By HENG WEILI in New York | China Daily Global | Updated: 2023-04-14
In an economic development that hasn't received much attention in the Western media, the GDP of the BRICS nations has surpassed that of the G7.
That news, coupled with plans by the BRICS (Brazil, Russia, India, China and South Africa) nations to create their own currency later this year presents a challenge to the US dollar as the world's primary reserve currency.
The BRICS have surpassed the Group of Seven (G7) in terms of gross domestic product based on purchasing power parity, according to data published by the UK-based economic research firm Acorn Macro Consulting.
The G7 comprises the United States, Canada, the UK, France, Italy, Germany and Japan.
The BRICS group makes up 41 percent of the global population and accounts for 16 percent of world trade. The five BRICS nations now contribute nearly 31.5 percent of global GDP, compared with 30.7 percent by G7 countries, according to Acorn.
On Thursday, Brazil President Luiz Inacio Lula da Silva called on BRICS nations to come up with an alternative to replace the dollar in foreign trade.
Lula spoke during a visit to the New Development Bank in Shanghai, an institution created by BRICS countries. The former president of Brazil, Dilma Rousseff, is the bank's new chief executive.
"Why can't an institution like the BRICS bank have a currency to finance trade relations between Brazil and China, between Brazil and all the other BRICS countries?" Lula said. "Who decided that the dollar was the (trade) currency after the end of gold parity?
"We need a currency that gives countries more calm, because today a country needs to run after the dollar to be able to export, when it could export in its own currency," he said.
On Thursday in Shanghai, Lula visited the research center of Huawei Technologies Co Ltd and met with chief executives of China Communications Construction Co and automaker BYD Co Ltd, which plans a major investment in electric cars in Brazil.
Brazilian plane-maker Embraer SA may sign a deal for the sale of 20 commercial jets to a Chinese airline, two people familiar with the matter said.
China surpassed the United States as Brazil's top trading partner in 2009 and is a major market for Brazilian soybeans, iron ore and oil.
Brazil is now the largest recipient of Chinese investment in Latin America, driven by spending on high-tension electricity transmission lines and oil production.
Last month, Brazil and China took steps to make it easier to settle their foreign trade operations in yuan or reais, with the goal of trimming costs by eliminating a third currency from the transactions.
Brazil Finance Minister Fernando Haddad, who went with Lula on his trip to China, said local currencies are already used in bilateral trade, bloomberg.com reported.
"The advantage is to avoid the straitjacket imposed by necessarily having trade operations settled in a currency of a country not involved in the transaction," he told reporters in Shanghai.
In a recent interview, investor Peter Schiff, who runs the metals website schiffgold.com, said: "There are all sorts of reasons why the world should want to divest of dollars and no longer depend on the US dollar as a reserve currency, but we gave them another one.
"The Biden administration in slapping those economic sanctions on Russia really highlighted how dangerous it is to allow the United States to enjoy this privilege. And so, we have scared the world into divesting of dollars, something they should have done anyway because it was in their economic interest to do so," he said.
Schiff emphasized that the dollar's role as the world currency is a privilege that the US enjoys at the expense of the rest of the world.
"It enables Americans to live beyond our means. We're able to consume all kinds of stuff that we did not produce," he said. "And the only reason we could do that is because we could print money that costs us nothing, and our trading partners will accept that instead of actual goods. If we lose that privilege, our standard of living is going to implode."
Jim O'Neill, a former chairman of Goldman Sachs Asset Management, wrote in an article for the Financial Advisor website on Thursday: "The eclipse of the dollar would not necessarily be a bad thing for the US, given all the added responsibilities that come with issuing the world's main reserve currency.
"In a global economy where the US already is no longer as dominant as it once was, it is not optimal to have everyone else be so dependent on the American monetary system and the Federal Reserve's domestically driven priorities.
"Other economies would much prefer that their own currencies, monetary policies, and trade patterns not be so influenced by those of the US," he said.
Reuters contributed to this story.