During his visit to the New Development Bank in Shanghai, former Brazilian President Luiz Inacio Lula da Silva urged the BRICS countries to create an alternative currency to replace the US dollar in foreign trade. The institution, which was created by Brazil, Russia, India, China and South Africa, aims to provide funding for infrastructure and sustainable development projects in emerging economies. Lula, who is preparing to meet with President Xi Jinping in Beijing, called for a currency to be established that could be used to finance trade relations between Brazil and the other BRICS nations.
Lula questioned why the dollar was the trade currency after the end of gold parity, and supported China's efforts to boost the use of its own currency in foreign trade. Last month, Brazil and China took steps to make it easier to settle their foreign trade operations in yuan or reais, with the aim of reducing costs by eliminating a third currency from the transactions. Brazil's Finance Minister Fernando Haddad, who is accompanying Lula, said that local currencies are already used in bilateral trade through instruments such as credit receipts, and that the goal is to expand mechanisms that allow trade operations to be settled without the intermediation of a third currency.
The move towards alternative currencies is seen as a challenge to the dominance of the US dollar in global trade. China has been promoting its own currency as an alternative to the dollar, and has been pushing for the inclusion of the yuan in the International Monetary Fund's Special Drawing Rights basket. The BRICS countries are also establishing a Contingent Reserve Arrangement, a $100bn fund to help member states weather financial shocks, which will be denominated in the five countries' currencies. The establishment of an alternative currency would further cement the BRICS nations' efforts to reduce their dependence on the US dollar and promote their own economic power.