The Reserve Bank of India (RBI) proposed to link all BRICS nations’ central bank digital currencies (CBDCs) for trade this week. The proposal has immense weightage, as India hosts the 2026 summit in New Delhi. Therefore, the Modi-led government is serious about the proposal and could take it forward during the summit later this year.
What Happens To the US Dollar If BRICS Nations Link Their CBDC Currencies?
The US dollar will not collapse if BRICS nations actively begin using their CBDC currencies for trade. However, the role of the US dollar in the global financial stage will experience a rapid change. The change includes the US dollar losing some transactional dominance in cross-border transactions. Moreover, it will keep its reserve currency status dominant and still be a safe haven for investors.
The only change BRICS could experience using their CBDC currencies is faster settlements and cheaper exchange rates compared to the US dollar. The 10-member bloc would save millions in exchange rates as they bypass the US dollar mechanism.
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This would make BRICS begin using their CBDC currencies for oil and gas, and other commodities, and not the US dollar. No doubt, the US dollar will be hit, but its role in the global financial sector will be dominant. Foreign exchange reserves would face little to no corrections as the trust in the US dollar will be intact.
BRICS’ CBDC currencies will only be as strong as the financial system behind them. The US dollar boasts of a robust mechanism, and most importantly, it is easier to liquidate. That cannot be said about the CBDC currencies, as transactions would be sensitive with no hedging. Most importantly, the trust in Russia’s ruble, Chinese yuan, and India’s rupee is low. Other countries would not want to hold on to the currency as it’s difficult to liquidate when needed.
