Luiz Inácio Lula da Silva, president of Brazil, has pushed developing countries to find a substitute for the dollar and criticized the dollar’s dominant position in international trade.
The remarks made on Thursday from a speech given during this week’s state visit to China add to the escalating criticism against the dollar from the leaders of the BRICS nations—Brazil, Russia, India, China, and South Africa.
“Why can’t we do trade based on our own currencies?” he said, per The Financial Times. “Who was it that decided that the dollar was the currency after the disappearance of the gold standard?”
In a speech at the New Development Bank of Shanghai, Lula urged the BRICS countries to create a single currency that they could use for trade.
“Why can’t a bank like that of the BRICS have a currency to finance trade relations between Brazil and China, between Brazil and other countries? It’s difficult because we are unaccustomed [to the idea]. Everyone depends on just one currency.”
A new currency based on a basket of member currencies was being considered by the BRICS nations last year. The concept originated from incentives to move away from dollar dependence, which was harmful after Russia’s dollar reserves were cut off as a result of its invasion of Ukraine.
In a further effort to challenge the dominance of the dollar, Lula revealed in January that Brazil and Argentina were considering creating a single currency.
In addition, his position reflects the improving ties between China and Brazil as Lula seeks a multilateralism foreign policy. For instance, Brazil recently agreed to use the yuan in cross-border commerce with China while still keeping strong relations with the US.
Although it has been suggested that these adjustments herald a significant change in the currency system, many analysts believe that this is exceedingly doubtful. There are no likely substitutes that could fully replace the dollar, notwithstanding the possibility that it loses its status as the world’s reserve currency.
Even the Chinese yuan, whose importance in trade financing has increased by more than a factor of two since the Ukraine war, is a weak competitor. It is practically tethered to the dollar, and China’s strict control over it prevents it from observing free market dynamics.
According to FT, it is also doubtful that Brazilians will abandon the dollar very soon because it plays a significant role in the commodity markets and businesses that Brazil depends on.
