Brazil, Russia, India, China, and South Africa have requested their finance ministers and central bank governors to consider native currencies for the group.
This recent decision has been trending, with questions raised about the BRICS group’s ability to shift away from trading in US dollars.
The leaders of the BRICS countries, led by President Cyril Ramaphosa, informed the media on the outcomes of the 15th BRICS summit, which concluded in Johannesburg, today.
For the last 80 years, the US dollar has dominated all other currencies.
Calls for a worldwide shift away from the dollar dominance are not new, nor are they limited to the BRICS.
According to analysts, the recent geo-political events have pushed them to the forefront.
While the Russian President, Vladimir Putin admitted that the question of a single currency and mutual currency settlement is difficult, Ramaphosa has urged multilateral financial institutions to play a positive role in achieving global economic policy consensus.
“We have noted that there is global momentum for the use of local currencies, alternative financial arrangements, and alternative payment systems. As BRICS, we are ready to explore opportunities for improving the stability, reliability, and fairness of the global financial architecture. In this regard, BRICS leaders have tasked their finance ministers and central bank governors, as appropriate, to consider the issue of local currencies, payment instruments, and platforms and report back to the BRICS leaders by the next summit.”
BRICS welcomes new members to the bloc:
President Vladimir Putin emphasises that the mutual currencies settlement have to do with settlements between countries.
“I would like to especially emphasise the issues for mutual currency settlement, united currency issue. This is a challenging task, nonetheless, we will move towards resolution, and the second thing I would like to mention has to do with ensuring settlement between our countries in economic terms.”
Although implementation appears to be a long way off, the topic has attracted important interest, with some skeptics and others optimistic.
Standard Bank’s CEO, Sim Tshabalala says, “Seen from a banker’s perspective, the debate would probably progress more fruitfully if the discourse maintained a sharper conceptual distinction between international payment on the one hand and reserve currencies on the other. For example, as the example of the peps illustrates, under certain circumstances, it may be possible to simplify international trade, and the attendant payments using a collection of domestic currencies, without any reference to any international reserve currency.”
Tshabalala adds, “It’s also important to be realistic about the necessary characteristics of an international reserve currency. These include being a currency issued by a central bank with very high credibility in the implementation of monetary policy. Being the currency of a state or supernatural entity with an equally strong record, of fiscal policy and its debts being freely available in large quantities, in many jurisdictions, and full convertibility at all times. This set of characteristics cannot be quietly wished or agreed into existence, but can only work over multiple of years as a track record of impeccable credibility and very wide use is built up.”
Meanwhile, the New Development Bank is making efforts to increase the proportion of its funding raised in local currencies.
Earlier this week, the bank announced its first bond offering of R1,5 billion.
It also intends to issue bonds in Indian rupees for the first time, this year.
BRICS Summit | Geo-political, economic implications of oil-rich nations joining the bloc:
– Reporting by Matimu Khosa