New currency for South Africa, China and Russia – Godongwana draws the line

 ·6 Oct 2023

Finance minister Enoch Godongwana says there is no official proposal to introduce a new BRICS currency at this point in time, and that the trade relationships with the United States and the European Union are not under threat from talks of stronger ties within the bloc.

Responding in a written parliamentary Q&A this week over the proposed unified BRIC currency, Godongwana reiterated that this was not a formal proposal, and there was no talk of this emanating from the bloc at this stage.

It was heavily speculated ahead of the BRICS Summit in August the bloc would put forward a proposal to create a new currency between the participating nations to ease trade and to side-step sanctions imposed by the West.

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.

However, Scherzer noted that having a BRICS currency would be extremely onerous to put into place including difficulties with aligning monetary policies and interest rates across countries with hugely differing populations and economic circumstances.

This has often been raised as a counter-point to a unified currency among the BRICS nations.

On the sidelines of the summit, Godongwana stated that no proposal was made for the new currency – not even informally.

“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.

In his official response to parliament, the finance minister said that the current discussion is on facilitating trade and finance amongst the BRICS members, which includes encouraging the use of local currencies in international trade and transactions between the bloc and its partners.

The official declaration on the matter from the summit states that:

“We also encourage strengthening of correspondent banking networks between the BRICS countries and enabling settlements in the local currencies.

“We task our Finance Ministers and/or Central Bank Governors, as appropriate, to consider the issue of local currencies, payment instruments and platforms and report back to us by the next Summit”.

Godongwana said that in the BRICS Finance Track, Finance Ministers and Central Bank Governors will resume discussions regarding the instruction from the leaders to explore payment instruments and infrastructure of using local currencies for enhance trade.

Feedback on this will be delivered at the next summit.

When asked by MPs how this position would impact South Africa’s existing trade relations with other partners outside the bloc – specifically the US and EU – Godongwana said that these relationships remain strong.

“To date, the United States and the European Union remain one of the largest trading partners of South Africa.

“South Africa trade relations with the United States and the European Union are governed by existing trade agreements with these trading partners. Any changes in the trade agreements are negotiated and agreed between the two countries,” he said.

Read: The big problem with launching a new currency for South Africa, China and Russia

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