A Single BRICS Currency is Destined to Fail
The BRICS nations of Brazil, Russia, India, China and South Africa have been meeting in Johannesburg this week to discuss their future cooperation and role in the global economy. One of the most ambitious and controversial proposals on the table is the creation of a new common currency for trade among the BRICS members, as an alternative to the US dollar. However, this idea is not only unrealistic, but also dangerous for the stability and prosperity of the BRICS countries and the world at large.
The main rationale behind the BRICS currency is to reduce the dependence on the US dollar, which dominates the international financial system and allegedly gives the US an unfair advantage in imposing sanctions and influencing global policies. The BRICS countries also hope that by creating their own currency, they can enhance their economic integration, promote trade and investment, and increase their financial inclusion and autonomy.
However, these hopes are based on false assumptions and ignore the many challenges and risks involved in creating and maintaining a common currency. The BRICS countries are not a coherent or homogeneous group, but rather a diverse and often divergent collection of emerging economies with different levels of development, growth, inflation, debt, fiscal discipline, monetary policy, exchange rate regimes, political systems and strategic interests. These differences make it very difficult to agree on a common framework for managing the currency, setting interest rates, coordinating fiscal policies, resolving disputes and dealing with crises.
A BRICS currency would face fierce competition and resistance from the existing dominant currencies, especially the US dollar and the euro. The US dollar is not only the most widely used currency for trade and reserves, but also the most trusted and liquid one. The euro is also a strong contender in the global market, backed by a large and developed economic bloc. The BRICS currency would have to prove its credibility, stability and attractiveness to both investors and consumers, which would require a long time and a lot of resources.
A new single currency would expose the BRICS countries to greater economic volatility and vulnerability. By adopting a common currency, the BRICS countries would lose their ability to adjust their exchange rates according to their domestic conditions and external shocks. They would also have to share the burden of any financial crisis or instability that affects one or more of their members. Moreover, they would have to deal with the potential conflicts and tensions that may arise from diverging economic performance or interests among themselves.
The proposed BRICS currency would not necessarily bring any significant benefits or advantages to the BRICS countries or the world economy. The creation of a new currency would not automatically increase trade or investment among the BRICS countries, as there are many other factors that affect these flows, such as infrastructure, regulations, tariffs, quality and competitiveness. The BRICS currency would also not necessarily enhance financial inclusion or autonomy for the BRICS countries, as they would still have to rely on other currencies for their transactions with other regions and markets. The BRICS currency would also not necessarily contribute to a more balanced or stable global financial system, as it could create more fragmentation and uncertainty.
Based on unrealistic expectations and overlooking the many challenges and risks involved, a BRICS currency is doomed to fail The BRICS countries should focus on more realistic and pragmatic ways of enhancing their cooperation and influence in the global economy, such as improving their infrastructure, diversifying their trade partners, strengthening their institutions, deepening their reforms and increasing their innovation.
