Amid the palpable anticipation, and the transformative discussions, we are witnessing the ascent of a momentous topic that promises to redefine global financial dynamics — the inception of a unified Brics currency. The formation of a collective currency is expected to be the most prominent subject of discourse when the leaders of the five emerging nations convene in Johannesburg in August for the Brics summit.
Recently, South Africa’s Foreign Minister Naledi Pandor emphasised the potential of a departure from the dominant role of the dollar, highlighting the possibility of empowering other nations. She has aptly recognised the inherent challenges that lie ahead, asserting the need for comprehensive discussions on the matter.
Pandor has been cautioning against unwarranted assumptions of success, wisely acknowledging the intricate nature of economics and the imperative of considering the diverse interests of all countries involved. Her nuanced perspective underscores the importance of a well-informed and inclusive approach to any potential shift in the global financial landscape.
“It’s a matter we must discuss and discuss properly. 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,” said Pandor, while answering a question about the Brics currency.
Casting light on the audacious ambitions of these emerging economic powers, China is leading this movement for an alternative monetary regime. Other members of the group have lent their unwavering support to China’s visionary endeavour to challenge the grip of US “dollar hegemony”. Such a stance befits China’s transformative rise on the global stage, unveiling its intent to reconfigure the existing financial order.
Emboldened by their shared aspirations, the Brics nations have converged upon the idea of a unified currency. The creation of a unified Brics currency represents a clarion call for emancipation from established conventions, a stride towards forging a new epoch of economic equilibrium. With the prospect of such a drastic shift on the horizon, the financial world is bracing for a profound reordering, as the echoes of Brics currency resonate across the globe.
While a unified Brics currency holds the allure of shifting power dynamics, it is not without numerous obstacles. As the project takes shape, the nations involved must confront complex questions and unbolt the intricacies of forging a new path. The challenges, both practical and geopolitical, loom large, demanding careful deliberation and strategic manoeuvring.
Since the culmination of World War II, the US dollar has reigned supreme as the preeminent global currency. A staggering 80% of international transactions flow through its channels, while close to two-thirds of the currency reserves held by central banks are stored in the greenback. The US capital markets, in turn, bask in their liquidity, embodying the pinnacle of financial prowess.
This status quo has endowed the US with hegemonic influence and leverage in the international arena. The far-reaching reach of the dollar has solidified America’s position as an economic superpower. The dollar’s dominance, however, is not without consequences. While it has bestowed undeniable advantages upon the US, it has also attracted scrutiny and generated concerns among some actors in the international community. The immense power wielded by the dollar has led to debates surrounding the potential vulnerabilities and asymmetries inherent in such a system.
Critics argue that the inordinate reliance on a single currency in global transactions exposes economies to volatility and external shocks, underscoring the need for diversification and alternatives.
The push for de-dollarisation has returned with a vengeance after the Western sanctions against Russia due to the Ukraine conflict. In an attempt to exert pressure on Russia, the US imposed punitive sanctions last year, seizing an enormous $300 billion of Russia’s foreign currency reserves and excluding prominent Russian banks from the global interbank messaging system, Swift.
However, this strategy of “weaponising” the dollar had an unintended outcome — it sparked the rise of alternative financial frameworks championed by Russia and China. As a consequence, there is a renewed momentum towards de-dollarisation.
The vision of a Bric alliance, originally conceived by former Goldman Sachs chief economist Jim O’Neill in 2001, took its time to materialise. It wasn’t until 2009, in the wake of a global financial meltdown, that the bloc convened for its inaugural summit in Yekaterinburg, Russia. Driven together by the urgency of the economic crisis, the member states pledged to revamp international financial institutions to better reflect the shifting dynamics of the global economy.
This entailed devising an alternative to the International Monetary Fund and the World Bank, as well as challenging the entrenched dominance of the US dollar. The Brics alliance, which turned from Bric to Brics after the induction of South Africa in 2010, has witnessed a wavy evolution, with its intentions occasionally questioned and its influence appearing uncertain. As circumstances shift and economic realities unfold, the prospect of a genuine challenge to the established international financial architecture becomes a more tangible prospect.
With yet another economic crisis, coupled with the cornering of one of the alliance’s most formidable members, Brics’s drive to abandon the US-led system has gained renewed attention. Despite China being the only Brics economy to sustain robust growth, the collective influence of the group has surpassed that of the G7 in terms of its relative contribution to global GDP, based on purchasing power parity.
Moreover, bilateral trade between Brics nations is experiencing a rapid ascent. While progress toward the alliance’s broader aspirations seemed to have stalled, recent developments indicate a renewed momentum. Discussions among members now revolve around the concept of “de-dollarising” trade, with many passionately entertaining the idea of a shared Brics currency.
A Brics currency holds the potential to challenge the supremacy of the US dollar, or at the very least, unsettle its position of authority by facilitating cross-border trades among the Brics members and like-minded countries. In addition, the Brics bloc appears to be resurging as a platform for collaboration on various fronts, including climate change, global governance and development. Notably, 19 countries, including Argentina, Turkey, Pakistan and Saudi Arabia, have expressed interest in joining the Brics, and these aspirations will be deliberated at the group’s summit in South Africa in August.
Indeed, it is grievances that seem to bind the Brics members and other aspirants together. Developing economies, in particular, are harbouring deep frustration over the onerous conditions imposed upon them by Western-dominated institutions. They are weary of what they perceive as a hypocritical stance on critical policy issues, including the transition to a greener future. Conservation demands and restrictions on technology sharing are seen as attempts to unjustly constrain their economies. But perhaps the most significant source of discontent lies in their scepticism toward Western norms and values, viewing them as mere cover-ups for self-serving actions by Western powers.
The failure, or reluctance, of the West to reform global governance in a way that grants emerging economies, such as China, greater influence has only compounded these grievances. Brics nations seek a currency that ensures accessibility and equitable treatment in global trade, aiming to address the US dollar’s role as a tool for American hegemony, which they believe creates economic instability and hampers global recovery.
The process of establishing a common currency among a group of nations is typically protracted, necessitating extensive co-operation over a span of years. The example of the euro’s inception shows the intricate nature of this undertaking, often entailing the gradual phasing out of local currencies.
So far, about 41 countries have shown interest in accepting, and trading with, a Brics currency. They include oil-rich nations from the Middle East. However, it appears that the endeavours of the Brics nations are primarily focused on formulating a currency unit specifically intended for facilitating cross-border trade, rather than a comprehensive replacement for individual national currencies.
This strategic approach mitigates some of the inherent complexities involved and lends credence to the plausibility of their collective efforts. By narrowing the scope, the Brics nations seek to tread the path forward with increased feasibility, recognising the potential benefits of a currency unit tailored for cross-border transactions.
Dr Imran Khalid is a freelance columnist on international affairs based in Karachi, Pakistan. He qualified as a physician at Dow Medical University in 1991 and has a master’s degree in international relations from Karachi University.