The BRICS countries comprise Brazil, Russia, India, China and South Africa and represent an estimated 23% of the global GDP, 18% of the global trade and 42% of the global population. It was launched in 2009 as a group of the four main emerging economies, and South Africa joined in 2010, with the objective of cooperation, development, access to markets and influence in world affairs; BRICS follows a consensus-based model, amongst members. BRICS has evolved over the years and among its notable achievements is the setting up of the New Development Bank (NDB) in 2015, headquartered in Shanghai, with the intention of providing an alternative to the IMF and World Bank. Thus far the NDB has invested around $30 billion in infrastructure development projects in member states and other developing economies.
The BRICS countries, as also many other countries in the global South, have long felt the need to address the negative impact on their economies due to the dollar’s predominance in world trade. The economies of countries in the global South are affected adversely by the dollar’s dominance and they consider it being disproportionate to its share of around 1/10th of global trade; the burden of dollar denominated debt for countries, as well as import costs, rise and fall with the exchange rate determined by US monetary policy. Hence, these countries have been looking at ways of moving towards a trade regime which is less dependent on the US dollar. The BRICS countries have sought to do this through shifting to trading amongst themselves using local currencies of member countries. Already there has been some movement in that direction with Brazil and China signing an Agreement to trade in local currencies. After the Ukraine war, Russia has been using the yuan as one of its main currencies for international reserves and overseas trade. China has been making efforts for the adoption of the yuan at the international level as a viable alternative to the dollar. India and China are looking at conducting trade in their own currencies.
Many BRICS leaders have publicly expressed the need to move away from over dependence on the dollar and the BRICS countries have agreed to examine the possibility of a new financial arrangement/ a common payment system in the long term, transitioning to a BRICS currency in the future, and this is expected to be on the agenda at the15th BRICS Summit to be held on 22-24 August 2023, in South Africa.
The BRICS countries endeavours to begin trade amongst themselves in local currencies is the first step towards an eventual BRICS currency which may well be in digital form as the world transitions rapidly to a digitized, AI enabled integrated economic and trade entity. Trade settlement in local currencies, currency swap arrangements and enhancing market access within BRICS are imperative before moving to a common currency. Challenges include the fact that the NDB’s operating currency is dollars, most banks hold capital in dollars and it will not be easy to have a common currency given the non-integration of the financial systems and large economic asymmetries of the BRICS countries. However, while the introduction of a BRICS common currency remains in the distant future, an efficient integrated payment system for cross border transactions would be the first step.
Author: Ambassador Manju Seth (IFS), is a Distinguished Fellow (Honorary) at Forum for Global Studies, New Delhi. She worked as an Ambassador and Consul General of India to Madagascar and Comoros.