- Russia and China are developing a new reserve currency with other BRICS countries, President Vladimir Putin has said.
- The basket currency would rival a US-dominated IMF alternative and allow Russia to expand its influence, an analyst has said.
- The dollar’s dominance is already eroding as central banks diversify into Chinese yuan and smaller currencies.
Russia is poised to develop a new global reserve currency alongside China and other BRICS nations, in a potential challenge to US dollar dominance.
President Vladimir Putin has signaled that the new reserve currency will be based on a basket of group member currencies: Brazil, Russia, India, China and South Africa.
“The question of creating the international reserve currency based on the basket of currencies of our countries is being considered,” Putin told the BRICS Business Forum on Wednesday, according to a TASS report. “We are ready to work openly with all partners of the show.”
The dollar has long been considered the world’s reserve currency, but its dominance in the share of international foreign exchange reserves is declining. Central banks are looking to diversify their holdings into currencies like the yuan, as well as non-traditional areas like the Swedish krona and South Korean won, according to the International Monetary Fund.
“This is a move aimed at addressing the perceived US hegemony of the IMF,” ING’s global head of markets Chris Turner said in a note. “This will allow the BRICS to build their own sphere of influence and their own monetary unit within that sphere.”
Russia’s move comes after Western sanctions imposed over the war in Ukraine virtually cut the country off from the global financial system, limiting access to its dollars and straining its economy.
“The speed with which Western nations and their allies sanctioned Russian foreign exchange reserves (freezing about half) undoubtedly shocked the Russian authorities,” ING’s Turner said.
“The Central Bank of Russia has indeed admitted this, and there is no doubt that some BRICS countries – particularly China – have noticed the speed and stealth with which the US Treasury has acted,” he added. .
Those sanctions likely encouraged Moscow and Beijing to work on an alternative to the IMF’s international reserve asset, special drawing rights, Turner suggested.
Although not a reserve currency, the SDR is based on a basket of currencies made up of the US dollar, euro, British pound and Japanese yen, as well as the Chinese yuan.
One possibility is that the BRICS basket currency could attract reserves not only from members of the group, but also from countries already in their area of influence, he suggested. These include countries in South Asia and the Middle East.
Russia saw its currency, the rouble, rebound above its pre-war level, thanks to central bank support, after plunging 70% in less than two weeks after the invasion of Ukraine . It rose 15.2% in June to 1.87 cents. Meanwhile, the yuan held steady at around $0.15 over the same period.
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