Today's Edition
NAJLA ALMIDFA (ABU DHABI)
The writer is a research assistant at TRENDS Research & Advisory
The concept of a BRICS common currency has garnered significant attention as members of the group seek to reduce their dependence on the US dollar and enhance economic cooperation.
BRICS has shown greater geopolitical ambition and expanded its membership this year by adding four new members in 2004.
The primary motivation for a BRICS common currency is to foster greater economic cooperation and independence.
The member countries seek to enhance intra-BRICS trade by simplifying transactions and reducing exchange rate volatility.
A common currency could reduce transaction costs and increase economic stability within the bloc.
It would encourage investment and economic integration, making it easier for businesses to operate across BRICS borders.
Moreover, in the context of growing geopolitical tensions and economic sanctions, particularly affecting Russia, the BRICS countries aim to insulate themselves from external pressures and assert greater control over their economic independence.
While the idea of a BRICS currency is attractive, several challenges complicate its implementation.
One major hurdle is the economic disparity among the BRICS countries.
These nations have diverse economic policies, growth rates, and levels of development.
For instance, China’s economy is significantly larger and more advanced compared to South Africa’s, leading to potential imbalances in a shared currency system. Additionally, political and monetary sovereignty concerns pose significant obstacles.
Each BRICS country has its monetary policy tailored to its unique economic conditions.
Adopting a common currency would require ceding some control over these policies to a central authority, which might be politically sensitive and logistically complex.
Another challenge is establishing a robust financial infrastructure to support the new currency.
This includes creating institutions for currency issuance, regulation, and monetary policy, as well as ensuring that member countries’ financial systems are compatible and stable.
The proposal for a BRICS currency has generated varied global reactions. Supporters argue that it could challenge the dominance of the dollar, which currently serves as the world’s primary reserve currency.
This could potentially reduce the influence of the US Fed on the global economy and offer countries more options in international trade and finance.
However, there are also concerns about the stability and acceptance of a BRICS currency.
The success of such an initiative would depend on market confidence and willingness of other countries to use the new currency.
Moreover, a BRICS currency could introduce new uncertainties into the financial system. It might lead to shifts in currency reserves, trade patterns, and investment flows, with unpredictable effects on global economic stability.
Also, commitment levels vary among some members: Russia, Iran, and China are more ambitious, while India and the UAE prefer to promote their own currencies.
Brazil and South Africa are content with using the renminbi (RMB) for trade with China.
The BRICS countries collectively produce about 40 percent of the world’s oil, but they are also significant consumers, representing 22 percent of global oil export volumes.
The establishment of the New Development Bank (NDB) by BRICS suggests a desire to provide an alternative lender to traditional institutions like the World Bank and IMF.
Additionally, the development of alternative payment platforms such as BRICS PAY and the progress of cross-border central bank digital currency (CBDC) projects like “mBridge” aim to shield these countries from potential future sanctions.
Overall, the concept of a BRICS currency represents an ambitious step toward financial independence.
While the initiative could potentially reduce these countries’ reliance on the dollar and foster greater economic integration, significant challenges remain.
However, the mere discussion of such a currency highlights the evolving dynamics of the global financial system and the desire of emerging economies to assert greater control over their economic futures.
The proposal for a BRICS currency has generated varied global reactions
