Why BRICS Countries Need A New Single Currency

In the short term, the BRICS will most likely not be able to gain independence from the dollar by creating a common currency. This was stated to IZ by interviewed experts, pointing out the lack of a unified concept of abandoning the US currency in trade.

Last week, Argentina and Brazil launched the development of a common Sur currency. This updated the discussion about the need to create a single currency for the BRICS countries. About why the process promises to be difficult and which participating countries, including Russia, are now interested in it.

Have no illusions

The leaders of Argentina and Brazil announced the creation of a regional currency for mutual settlements called Sur (from Spanish – south) last week. An article by the heads of the two states Alberto Fernandez and Lula da Silva announcing the initiative appeared in the newspaper Perfil ahead of the summit of the Community of Latin American and Caribbean States (CELAC).

The leaders invited other countries of the region to join the project – Lula da Silva, in turn, announced the need to expand this initiative to the level of BRICS and MERCOSUR.

“If everything depended on me, we would always trade with other countries in national currencies so as not to depend on the dollar. Why not try to create a common currency for the MERCOSUR countries or for the BRICS countries?” he said during a joint press conference with the President of Argentina on January 23.

MERCOSUR

MERCOSUR is a common market of South American countries, an economic and political agreement between Argentina, Brazil, Uruguay, Paraguay and Venezuela (membership suspended). Chile, Colombia, Ecuador, Peru, Guyana and Suriname are currently associate members of MERCOSUR. Mexico and New Zealand are official observers.

CELAC is the largest association of countries in Latin America and the Caribbean, covering 33 states (all countries of the Western Hemisphere, except for the USA and Canada).

Russia, which has proclaimed a policy of fighting for a multipolar world, did not leave this statement unattended. The head of the department, Sergei Lavrov, while on a visit to Angola, said that the creation of its own currency within the framework of the BRICS would be discussed at the association’s summit at the end of August. He specified that African countries were also invited to the meeting.

The fact that the organization is working on the issue of creating a new international currency based on the currencies of member states was reported by Russian President Vladimir Putin back in June 2022.

Nevertheless, according to experts interviewed, there is no reason to believe that the organization will have a common currency in the near future.

• It is worth noting that, first of all, this is not just about creating a common currency, but rather about an agreement that would allow its participants to trade without resorting to the dollar. That is, to avoid converting the local currency into the American one when making settlements with another country,” Juan Feres Junior, Associate Professor at the Institute of Social and Political Research at the State University of Rio de Janeiro (UERJ).

President of the Latin American analytical center CRIES (Buenos Aires) Andres Serbin considers the idea of creating a single currency for the Eurasian region within the framework of the SCO to be more advanced.

— The implementation of this idea in BRICS is more complicated. If the member countries move forward on this issue, it will be very slowly due to the existing asymmetry between the economies of the current participants, as well as due to the accession of new ones (Argentina and Iran applied for membership in 2022).

At present, in his opinion, despite the desire for independence, the proposal to create a single currency for settlements between Argentina and Brazil, which will later be extended to the rest of Latin America, looks unworkable.

“This is the lack of a coordinated macroeconomic policy, and the fact that both countries work in the dollar zone,” the expert concluded.

The British FT previously noted that if successful, the monetary union of Latin America could take second place after the euro, capturing 5% of world GDP. However, the Minister of Economy of Argentina, Sergio Massa, told the publication that he had no illusions about the timing of the transition to a single currency – the same Europe took 35 years to do so.

Profitable neighbor

So far, Buenos Aires cannot boast of a favorable economic situation. The second-largest state in Latin America has occupied a leading position in the list of countries with the highest inflation for several years. According to the Institute of Statistics and Census of the country, last year it rose to a record 94.8% since 1991.

Whether such a strong representative of the BRICS, such as China, will want to sit in the same boat with her is a big question.

Juan Feres Junior believes that “such a paradigm shift” is not in the interests of the PRC.” In his opinion, now “the Chinese economy is largely dependent on the United States and the dollar.”

In 2022, China’s trade with the Russian Federation grew by 29.3%, reaching $190 billion. And although the increase in trade with the United States was only 0.6%, the overall figure is much higher – $759.43 billion. ASEAN countries were in the top three of China’s main trading partners, EU and USA.

• China, like other BRICS members, advocates greater independence of its financial policy from the dollar. However, the single currency will not be created soon and, most likely, will follow the path of forming a basket of currencies with the leading weight of the yuan. Is China ready to assume the burden of moderating international financial processes? Will the yuan continue to be compliant with Chinese government rule?

And will unity be achieved in the BRICS on the question of whose currency to consider as a reference one? Negotiations on these issues will be difficult, – said Elena Safronova, Leading Researcher at the Center “Russia, China, the World” of the ICSA RAS.

The BRICS do not yet have a unified concept of abandoning the dollar in trade, the expert added. Members of the organization also disagree in assessing the urgency of such a step – many continue to keep assets in the American currency and its weakening may be unprofitable for them.

— The fact that the assets of the New Development Bank and the BRICS reserve currency pool are denominated in dollars also shows that it is not easy to forget about the dollar so far. Considering that some BRICS countries are wary of falling out of the financial system, which is still controlled by the United States, the processes of creating an alternative brix currency will not be fast,” Elena Safronova added.

In the meantime, in her opinion, the best way is to further expand settlements in national currencies directly, that is, bypassing the stage of conversion into dollars. Then, perhaps, the time will come to create supranational alternative currencies, when all the BRICS countries are conceptually and financially ready for this, the expert concluded.

By the way, in Latin America itself, the idea of Brazil and Argentina was not received with enthusiasm by everyone. Thus, Mexican President Andres Manuel Lopez Obrador said at the CELAC summit that his country, being the second largest economy in the region after Brazil, would not join the initiative.

At the same time, Mexico City, he stressed, “has many reasons” to continue to support the dollar as a benchmark.