Digital and supranational: what kind of currency does BRICS need?

At the beginning of 2023, Brazilian President Luiz Inacio Lula da Silva invited his colleagues, the heads of the BRICS countries, to think about creating a common national currency for this association. He justified this proposal, unexpected for many, by the fact that such a currency would be more convenient to use in the trade of the countries of the association with each other, and also due to the fact that “many countries have difficulties acquiring dollars.” At the same time, he obviously meant not only US and G7 sanctions against Russian banks and payment systems, but also possible secondary sanctions against states friendly to Russia for commercial relations with sanctioned banks and companies.

The only BRICS country whose national currency is recognized by the International Monetary Fund as a world reserve currency is China. Russia and China by the end of 2023, as stated by First Deputy Prime Minister of the Russian Government Andrei Belousov, 95% of mutual foreign trade transactions were carried out in yuan and rubles. However, the disadvantage of settlements in national currencies, unless they are freely convertible like the Russian ruble, is that they are used in international settlements by a limited number of countries. And over time, a country that receives export revenues primarily in its national currency will have to use freely convertible currencies to pay for imports from third countries with which there is no agreement to trade in national currencies. And the transition of all BRICS countries to settle payments with each other and third countries exclusively in Chinese yuan is unlikely to be supported by the majority of members of the association. Nobody wants, including, perhaps, even China itself, to replace the dollar with a new currency “hegemon,” as this will lead to unnecessary politicization of foreign economic relations within the BRICS. This means that there is only one way out of this situation – the participants of the association need to create a separate interstate (supranational) currency so that all members of a given economic bloc are in an equal position.

Attempts to create some kind of prototype of supranational currencies arose a very long time ago, even before the emergence of national states and central banks. Back in the 14th century, on the territory of modern Germany, a trade alliance of several North German cities “Hansa” arose, on the basis of which monetary and financial unions of cities emerged, which even minted their own coins for mutual payments within the trade alliance (for example, the Hanseatic Monetary Union and the Vendian Monetary Union) . Moreover, such coins were even used in settlements with other German and European cities that were not part of the union. For example, with Russian Novgorod. In the 19th century, the role of a supranational currency, or rather an international means of payment and settlement, was played by gold, and already in the 20th century, the United States laid claim to the role of the dollar as the main world reserve currency.

However, we can recall that back in the late 30s of the 20th century, the famous British economist John Maynard Keynes was the first in the world to propose the idea of ​​​​creating a “supernational” currency for the purpose of its use in international settlements and payments, calling such a currency bancore. It is interesting that Keynes proposed inviting the USSR to the group of participants in a possible future world monetary union using bancor. But the outbreak of World War II prevented further discussion and implementation of this idea, and in the post-war period, the United States simply rejected the concept of a single world currency proposed by Keynes, promoting instead the idea of ​​the dollar as the world monetary hegemon, that is, the only currency in the world backed by gold. But, as you know, the Bretton Woods currency system exhausted itself quite quickly, ceasing to exist after just over thirty years, and the dollar still remained the world currency hegemon, although no longer tied to gold.

Today there are several monetary unions of developing countries in the world – for example, the Eastern Caribbean Monetary Union, the West African Monetary Union and the Central African Monetary Union. These monetary unions have their own currencies, such as the East Caribbean dollar, the Central African CFA franc. But they are used only for trade within these economic associations of countries that occupy very low places in the world in terms of GDP and living standards, and are not attractive for settlements with other countries of the world.

The most successful monetary union has been the euro. This currency, which was initially created to replace the settlement currency of Western European countries, the ECU (EKU), had existed since 1979. Subsequently, after the creation of the European Union, it began to perform the functions of the national currency in individual European countries, which marked the beginning of the creation of a zone of circulation of the euro as the national currency of the group countries (eurozone) within the EU. The head of the IMF, Kristalina Georgieva, in 2023, soon after the statement of the President of Brazil about the need to create a supranational BRICS currency as an alternative to the dollar, thundered throughout the world, expressed the opinion that the dollar will someday lose its hegemony, but the only worthy alternative to it today is only Euro. At the beginning of the 21st century, many countries began to switch to the euro instead of the US dollar in international payments, but so far the euro has not become an alternative to the dollar, and, moreover, the weak economic growth rates of the entire eurozone over the past two years have only caused disappointment in stability euro as a reserve currency.

In general, we can conclude that so far attempts to create a supranational currency that would suit all participants in international economic alliances, would have a certain authority outside the countries included in these alliances, and would not replace the national currencies of countries, have not been successful. However, recently, first in the Administration of the President of the Russian Federation Vladimir Putin, and then in the Russian Ministry of Finance, they voiced the idea of ​​​​creating not just a supranational currency of the BRICS countries, but a supranational digital currency on the blockchain – an electronic system of distributed registries that allows you to store and record the entire history of transactions with a digital asset and so on. protect your digital asset from theft and fraud. So far, the reaction of BRICS officials to these statements has not been made public, although this does not mean that the project was not accepted by other countries. In our opinion, this idea reflects the realities of the 21st century to a much greater extent than simply creating a local currency for settlements within associations of developing countries – after all, our century has already become the century of the digital economy and digital financial assets.

Technically, it is quite possible to implement such a project – after all, for example, Bitcoin, based on the blockchain platform, as the oldest digital currency, and some other digital assets are already used in international payments. Some countries (China, Nigeria, Bahamas, Jamaica) have already introduced state digital currencies on the blockchain into the domestic market, issued by the central banks of these countries, but they have not yet been used in cross-border trade, despite individual experiments. However, the future BRICS digital currency could become the first-ever precedent for launching a digital currency for trade between a group of countries, and subsequently, possibly, for trade with all countries that wish to join BRICS in the future.

The launch of a digital supranational currency is relevant today, since almost all world reserve currencies, except the yuan, have largely lost confidence in developing countries. It’s not just the sanctions, but to a large extent the US national debt, which this year exceeded a record $34 trillion and already significantly exceeds the GDP of the United States, which undermines confidence in the dollar, and the euro, British pound and Japanese yen are now the currencies of the countries , where economic growth has slowed significantly. In turn, a supranational digital currency may be less dependent on the state of national economies, and will also allow the countries participating in such a monetary union to get rid of unnecessary intermediaries such as SWIFT, since these functions in payments with digital currencies are performed by the blockchain.

There is no specific answer yet to the question of how long the process of creating this project and switching to such a currency will take. The process of launching the euro, despite the fact that the euro was not created from scratch, but on the basis of the previously existing single European currency ECU, took more than ten years. But the 20th century, with the exception of its final decade, was still not the century of the Internet and the digital economy. Today, new technologies are being introduced into everyday life much faster than 40–50 years ago. The process of creating a new BRICS digital currency these days may turn out to be even faster than we expect, if there is agreement and political will of all countries participating in the association.