The USD, BRICS and the Mirage of Monetary Realignment

Assessing the structural limits of reserve currency realignment and why practical dominance still rests with the U.S. dollar

The U.S. dollar’s reign as the world’s dominant reserve currency, established formally under the Bretton Woods system in 1944, has come under renewed scrutiny over the past two years, particularly since 2022 when geopolitical sanctions, rising fiscal deficits, and accelerated interest rate hikes reignited global conversations around dollar dependence. With 10-year U.S. Treasury yields rising from 0.93% in January 2021 to 4.38% by May 2024, and the federal deficit ballooning from $984 billion in FY2019 to $1.8 trillion in FY2024, institutional confidence in the long-term fiscal trajectory of the U.S. is being challenged. Simultaneously, emerging markets led by the BRICS bloc,representing over 42% of the global population and about 31.5% of global GDP,are advocating for an alternative currency framework to reduce their dependence on the greenback. But beneath the rhetoric lies a fundamental truth: systemic dominance isn’t dismantled by declarations.

While the dollar's share of global FX reserves has declined from 71% in 2000 to approximately 57.8% by Q4 2024 (according to IMF COFER data), this slow erosion has occurred alongside rising global trade complexity and a fragmented geopolitical landscape. The dollar remains dominant because alternatives remain deeply fragmented and structurally incomplete.

The Infrastructure Behind Dollar Dominance

The U.S. Treasury market, valued at over $26 trillion as of Q1 2024, provides unmatched liquidity and credit depth. In 2023 alone, approximately 88% of global FX transactions involved the dollar (BIS Triennial Survey). According to SWIFT, over 40% of international payments in early 2024 were denominated in USD. Additionally, the Federal Reserve’s network of swap lines offers systemic liquidity support to global central banks,a backstop unmatched by any BRICS institution.

While Moody’s downgraded U.S. debt from Aaa to Aa1 in November 2023, citing rising interest burdens and legislative dysfunction, the 30-year Treasury yield remains below 4.7%,still competitive given the perceived safety and legal enforceability of U.S. government bonds. U.S. debt-to-GDP, which stood at 107% in 2019, reached 123% in early 2024 and is projected by the CBO to surpass 130% by 2033. Yet global allocators continue to absorb issuance due to the lack of scalable, liquid alternatives.

The BRICS Currency Ambition: A Structural Mismatch

At the 16th BRICS Summit in Kazan in October 2024, member states reaffirmed their interest in reducing reliance on the U.S. dollar, but the tone was more pragmatic than revolutionary. While public statements continued to promote de-dollarisation, the final communique made no mention of a shared BRICS currency. Brazil and India, in particular, reiterated their preference for enhancing trade in local currencies rather than pursuing a formal monetary union, citing the absence of consensus on governance, convertibility, and anchor currency frameworks.

China and Russia have led rhetoric supporting de-dollarisation, yet SWIFT data shows the renminbi still accounts for less than 3.2% of global payments as of March 2024. This compares with the euro at 23.5% and the dollar at 42.6%.

Challenges to a Unified Monetary Instrument

The structural limitations of the BRICS currency concept begin with governance. The People’s Bank of China (PBoC), which would inevitably dominate any such framework, operates under direct political control and lacks the independence and transparency typically associated with reserve-issuing institutions. In contrast, the European Central Bank and the U.S. Federal Reserve function under clear inflation-targeting mandates and judicial safeguards.

Beyond governance, policy asymmetry remains stark. India’s central bank targets inflation at around 4 percent. Brazil maintained a SELIC rate above 13 percent for most of 2023 to combat inflation, while China has continued easing in response to deflationary pressures. These diverging monetary paths render a stable shared currency structurally unworkable.

Capital markets add another layer of fragmentation. There is no unified BRICS yield curve, no harmonised regulatory environment, and limited cross-border financial integration. China’s bond market, despite its estimated size of $20 trillion, remains largely inaccessible to non-residents. Brazil and South Africa, meanwhile, depend heavily on foreign capital flows to stabilise their domestic markets.

Geopolitical tensions, particularly between China and India, are persistent and unresolved. Border disputes have flared repeatedly since 2020. In such an environment, monetary cooperation cannot evolve beyond statements of intent.

Lastly, domestic politics are a constraint. Converging on a shared fiscal or monetary rulebook would likely provoke political backlash in India, Brazil, and South Africa, where policy sovereignty remains a matter of national identity. Without public support and political alignment, integration remains aspirational. Domestic Political Resistance: Implementing a shared BRICS currency would likely require domestic fiscal and monetary convergence, an unpopular proposition in democracies like Brazil and India where inflation history remains electorally sensitive.

Why the Dollar Isn’t Going Anywhere (Yet)

Despite noise around de-dollarization, actual usage remains highly concentrated. Despite ongoing de-dollarization rhetoric, cross-border settlement in the Asia-Pacific region remains overwhelmingly reliant on the U.S. dollar and euro, which together account for over 80% of global payment flows, according to the most recent BIS and SWIFT data. Yuan-based oil transactions between China and Gulf states remain anecdotal, not systemic.

Efforts such as BRICS Pay or the Contingent Reserve Arrangement, while directionally notable, are limited in scale and rarely used for crisis liquidity support. Most BRICS cross-border trade continues to clear via SWIFT or CHIPS.

Reserve currency status is not declared, it is earned. It rests on three pillars: deep, accessible capital markets; legal safeguards enforceable across jurisdictions; and a level of political neutrality that engenders third-party confidence. At present, none of these characteristics apply to BRICS collectively or to China individually.

What Institutional Allocators Should Take From This

Institutional allocators are unlikely to pivot away from USD exposures in the absence of hard constraints. However, institutional risk scenarios must begin accounting for a wider array of structural exposures. These include the growing fiscal pressure underpinning accelerated Treasury issuance, heightened volatility linked to sanctions regimes and geopolitical realignments, and the operational risks introduced by an increasingly fragmented cross-border payment infrastructure.

Conclusion

The U.S. dollar’s dominance is not absolute, but it remains unchallenged in practical terms. The BRICS bloc may seek to erode dollar hegemony, but it lacks the institutional, monetary, and geopolitical cohesion to present a serious alternative.

The more relevant trend is not collapse but friction: increased bilateral trade outside of dollars, targeted settlement innovation, and politically driven portfolio shifts. For now, allocators should treat BRICS currency headlines as noise,but build flexibility into their exposure frameworks.

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