The BRICS group has requested guidance from the Shanghai-based New Development Bank on how a potential new common currency might facilitate the development of the global economy and shield the group's members from Western sanctions. In this respect, a BRICS single currency might replace the US dollar, according to international observers.
"The world is caught up in many multiple-level geopolitical fractures," Ashraf Patel told Sputnik. "BRICS has the potential to provide a 'broad-based economic stability' in world affairs, while simultaneously creating alternative platforms in key areas, one being the BRICS reserve currency. In 2022, as a whole, the BRICS ran a trade surplus, also known as a balance of payments surplus, of $387 billion – mostly thanks to China. Many mechanisms exist in a geopolitical world order."
"A BRICS reserve currency is a most promising possibility. By working at bilateral levels (China-Brazil, etc) and regional levels (Brazil-Argentina), it can increase trade flows. Goods produced in one country can also circumvent trade restrictions between two countries by being exported to, and then re-exported from, a third country. As the US debt ceiling crisis in the past several months has shown, the US domestic financial system is unsustainable, and that debt is 're-exported globally' via trade wars, etc. So yes, the scope for alternative currency is more viable in the current world of 2023."
What is the Purpose of a BRICS Currency?
On June 1, BRICS – the acronym for Brazil, Russia, India, China, and South Africa – brought together the bloc's foreign ministers, as well as their counterparts from countries including Saudi Arabia, the United Arab Emirates (UAE), Egypt, and Kazakhstan for a two-day summit in Cape Town.
In January, the bloc announced that it may soon explore the possibility of creating its own currency to bypass the US dollar. The West's sweeping sanctions against Russia, including cutting the nation off from SWIFT and freezing its Central Bank assets are believed to become a wake-up call for emerging economies across the world. But could the US dollar be replaced as a world currency?
According to Lula, the time is ripe for Latin America and BRICS nations to drift away from the greenback to boost multilateral trade and economic development of the Global South. "Who decided that the dollar was the (trade) currency after the end of gold parity?" the Brazilian president asked rhetorically during his visit to the New Development Bank in April.
How Will the Currency Work?
In July 2014, the BRICS countries created the New Development Bank (NDB), an international financial organization whose main goal was to finance infrastructure projects of the bloc's member states. However, it also acts as an alternative to the World Bank and the International Monetary Fund (IMF) for developing nations.
If the idea of a single BRICS currency materializes, the NDB could become a sort of clearing center which would simplify the issue of payments for mutual deliveries of goods, according to Russian Ministry of Finance Anton Siluanov.
"The idea of creating a common currency, although I would probably call it a payment unit inside BRICS countries, is floating around and is being discussed. We also have proposals about using digital financial assets supported by real assets, for example gold - stablecoins," Siluanov told the Russian press on May 31.
According to Russian economic observers, a single BRICS currency could initially play the role of a unit of account for settlements in national currencies and conversion without the use of the dollar. However, in the future, it could become a means of payment and receive the status of a reserve currency not only for the bloc's members, but also for other states.
The value of the new single currency can be determined on the basis of a "basket of currencies" of the countries participating in the BRICS "monetary union." The weight of an individual currency in the basket would be determined depending on the state's gross domestic product (GDP), gold and foreign exchange reserves, as well as trade balance and the size of the public debt.
The idea to create an SDR-type currency basket composed of BRICS countries’ national currencies was first formulated by the Valdai Club in 2018. The club also came up with a name for a potential new reserve currency - "R5" - which represented the first letters of BRICS members' currencies (real, ruble, rupee, renminbi, and rand).
Is BRICS Currency Possible?
Russian economist Mikhail Khazin told Sputnik in late January that he expects a gradual shift to the potential common BRICS currency. According to him, one would see the emergence of several new currency zones first and only after that, in about 10 years, a single BRICS currency would emerge as a "superstructure," akin to the euro.
Khazin underscored that presently it would be logical to start creating a single payment system for BRICS nations to circumvent Western sanctions in multilateral trade. Remarkably, such a system, called BRICS Pay, was proposed back in 2018. The digital payments platform is being jointly developed by the member countries of the bloc.
Speaking to Sputnik in early May, Pepe Escobar, a geopolitical analyst and veteran journalist, suggested that de-dollarization is heading for a breakthrough due to rising global discontent with US "casino capitalism". In light of this, the single BRICS currency could come in handy.
For their part, Washington DC scholars have argued that the de-dollarization trend appears to be "unstoppable" and pointed the finger at the US government's sweeping sanctions covering 29% of the global economy with 40% of global oil reserves, as well as the Federal Reserve's aggressive interest rate hikes, which have proven painful for foreign borrowers.
Is BRICS Currency a Threat?
During the meeting in Cape Town, Russian Foreign Minister Lavrov emphasized that in contrast to the Western-centric groups, "BRICS is a new organization based on the principles of equality, mutual respect, consensus, non-intervention and strict adherence to the UN Charter in all its principles and in all their relationships."
"BRICS nations are coherent in terms of a more inclusive balance order and need for substantive reforms," echoed Ashraf Patel.
The bloc's inclusive approach has proven effective even though BRICS nations have some differences in culture and approach to engagement with the West and the developing South, according to him.
"China is a clear leader in terms of substantive development and infrastructure finance globally," said Patel. "Russia is a key player globally, in energy markets, and in the Eurasian region and politically has shifted east. India is taking a more pro-West posture, especially regarding recent active engagements and agreements with the G7, Australia, the Quad, etc. South Africa and Brazil under Lula are more pro-third world and developing South and taking more non-aligned positions in world affairs. As BRICS membership expansion grows, it may get more interesting, offering more possibilities."
The Cape Town meeting, which will be followed by an August 22-24 summit of BRICS heads of state, has focused both on economic and geopolitical issues, including further expansion. Presently, around 19 countries aspire to join the bloc. As per Lavrov, this growing interest stems from the fact that the bloc "symbolizes the evolution of the multipolar world, which is being discussed more and more often."
BRICS' rapid expansion is largely seen as yet another prerequisite for creating a common currency, which would not only serve as a viable alternative to the US dollar, but will also ensure global economic stability based on a win-win approach.