The BRICS bloc is set to discuss common currency during its next summit meeting.
Voice of America (VOA) reported that the group – which consists of Brazil, Russia, India, China and South Africa – will touch on common currency during the 15th BRICS summit scheduled this coming August in Johannesburg, South Africa. At least three of the BRICS group’s members – Russia, China and Brazil – are backing the effort, it added.
Naledi Pandor, South African International Relations Minister, said a move away from the dollar could empower other countries. She, however, acknowledged that the project is challenging.
“I don’t think we should always assume the idea will work because economics is very difficult, and you have to have regard for all countries,” Pandor said. “It’s a matter we must discuss, and discuss properly.”
A common currency established by the BRICS group could take some time before being adopted, said Isaah Mhlanga, chief economist for the South African investment bank Rand Merchant Bank. He told VOA that the common currency the group is pushing to upend the U.S. dollar’s dominance was “just not founded by any economic fundamentals that we know of.”
Mhlanga also pointed out that given the different economic and political systems of the BRICS nations, “it’s quite difficult to have a common currency.” A more likely prospect, he remarked, is individual states conducting more bilateral trade using their respective local currencies. The chief economist’s projection is already happening, with several nations dropping the petrodollar in favor of local currencies for petroleum trading.
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Nations reconsidering the use of dollar after its weaponization against Russia
Since the end of World War II, the U.S. dollar has been the world’s dominant currency – affirmed by the 1944 Bretton Woods conference. Eighty percent of international transactions are conducted in U.S. dollars, and nearly two-thirds of all currency reserves in central banks worldwide are in the greenback.
However, the dollar’s weaponization against Russia following its special military operation in Ukraine raised doubts among many nations. These countries feared that if it could happen to Russia, then it could also happen to them in the future. Political economist Aly-Khan Satchu, who is based in Kenya, thinks this sentiment has contributed to the idea of a BRICS common currency.
“The freezing of their reserves by the Americans, and a similar scenario unfolding in Europe, forced the Russians to look for a different payment solution outside the U.S. system,” he said.
“I think it’s difficult to underestimate the level of shock that various countries have experienced when Russia’s reserves were frozen. China saw that and thought: ‘Look, if they can do it to Russia they can do it to us.’”
According to Satchu, drafting a common currency “is not an easy task.” He elaborated: “There’s a question of how its composition will be constructed. There’s a lot of talk about having a commodity-based currency and therefore there will be complexities around the weighting of the various commodities.”
Lesetja Kganyago, the governor of the South African Reserve Bank, remarked that the BRICS common currency would spur debate about the creation of a central bank and where that would be located. The New Development Bank based in Shanghai, China led by its President Dilma Rousseff currently serves this purpose. (Related: BRICS New Development Bank ditching US dollar by offering loans in local currencies.)
“I don’t know how we would talk of a currency issued by a bloc of countries that are in different geographical locations because currencies are national in nature,” he said. “For the euro area to arrive at that, they had to establish a treaty where the other countries had to all surrender their currencies.”
Watch this news clip about Brazilian President Luiz Inacio Lula da Silva advocating for a common currency among BRICS member nations.