BRICS Bank Eyes Cutting Dollar Reliance With Local Currency Loans

Advertising displayed outside the Sandton Convention Center where the Brics Summit is being held in Johannesburg, South Africa on August 23, 2023. The Shanghai-based New Development Bank, which was founded by the BRICS countries, is planning to offer loans denominated in the South African rand and the Brazilian real as a tactical step to lessen reliance on the US currency and promote a more multipolar global financial environment.  PER-ANDERS PETTERSSON/GETTY IMAGES

The Shanghai-based New Development Bank, established by the BRICS nations, is reportedly set to roll out loans denominated in the South African rand and Brazilian real, a strategic move aimed at reducing reliance on the U.S. dollar and fostering a more multipolar global financial landscape. 

What Happened: Dilma Rousseff, former President of Brazil and head of the NDB, disclosed the bank’s intention to expand lending in local currencies, emphasizing that this initiative seeks to mitigate exchange rate risks and the impact of U.S. interest rate fluctuations.

Advertising displayed outside the Sandton Convention Center where the Brics Summit is being held in Johannesburg, South Africa on August 23, 2023. The Shanghai-based New Development Bank, which was founded by the BRICS countries, is planning to offer loans denominated in the South African rand and the Brazilian real as a tactical step to lessen reliance on the US currency and promote a more multipolar global financial environment.  PER-ANDERS PETTERSSON/GETTY IMAGES

“We expect to lend between $8bn-$10bn this year,” Rousseff told the Financial Times. “Our aim is to reach about 30% of everything we lend . . . in local currency.” 

She noted that the NDB plans to issue debt in rand for South Africa and take a similar approach with the Brazilian real, potentially through a currency swap or debt issuance. 

While already lending in yuan, the NDB’s decision to embrace local currencies aligns with the broader objective of the BRICS nations to champion alternatives to the dollar in international trade and finance. 

The BRICS nations — Brazil, Russia, India, China, and South Africa — established the NDB in 2015 as a counterbalance to U.S.-centric financial institutions like the International Monetary Fund and World Bank. 

The NDB’s lending portfolio has primarily focused on infrastructure and sustainable development projects.

Why It Matters: This development comes just a day after China’s call for emerging economies to challenge the dominance of Western G7 nations. 

China’s stance seeks to diversify the global financial system, which has long been characterized by a unipolar structure, into a more multipolar configuration. 

Advertising displayed outside the Sandton Convention Center where the Brics Summit is being held in Johannesburg, South Africa on August 23, 2023. The Shanghai-based New Development Bank, which was founded by the BRICS countries, is planning to offer loans denominated in the South African rand and the Brazilian real as a tactical step to lessen reliance on the US currency and promote a more multipolar global financial environment.  PER-ANDERS PETTERSSON/GETTY IMAGES

Notably, ahead of the 15th BRICS summit, Lord Jim O’Neill, the creator of the BRICS acronym, dismissed the idea of developing a common currency for the bloc, deeming it “ridiculous” and “unfeasible.” 

The dollar fell, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), down 0.11%. 

Produced in association with Benzinga