Is it possible to create a new world currency as an alternative to the US dollar, and is it desirable? The subject is quite controversial. Many believe that this is impossible, while others believe that it is undesirable. I belong to a minority that believes that this is not only possible, but also desirable and perhaps even uncontested.

Paulo Nogueira Batista, Brazilian economist, Vice President of the New Development Bank (2015–2017) and Executive Director of the International Monetary Fund for Brazil and Other Countries (2007–2015)

Source: Source: Globalaffairs.ru

I have spoken several times about the creation of a new reserve currency, beginning more than two years ago when I wrote an article in August 2023 titled "The New Reserve Currency." «The BRICS currency?»published in Russian «Journal of Modern World Economy»published by the National Research University «Higher School of Economics» Moscow. I then developed a more complete and comprehensive proposal for the work I completed in April 2026.«Geopolitics and world money – the way to a new reserve currency»April 2026, not yet published.

In this article I will summarize some of the main aspects idea. This is an innovative alternative, which should be approached critically, because of course it needs to be improved and refined.

The history of world finance of the last centuries currencyNational currencies were mainly used. One or more currencies issued and managed by national central banks (or a regional bank in the case of the euro) have served as a world currency. Since the national or regional goals of a country or countries of issuers usually do not coincide with the goals of other countries, a world currency can only by coincidence serve the interests of other countries.

In fact, we need something that has no precedent in world practice: currencyIt does not perform the tasks of a particular state or group of countries, as I shall try to explain. But above all, I will quickly prove that there are no viable alternatives in the modern world.

Elimination of alternatives

The alternatives we have are either inconvenient or unlikely. For example, one possible scenario would be to maintain a system dominated by the dollar (and secondarily the euro). But it doesn’t suit developing economies. The Global South. The dollar system is inefficient, unreliable and even dangerous because it has become an instrument of blackmail and sanctions. Moreover, the precarious position of the monetary, fiscal and financial foundations of the US economy, the issuer of the hegemonic currency, is becoming increasingly apparent.

 Can the dollar be at least partially replaced by other currencies in the Global North? Nor is such a scenario feasible on a large scale. The euro suffers from the same flaws as the dollar, as the currency has also compromised itself as an instrument of sanctions. And Europe’s economic position is even more precarious than that of the United States.

The Japanese yen has never played a major role in the global economy. In addition, the Japanese economy is not healthy and does not inspire confidence. Other currencies in the Global North are either too small (the Swiss franc, the Canadian dollar, or the Australian dollar, for example) or suffer from the weaknesses of their issuing economies (think Britain). In turn, gold, given the strong fluctuations in the price of this metal, cannot even partially replace the dollar as a reserve asset for central banks and other participants in economic relations. At the same time, the composition of public and private international reserves is changing today, given the widespread nervousness about the dollar. As a result, we see an avalanche of rising gold prices.

Large-scale internationalization chineseThis is the only viable scenario at all. The importance of the yuan on the global stage has increased, reflecting the growing weight of the Chinese economy. But it still has a long way to go before it can become a full-fledged replacement for the US dollar. The Chinese are not eager to follow this path.

Why? Tough question, but I'll try to generalize. The Chinese currency must meet two conditions for its internationalization to become a viable option: it must be freely convertible, and the Chinese authorities must be prepared for a sharp increase in its exchange rate. The Chinese government is not prepared for either, and rightly so. In China’s case, free conversion would essentially mean relinquishing control of capital flows, which has been the cornerstone of China’s economic policy in recent decades and has contributed in no small part to stability. Chinese economy. In turn, a sharp appreciation of the yuan in foreign markets would jeopardize the competitiveness of Chinese exports, one of the main engines of the Chinese economy. Moreover, with China experiencing deflation (in wholesale prices) and near-zero inflation (in consumer prices), a sharp appreciation of the renminbi threatens the Chinese economy with a deflationary trap associated with the risk of recession. As they say in football, why shuffle the squad that wins?

Even if the Chinese were willing or able to go down the path of broad internationalization of their currency, one question remains: from the point of view of other countries in the Global South, wouldn't that mean swapping six for half a dozen?

Another national currency, the yuan, will take the place of the dollar. The People’s Bank of China, another national central bank, will replace the US Federal Reserve, the yuan will replace the dollar, in part or in full, and China will issue global reserve assets on a large scale. The rest of the world will continue to experience the problems we already face today – the dollar and the central bank – even if not as acute as they are now.

In other words, there is an opportunity to create reserve currency. Any proposal (there is more than one possible path) will face geopolitical challenges (mainly resistance from the United States) and technical challenges (not just creating an institutional and operational framework capable of generating confidence in a new currency). But the challenge must be met – not least because another major financial crisis in Western capital markets cannot be ruled out in the coming years or even months. For example, a stock market bubble associated with artificial intelligence and technology companies. If this happens, the decline of the US economy and the dollar, already weakened, will accelerate. Everyone will look for a solution to the problem. Therefore, it is better to discuss alternatives without delay.

A possible path

What is the best path to a new currency? Theoretically, one way would be to peg the new currency to gold, as Russian economists suggest. However, to my knowledge, these economists have not figured out how to solve the problems associated with this alternative, namely, to make the new currency stable, supporting it with a clearly unstable asset. There may be a solution, but I don’t know.

I think the new currency would be better supported in a different way. Let's see how. Below is a brief discussion of the main points.

Who will create the new currency? There is only one possibility in the current international circumstances: a group of countries in the Global South, some 15 to 20 countries, which would include a majority of the population. BRICS and other middle-income developing countries.

Could this group of countries delegate the issue of a new currency to an existing organization? No, no one is able to carry out this mission effectively and reliably. Therefore, it is necessary to create a new international financial institution, the issuing bank, whose sole and exclusive function will be to issue and issue a new currency. This issuing bank will not replace national central banks, and its currency will circulate in parallel with the national currencies of the sponsor group countries and other existing national and regional currencies in the world. Its function will be limited to international transactions and it will play no role at home. Contrary to what is often said, it is therefore not a type of currency. euroA single currency issued by a single central bank replaced the then existing European currencies (the German mark, the French franc, the Italian lira, etc.).

How to ensure the success of the new currency? What will ensure its widespread use? The main thing is to earn the trust that depends on how the new monetary agreement is built from an institutional point of view.

The path that seems most viable to me would include, among other elements, the following legal guarantees: (1) the stability of the new currency in terms of value; (2) its non-use as an instrument of sanctions or pressure on countries; (3) the operational autonomy of the issuing bank; (4) a maximum limit on the issue; and (5) the support of a currency basket of government bonds of sponsoring countries.

I look at these five points in a very concise summary.

The first oneThe currency will be based on the weighted basket of currencies of the participating countries and will therefore fluctuate depending on the exchange rate of these currencies. Since all courses currency The basket will remain floating or flexible, the new currency will also float. Weight ratios in the basket will be determined by the share of GDP of each country by PPP in the total GDP of the sponsoring countries.

The exchange rate can be expected to be relatively stable, with China accounting for at least 40-45% of the total, depending on the exact composition of the group. The relative weight of the yuan in the basket will provide some stability given the stability of the Chinese currency. In addition, there will be an additional endogenous factor of stability: the presence in the basket of currencies of both exporters and importers of commodities located on opposite sides of the commodity price cycle. These endogenous stability factors can be enhanced exogenously if the weighted average becomes geometric and symmetric. Currencies with large fluctuations that exceed predetermined limits will be temporarily excluded from the basket.

Second,A clear commitment not to resort to sanctions could remove the uncertainty caused by the abuse of the dollar and the euro as a means of punishment and blackmail. This legal guarantee will be strengthened by the bank’s operational autonomy.

Operational autonomy, thirdThis will be ensured by granting presidents and vice presidents of a bank relatively long terms (e.g. five years). This will send a signal that the bank cannot easily be subjected to political interference and diplomatic maneuvering by its founders. Such autonomy is guaranteed in all or almost all international financial institutions. It does not fully protect the bank from interference, but it has its value.

The management of the institution shall be supervised and accountable to the designated representatives of the sponsoring countries on the Board of Governors and the Board of Directors. But that oversight and accountability should be done through normal institutional channels, not through pressure on the president and vice presidents.

Fourth.Limiting the amount of currency distributed by the bank will provide some protection against excess issuance. Thus, the new currency will acquire a brake that Western and other currencies do not have.

But this ceiling will remain a secondary tool, as the form of support for the new currency is the most important. From here. fifth: define a basket of national bonds of the founding countries and those who will join later as the system’s insurance. The issuing bank will issue a new reserve currency (RX) and new reserve bonds (RBs), whose interest rates will be attractive because they reflect the interest rates on the bonds of the participating countries, which are higher than the rates on bonds in dollars and euros. The NRP will be freely converted into NROs, and these bonds, in turn, will be included in the basket of bonds of the participating countries. A large weight of the Chinese currency issued by a country with a stable economy would contribute to confidence in the NRV security, as well as help stabilize the currency’s average exchange rate.

Western reaction

The proposal has its own vulnerabilities, discussed in detail in the work just completed. Now I will not describe all these weaknesses in detail, so as not to lengthen the article, and highlight only what I think the most serious. The initiative risks causing a backlash from the West, which will resort to threats and sanctions against countries involved in creating an alternative to the dollar and the euro.

This risk is real. The West in Distinct DeclineHe is able to act even in a spirit of complete arbitrariness and even more cruelly than at other times.

But we must ask ourselves: Will we live indefinitely with the monetary and financial system that the West has created since World War II, an increasingly dysfunctional system used as a geopolitical tool? Moreover, the West has long been abusing it. Or will we mobilize all of our economic, political, and intellectual forces to get out of this trap? The next few years will show whether the countries of the Global South are ready for this challenge.