Russia is taking the lead in efforts to spread the benefits of global economic development among all countries, according to Russian Foreign Minister Sergey Lavrov.
Lavrov discussed the creation of a new financial platform that will allow member states to conduct transactions in their own national currencies.
“[BRICS is] actively working to implement the decisions of the Johannesburg summit last year, particularly when it comes to improving the international monetary and financial system, developing a platform for settlements in national currencies in mutual trade,” he said at a summit of the bloc’s top diplomats.
“Our agenda is extensive. It includes issues that will directly affect the future world order based on fair grounds,” he added.
The development is significant as it accelerates pre-existing efforts by countries at the bilateral level. BRICS now includes nine member states after the accession of Iran, Egypt, Ethiopia and the United Arab Emirates to the bloc last year.
Dozens more countries are reportedly interested in joining the group, meaning a significant portion of global trade could be conducted without the US dollar within just a few short years. Economist and academic Linwood Tauheed joined Sputnik’s The Critical Hour program Thursday to discuss the development.
“This sounds like a great idea,” said host Wilmer Leon. “It sounds like it will enable smaller countries to have more stability in their economies and provide a balance in world trade as the world moves off of the dollar.”
“Yes, not only is it a better idea than the current system where the dollar is the currency of transaction, [but] it's not a new idea,” said Tauheed. “This is an idea that was proposed by John Maynard Keynes during the Bretton Woods meetings that eventually ended up with the dollar as the reserve currency.”
“In 2009 the governor of the People's Bank of China re-raised the issue of using the Bancor and using the IMF as the vehicle for doing that,” he added, using Keynes’ term for his proposed process of settling imbalances between countries trading in their own currencies. “That was, of course, rejected in 2009. What is interesting is that the BRICS was also initiated in 2009. And so it seems as if the Chinese had this idea of bringing back the Bancor at least as early as 2009, and understood that the West would not go for it, but they would go forward with their own design.”
The proposed system would create a Bancor-like mechanism whereby countries that accumulate an excess in foreign currencies would be granted credits to be used in trade. The BRICS bloc’s consideration of the idea suggests such a system could come about voluntarily, with BRICS members adopting the practice as the bloc gradually expands.
Currently the United States benefits though the US dollar’s status as the world’s global reserve currency, traditionally used in the purchase of oil and other commodities. The arrangement stabilizes the country’s currency and has allowed it to pursue massive deficit spending. A system that uses various currencies would work to more evenly distribute the benefits of using countries’ currency in global trade, Tauheed explained.
“The strength of the dollar is based on the demand for dollars,” the economist noted. “If the demand for dollars decreases because countries are able to buy in their own national currency, then the strength of the dollar relative to other currencies decreases because demand goes down. That means that the demand for other currencies goes up.”
“There's a democratization of the power of money in the international sphere,” he said. “And, of course, one of the issues of the BRICS is to democratize this process of developing so that it's not a few countries that benefit from trade, but all countries benefit from trade.”
BRICS member states have enjoyed impressive economic growth in recent years, with Russia’s GDP expanding at a faster rate than any G7 nation. Meanwhile China’s GDP is set to grow at a healthy 5% in 2024, and India’s GDP growth is reported to approach 7%.