A Common BRICS Currency Is Sometime Away, But We Do Know Its Name

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A BRICS currency is on the longer-term agenda, but not until certain development points have been passed. This article explains the route. 

By Chris Devonshire-Ellis

Discussions concerning a common BRICS currency are not on the agenda during the current BRICS 2023 summit currently taking place in Johannesburg, however a name from the currency has apparently already been ‘coined’ – the R5.

This is a reference to the five currencies used by the current BRICS members – the Renminbi, Ruble, Rupee, Real and Rand.

Brazil’s former representative at the International Monetary Fund (IMF), Paulo Nogueira Batista Jr, has stated that in time, the five countries – which may have increased in the interim – will need to establish an alternative to the US Dollar in trade due to its use by the United States in imposing or threatening sanctions. But how will the BRICS achieve that aim – if at all?

Step One

Rather than a common currency, the initial stage, which is already occurring, is to increase the trade use of their respective currencies, a position underlined by Indian Foreign Secretary Vinay Mohan Kwatra, who said just prior to the on-going BRICS summit that deliberations among Brazil, Russia, India, China and South Africa have been focused on boosting trade in national currencies instead of on developing a common currency.

“The substantive part of trade and economic exchanges and discussions that have been a part of BRICS discussions, have so far, in a major way, focused on how to increase trade in respective national currencies which… is considerably different from a common currency concept,” Kwatra said.

“You would know that common currency discussions have several prerequisites before you can even talk about a common currency framework. The discussion framework in BRICS and the substance of that discussion framework in BRICS have focussed principally on trade within national currencies” he added.

Brazil’s President Lula da Silva and Russian Foreign Minister Sergey Lavrov have voiced support for the idea of a common currency among BRICS nations. “I am in favour of creating, within the BRICS, a trading currency between our countries, just like the Europeans created the euro,” said Lula during a speech in April.

“Serious, self-respecting countries are aware of what is at stake, see the incompetence of the ‘masters’ of the current international monetary and financial system, and want to create their own mechanisms to ensure sustainable development, which will be protected from outside dictates,” Lavrov was quoted as saying by numerous news outlets in January. He went on to talk about the creation of a currency within the framework of BRICS.

However, India has been cautious in public on this matter. India’s External affairs Minister S Jaishankar stated that there have been no discussion of a BRICS currency. Kwatra’s comments seem to indicate that the grouping’s focus will remain on deepening trade in national currencies.

Thus far, the extent of Intra-BRICS trade using their respective currencies is estimated to be about 30-35% of all transactions among the BRICS nations, with the bulk falling still on using the US dollar and the euro. However, this will shortly change.

Step Two

The second step in liberalising BRICS trade from US dollar and euro use is the introduction of sovereign digital currencies. This is en route: China, India and Russia are all currently holding usage trials of their respective national currencies, which will be backed by, and managed by their respective Central Banks, just as ordinary sovereign currency is. The difference is that this will be a digital version. Brazil and South Africa are not far behind in their developments, except they are not at national trial stage yet. All are about three years ahead of the US dollar and euro, which have only just passed their ‘proof of concept’ mark. Being more complex and interwoven into the global financial systems means it is more difficult for the US and EU to introduce their digital currencies, even though the same technology is well understood.

The introduction of digital sovereign currencies will mean that the BRICS nations will be able to exchange financial data and transactions without the need to go through the global SWIFT transactional system. This allows them to circumnavigate financial and economic sanctions, currently placed on Russia and threatened upon third party countries – and will greatly expand their ability to trade within their own currencies and bypass US dollar and euro usage. China, Russia, and India are preparing to have their digital currency services available to bank clients by early 2025. Brazil and South Africa may be a year to 18 months later.

There will be spin offs. Oher countries, such as Kazakhstan and Kyrgyzstan are also developing digital currencies and are part of the supply chains between Russia and China. Iran and numerous other countries are also all developing digital versions of their sovereign currencies, meaning that the SWIFT global banking network is about to lose its influence.

The BRICS Spread of Digital Currency Use

A little understood aspect of the BRICS in the West is that while much has been made of the disparate nature of the five nations, they are all the lead members of their respective free trade groups. This includes China with RCEP, India with SAARC, Russia with the EAEU and CIS, Brazil with Mercosur, and South Africa with the SAEU.

Then there is the Shanghai Cooperation Organisation (SCO) of which China, India and Russia are all full members.

Collectively, these trade organisations include, apart from the BRICS, another 64 countries. Digital technologies from BRICS are sure to filter down to enable this huge, global network of countries, all of whom can bypass the SWIFT network. This transformation can be largely expected to have been completed by 2030 and will represent a huge shift in global financial dynamics over the coming five-seven years. It will effectively render the G7 and G20 platforms as obsolete, or at least have reduced them to a bank of Western-oriented powers. This will also have a huge impact on the United Nations and how it is currently managed.

A Common BRICS Currency

Therefore, the concept of a common BRICS currency is not really a requirement at this stage. In any event, it will likely manifest itself only after a global digital financial transformation has been completed, while there are other issues about who would run and be responsible for acting as the Central Bank.

This question implies the development, perhaps like the European Union, of an inclusive bloc with common ideologies, technical capabilities, and a desire to remain free of the United States foreign policy demands as are currently implemented on a global basis. That issue is also being discussed, albeit at early stages.

China, India, and Russia – all members of the SCO, have been instrumental in asking the questions as to whether that entity could merge in some form with the EAEU. There have also been initial discussions concerning adding to this the nations who have signed up to the Belt and Road Initiative. Given that 148 countries currently have such agreements in place, this is a significant figure would position the world’s trade in a completely different format to the current organisational structure.

These are longer term views, however one advantage that countries such as China has, is the lack of operational distractions created by ever-changing policies as a result of a surfeit of democratic governance, which in itself is in the process of going off the objective rails.

I do not expect to see any meaningful debate concerning the creation of an Eastern version of the EU anytime soon – partially because there already is one in the form of ASEAN. But when ASEAN creates a Central Bank and a common currency, one can be sure that the BRICS and its numerous allies will likely not be far behind.

Chris Devonshire-Ellis is the Chairman of Dezan Shira & Associates. He may be reached at asia@dezshira.com

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