Nicky Weimar, chief economist at South African financial services firm Nedbank, recently provided a detailed analysis of the prospects for a common BRICS currency to challenge the U.S. dollar's dominance. Speaking to Independent Online, she highlighted two fundamental obstacles: the need for foreign exchange reserves and the trust of the investment community.
Foundation of Reserve Currency: Trust and Track Record
Weimar emphasized that the U.S. dollar became the world's premier reserve currency because of the credibility of the Federal Reserve and the fact that the U.S. has never defaulted on its debt. Despite occasional moments of anxiety, the U.S. has never failed to meet its obligations. In contrast, she argued, the same cannot be said for any BRICS member. This is the first problem facing the bloc's ambition.
The second problem, according to Weimar, is that only China among BRICS nations has the scale to carry a reserve currency. However, China maintains strict capital controls. "You cannot have a reserve currency if you have capital controls," she stated. To make the yuan a credible competitor to the dollar, China would need to undergo enormous financial liberalization, opening its capital account and allowing free flow of funds in and out. Moreover, it must commit to this path consistently to build investor trust.
China's Dilemma and the Long Road Ahead
Weimar noted that while China has the capability to implement such reforms, it would require a fundamental shift in its economic governance. "I don't actually see them talking along those lines. It's almost like they haven't made that connection yet that you need to let go of some of the control. You also need to always be willing to provide it," she remarked.
The economist stressed that creating a BRICS common currency is not just about technical arrangements; it is about building the same level of trust that the dollar has enjoyed for decades. "A currency only has value if people believe it has value. And that trust has got to be there. So they've got a long journey ahead of them," she concluded.
Currently, the dollar accounts for roughly 59% of global foreign exchange reserves, while the yuan hovers around 2.5%. Until China addresses its capital controls and gains international confidence, a BRICS currency remains a distant vision rather than an imminent reality.