Welcome to Latam Insights Encore, a deep dive into Latin America’s most relevant economic and cryptocurrency news from last week. In this edition, we examine how Brazil’s firm determination to push the world toward a multipolar financial system can pay off in the long term. As the next chairman of BRICS, Brazil will be responsible for building on the groundwork laid by Russia during this period.

Latam Insights Encore: Brazil Called to Spearhead Issuance of New Common Currency to Grow BRICS Influence

The government of Brazil will be in charge of supercharging the de-dollarization of trade flows in BRICS, in advance of building a new financial, BRICS-led financial system. While the bloc, integrated by Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE), is already advancing measures to implement a new payment system to streamline international transactions between their members, this approach has its drawbacks.

BRICS is an organization that seeks to grow and include more countries aligned with the multi-polar vision of its founding members. The local currency exchange system might put entrants at a disadvantage with their peers, given the relatively low liquidity and the unwillingness of the other members to receive payments in their currency.

Economists have also criticized this kind of arrangement, stating that this would be difficult to implement with countries outside of the bloc, failing to extend the alternate payment system. Others specify that managing currency fluctuations would be key for the stability of this new system. Gopal Tripathy, head of Treasury at Jana Small Finance Bank in India, stated that “they might use the USD [U.S. dollar] as a reference currency. In that case, the whole purpose of moving away from the dollar is lost.”

If Brazil is serious about de-dollarization, a common trade currency between bloc countries, and the institutionalization of the so-called BRICS bank – the New Development Bank – as a World Bank/ International Monetary Fund alternative is the next step to achieve this objective. This currency might be anchored to the value of gold, abandoning the usage of the U.S. dollar as a proxy, advancing the objectives of de-platforming it in every way possible.

Such a currency will need a new payment system, such as the one already being demoed. In time, this system might become a SWIFT alternative, serving as a usable parallel financial system for both BRICS and non-BRICS countries. If BRICS continues to grow, it’s only a matter of time before countries outside the bloc adopt this system to maintain effective trading relations with it. Brazil has already called for this, and President Lula is sure to advance the idea.