Discussions on financing trade and investment in non-US dollar denominated currencies during the two day summit of the BRICS nations in Johannesburg last week underlined the serious intent driving the de-dollarisation movement. It potentially challenges the dominance of the US dollar in the letter of credit (L/C) market as well as the euro in wider trade finance and investment markets.

The admission of six new countries to the existing bloc of major economies - Brazil, Russia, India, China and South Africa - is expected to add impetus to the movement, with some of the new members already involved in domestic currency L/C developments.

Creating a BRICS space

"Today, the world takes notice of the bloc because it is at the forefront of the global discourse on currency relations, global payment systems, new trade, and other important, consequential topics," South Africa's deputy president Paul Mashatile said in a speech on the eve of the

Johannesberg summit.

"We are not here to compete with the west. We want our space in global business," he added.

Common currency

Later in the summit, Brazil's President Luiz Inacio Lula da Silva proposed the idea of establishing a common currency among the BRICS nations for trade and investment.

Some experts question, while others support the feasibility of this idea, which echoes Russian President Vladimir Putin's calls in 2022 for a gold-backed BRICS currency.

New members

From the beginning of next year, Iran, Saudi Arabia, Egypt, Argentina, the UAE and Ethiopia will join the bloc.

As they were already members of the BRICS's New Development Bank, the UAE and Egypt had been expected to join, but invitations to admit Iran, Argentina, Ethiopia and, perhaps most of all, Saudi Arabia to the bloc had not been widely anticipated.

Existing arrangements

New member Iran says it has already established mechanisms with Russia for coupling bank guarantee letters with domestic L/Cs to facilitate trade between the two countries using their own currencies (DC World News, 14 June 2023).

Chinese President Xi Jinping told Gulf Arab leaders in December that China would work to buy oil and gas in yuan. Saudi Arabia, a major supplier of oil to China, is reportedly close to establishing renminbi-based deals.

Non-BRICS also benefit

Countries outside the bloc are also benefitting from trade denominated in existing or new members' currencies.

The UAE, Russia and China have already agreed to their currencies being used by Pakistan to import discounted Russian crude oil while India has introduced mechanisms to facilitate Indian rupee-denominated trade with Sri Lanka.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.