Analysis of the Potential Impacts of the BRICS Digital Currency Interconnection Initiative on the International Monetary System and the Reserve Status of the US Dollar

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In January 2026, the Reserve Bank of India (RBI) formally proposed to the government that the plan to establish a BRICS Central Bank Digital Currency (CBDC) interconnection system be included in the agenda of the 2026 BRICS Summit[1][2]. If adopted, this will be the first formal initiative by BRICS members to promote digital currency interconnection. India will take over as the rotating chair of BRICS on January 1, 2026, and host the summit for that year.

According to the RBI’s vision, the core objectives of this interconnection system are:

• Facilitate cross-border trade settlement
  : Enable direct settlement of trade invoices between BRICS member states using sovereign digital currencies
• Facilitate tourism payments
  : Simplify tourism payment processes for citizens of member states when traveling within BRICS
• Reduce reliance on the US dollar
  : Decrease dependence on existing US dollar-dominated settlement channels and bypass correspondent banking bottlenecks[3]

Notably, the RBI has explicitly stated that the initiative “is not intended to promote de-dollarization”, but rather focuses on improving cross-border payment efficiency, enhancing the resilience of the financial system, and modernizing payment infrastructure[4].

Currently, the development levels of digital currencies among BRICS member states are uneven:

China operates the world’s most advanced CBDC project, having processed 4,047 cross-border transactions totaling USD 5.42 billion through the mBridge cross-border payment project[4].

The implementation of the BRICS CBDC interconnection initiative will have a gradual rather than revolutionary impact on the international monetary system. Theoretically, the initiative may drive the international monetary system toward multipolarization:

The dominant position of the US dollar is built on deep capital markets, legal trust, and liquidity advantages, which cannot be replicated by any CBDC network in the short term[3]. However, the establishment of an alternative system will gradually erode the exclusivity of the US dollar, providing emerging economies with an alternative cross-border payment infrastructure.

The interconnection of BRICS CBDCs will strengthen financial ties among member states and deepen South-South economic cooperation. Based on purchasing power parity, the global South already accounts for 60.9% of total global GDP, and after BRICS expands to 11 members, its contribution to global economic growth exceeds 50%[5]. If such a large economic bloc achieves currency interconnection, it will form a significant scale effect.

The initiative provides emerging economies with an alternative to the US dollar-dominated financial system, helping to reduce financial exposure to risks arising from US policy changes or sanctions. The case of Russia’s overseas reserves being frozen after the Ukraine conflict has become a key turning point for countries to re-examine the risks of the US dollar[6].

Notably, BRICS has launched a gold-backed digital currency prototype named “unit”. This currency runs on the Cardano blockchain and is anchored by 40% physical gold and 60% BRICS currency reserves[7]. The pilot program in October 2025 issued 100 units, with each unit pegged to 1 gram of gold.

This design reflects BRICS’ strategic thinking on currency value anchoring:

• Physical gold backing
  : Provides a guarantee for currency value independent of any sovereign credit
• Reduce exchange rate risks
  : Mitigate the impact of exchange rate fluctuations between member states on trade
• Address the weaponization of the US dollar
  : Provide member states with alternative payment methods to evade sanctions

In 2025, the international monetary system is undergoing structural changes, providing a favorable background for the BRICS digital currency initiative:

• As of the third quarter of 2025, the share of the US dollar in global foreign exchange reserves fell to 56.92%, remaining below 60% for 11 consecutive quarters, hitting a new low since 1995[8]
• In the first three quarters of 2025, the share of US dollar foreign exchange reserves fell by a cumulative 1.60 percentage points, the largest year-to-date decline since 2003[9]

• Starting from June 2025, global gold reserves have exceeded the balance of US Treasuries held in global foreign exchange reserves, the first time this has happened since 1996[8]
• The global central bank gold-buying spree continued in 2025, with the gold price hitting a new all-time high more than 50 times during the year, and London spot gold posting a cumulative increase of over 60%[8]

• The euro remains the second-largest share in global foreign exchange reserves, accounting for approximately 20.33%[10]
• The share of the Renminbi continues to rise, but at a relatively moderate pace

The BRICS CBDC interconnection initiative may impact the reserve status of the US dollar through the following pathways:

According to statistics from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), although the US dollar still accounted for 48.15% of global international payment currency shares in 2025, the data showing an 8.77 percentage point increase from 2021[9] masks structural changes. If intra-BRICS trade shifts to local currency settlement on a large scale, it will directly erode the US dollar’s share of trade settlement.

In March 2025, the proportion of Renminbi used in China’s cross-border transactions reached 54.3%, totaling USD 724.9 billion[11]. China’s exports to Southeast Asia, the UAE, and Saudi Arabia increased by over 80% and 100% respectively, with most settled in local currencies.

With the establishment of the BRICS CBDC interconnection system, member states may convert part of their US dollar reserves into:

• BRICS common digital currency assets
• Gold reserves
• Sovereign currencies of member states such as the Renminbi

If this allocation shift forms a scale effect, it will accelerate the decline in the share of US dollar reserves.

The advancement of the BRICS digital currency initiative itself sends a strong de-dollarization signal, which may trigger changes in market expectations, leading non-member states to also begin reducing their US dollar reserve allocations.

It should be noted that there is a complex asymmetric relationship between the decline in the US dollar’s reserve status and the trend of the US dollar exchange rate. According to research by Guan Tao, Global Chief Economist of Bank of China Securities[9]:

• From the end of 2008 to the third quarter of 2025, the share of the US dollar in global foreign exchange reserves fell by a cumulative 5.95 percentage points, while the US Dollar Index rose by a cumulative 20.5% over the same period
• In the first three quarters of 2025, the share of US dollar reserves fell by 4.60 percentage points, while the US Dollar Index fell by 9.8%

This divergence reflects:

• Differences between the US dollar’s reserve function and its investment/payment functions
• The weakness of other currencies (especially the Japanese Yen) has supported the US Dollar Index
• Multipolarization of the global monetary system does not necessarily lead to US dollar depreciation

Despite challenges, the US dollar’s status as the primary reserve currency still has the following structural supports:

According to data from the Bank for International Settlements (BIS), the average daily trading volume in the global foreign exchange market reached USD 9.6 trillion in April 2025, and the share of the US dollar in global foreign exchange transactions increased from 88.5% in 2022 to 89.2%[9]. The US dollar’s liquidity advantages cannot be replaced in the short term.

The US Treasury market is large in scale and highly liquid, making it the world’s most important safe-haven asset. US dollar assets remain an important component of central bank reserves worldwide.

The US dollar plays a key role in the US-led global security architecture, and the maintenance of the alliance system relies on access control to the US dollar network.

The timing of India’s proposal coincides with escalating trade tensions between BRICS and the US. US President Trump has repeatedly threatened to impose 100% tariffs on BRICS countries that attempt to create alternative currencies or support the replacement of the US dollar[4]. In January 2026, the US further warned that countries attempting to bypass the US dollar would face severe tariffs and lose access to the US market.

This high-pressure policy may have dual effects:

• Short-term deterrence
  : Delay the advancement of the BRICS digital currency initiative
• Long-term countereffect
  : Accelerate member states’ willingness to avoid the US dollar system

The successful implementation of the BRICS digital currency interconnection initiative faces multiple obstacles:

There are significant differences in the technical architectures, data standards, and interface protocols of CBDCs among member states. Establishing a unified interconnection framework requires extensive coordination.

Member states have not yet reached a consensus on key issues such as platform governance, data sharing, and regulatory responsibilities.

Historical experience shows that local currency transactions among BRICS member states face severe trade imbalance issues. When Russia and India previously attempted to conduct trade in local currencies, Russia accumulated a large amount of Indian Rupee balances that could not be effectively used[4]. The RBI is exploring bilateral foreign exchange swaps and regular settlement mechanisms to address this issue, but the solutions are not yet mature.

There are differences in strategic interests among BRICS member states, and countries may be reluctant to rely on payment platforms designed and led by other nations.

India’s e-rupee has approximately 7 million retail users, leading in the field of retail CBDCs. However, India’s position in international trade makes it difficult for its currency to become the dominant currency in the BRICS common framework. There are significant differences in India’s trade structure with Russia and China, which may affect the design direction of the interconnection system.

BRICS reaches an agreement on the framework principles for digital currency interconnection at the 2026 summit, but key issues such as technical standards and governance rules are left for subsequent negotiations. The interconnection system is first implemented at the bilateral level (e.g., China-Russia, India-Russia), and then gradually expanded. The reserve status of the US dollar is moderately impacted, but the overall pattern changes little.

BRICS achieves a breakthrough in technical interoperability and establishes a CBDC interconnection system covering all member states. The system is first applied in trade settlement, followed by the tourism sector. The share of the US dollar in global foreign exchange reserves declines rapidly, possibly falling below 50% within 5 years.

Due to US high-pressure policies, intensified differences among BRICS member states, or technical obstacles, the interconnection initiative fails to be substantially adopted at the 2026 summit. Digital currency cooperation reverts to the bilateral level or stagnates. The status of the US dollar is consolidated in the short term.

Regardless of the outcome of the BRICS CBDC interconnection initiative, the following long-term trends will continue to impact the international monetary system:

Central banks worldwide will continue to increase their holdings of gold and non-US dollar assets to reduce exposure to single-currency risks. Evidence of this includes Poland increasing its gold holdings by 90 tons in 2025 (becoming the largest gold buyer that year), and continued gold purchases by countries such as Turkey and India[11].

Approximately 130 countries worldwide are exploring CBDCs, and technological progress will continue to reduce cross-border payment costs, decreasing the importance of traditional banking intermediaries.

In addition to BRICS, regional organizations such as ASEAN and Gulf states are also advancing local currency settlement arrangements, and the trend of regionalization will weaken the global coverage of the US dollar.

The global central bank gold-buying spree will continue, providing long-term support for gold prices. The World Gold Council predicts that if the global economy slows, gold prices could rise by up to another 30% in 2026[12].

The decline in the share of US dollar reserves means that the risk premium on US dollar assets may rise, and investors should consider increasing allocations to non-US dollar assets.

The advancement of the BRICS digital currency interconnection initiative will bring opportunities in related fields such as financial infrastructure, payment technology, and blockchain applications.

Emerging economies should actively participate in the rule-making process for BRICS digital currency interconnection to ensure their interests are represented.

The de-dollarization process must be gradual, avoiding shocks to cross-border capital flows caused by overly rapid adjustments.

BRICS should strengthen coordination with other emerging economy platforms such as ASEAN and the SCO to form a broader alternative payment network.

The BRICS digital currency interconnection initiative is an important milestone in the multipolarization of the international monetary system. Although the initiative faces multiple challenges in technology, governance, and geopolitics, its strategic significance cannot be underestimated.

In the short term, the US dollar’s status as the primary reserve currency still has a solid foundation of support, as evidenced by the resilience of the US Dollar Index. However, from a long-term perspective, the international monetary system is undergoing profound structural changes – the continuous decline in the US dollar’s share, the return of gold’s role, and the proliferation of digital currency technology, these trends will reshape the global financial landscape.

If the BRICS CBDC interconnection initiative is successfully implemented, it will provide emerging economies with important options for financial autonomy, reduce dependence on the US dollar system, and provide new impetus for the diversified development of the international monetary system. The trajectory of this process will depend not only on the coordination capabilities of BRICS member states but also be deeply influenced by US policy responses and the global macroeconomic environment.

[1] CoinDesk - “India’s Central Bank Proposes a Plan to Create Digital Currency Link Among BRICS Nations” (January 19, 2026) https://www.coindesk.com/zh/markets/2026/01/19/india-s-central-bank-proposes-a-plan-to-create-digital-currency-link-among-brics-nations

[2] Bitget News - “Reserve Bank of India Pushes for BRICS CBDC Interconnection” (January 19, 2026) https://www.bitget.com/zh-CN/news/detail/12560605158671

[3] Modern Diplomacy - “Digital Bridges, Dollar Shadows: BRICS Explores a New Payments Order” (January 19, 2026) https://moderndiplomacy.eu/2026/01/19/digital-bridges-dollar-shadows-brics-explores-a-new-payments-order/

[4] Brave New Coin - “India Proposes to Link BRICS Digital Currencies” (January 2026) https://bravenewcoin.com/zh-CN/可执行的洞察/印度提议将金砖国家数字货币挂钩

[5] China Policy Research Network - “2025 International Situation and China’s Diplomacy” (January 14, 2026) http://www.xingshizhengce.com/xsbgt/2026/01/14/detail_202601146858998.html

[6] Yahoo Finance - “Global Central Banks Frenzy for Gold: The Guardian Says the US Dollar Is Losing Credibility” (January 2026) https://hk.finance.yahoo.com/news/全球央行瘋囤黃金-衛報-美元正在失去信譽-052002662.html

[7] Yahoo Finance - “International Group Makes Bold Move to Challenge Dominance of US Currency” (January 2026) https://finance.yahoo.com/news/international-group-makes-bold-move-153000122.html

[8] Xinhua Finance/CCTV News - “Gold Price Soared and US Dollar Depreciated Last Year, Global Assets Accelerate De-dollarization” (January 10, 2026) https://app.xinhuanet.com/news/article.html?articleId=42db8b194fad5e944be22d10c7422e32

[9] Sina Finance - “Guan Tao: The Decline of the US Dollar’s International Reserve Status May Not Lead to a Weak US Dollar” (January 18, 2026) https://finance.sina.com.cn/roll/2026-01-18/doc-inhhttqr1895927.shtml

[10] Sina Finance - “2026 Foreign Exchange Market Outlook: Euro Rebounds Strongly by 13%” (January 14, 2026) https://finance.sina.com.cn/money/bond/2026-01-14/doc-inhhhhqp5049989.shtml

[11] Eastmoney - “Against the Backdrop of Global De-dollarization Trend” (January 8, 2026) https://caifuhao.eastmoney.com/news/20260108213801219928870

[12] Binance - “Behind the Gold Surge: Currency Restructuring Amidst China-US Financial Game” (January 3, 2026) https://www.binance.com/zh-CN/square/post/34611052534154