Russia's Deputy head of Security Council asserts BRICS can create its own reserve currency

Dmitry Medvedev, the deputy head of the Russian Security Council, stated on July 12 that the BRICS group, which comprises Brazil, Russia, India, China and South Africa, might establish a new common reserve currency. Dmitry Medvedev's remarks came after the Euro and the Dollar became nearly equal in value, approaching a one-to-one exchange rate.

"The best protection against the rotting euro will be the transition to new payment methods in trade with our reliable partners, including through the use of national currencies – the Russian ruble, the Chinese yuan, the Indian rupee, etc. In the future, it is also possible to establish a new reserve currency of the BRICS countries. The dollar, euro, and pound sterling are clearly not enough for the modern world," the Russian Security Council's deputy head wrote on Telegram.

The BRICS nations are presently working to establish a new global reserve currency, according to Russia's President Vladimir Putin. He further added that the member nations are also creating trustworthy substitute mechanisms for cross-border payments. In a bid to reduce reliance on the Western financial system, the group had earlier stated that it was working to establish a joint payment network. Additionally, the BRICS nations have increased the use of domestic currencies in cross-border trade.

"The issue of creating an international reserve currency based on a basket of currencies of our countries is being worked out," Putin said.

Why US dollar is used for international transactions?

The US dollar is used by nations for international transactions because it is a stable currency that is easily convertible everywhere in the world and because commodities like oil are priced in dollars. The BRICS currencies aren't thought to be fully convertible. The Chinese yuan is an International Monetary Fund (IMF) reserve drawing rights (SDR) currency, officially making it an international currency, but even the yuan has limited convertibility.

In addition to the dollar's strength and convertibility, central banks around the world hold U.S. dollars as a significant portion of their foreign exchange reserves due to the dollar's value in settling international trade. Other countries do not want to hold reserves in the South African rand, Brazilian real or Russian ruble because they are all relatively fragile currencies.

Image: AP