- The prospect of establishing a common currency will be a top agenda at the upcoming BRICS Summit in Durban, South Africa later this year.
- The Shanghai Cooperation Organization (SCO) is working towards trading in their own national currencies.
- Roughly 40 percent of international trade transactions in goods are invoiced in dollars
The prospect of establishing a common currency will be a top agenda at the upcoming BRICS Summit in Durban, South Africa later this year.
Should the common currency be formed, it will be based on a basket of the currencies of the BRICS countries; the Chinese RMB Yuan, the Russian Ruble, the Indian Rupee, the Brazilian Real, and the South African Rand.
Russian Foreign Minister Sergey Lavrov has on several occasions announced plans by the BRICS countries to unify their currencies and untangle themselves from dollar dependency.
At a media conference during his Africa tour at the start of the year, Lavrov reiterated the BRICS commitment to a single currency.
“Serious, self-respecting countries are well aware of what is at stake, see the incompetence of the ‘masters’ of the current international monetary and financial system, and want to create their own mechanisms to ensure sustainable development, which will be protected from outside dictates,” he asserted at a news conference in the Angolan capital of Luanda.
Lavrov used the opportunity to rebuttal critics of the BRICS common currency endeavor saying “…the West uses the same colonial methods with which it exploited developing continents to plunder foreign countries and uses resources of global importance to its advantage,” he said falling short of specifying what the ‘resources of global importance’ are.
The diplomat emphasized the need to “…think about the creation of internal currencies within the framework of the BRICS, Latin American, and Caribbean States.”
“This will certainly be discussed at the BRICS summit,” Lavrov noted.
The BRICS common currency drive is not a new idea. In a news piece subtitled the Silk Road Briefing,
“The Euro has declined against all BRICS currencies during 2022,” Pavel Knyazev, Deputy Director of the Foreign Policy Planning Department in the Russian Foreign Ministry is quoted saying; “The BRICS countries are working on establishing a new reserve currency to better serve their economic interests.”
“The possibility and prospects of setting up a common single currency based on a basket of currencies of the BRICS countries are being discussed,” Knyazev said.
He reassured stakeholders that the members are actively studying mechanisms to facilitate the exchange of financial information and subsequently develop what he described as a ‘reliable alternative for international payments.’
De-dollarisation: BRICS trading without the dollar
The goal of the single currency, according to the Russian diplomat Knyazev, is to “cut reliance on the Western financial system.”
Already, ahead of the anticipated single BRICS currency, the member states are increasingly trading using their own local currencies replacing the traditional reliance on the dollar as the international standard of measuring the value of other currencies, and goods for that matter.
It’s not just BRICS that is mulling the goal of de-dollarisation. The Shanghai Cooperation Organization (SCO) is working towards trading in their own national currencies.
Notably, many in the SCO – a trading bloc that is 8 countries strong, has several member countries that are looking to join the BRICS. The SCO countries are Russia, China, India, Pakistan, Iran, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan, while another 13 countries are involved together with the ASEAN and CIS trade blocs.
However, the process is slow, as admits Russian presidential envoy to the SCO Bakhtiyer Khakimov.
“This is not an easy task,” he said and emphasized that “…the roadmap for the gradual increase in the share of national currencies in mutual settlements has been adopted and clearly spells out all the stages.”
Nonetheless, he admits that he does not think that the process will be accelerated, but would like all parties concerned to rest assured that “…the intention is serious.”
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It won’t work: Criticism against BRICS common currency
“The dollar rise over the past years has inspired a lot of hopeful thinking in emerging markets about reducing their dependence on the currency and sensitivity to the tides of US rates,” writes Paul McNamara, Investment Director at Global Asset Management (GAM).
As to the BRICS’ ambition to form a common currency or what McNamara refers to as the ‘growing clamor to challenge the dollar’s hegemony,’ the analyst admits that statements coming from Russia and China can be put in a bin labeled ‘attempts to undermine the US’ but what about India, Brazil and South Africa, all parties to the BRICS and all vying for independence from the dollar in global trade?
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The dollar is the international reserve currency and the common reference in trade, in fact, ‘roughly 40 percent of international trade transactions in goods are invoiced in dollars, a figure well above the US share of global trade of just 10 percent.
That being said, any attempt to move from this norm would disrupt not only global trade but the very measure of value itself.
“The problem is that BRICS is not an especially useful economic term,” explains McNamara. In his criticism, he says the BRICS common currency will not work because “…it marries an economic superpower in China with a potential one in India with three essentially stagnant commodity exporters.”
These ‘three stagnant commodity exporters’ he is referring to here are Russia, Brazil, and South Africa.
“Far from being a remotely sensible optimal currency area, the economies are dramatically different in terms of trade, growth, and financial openness,” he points out.
While the tussle persists between the West and the BRICS, or at least two of the BRICS, the latter is going ahead with plans to meet later this year. At the end of that meeting, it is expected that they will announce the way forward on the common currency ambitions and whether they will be the first group of countries to actually de-dollarise.
