The BRICS group of countries, which includes Brazil, Russia, India, China, and South Africa, is reportedly considering the introduction of a common currency. The issue of a common currency will be discussed at a meeting of heads of state in Johannesburg on August 22. There have been calls for alternatives to the dollar as the world’s trading currency, and the introduction of a single BRICS currency could address this. However, South African Reserve Bank Governor Lesetja Kganyago has suggested that the creation of a single BRICS currency would spark further debate over the establishment of a single central bank and its location. The issue is complicated further by the fact that the bloc of countries is spread out geographically, and currencies are national in nature, he explained.
The BRICS group represents over 40% of the world’s population and nearly a third of global economic output, making it one of the world’s most important economic blocs. The discussion about a common currency for the bloc has been sparked by BRICS and other nations questioning why they cannot trade in their own currencies rather than the US dollar. South African Minister of International Relations and Cooperation, Naledi Pandor, stated that the feasibility of a common currency must be properly discussed and that all countries must be taken into account, particularly in a situation of low growth when emerging from crises.
The dollar’s dominance is being challenged by US interest rate hikes and geopolitical conflicts, which have pushed up the value of the American currency and all commodities priced in it, to the detriment of most emerging markets. This has resulted in calls for alternatives to using the US dollar as the global trading currency. According to Ziad Daoud, chief emerging markets economist at Bloomberg Economics, the growth of developing economies indicates a “slow-moving” decline in the dollar’s dominance. However, Johannesburg-based money managers Vestact Ltd. believe that the dollar will continue to be the dominant currency for “a long time” because no other currency has the recognition, stability, and economic might that the dollar does.
When measured by purchasing power parity, the BRICS nations will have surpassed the Group of Seven economies by 2020, and they were 4% larger last year. The International Monetary Fund (IMF) predicts that the gap will widen further this decade, even as the G-7 maintains its lead when measured using market exchange rates.
The introduction of a single BRICS currency would not only necessitate discussions about a single central bank and its location, but it would also necessitate the establishment of a treaty requiring other countries to surrender their currencies, as was the case with the eurozone. Nonetheless, the BRICS group of nations will discuss the possibility of introducing a common currency at the upcoming meeting of the nations’ heads of state in Johannesburg.
