What is the value of a shared currency? And is this a good opportunity for BRICS partners, or will such a move simply turn smaller partners such as South Africa (SA), Egypt and Ethiopia into unwitting dumping grounds for cheap Chinese products and cut off their existing larger trading partners?
Geopolitics have been at the centre of much of the BRICS development, with Russia and China often at odds with the US and the European Union. They see the financial control that the US dollar has on international trade as a hurdle for their own developmental ambitions and the idea of breaking the dollar’s dominance in international trade is appealing to them.
Ironically, the US and the European Union are both large trading partners with China with the total value of the U.S. trade in goods with China in 2023 amounting to around $575 billion that was composed of $147.8 billion in US export value and a $427.2 billion dollars of US imported goods value. China would seemingly not benefit from losing the large US market for their export goods, that would be in jeopardy should they drop the US Dollar as a trading currency.
While China is South Africa’s largest trading partner at an 11,6% share of total exports in 2024 so far, the USA at 8,1%, Germany at 6,3% and the UK at 4,6% are significant trading partners who trade in Dollar value. Russia does not even feature as a top trading partner for SA.
The top five countries that SA imports from are:
- China (23.1%)
- Germany (6.7%)
- India (5.8%)
- United States (5.4%)
- Unites Arab Emirates (4.4%)
Ethiopia’s largest trade partners are the UAE at 17%, the US at 13% and Germany, Saudi Arabia and Somalia all at a 6% share of their total trade (as of 2022). China, Russia and the rest of the BRICS alliance don’t even feature in their top trading partners so would a BRICS central currency be of much value?
An adoption of a BRICS currency is likely to lock South Africa and other BRICS partners out of trade with some of their largest and most profitable trade partners. the European Union, United Kingdom and United States are unlikely to take such a move well and dropping their own sovereign currency to adopt a new, untested cross-national currency would also surrender their monetary sovereignty.
Currencies are a tool that allow governments to defend and stimulate many aspects of their local economy, and it is still important to retain control over a national currency so to prevent meddling from possibly hostile powers.
In the hands of China, for instance, the SA or Ethiopian currencies could be manipulated to devalue local goods, flood our market with Chinese goods, or even cause mass inflation.
Central currencies such as the Euro makes economic sense due to the members being concentrated in a geographically small region with a large amount of inter-region trade, and a network of integrated business unifying the region.
The Euro works because Europe is effectively a single economy and the same cannot be said about the BRICS membership structure. There may well be a solid argument for central currencies to be adopted across regional areas in Africa where economies and inter regional trade and business are at high levels but this would also have to make sense in strengthening the regions trade as a whole
