By Swann Collins, essayist and consultant in international affairs – Eurasia Business News, April 13, 2023

During his first state visit to China since taking office in January, the Brazilian President Luiz Inácio Lula da Silva proposed today to choose an alternative currency to the dollar for use in trade between the BRICS countries.

Why can’t a bank like BRICS’ bank have a currency that would be used in trade between Brazil and China, Brazil and other BRICS countries. It’s difficult because some people aren’t used to it,” he said during the inauguration ceremony of Dilma Rousseff as the new head of the New Development Bank (BRICS Bank) in Shanghai.

Lula da Silva added that other countries could be more active in using their own currencies in trade, without using the dollar.

Who decided that it was the dollar that would become the currency for settlements after gold? Why not yen, why not real, why not peso? Because once our currencies were weak and had no value in other countries,” he stressed.

Earlier the Central Bank of Brazil announced the signature of an agreement with the Chinese Central Bank on the direct conversion of the currencies of the two countries when performing commercial transactions, without the mediation of the dollar.

Surfing on the movement of de-dollarization and challenge to the hegemony of the dollar, the Brazilian President Lula wants to create a common currency to promote trade in Latin America. This expected currency, the SUR (“the South”) is not intended to replace the currencies of Latin American countries. It would be a complement to the trade and financial flows of the subcontinent.

Latin America has a population of 650 million, almost twice as many as the euro area (345 million), and speaks the same language in most countries. Its use is expected to strengthen trade in Latin America. It could also be extended in the long term to other countries such as Russia, China and India, at the forefront of the de-dollarization movement. Gold could become a standard for the currencies of the BRICS countries, which have among the largest gold reserves in the world.

The creation of a new currency within the framework of the BRICS (Brazil, India, China, Russia and South Africa), Latin American and Caribbean countries will be discussed at the association’s summit, to be held at the end of August in South Africa, Russian Foreign Minister Sergey Lavrov said after a conversation with Angolan President João Lourenço on January 25.

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The dollar has been the main international reserve and payment currency for almost 80 years, as a result of the Bretton Woods Conference held in 1944. Then the countries signed an agreement that laid the foundations for a new system of organization of monetary relations and banking activities in the world. The International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF) were established. The U.S. dollar became one of the world’s means of payment, along with gold. The end of the gold exchange-standard, decided by U.S. President Nixon on August 15, 1971, marked the entry into the age of fully fiduciary currencies, without a metallic base. Nixon ordered Treasury Secretary John Bowden Connally to decouple gold from its fixed price of $ 35 per troy ounce and suspend the ability of foreign banks to directly exchange dollars for gold.

This decision led to the end of the Bretton Woods system. After nearly 2,500 years of dominance, gold was not anymore a benchmark for legal currencies. The sole guarantee of value of fiat money is confidence in the economic power of the states issuing the currency.[1] Nevertheless, the geopolitical transformations of the year 2022, still in progress in 2023, have consequences on the international monetary system. The influence of the dollar is decreasing, that of the yuan and gold is increasing.

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© Copyright 2023 – Swann Collins, investor, writer and consultant in international affairs.

[1] REID Jim, Global Head of Thematic Research at Deutsche Bank, has not written anything else in his report dated December 2019 and named “Imagine 2030” : “We have lived in an era of fiat money since the early 1970s. Since then virtually all money in existence has only had a value based on trust and, in particular, trust in governments’ ability to maintain its value.”