There are talks between Brazil, Russia, India, China and South Africa on developing a new currency to take on the dominant dollar.
Currently, the US dollar serves as the world’s reserve currency primarily due to its petrodollar system, where oil transactions are conducted in dollars, and the proceeds are reinvested in US bond and treasury markets, Pask said.“For investors, the credibility and trustworthiness of the reserve currency are crucial factors.
Pask said that there are two primary reasons behind the recent narrative of why emerging markets are thinking of replacing the US dollar:The US and China tensions escalated significantly during the Trump administration, and obviously, recent developments in Ukraine have put tremendous strain on US and Russian relations, he said.
“That then means that you are ultimately importing some inflation, which in turn leads to higher interest rates, which negatively impacts growth.” It is also necessary to evaluate whether the effort invested in creating a BRICS reserve currency is even worthwhile. One could simply opt to hold the individual Brics currencies as reserves if needed.