Unrealistic to talk of BRICS currency

Whenever there is a serious economic situation — such as the mismatch between the price of gold and the reality of the US economy in the late 1960s, the two oil crises of the 1970s, the various financial problems throughout the 1990s, the creation of the euro in the early 2000s and the 2008 global financial crisis — many expect the dollar to lose its importance.

- RENATO BAUMANN

Those expectations have proved to be extrapolative.

It is true that there has been an increase in the relative weight of other currencies as a means of trade, as well as part of foreign exchange reserves for a number of economies. But the US dollar remains the predominant reference in the international market: it still accounts for about 85 per cent of all foreign exchange transactions, 61 per cent of official foreign exchange reserves (although down from 77 per cent in 1970), 40 per cent of international payments, and half of all international securities and cross-border loans issued by non-US residents.

The US dollar being universally accepted provides liquidity to private transactions, which many other currencies do not do. No other monetary system offers an equivalent number of “investment grade” government bonds as the United States. And potentially competing currencies are handicapped by the absence of adequate regulation in the financial system of the country they represent.

A broad global use of a dominant funding currency has benefits, as it generates economies of scale and network effects, thus reducing the costs of transferring capital and risks around the financial system. For foreign economies, this allows borrowers to have access to a broad pool of lenders and investors, reducing funding and transaction costs.