Brics (Brazil, Russia, India, China, South Africa) nations could benefit considerably by trading directly in their own countries, cutting out unstable internationally convertible currencies, Trade and Industry Minister Rob Davies said on Sunday.
Davies said such a system would take out the money lost to the “middle man” in conversion, and protect Brics trading partners from the volatility affecting internationally convertible currencies, notably the dollar.
“First of all the middle man always takes a cut and we are also having to take into account the currency fluctuation that happens along the way,” he said after returning from the Brics summit in China.
The proposal is considered one of the most interesting developments at the third Brics summit and could have serious implications for the dollar, but it raises question about how the members would calculate conversion rates
Davies said the countries were not “remotely close” to picking the model for making their currencies inter-convertible.
He stressed that the proposal was part of the emerging market countries’ call for greater say in how the world’s financial system was run and the debate on which currencies should be in the emergency “basket” of drawing rights managed by the International Monetary Fund.
Davies said monetary policy in the developed world was wreaking havoc on developing economies like South Africa by inflating their currencies as investors went hunting for higher exchange rates.
The summit marked South Africa’s debut in the club of fast-growing economies that account for 40% of the world’s population.
Davies said South Africa was well aware that in many ways it did not measure up to Brazil, China, India and Russia but had been invited because it served as a gateway to Africa.
He described the meeting a “very successful entry into Brics” and said important bilateral trade issues were discussed, especially with China.
Chinese delegates were sympathetic to South Africa’s call for investment in beneficiation, which could have positive implications for the country’s export revenue.
At the moment South Africa exports mainly raw mineral materials to China while importing manufactured goods.
Commenting on the Doha Round of tariff negotiations, Davies said it was imperative that the talks continued but addressed obstacles for developing nations, notably agriculture subsidies.
“There must be a next round but it must be a development round.” — Sapa