With the 15th annual BRICS Summit now underway in South Africa, talk of a new unified currency for the bloc and a more concerted effort to move away from the dollar as the global currency for trade is gaining attention.
The summit build-up has been dominated by speculation on the possible expansion of the BRICS grouping and the introduction of a common BRICS currency – the latter of which has caused much debate in economic circles.
Proponents of such a currency have argued that nations, which represent a massive percentage of the global population, should not be so highly dependent on the dollar as the currency of trade and that trade in more local currencies should be easier.
The argument for a unified currency among BRICS nations has been spearheaded by Russia, which has suffered greatly from sanctions imposed on it by the United States and Western nations in the wake of its war in Ukraine.
According to Harry Scherzer, CEO at Future Forex, with over 74% of international trade being done through the US dollar, there has been a push from the East for some form of de-dollarisation – which basically suggests not using the dollar as much for international trade in order to remove the USA’s control over international trade.
US specific decisions often affect the world, he said, even when the ones making those decisions are people who care mainly, if not only, about the US economy rather than the impact it has on the global economy.
“So with the likes of Russia and China in particular, wanting to remove some power from America, there has been talk of a new single currency used by all the BRICS nations. And the summit this week is going to be the place of discussion for this new currency as one of the agenda points,” he said.
However, Scherzer noted that having a BRICS currency would be extremely onerous to put into place “and there’d be huge difficulties, because there’d need to be an alignment of monetary policy and of interest rates which is pretty tough when you have nations with such hugely differing populations and economic circumstances,” he said.
This has often been raised as a counter-point to a unified currency among the BRICS nations.
While a unified currency like the Euro has arguably proved successful for the participating nations in Europe, it has benefitted from having all countries at least being on the same continent.
A BRICS currency would have to unite major economies, all operating in different parts of the world under significantly different circumstances.
Moving away from the dollar
The official line on the proposed ‘new currency’ has been that it is a topic to discuss, and a plan to look at over the longer term. However, there has been a push from BRICS nations to tip the scales on the dollar and more broadly move away from the greenback as the dominating world currency.
According to South African Deputy President Paul Mashatile, one of the topics being discussed this week is how leaders of the BRICS nations will focus on ways to reduce dependence on the dollar.
The bloc expects their growing heft to help reduce dependence on the greenback. Leaders will look at ways to boost payments in members’ currencies, part of a wider ambition to challenge the geopolitical leadership of the US.
The idea to launch a common currency to challenge the dollar is just one idea and much longer term.
“Today the world takes notice of this bloc because it’s at the forefront of the global discourse,” to reduce dependence on the dollar, Mashatile told business leaders from the BRICS late on Monday. “We are not here to compete with the West. We want our space in global business.”
In June, BNP Paribas SA said in a note that conditions were ripe for the dollar’s dominance in global trade to diminish, even if the process was “a slow, incremental burn.”
“I want to buy from India. Why should I use dollars?,” former Nigerian President Olusegun Obasanjo told the gathering to loud cheers from the audience. “It’s a payment and settlement system that will allow me to buy whatever I want to buy in India, whatever I want to buy in Brazil, without looking for dollars.”
Still, to date, deep divisions among members have limited the consensus-driven bloc’s ability to increase its sway at institutions such as the International Monetary Fund, the World Bank or the United Nations Security Council.
A BRICS development bank has lent only $32.8 billion in eight years in operation, a tiny fraction of the amount the IMF and World Bank have disbursed over the period.
During the summit, a “strategic discussion” will take place on how to enhance multilateral institutions, South Africa’s foreign minister Naledi Pandor said in a speech at the forum.
Speaking on the sidelines of the summit, finance minister Enoch Godongwana noted that South Africa’s trade is skewed massively in favour of the West – 75% of trade – so talk of de-dollarisation and exiting dollar-dominated payment systems is premature.