Nedbank's chief economist explains how deficiencies like lack of investor trust and China's capital controls prevent BRICS from creating a joint currency that reduces global dependence on the US dollar as a reserve asset.

Nedbank's chief economist Nicky Weimar discussed how a shared BRICS currency could challenge the US dollar's dominance. He noted BRICS aims for a reserve currency rivaling the dollar and less USD dependence.

But Weimar said achieving this requires substantial foreign exchange reserves and investment community trust. The dollar became the global reserve due to backing from the trusted Federal Reserve.

Unlike BRICS nations, the US has never defaulted on debt despite some close calls. This trust in the US, which recently avoided default amid a debt ceiling crisis, is lacking for BRICS countries.

According to Weimar, these deficiencies hinder BRICS' ability to create a joint currency that reduces global reliance on the dollar as a reserve asset. Earning investor faith remains a hurdle.

Weimar said within BRICS only China has the reserves to support a currency, but its capital controls are a barrier. "You cannot have a reserve currency if you have capital controls. For this, China would need enormous financial liberalization to truly compete with the dollar," she explained.

Moreover, China would have to sustain that openness to gain investor trust. "So this is miles away because ultimately you must gain the investor's trust. A currency only has value if people believe it has value."

While China has the capability, Weimar said huge changes allowing less control are needed. "I don't actually see them talking along those lines. It's almost like they haven't made that connection yet that you need to let go of some of the control."

In summary, despite its reserves, China still has a long journey to undertake the financial reforms required for its currency to become a globally trusted reserve asset that reduces reliance on the US dollar.