/ 22 August 2023

Godongwana: Too early for SA to discuss Swift alternative and de-dollarisation

Medium Budget 2022
Finance Minister Enoch Godongwana. (David Harrison/M&G)

Finance Minister Enoch Godongwana says it is premature for South Africa to enter the discourse about de-dollarisation and creating an alternative to the cross-border payments system Swift

Speaking on the sidelines of the state visit of Chinese President Xi Jinping at the Union Buildings on Tuesday, Godongwana underlined that South Africa’s trade is still largely skewed towards the West. Taken together, South Africa’s trade with the United States and the European Union dwarfs that with China, which has positioned itself as Washington’s main opponent in the battle for world economic primacy. 

Godongwana noted that 75% of South Africa’s foreign liabilities are linked to the US and Europe.

The state visit comes ahead of the official opening of the 15th Brics summit, taking place in Sandton, Johannesburg. It has been speculated that Brics members will discuss the introduction of a common Brics currency, as part of their bid to create an alternative to the US-dominated monetary system.

The sheer size of China’s economy compared to Brazil, Russia, India and South Africa makes it the dominant force in the alliance, which was formed in the fallout of the 2008 global financial crisis. It is also expected that China will push for the further internationalisation of the renminbi (RMB), as it seeks to expand its currency’s geographical reach. 

In a research note released ahead of the summit, Standard Bank noted that “a primary task that is uncontested amongst the Brics is the need to create mechanisms 

to expand local currency settlement and promote direct trading amongst the Brics 

currencies” . 

“Without doubt, China is keen to push for change in the international monetary system,” the research note added.

Since the Covid-19 pandemic, the People’s Bank of China has sought to strengthen the coordination between domestic and foreign currencies, facilitate market entities to use more renminbi and to promote innovation in the currency’s cross-border investment and financing, according to the Standard Bank note.

“In our view, the conversation around the creation of a Brics currency is a side note to the real topic, which is the expanded use of the Chinese RMB in Brics commercial exchanges. China is keen to push for change in the international monetary system, eager to expand the geographical reach of the RMB. This objective is uncontested amongst the Brics.”

Currency internationalisation efforts in China have helped prompt the world’s slow shift away from the dollar, although the greenback has maintained its dominance. In late March, China and Brazil reportedly struck a deal to do away with the dollar and to favour their own currencies in trade transactions.

The Brics summit is taking place against the backdrop of rising geopolitical tensions, as Russia’s aggression against Ukraine continues. Russia’s war on Ukraine prompted a wave of sanctions against Moscow, including the country’s ban from Swift, the global standard for payment and securities trade transactions.

In the wake of the sanctions, the renminbi replaced the US dollar as the most traded currency in Russia.