New currency for South Africa, China, and India makes no sense

Think tank the Free Market Foundation (FMF) says South Africa has little in common with its partners in the BRICS bloc, and talk of a unified currency for those inside it makes no sense.

Talk of a so-called ‘BRICS currency’ has been cropping up for several years, largely as part of a wider discussion—and push—for ‘de-dollarisation’ and to no longer be subject to the dominance of a single economy (the United States).

While the topic is being pushed particularly hard by Russia—given the US sanctions in effect for its invasion of Ukraine—many smaller economies, including South Africa, have expressed concern over the dominance of the US and the dollar.

Some within the BRICS bloc (like Russia and China) are already actively moving to conduct and complete trade agreements in local currencies, and the topic of how these economies can push the de-dollarisation agenda comes up whenever they meet.

For a unified BRIC currency, various ideas have been put forward, including a gold-backed currency and a digital currency—the latter being the most recent to create some waves.

Speaking on the sidelines of the New Development Bank’s annual general meeting in Cape Town in August, Finance Minister Enoch Godongwana described the currency and common payment system question as a “complex issue”.

However, Godongwana said that despite calls from within the bloc to do so, officials have yet to decide whether to introduce a common digital currency. 

“The Russians are very keen on digital currencies, but they have recognized there needs to be a transition. All central banks around the world are discussing digital currencies and how to regulate them,” he told reporters.

Godongwana previously dismissed the talk of establishing a physical currency as well.

At the BRICS conference in 2023, the minister said that no proposal was made for the new currency—not even informally—and that there was no appetite to tackle the logistics of setting one up.

“Setting up a common currency presupposes setting up a central bank, and that presupposes losing independence on monetary policies, and I don’t think any country is ready for that,” he said at the time.

According to FMF economic analyst Nicholas Woode-Smith, it is good that South Africa has not engaged further on a unified BRICS currency, saying the country has no real business even sniffing around this area.

“Shared currencies can help to facilitate international trade. That is why the US dollar has aided one of the most prosperous periods of human history, and the British pound sterling helped facilitate the second most prosperous period during the Victorian era,” he said.

“But the reason that the US dollar has led to so much shared prosperity is because it is backed by a global economic superpower and used by everyone. A BRICS currency would be used only by its members and is very unlikely to be adopted by any but the most minor economies.”

The analyst noted that shared and unified currencies can, and do, definitely work—but only when they make sense.

The Euro makes sense, he said, because the EU is “a comparatively small region with huge amounts of internal trade, travel, migration and business”.

“The Euro makes sense because Europe is effectively a single economy broken up into more localised economies. The same could be said of the US dollar, which is used by all states in the USA for the same reason.”

Woode-Smith said that looking at the BRICS countries, there is little to no commonality between them. In terms of trade, South Africa is also consistently drawing the short straw, trading at a deficit with each of the main members.

Due to their geographical proximity—and the massive trade benefits—it would make more sense for the Southern African Development Community (SADC) region to have a unified currency than the disparate BRICS bloc, he said.

“In practice, many of these countries already use the Rand, or have their currency pegged to the Rand. Integration with our neighbours and African trade partners makes far more sense than further allegiance with BRICS.”

Ultimately, a concerted adoption of a BRICS currency would not benefit South Africa in any way and would likely lock the country out of trade with some of its biggest and most profitable trade partners: the European Union, the United Kingdom, and the United States, he said.

Read: New currency for South Africa, China, and India – Finance Minister responds