The Quest for an Alternative Currency
The 15th BRICS Summit, held in Johannesburg in August, generated considerable excitement over the potential launch of a BRICS currency. Given the US dollar’s dominant role in global trade and finance, many anticipated that the summit would mark a significant step towards creating an alternative. However, the absence of Russian President Vladimir Putin and the unexpected non-participation of China’s President Xi Jinping in key discussions dampened these expectations.
Summit Outcomes: Expansion over Currency
Instead of unveiling a new currency, the summit’s highlight was the expansion of BRICS to include six new members: Egypt, Ethiopia, Saudi Arabia, UAE, Argentina, and Iran, effective January 1, 2024. This expansion, while broadening BRICS’s influence, complicates the feasibility of adopting a unified currency. The addition of such a diverse group introduces varied economic conditions and geopolitical interests that must be reconciled.
Economic and Financial Challenges
Diverse Economic Landscapes: The new BRICS members present a mix of economic situations. Russia and Iran are largely excluded from global financial systems, while China faces selective sanctions. The economic struggles of Egypt, Ethiopia, South Africa, and Argentina add further complexity. In contrast, Saudi Arabia and the UAE’s economies are heavily dependent on oil revenues and are pegged to the US dollar, posing significant transition risks.
Infrastructure and Transition Costs: Introducing a new BRICS currency would require extensive infrastructure, including establishing exchange rate mechanisms, reserve management, and monetary policy frameworks. Transitioning to a new currency could take up to a decade, with potential disruptions and opportunity costs for countries involved.
Geopolitical Implications
G20 Dynamics: The G20 Summit in September, where key BRICS members reaffirmed their commitment to the existing global economic framework, highlighted the challenges of establishing a new currency. US President Joe Biden’s influence in securing support from Indian Prime Minister Narendra Modi and South African President Cyril Ramaphosa for the G20 underscores the strong existing alliances that could impede the emergence of a BRICS currency.
International Relations: Modi’s actions at the G20, including promoting Indian-led global initiatives, reflect underlying geopolitical tensions, particularly with China. These tensions could further complicate the collaborative efforts required to implement a new BRICS currency.
Potential Alternatives
Chinese Renminbi (RMB): Among BRICS currencies, the RMB has the potential to rival the US dollar due to China’s economic clout. However, achieving global acceptance and overcoming infrastructure challenges could take years. The RMB’s current usage in international payments still lags behind the US dollar.
Basket of Currencies: An alternative approach could be a basket of strong currencies, similar to the IMF’s Special Drawing Rights (SDR). This method could diversify risk but faces the challenge of integrating currencies from diverse economies and ensuring stability.
Gold-Backed Currency: Another potential solution is a gold-backed BRICS currency. With BRICS nations holding over 5,000 tonnes of gold, this could offer a stable basis for a new currency. However, managing and integrating this gold into a functioning international currency system presents significant hurdles.
Future Prospects
The feasibility of a BRICS currency remains uncertain, shaped by global economic shifts and internal BRICS dynamics. The emergence of an alternative to the US dollar seems plausible given the evolving economic landscape, but the exact form and timing of such a currency will depend on overcoming substantial economic, geopolitical, and infrastructural challenges. As global financial systems continue to evolve, the discussion around a BRICS currency will likely remain a key topic of interest and debate.
