Brazil’s Lula De Silva Proposes BRICS Currency to Replace Dollar in Foreign Trade

Lula questioned why every country needed to be tied to the dollar for trade and whether someone had decided that the dollar would be the world's currency.

Dollar

Brazilian President Luiz Inacio Lula da Silva during a visit to Shanghai, China proposed a BRICs currency and limit the role of the Dollar as a global trading currency.

The visit to China involved President Lula inaugurating his political ally and former President Dilma Rousseff as president of the development bank set up by the BRICS nations (Brazil, Russia, India, China, South Africa) in a ceremony on Thursday in Shanghai.

At the ceremony, he questioned why every country needed to be tied to the dollar for trade and whether someone had decided that the dollar would be the world’s currency.

Not only that, Lula also slammed the U.S. dollar’s outsized role in the world economy and had strong words for the IMF during the visit. He alluded to the accusations the latter has received, which included that the IMF forces overly harsh spending cuts on cash-strapped countries like Argentina or Brazil in exchange for bailout loans.

“No bank should be asphyxiating countries’ economies the way the I.M.F. is doing now in Argentina, or the way they did with Brazil for a long time and every third-world country,” he went on to say.

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This incident isn’t an isolated one. The calls to reduce dollar dependency in the aftermath of the Ukraine Crisis and the dwindling economy of the US are getting louder, clearly signaling a multipolar world.

In February, it was reported that the yuan has replaced the dollar in monthly trading volume between China and Russia, and the difference between the two currencies became more pronounced in March. Another attempt at de-dollarization, this switch occurred due to additional sanctions imposed by Washington. The sanctions affected the few banks left in Russia that retained the ability to engage in cross-border transfers in dollars and other currencies of countries, leading them to switch from the dollar and the euro to currencies of countries who refused to impose sanctions on them, China being one of the most prominent ones.

Common Latin American Currency ‘Sur’

Soon after Lula took oath as the President in January, he announced that Brazil and Argentina were engaged in starting preparatory work on a common currency, something that might lead to the development of the world’s second-largest currency bloc. Other Latin American countries were welcome to join in on the bilateral proposal of creating the “Sur” (the currency name suggested by Brazil) in an attempt to boost regional trade and reduce reliance on the U.S. dollar.

Lula’s criticisms on the usage of the dollar comes at the helm of his passionate call to other BRICS countries to drop the dollar and start using their own currencies for trade in a latest effort to reduce reliance on the dollar. These comments, in turn, come amid efforts by China, India, and Russia to set up streams for trade in their own currencies. At the upcoming BRICS summit, scheduled in South Africa, a new financial arrangement is expected to be announced, which might be translated to a common BRICS currency.

The pushback against the U.S. dollar dominance and the attempt to de-dollarize is due to many reasons, most of which involves concerns about destabilising economies due to Washington imposing sanctions on unfriendly countries or the burden of dollar-denominated debt for other nations rising and falling with the exchange rate.

As Lula’s “Brazil is Back!” slogan reverberates against the backdrop of a multilateralist foreign policy stance, what happens next depends on how he navigates the country on the international stage. Especially with a shift to closer ties with China and with both Brazil and China continuing to refuse to impose sanctions on Russia.

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June 2024
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