The upcoming leaders’ summit for the BRICS nations, comprising Brazil, Russia, India, China, and South Africa, has raised discussions about a potential common currency to challenge US dollar dominance. The summit, scheduled for August 22, will take place in Johannesburg, South Africa, and will examine the feasibility of introducing a common BRICS currency. The de-dollarisation efforts by the BRICS nations are expected to further inject impetus into its development. A South African minister pointed out that an increasing number of countries question why they need to rely on the dollar to trade and currency-based exchanges are preferable. By simplifying currency transactions and eroding the dominance of the US dollar, a common BRICS currency would benefit member countries. However, economists warn that the plan might bear its own risks due to the stage of growth that many of the member countries are currently in. The BRICS group of nations has been expanding, with interest from 19 other countries, including Saudi Arabia and Iran seeking membership.
Reports also suggest that a common currency may erode the US dollar’s dominance. A move towards de-dollarisation is underway, as more countries attempt to expedite their shift away from the dollar and towards other currencies such as the Chinese yuan and cryptocurrency. A former White House economist for the US has warned that the widespread use of a BRICS currency for international trade would remove the impediment that hinders their ability to escape dollar hegemony. On the other hand, experts disagree, with some believing the challenges linked to the introduction of a unified currency pose minimal threat to the USD.
A common currency issued by the BRICS nations is not a new idea. However, in 2015, the Russian central bank discussed the formation of a BRICS currency basket, aimed at balancing the currencies of the member nations, to strengthen and align them with regional economic blocs.
Many analysts suggest that the viability of a new currency requires various factors, including the economies of member countries, their political stability, geographical proximity, and trade interdependence. The BRICS countries are viewed as more interdependent, and it will be easier for member countries to rely on a single currency if strong integration measures are implemented.
A joint currency would mean that members would be able to engage in cross-border transactions without the need to exchange currencies. A significant hindrance to international trade is the fluctuations of exchange rates which can impact businesses adversely. Cross-border transactions would be more accessible as businesses would be conducting transactions in one currency.
The idea of a new BRICS currency basket is aimed at empowering the member countries to adjust their exchange rates to compensate for lacklustre economic growth and a surge in inflation. These economic challenges need to be tackled collectively, and a common currency is one solution. A unified currency would make it easier for BRICS countries to manage their import and export activities, increasing their effectiveness in handling macroeconomic pressures.
Finally, picking out currencies that can back a common currency is imperative. The yuan is the most significant currency among the BRICS countries; however, the yuan is not entirely convertible. The Russian rouble comes in second, but it is not entirely stable, given that it is impacted by fluctuations in oil prices.
Consequently, the Indian Rupee and Brazilian Real garners more attention as potential currencies for backing a new currency. The Indian Rupee has long been touted as a significant contender, given the increasing economic prowess of India, and the Brazilian Real has remained steady, with gross domestic product (GDP) growth anticipated to recover from its ongoing slump.
In conclusion, the BRICS nations are preparing to discuss the possibility of launching a common currency to take on the dollar’s dominance. While preparations for a potential common currency are underway, there are still significant challenges that need to be addressed. One challenge is the eradication of existing geopolitical and economic bottlenecks, while successfully integrating and maintaining political and economic stability among the member countries. The outcome of the BRICS leaders’ summit in Johannesburg will be an essential milestone that will set the stage for future plans for the proposed BRICS common currency.
