The BRICS single currency may appear in August: it will compete with the dollar

The idea of ​​creating a single currency of the BRICS member countries has been discussed for more than a year, but now its implementation is close as never before. On the eve of the summit in South Africa, which is to be held this August, this was simultaneously reported by several Western publications at once, citing their sources. The BRICS countries, which collectively host 43% of the world’s population, want to accelerate the process of de-dollarization of the world economy that has begun, to protect themselves from possible sanctions and any restrictions on international trade. How the new currency will look like and whether it can replace the US dollar, MK discussed with experts.

The proposal to create a single BRICS currency was first officially announced back in 2018 at the Valdai discussion club. At that moment, it was seen as an analogue of the SDR (an abbreviation for “Special Drawing Rights” – special drawing rights – the so-called conditional unit of account of the IMF, used in international settlements and the provision of loans). It was assumed that the new reserve currency would consist of a basket of currencies of the BRICS countries (Brazil, Russia, India, China, South Africa). And they were going to call it R5 in honor of the number of members of the bloc and the names of the currencies of the participating countries, each of which begins with the letter “R”: real, rouble, rupee, renminbi (this name in Chinese means “people’s money”, that is, yuan ), rand. At that moment, things did not go beyond statements from high tribunes.

The dollar is the main source of instability

However, last year they returned to the idea of ​​creating a BRICS currency again – at the initiative of our country, which found itself under severe Western sanctions. In the summer of 2022, President Vladimir Putin confirmed the bloc’s plans to create its own currency for international trade, capable of replacing the dollar. According to him, it should be based on a basket of currencies of the BRICS states. Recall that today the member countries of this association account for 27% of the world’s land surface, 43% of the world’s population and 26% of world GDP. According to the forecasts of the portal Statista, which specializes in the analysis of world markets, the growth of this indicator in the member states of the association will outpace global rates and will increase from $24.2 trillion in 2021 to $39.4 trillion by 2027, i.e. by 62%.

One way or another, the idea of ​​a new BRICS currency began to take on a real shape, and an indirect sign of this is the interest shown in it in the Western press on the eve of the summit, which will begin on August 22 in South Africa. According to the French publication Echos, the emergence of a new international currency will accelerate the process of de-dollarization. Today, BRICS accounts for a quarter of world GDP and 18% of world trade. And this may be enough for “monetary ambitions to create a multipolar world that will not be dominated by the United States.” The American business magazine Fortune also highlighted the possible consequences of the creation of a new BRICS currency, given the desire of such large countries as Saudi Arabia, Iran, the United Arab Emirates to accelerate the process of de-dollarization. The publication drew attention to the fact that the central banks of these countries in recent months sought to transfer most of their foreign exchange reserves from the dollar to gold.

A return to the gold standard, canceled by the Americans in 1976 during the Jamaica Conference, in the new BRICS currency, judging by Western publications, is also being discussed. The United States, of course, does not like this idea. The possibility of providing a new currency with a valuable resource is also discussed in Russia. Most often, experts point to oil or gas, but there are more exotic proposals. So, in March, Deputy Chairman of the State Duma Alexander Babakov pointed out that the new currency could be backed by such a real resource as earth and rare earth metals (now they are actively used in microelectronics). “Neither the euro nor the dollar is backed by anything, and our countries can do what was destroyed by the Bretton Woods system,” he explained his idea.

At the last SCO conference, which was held online on July 4, China called for more active abandonment of the dollar and switching to settlements in national currencies. Beijing’s mood is understandable, because the PRC authorities have previously called the dollar “the main source of instability and uncertainty in the global economy.”

Basket of valuables

However, the reality of creating a new currency is still vague. Even experts who are positive about this idea are very careful in their reasoning about how this project will be implemented. “It will be a tool similar to the Soviet transferable ruble,” believes Alexander Razuvaev, a member of the Supervisory Board of the Guild of Financial Analysts and Risk Managers. – If such a decision is made, then this currency will be tied to a “basket of values” of gold, oil, and possibly some other commodities. I’m not sure if this is the correct solution. I think that the SCO and BRICS countries just need to switch to the yuan. This currency has no political risks.”

Most analysts point to the difficulties that the bloc’s countries may face in implementing it. “In order to quickly create an alternative to the current dollar-centric system, the political will of other large countries besides Russia is needed – China, India, Brazil,” said Mikhail Vasiliev, chief analyst at Sovcombank. “However, the US and Europe remain key trading partners for China, India, Brazil and other major countries. It is clear that the United States will fight to the last to maintain the hegemony of the dollar and use all its political, economic, financial and military power for this.

If Russia is forced by sanctions to quickly look for an alternative to the dollar and euro, then the other BRICS countries still have enough time and are likely to continue to use the advantages of the dollar system to the last, so the creation of such a system independent of the US could take years and will encounter fierce resistance. by the Americans. “BRICS is an artificial agglomeration of countries, some of which have weak economic ties with each other (for example, Russia with Brazil or South Africa), continues the conversation with the head of the analytical department of BKF Bank Maxim Osadchy. — In addition, trade flows within the BRICS are not balanced. Russia in the current conditions will accumulate reserves of this illiquid collective currency – just as our country has already accumulated reserves of illiquid Indian rupees. Most likely, the BRICS collective currency, if it is created, will become a means of settlement in transactions between the central banks of the bloc countries.”

In addition, the participants in the supranational association have their own contradictions. “The problem of creating a new currency is that within the BRICS there are competing economies – China and India,” notes Sofya Glavina, head of the Digital Economy program at RUDN University Institute of Economics. “At the same time, there is practically no common market, customs or economic unions.” Previously, countries have already faced such challenges, and the bloc has not been able to fully overcome them. Thus, discussions about a new payment system based on the BRICS – an analogue of SWIFT – have been underway since 2009, but these ideas have not been implemented. It is worth noting that there are alternative projects, for example, Brazil and Argentina are considering the possibility of creating a new currency within Latin America – “sur” (which is translated from Spanish as “south”). This region is characterized by high inflation, and the creation of a common currency will lead to a certain “blurring” of problems, the expert pointed out.

The main issue in the process of de-dollarization will not be the search for an alternative to the US currency, but the coordinated efforts of the BRICS countries to move away from the economic dollar model. “An indicative example is the euro, the introduction of which from the moment the initiative was born to the issue of money took several decades,” says Ruslan Spinka, Director of Sales and Customer Service at Fontvielle Investment Company. “It is sometimes difficult for countries with different levels of economic development and geopolitical ambitions to agree among themselves.” In the case of BRICS, on the one hand, there are more incentives to speed up the process than the EU had, on the other hand, the economic polarization of the countries of the bloc is significant, and this can become a problem.

“Even if a single currency decision is made, it will most likely be of a strategic nature,” says Alexei Murashev, managing director of AM Capital. Tactically, in the coming years, the variant with the strengthening of the yuan as the currency of the largest BRICS economy is more likely. In addition, the share of national currencies in cross-border transfers will increase, the expert emphasized.