What is BRICS?
BRICS stands for Brazil, Russia, India, China, and South Africa. It is an inter-governmental organization. BRICS held its first summit on June 16, 2009. The summit took place in Yekaterinburg, Russia. South Africa joined BRIC in 2010, prompting the group to rename itself BRICS. Recently, additional nations like Iran, Egypt, Ethiopia, and the UAE joined the summit in 2024. Reports suggest that BRICS accounts for over 35% of today’s global GDP. Experts estimate that this share exceeds half of the European Union’s share.
Proposal for a BRICS Common Currency
The BRICS summit took place in Johannesburg on August 23, 2023. Brazil’s President Luiz Inacio Lula da Silva attended the summit. He suggested that BRICS countries create a shared currency. He argued that a unified currency could boost trade. It could also increase investment within the bloc. Additionally, it could reduce reliance on the U.S. dollar.
Updates from the 16th BRICS Summit
The 16th BRICS summit took place from October 22-24, 2024. Many people eagerly awaited updates on a common BRICS currency, informally known as “the Unit.” People see this currency as a step toward de-dollarization. However, President Putin expressed a different stance. He stated that BRICS would focus on alternative transaction systems for intra-group trade. Putin also clarified that BRICS would not directly aim for de-dollarization. The Russian President also mentioned that BRICS is exploring digital currencies but did not provide further details.
Global Impact of a Potential BRICS Currency
If BRICS does eventually launch a unified currency, it could have global repercussions. The U.S. has imposed various restrictions on Russia due to its war with Ukraine and on Iran for its nuclear program; both are oil-rich countries. Moving away from the dollar could diminish the global dollar trade, particularly in energy. Additionally, if former President Donald Trump wins a second term, he may reinstate tariffs on Chinese products, prompting China to continue shifting away from the dollar. Many nations outside of BRICS are also fostering closer ties with China to balance global power and reduce exposure to dollar fluctuations. If 35% of the world’s GDP shifts toward de-dollarization, this would undoubtedly impact the global economy.
No Official Release Date for the BRICS Currency
Currently, no official announcement has been made regarding the release of “the Unit.” Launching a new currency is complex and requires setting up a central bank and implementing monetary policies that suit all BRICS nations. However, Russia, Iran, and China appear particularly eager to establish a BRICS currency to challenge the dollar’s dominance and support their economies in response to U.S. tariffs.
Preparing to Invest in BRICS Currency
While BRICS has not yet confirmed a unified currency, interested investors can prepare for this possibility from the following steps:
- Stay Updated: Investors should monitor news from BRICS summits and statements from BRICS central banks and finance ministers. Economic indicators from these countries could provide insights into the currency’s potential.
- Consider BRICS-Focused Investments: ETFs, mutual funds, or stocks related to BRICS nations may offer indirect exposure. Sovereign bonds from BRICS countries might also gain value if a unified currency is introduced.
- Follow International Monetary Policies: By keeping an eye on monetary policies in BRICS countries, investors can gain insights into how the currency may be positioned globally.
- Open Forex Accounts: Setting up accounts with Forex-friendly banks or platforms can make it easier to invest in or trade a BRICS currency when it becomes available.
Potential Benefits of a BRICS Currency Investment
Diversification Opportunity
A BRICS currency could provide a unique diversification opportunity for investors seeking to balance their portfolios with assets beyond traditional currencies like the U.S. dollar or Euro. Representing multiple emerging economies with significant global influence, a BRICS currency offers exposure to diverse economic conditions. This diversification can be beneficial for investors looking to hedge against the volatility associated with Western assets while tapping into the growth potential of developing markets.
Economic Growth in BRICS Nations
BRICS countries represent a major share of the global population and economic output. As their economies grow, a unified BRICS currency could benefit from this expansion, potentially increasing in value. The strength of each member country would support the currency’s stability, making it attractive to long-term investors. Additionally, as BRICS nations strengthen trade partnerships and improve infrastructure, the currency could become a formidable alternative to established reserve currencies.
Risks of Investing in BRICS Currency
Political Instability
Despite the economic potential, a BRICS currency would be exposed to geopolitical risks. The BRICS countries have diverse political systems and foreign policies, and conflicts or diplomatic tensions could destabilize the currency. For instance, conflicts between China and India or sanctions affecting Russia could undermine the currency’s stability and deter investor confidence, leading to fluctuations in its value.
Exchange Rate Volatility
As a new currency, a BRICS currency would likely experience high volatility, particularly during its early stages. Emerging currencies often face rapid fluctuations as they establish themselves, and a BRICS currency—reflecting economies with differing growth rates and inflation levels—could be especially susceptible. This volatility would require investors to have a high risk tolerance, as unexpected value shifts could lead to short-term losses and longer holding periods to weather the fluctuations.