Unseating the US dollar is not in the pipeline for BRICS countries, SA reiterates

The threat by US president-elect Donald Trump to impose 100% tariffs on BRICS countries if they unseat the mighty US dollar and create a new common currency for trade, might be empty and even a non-starter. 

This is because BRICS countries – Brazil, Russia, India, China, South Africa and others that recently joined the bloc – have only floated dethroning the US dollar as an idea, but have not considered its feasibility, or made a decision on it at a policy level.

So, Trump may have been premature with his warning on X at the weekend that if BRICS countries adopted an alternative currency then they would “face 100% tariffs and should expect to say goodbye to selling into the wonderful US economy”. 

“They can go find another ‘sucker’. There is no chance that the BRICS will replace the US dollar in international trade, and any country that tries should wave goodbye to America,” Trump said on X. 

The US is a key trading partner of South Africa, with top exports to the former including platinum, gold, coal and cars. Increasing tariffs would make it difficult and expensive for local exporters to access the US market. 

There are already concerns about South Africa’s trade relationship with the US being under threat during Trump’s second presidency. One concern is the long-standing African Growth and Opportunity Act (Agoa), which allows South Africa and other African countries duty-free access to the US for certain exports. Agoa, renewed twice since its launch in 2000, is due to expire in September 2025. Trump has in the past questioned the benefits of Agoa for the US economy and might consider restricting South Africa’s access under this Act if he perceives the country’s policies to be misaligned with US interests.

Read more: SA economy and fortunes risk a devastating blow from protectionist Trump 2.0

On Monday, 2 December, the South African government – led by the Department of International Relations and Cooperation (supported by Treasury) – had to clarify its stance on the BRICS currency matter that has vexed Trump. 

The government said BRICS leaders have only called for reforming the international financial system to facilitate trade in local currencies, including Brazil’s real, Russia’s ruble, India’s rupee, China’s renminbi/yuan, and South Africa’s rand. This would be over and above using the US dollar.

“However, BRICS is not discussing the creation of a common BRICS currency. Instead, South Africa supports the increased use of national currencies in international trade and financial transactions to mitigate the impact of foreign exchange fluctuations, rather than focusing on de-dollarisation [not using the dollar for world trade and financial transactions].”

In other words, the US dollar still has a firm place in the global economy and international trade, and the BRICS countries are still happy to use the currency. 

Arguably, South Africa must smooth relations with the US since it took over the Group of 20 (G20) presidency at the weekend. All five original BRICS nations are members of the G20, alongside the US.

Read more: After the Bell: SA’s G20 gig: bigger than 2010 and Zakumi – don’t blow it!

Decision-makers such as Finance Minister Enoch Godongwana are against unseating the dollar because of its importance. Repeating its stance, Treasury said it had “emphasised that enhancing BRICS payment systems to accommodate trading in local currencies does not imply de-dollarisation”. 

The dollar is considered the world’s de facto global currency, owing to the US’s mature economy, transparent fiscal and monetary policies and globally open trade environment. And the dollar is already entrenched in the economies and public finances of BRICS countries.

In South Africa’s case, about 10.3% (or R577.2-billion) of the government’s gross debt of R5.6-trillion in the 2024/25 fiscal year is denominated in foreign currencies (including the dollar), according to the latest Medium-Term Budget Policy Statement. So, walking away from the dollar would not be easy.

During the three-day BRICS Summit in Johannesburg in August 2023, which resulted in Saudi Arabia, the United Arab Emirates, Iran, Ethiopia and Egypt being added to the bloc, some BRICS heads of state seemed to have been divided on the issue of relying less on the US dollar. 

Brazil’s President Lula da Silva pushed for a BRICS common currency during the summit, saying a new common currency for trade and investment transactions between BRICS members would “increase our payment options and reduce our vulnerabilities”.

BRICS nations such as Brazil, Russia and China have argued that the dollar is volatile, as seen in its wild swings every time the US central bank makes interest rate decisions or there are any signs that the US economy is slowing. This volatility creates a financial headache for BRICS members, which makes their dollar-denominated debt more expensive to service.

South Africa’s stance on the matter has been more measured, with Godongwana previously telling Daily Maverick that a common currency would be complex to implement and the debate should be left to central banks, which are tasked with protecting the value of currencies, and the stability of financial systems.

Read more: Enoch Godongwana: Unseating the mighty dollar is a non-starter

Godongwana chairs the BRICS workstream of finance ministers, tasked with building mechanisms for cooperation in areas of economic development, sustainable finance and payment areas, among others.

The complexity of developing a common currency is that BRICS nations are vastly different; they differ in their policy deployment, GDP generation, currency management, interest rates and inflation policies.

The BRICS leaders have agreed to explore the increased use of BRICS currencies when conducting trade and financial transactions among their countries.

To do this, the New Development Bank (NDB), the Shanghai-based lender better known as the “BRICS Bank” which has invested $30-billion in infrastructure and sustainable development projects, will be targeted as the institution will start lending in the currencies of emerging nations. How the NDB’s funding and lending works is that it borrows money on the Chinese market, funding projects from the proceeds of its bond issuances that are traditionally denominated in the renminbi/yuan. It is exploring ways to fund more projects in rands. DM