BRICS and other emerging market (EM) currencies. Over the past four years, BRICS currencies have increased their share of cross-border bank claims by 6 percentage points (pps) to 15%, while other EM currencies grew by 4 pps to 19%. In international debt securities, BRICS currencies gained 5 pps to 11%, with other non-core currencies rising 4 pps to 9%. On the broader external debt level, BRICS currencies show a consistent upward trend, currently accounting for 34%.

However, the feasibility of such a currency remains uncertain. Analysts highlight significant obstacles, including low liquidity in local currencies, the volatility of digital currencies, and the yuan’s restricted convertibility. Even within BRICS, there are divergent interests regarding the modalities of a common currency, reflecting broader geopolitical tensions.

Strategic Choices and Global Dynamics

The rise of the BRICS alliance, coupled with recent trends towards de-dollarization, has placed India at the centre of a complex geopolitical and economic debate. As emerging economies seek alternatives to the US dollar, India faces a conundrum: whether to align with the BRICS’ de-dollarization efforts or prioritize its strategic partnerships with the West, particularly the United States. This essay critically examines India’s position, the broader implications of de-dollarization, and the strategic choices facing New Delhi in the shifting global economic landscape.

Strategic Implications for India and Global Power Dynamics

The de-dollarization debate within BRICS highlights the broader reconfiguration of global power dynamics. China’s push for financial reforms and its emphasis on “integration of integrations” within BRICS aim to reshape the international monetary system. However, this vision often clashes with India’s aspirations to lead the Global South and maintain strategic autonomy.

India’s dual alignment strategy—engaging with BRICS while deepening ties with the G7 and the Quad—illustrates its attempt to balance competing interests. However, China’s growing influence within BRICS poses a direct challenge to India’s regional and global ambitions. The lack of clarity in India’s foreign policy, particularly regarding its relationship with Moscow and alignment with Western powers, complicates its strategic calculus.

India’s Position on De-Dollarization: Pragmatism Over Ideology

India’s External Affairs Minister, S. Jaishankar, recently articulated New Delhi’s cautious stance on de-dollarization at the Carnegie Endowment for International Peace. He emphasized that India has not actively targeted the dollar as part of its economic strategy, underscoring a pragmatic approach to maintaining economic stability while exploring alternatives. India’s decision reflects its broader foreign policy objectives: fostering economic growth, maintaining regional stability, and asserting leadership in the Global South.

However, India’s position is challenged by the endorsement of de-dollarization by other BRICS members, particularly China and Russia. Russian President Vladimir Putin and Chinese President Xi Jinping have aggressively pursued alternatives to the dollar, framing it as a geopolitical strategy to counter US hegemony. While their motivations align with broader BRICS goals, India recognizes the risks of such a shift, particularly given its reliance on dollar-denominated trade and investments.

India’s Strategic Path

Experts have advised that India must adopt a multifaceted approach which include, strengthening economic resilience, prioritize economic policies that enhance trade diversification and reduce vulnerabilities to external shocks. Promoting regional cooperation: India can play a leadership role in fostering regional financial autonomy within South Asia and the Indo-Pacific, aligning with countries like Japan and Australia to counterbalance China’s influence. Engaging constructively with BRICS: While remaining cautious about China’s dominance. Leveraging multilateral platforms: India’s active participation in the G20, Quad, and other multilateral forums can strengthen its global standing and counterbalance the influence of authoritarian regimes within BRICS. And focusing on currency stability, means recognizing the continued importance of the dollar, India should avoid premature shifts to alternative currencies that could destabilize its economy.

The Expansion of BRICS and India’s Economic Concerns

The 2024 BRICS Summit in Kazan marked a significant moment with the inclusion of new members—Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE. While proponents argue that the expansion strengthens BRICS’ influence, skeptics, including many in India, highlight the challenges it poses.

Firstly, the economic benefits of BRICS membership remain uneven. For instance, while India has pursued bilateral projects, like the Chabahar Port development, these initiatives are not directly tied to BRICS. Moreover, China’s economic dominance within the bloc has led to concerns about its disproportionate influence. China’s trade aggression and its strategic use of the BRICS platform to advance its agenda undermine the cooperative spirit that BRICS ostensibly represents.

Secondly, the inclusion of countries like Saudi Arabia and Iran complicates consensus-building within BRICS. The European Union has expressed concerns that the expanded bloc could disrupt the Bretton Woods order and complicate international decision-making, particularly on issues like the Ukraine war.

De-Dollarization and the US Factor

The push for de-dollarization is not just an internal BRICS debate but also a response to perceived vulnerabilities in the US financial system. The US dollar’s dominance has been challenged by rising debt levels and declining foreign-held reserves, which have fallen from 33% in 2015 to 22% in 2023. These trends raise questions about the long-term stability of the dollar as a global reserve currency.

The return of Donald Trump as US President in 2024 adds another layer of complexity. His protectionist policies, including threats of 100% tariffs on countries decoupling from the dollar, could have severe economic repercussions for India, particularly in sectors like tea and rice exports.

A study by the Atlantic Council’s GeoEconomics Center confirms that the U.S. dollar remains the dominant global reserve currency, with neither the euro nor BRICS nations making significant progress in reducing global reliance on it. The Dollar Dominance Monitor underscores the dollar’s continued leadership in foreign reserve holdings, trade invoicing, and currency transactions, securing its primacy for the foreseeable future. The dollar’s strength is attributed to the robust U.S. economy, tighter monetary policy, and heightened geopolitical risks. While Western sanctions on Russia have spurred BRICS to explore alternative currency systems, their de-dollarization efforts have seen little success.

Impact on Seri Lanka

Sri Lanka stands to benefit significantly from alternative trade systems, such as a common currency or a barter system independent of the US dollar, especially with key partners like India, China, Russia, and Iran. Such mechanisms, potentially based on purchasing power parity, could alleviate the country’s dollar shortages and ease its economic struggles.

However, China’s growing influence within BRICS raises concerns about Sri Lanka’s ability to balance relations with both BRICS nations and Western allies, given its reliance on favourable trade agreements with the EU and the US. While closer ties with BRICS, especially China, could strengthen economic security, Sri Lanka risks diminished Western influence, aligning with China’s strategic goals.

At the recent BRICS summit, Sri Lanka emphasized the importance of fairness, justice, and respect for sovereignty, calling for a balanced global system where all nations have equitable opportunities. The country’s non-aligned foreign policy adds complexity, as joining BRICS+ may be perceived as favouring one bloc over others. Nonetheless, BRICS members and potential entrants are largely non-aligned, suggesting that Sri Lanka’s foreign policy stance could remain intact while seeking economic and geopolitical security.

(The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT University, Malabe. He is also the author of the “Doing Social Research and Publishing Results”, a Springer publication (Singapore), and “Samaja Gaveshakaya (in Sinhala). The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the official policy or position of the institution he works for. He can be contacted at saliya.a@slit.lk and www.researcher.com)