Within the financial sector, discussions are beginning about the potential of the BRICS digital currency to replace the petrodollar.
The digital currency of the BRICS does not yet exist, and it will not be a blockchain-based cryptocurrency. Instead, it will be a CBDC very similar to the already existing Chinese digital yuan, or the digital dollar that the Fed is studying, but which for now will most likely not be issued.
The digital currency of the BRICS to replace the petrodollar
In 1999, some states of the European Union decided to create a single currency, the euro, and a new common central bank, the ECB.
The euro was not a digital currency, because at the time natively digital currencies did not yet exist, and it was designed to replace national currencies.
For some time now, even the BRICS have been discussing the creation of a common currency.
However, it is primarily a natively digital currency issued by central banks (a so-called CBDC), but it does not seem to be intended to replace national currencies.
The BRICS initially consisted of four countries (Brazil, Russia, India, and China), to which South Africa was later added. More recently, Egypt, United Arab Emirates (UAE), Ethiopia, and Iran have also joined.
Their objective in the monetary field is not to replace their national currencies with a single common currency, but to challenge the role of the US dollar as the world’s reference currency.
On the other hand, at least three of the countries adhering to BRICS (Russia, China, and Iran) are strongly anti-American, with another three (Brazil, India, and UAE) that are trying to grow to carve out a leading role on the world stage.
The “petrodollaro” will be replaced by the digital currency of the BRICS
The US dollar has been the reference currency globally for several decades, especially since the collapse of the communist bloc that was led by the Soviet Union.
It is often also called “petrodollar” because the global oil market is effectively fueled and managed with US dollars (USD), and not in national currencies.
The fact is that, with the rise of China, the USA no longer dominate the world in an absolute way, and therefore their national currency is no longer the sole and undisputed ruler of the global oil market.
So China primarily is trying to create an alternative global oil market no longer fueled by USD.
Perhaps also for this reason, a few years ago, it created the digital yuan, which however does not seem to have any real chance of replacing the petrodollar on a global level.
The failure of the digital yuan
The digital yuan was launched by the Chinese central bank as the natively digital version of its national currency, the yuan (or renminbi). It is effectively China’s CBDC.
Although it has been circulating in China for a few years now, it has not been successful at all.
The reason, most likely, is its excessive centralization.
In fact, although the traditional yuan is also centralized, the natively digital one is much worse from this point of view, because it requires that all transactions be recorded on the central bank’s ledger, and they are not anonymous.
Given that in China there is a one-party dictatorship, the Chinese are well aware of the risks they run by using a currency that allows the State (and therefore the single party) to know all their transactions.
Knowing with certainty who all the senders and all the recipients of all transactions are, and with the amounts recorded in clear, it is not at all difficult for the central bank controlled by the State (and therefore by the single party) to spy on any movement of money made by any Chinese citizen who uses the digital yuan
The Chinese do not trust it (and they are right), and they do not want to use it.
The failure of the digital yuan
The digital currency of the BRICS from a technical point of view should be something similar to the Chinese CBDC, and profoundly different from decentralized criptovalute like Bitcoin.
However, given that its objective does not seem to be to replace the national currencies of the member countries, it is very difficult to imagine that it could encounter problems similar to those that the Chinese yuan is encountering.
On the other hand, if China has agreed to try to develop a common digital currency for BRICS countries, despite already having its own natively digital currency, it is probably because it has understood that its digital currency can only be accepted domestically, because there is the State (i.e., the single party) that imposes it.
Abroad, the Chinese state cannot impose the use of its own currency, so the idea of using the digital yuan as a global currency seems to have faded.
At this point, however, it is necessary to ask: if the digital currency of the BRICS will be similar to the digital yuan, will it still have the same problems?
As for large money transactions, privacy issues might be smaller because they are already transactions that hardly go unnoticed.
But as for transactions of smaller amounts, it would mean bringing them all to light, that is, granting the central banks that will manage the ledger of this digital currency the ability to read them all in clear, including the names of the senders and recipients.
The replacement of the dollar
The same thing could happen if the USA were to release their own native digital national currency and manage to impose its use globally, replacing the current native analog dollar. But perhaps it is not a coincidence that the USA has decided to desist, at least for now, from doing such a thing.
However, regarding the petrodollar, it should be noted that the world’s largest importer of oil is no longer the USA, but China.
The USA is the country in the world that consumes the most oil, but they are also major producers. They consume an average of 19.4 million barrels per day, but they produce 11.3 million. Therefore, they manage to cover almost 60% of consumption with domestic production, and thus they “only” import an average of 7.9 million per day.
The largest importer is China, with an average of 8.4 million barrels per day, also because the Asian giant produces less than 4 million per day.
The largest exporter, on the other hand, is Saudi Arabia, with 10.6 million barrels per day, followed by Russia with 5.2 million.
Therefore, only China seems to have the power to dismantle the current situation that sees the petrodollar as the dominator of global markets.
It should be remembered that crude oil is by far the most traded commodity in the world in recent decades.
Much will also depend on the attitude of Saudi Arabia, which on one hand is still very much tied to the USA, but on the other is obviously opening new ties also and especially with China.
The situation is therefore evolving, and at this moment it is very difficult to determine which side it will end up leaning towards.