Can BRICS Challenge the US Dollar? International Law and India’s Role Explained

The global debate around De-dollarisation—reducing reliance on the United States dollar in international trade—has returned to the forefront of global geopolitics. A major driver of this conversation is the push by BRICS nations to encourage trade in local currencies.

During recent BRICS summits, member countries reaffirmed their commitment to increasing local currency transactions, strengthening alternative cross-border payment mechanisms, and lowering their heavy dependence on the greenback.

While many view this shift as a geopolitical showdown between the Western financial structure and an emerging multipolar economic order, a crucial legal question arises: Does international law actually govern which currency countries must use for global trade?

Does International Law Force Countries to Use the US Dollar?

No. The legal framework governing the international monetary system focuses primarily on how nations manage their domestic currency and exchange rate policies. It nowhere mandates that global trade must be conducted exclusively in US dollars.

For India, this debate carries significant weight. New Delhi supports global financial reform through platforms like BRICS while simultaneously remaining a responsible actor within the established global financial architecture.

What Does the IMF’s Legal Framework Say?

The roots of current international monetary cooperation lie in the 1944 Bretton Woods Conference, which created the International Monetary Fund (IMF) Articles of Agreement. These articles remain the legal bedrock of the global monetary order today. However, the IMF framework grants no explicit legal status to the US dollar as a mandatory global reserve or settlement currency.

The primary objectives of the IMF include:

• Fostering global monetary cooperation.
• Facilitating the smooth operation of international payment systems.
• Maintaining exchange rate stability.
• Preventing disruptive monetary policies that cause global economic instability.

Why Is the US Dollar So Dominant?

The US dollar’s overwhelming dominance is not rooted in international law, but rather in key economic and institutional factors:

• Economic Scale: The sheer size and stability of the US economy.
• Deep Liquidity: Highly liquid and mature financial markets.
• Institutional Trust: Global confidence in American economic and judicial institutions.
• Asset Demand: Strong investor demand for dollar-denominated assets.

In short, the dollar’s strength is an economic and market reality, not a legal mandate.

What Does the IMF Actually Regulate?

Under Article IV of the IMF Articles of Agreement, member states carry specific legal obligations:

1. Maintain a stable exchange rate system.
2. Cooperate with the IMF and fellow member states.
3. Refrain from currency manipulation intended to gain an unfair competitive advantage.

Through periodic Article IV Consultations, the IMF assesses a nation’s macroeconomic health, financial stability, and exchange rate policies. However, the recommendations resulting from these consultations are not legally binding. The IMF cannot instruct any nation to trade solely in dollars or adopt a specific currency.

Can Nations Trade in Other Currencies?

Yes. International law gives sovereign nations complete freedom to conduct cross-border trade in whatever currency both parties agree upon.

This legal flexibility allows countries to:

• Execute bilateral currency swap arrangements.
• Settle cross-border trade in local currencies.
• Develop alternative financial routing and payment mechanisms.

The economic initiatives introduced by BRICS fall squarely within this permissible legal framework.

India’s Balanced Role in a Multipolar Financial System

India does not advocate for an outright abandonment of the US dollar. Instead, New Delhi favours financial diversification to hedge risks and protect its economic interests.

India’s strategy rests on five key pillars:

1. Promoting the Indian Rupee (INR): Expanding international settlement mechanisms in rupees.
2. Local Currency Agreements: Signing bilateral trade agreements settled in local currencies.
3. Digital Payments Expansion: Building cross-border integration for systems like UPI.
4. Multilateral Governance: Supporting financial reforms within BRICS and other global forums.
5. Institutional Reform: Pushing for greater representation and reform within the IMF and World Bank.