BRICS Chips at Dollar without fully dislodging its foundations

Local Currencies gain even as USD keeps structural advantage

By K Raveendran

The most important shift in the debate over the dollar is that BRICS is no longer concentrating on the politically spectacular but economically improbable idea of creating a common currency. The emphasis at the New Delhi summit has moved towards something more practical: making cross-border payments faster and cheaper, connecting national payment systems and allowing a larger proportion of trade and investment to be settled in local currencies.

That distinction matters. A payment system capable of bypassing the dollar is not the same thing as a currency capable of replacing it. BRICS may be getting closer to building the former while remaining a considerable distance from achieving the latter.

Finance ministers and central bank governors have put interoperability, local-currency settlement and links between fast-payment platforms and potentially central bank digital currencies at the centre of the discussion. India’s UPI and Brazil’s Pix demonstrate that emerging economies can build payment networks matching or surpassing systems in advanced economies. Linking such networks internationally could reduce transaction costs and dependence on correspondent banks without requiring a BRICS currency.

This is a more achievable form of de-dollarisation because it attacks the dollar’s use as a transaction intermediary rather than attempting immediately to replace its role as the world’s principal reserve asset.

China has been pursuing a broader objective. Beijing would like the yuan to assume a significantly larger international role and has steadily expanded mechanisms for settling trade in its currency. Chinese trade partners increasingly have access to yuan clearing arrangements, while the growth of China’s Cross-Border Interbank Payment System has created infrastructure that can operate alongside established Western financial networks.

Yet, the yuan faces constraints that payment technology cannot remove. China maintains capital controls, the currency is not freely convertible in the manner of the dollar, and global investors do not enjoy the same unrestricted access to Chinese financial markets. Reserve currency status ultimately depends on governments and investors being willing to hold enormous quantities of assets denominated in that currency, including during periods of political or financial stress.

This is where the dollar retains its overwhelming structural advantage. America provides the world with an exceptionally large pool of liquid government securities, deep capital markets and a currency that can be moved across borders with few restrictions. Even countries seeking to reduce their exposure to US influence continue to depend heavily on this architecture.

China itself illustrates the contradiction, although the position is changing faster than is sometimes acknowledged. Beijing has been reducing its holdings of US Treasury securities for years. By June 2026, mainland China’s holdings had fallen to about $633 billion, the lowest level since 2008 and sharply below their peak.

The decline shows that China is actively diversifying its reserves, so its investment in Treasuries can no longer simply be presented as evidence that Beijing is locked permanently into the dollar system. But hundreds of billions of dollars of remaining exposure also demonstrate the underlying problem. There is still no market of comparable scale into which China can effortlessly move those reserves without affecting prices, currencies or its own financial interests.

The Gulf presents another important test. Oil producers have become increasingly comfortable with settlement arrangements outside the dollar, particularly as their economic relationships with China and India expand. The UAE’s presence inside BRICS gives such discussions additional significance, while regional states have been exploring payment links and local-currency arrangements with Asian partners.

But willingness to accept yuan, rupees or other currencies for selected transactions does not amount to abandoning the petrodollar structure. Gulf currencies remain closely tied to the dollar, their sovereign wealth funds hold substantial dollar assets, and the United States remains important to their security and investment relationships. Diversification is therefore more plausible than displacement.

Washington is also making the currency issue harder to separate from geopolitics. Donald Trump has repeatedly threatened severe trade penalties against BRICS countries should they support a currency designed to replace the dollar. His administration has simultaneously used tariffs, trade negotiations and exchange-rate questions as instruments of economic policy.

There is an inherent tension in the American approach. Washington wants to preserve the extraordinary advantages conferred by reserve-currency status, but the Trump administration has also sought a more competitive dollar and a narrowing of US external imbalances. A reserve currency tends to generate persistent global demand, which can keep it stronger than domestic manufacturers would prefer.

Aggressive use of financial power creates another paradox. Sanctions, tariffs and threats can reinforce American leverage in the short term, but they also give other countries an incentive to develop systems that reduce their vulnerability to Washington.

That is why the BRICS payments project should not be dismissed merely because a rival reserve currency remains distant. Its significance lies in incremental change. If a Brazilian company can pay an Indian supplier directly in reais and rupees, or Gulf energy trade can increasingly be settled through interoperable Asian payment systems, fewer transactions will require dollars even if central banks continue to hold them.

The emerging order is therefore more likely to be one of monetary fragmentation than dollar replacement. The dollar can lose market share without losing primacy. The yuan can gain influence without becoming the dominant reserve currency. Local currencies can expand in bilateral trade without producing a unified BRICS monetary bloc.

BRICS has consequently chosen the route where it has the best prospect of progress: not overthrowing the dollar, but making it less indispensable. America’s financial depth, institutional infrastructure and enormous securities markets continue to protect dollar leadership. The greater danger to that leadership may ultimately come not from a dramatic BRICS currency but from thousands of transactions gradually discovering that they no longer require the dollar at all. (IPA Service)