New currency for South Africa, Russia and China in the spotlight this week

 ·21 Aug 2023

South Africa will host the 15th annual BRICS summit this week, with leaders from member nations – and prospective joiners – tabling and discussing several policies and plans for the bloc, including measures to take on the dominant dollar in global trade.

According to economists at the Bureau for Economic Research (BER), the summit is likely to draw “frenzied reporting” from around the world, given the growing tensions between the West and Russia and China.

The summit build-up has also been dominated by speculation on the possible expansion of the BRICS grouping and the introduction of a common BRICS currency, the BER said; however, many more topics will be discussed.

On the BRICS expansion, many countries – at least 22 – are lining up to be included as official members of the bloc. However, current member nations are divided.

“China and Russia seem to be in favour of expanding BRICS membership to form a bigger counter against the influence of Western-dominated multilateral institutions such as the IMF and the World Bank, as well as the dominance of the US dollar in international commerce and finance,” the BER noted.

“By contrast, Brazil and India, who see the value of maintaining good relations with the US, have been lukewarm about expansion.”

Given strong trade and investment linkages with the West and crucial trade relations with China, the South African government has struggled to navigate these tensions and communicate a coherent position, the BER said.

South African President Cyril Ramaphosa expressed support for the BRICS expansion on Sunday.

“An expanded BRICS will represent a diverse group of nations which share a common desire to have a more balanced world order,” Ramaphosa said.

With South Africa on board with the expansion of BRICS, “our Western partners are likely to keenly observe SA’s stance in some of the key debates due to take place during the summit,” the BER said.

New currency

According to Bloomberg analysts, the bloc is expected revive the idea of reducing the dollar’s dominance in payments by talking up a unified or common currency – a topic mooted at previous summits.

The debate has resurfaced after US interest-rate hikes and Russia’s invasion of Ukraine sent the US currency soaring, along with the cost of commodities priced in dollars. 

A new currency would also lessen the impact of sanctions, especially after the West imposed sanctions on Russia following its invasion of Ukraine in early 2022.

“Proposals to be considered include increasing the use of members’ national currencies to trade and setting up a common payments system. A goal to create a common currency is viewed as a longer-term project,” Bloomberg said.

Speculation on a new currency grew after earlier BRICS meetings spoke of members looking for ways to avoid becoming “victims of secondary sanctions“. DIRCO minister Naledi Pandor said that proposals were being considered by the Shangai-based and BRICS-created New Development Bank on how the new currency would work.

However, the bank conceded that no immediate plans are on the table for a new currency, and that such a goal would be considered a medium- to long-term ambition.

“In our view, (a new currency) is highly unlikely,” the BER said.

National Treasury has also previously shot down talk of a new currency, saying that it is not currently on the table.

In response to a written parliamentary Q&A in July, Finance Minister Enoch Godongwana said there had been no direct discussions on a new BRICS currency but reiterated the move towards further cooperation with BRICS countries to make non-dollar trades.

Several BRICS members have already begun to settle bilateral trade deals in local currencies.

India has an accord with Malaysia to ramp up the usage of the rupee in cross-border business. Brazil and China earlier this year struck a deal to settle trade in their local currencies, and India and Russia have approached South Africa about interlinking payment settlement in their own currencies.

However, Godongwana said there has been no direct request from BRICS to focus on de-dollarisation.

Read: New currency for South Africa, Russia and China – why countries are keen to boot the dollar

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