This is Eve. Remarks by India’s respected External Affairs Minister Subrahmanyam Jaishankar should dispel any notion that a BRICS currency is on the horizon, if it ever comes to fruition. Jaishankar raises a specific set of issues that echo the points we make, namely that a common currency would require a very substantial legal and systems architecture. Agreeing to a legal structure would entail a reduction in sovereignty (BRICS rulings would take precedence over domestic courts), which seems to run counter to the idea that BRICS is intended to expand national sovereignty, not reduce it. Jaishankar also points out, as we do, that the BRICS countries are too economically diverse (i.e., often divergent) for a common scheme to work easily or at all.
Jaishankar points out that the bilateral currency agreements work well and are satisfactory to most BRICS member states. But the problem raised by this humble blogger and Michael Hudson remains unresolved. Without mechanisms to promote balanced trade, such as those that were part of Keynes’s Bancor, many countries are likely to run persistent trade deficits with certain trading partners. What happens when these countries end up holding more of their currency than they would like? They can use their currency to purchase assets in chronic trade deficit countries, but many countries have or will have restrictions in place.
Finally, Jaishankar offers a subtle irony that the proponents of the new BRICS currency are in fact trying to promote international use of their own currencies. We have previously reported that China is pushing for the renminbi to be the foundation of a new monetary order. This was evident even before the United States alienated many of its once-moderate dollar users. But as we and others have regularly pointed out, China is not going to take on the burden of being a reserve currency issuing country with a sustained trade deficit in order to have its currency held widely outside its borders. That would be tantamount to exporting demand, such as jobs, which is one of the last things China wants.
By Jackson Mutinda. East Africa; Crosspost Info BRICS
India’s External Affairs Minister Dr. Subrahmanyam Jaishankar said creating a BRICS+ reserve currency would not be easy, noting that numerous protocols would be required to accommodate the differing fiscal and monetary policies of member states.
Dr Jaishankar told reporters in New Delhi that the focus was on settling payments in each other’s currencies rather than setting up a new unit within BRICS. “Each BRICS member state has its own currency, so many people say why do we need a third currency to settle payments among ourselves? That is totally understandable. Sometimes it is a matter of liquidity, sometimes it is a matter of trust,” he told reporters from the Indo-Pacific region at the ministry.
“The question has been raised as to whether a BRICS currency is necessary. But for countries to have a common currency, there needs to be a significant degree of agreement on fundamental fiscal, monetary and economic policies. Looking at the BRICS criteria, I think we have to be realistic about the extent of agreement among member states.”
BRICS is an intergovernmental organization founded by Brazil, Russia, India, China and South Africa, and recently expanded to include Saudi Arabia, Iran, Egypt, Ethiopia and the United Arab Emirates.
There has been talk of the BRICS countries creating a reserve currency, but this would be a huge undermining of the dollar, and experts have questioned whether dedollarization would help ease payment frictions.
They point out that creating such a currency would be difficult, given that none of the BRICS founding members wanted an alternative currency.
“Of course, each member state has an interest in maintaining and broadening the reach of its own currency,” Richard J. Grant, a professor of financial economics at the University of the Cumberlands in Tennessee, wrote in a paper for the Free Market Foundation, a think tank.
“Each currency serves as a domestic unit of account, a medium of exchange, a policy instrument, and a potential source of government revenue called ‘seigniorage.'”
Those who promote alternative currencies are actually promoting the acceptance of their country’s currency abroad, he added.
Ahead of the BRICS summit in South Africa in August 2023, Indian External Affairs Minister Vinay Mohan was reported as saying, “The trade and economic exchanges that have been part of the BRICS discussions and the substantive discussions have so far been primarily focused on how to increase trade in each country’s currency, which is quite different from the concept of a common currency.”
Issues that have emerged in discussions about the development of a BRICS currency include currency availability and liquidity, exchange rate risk, banking infrastructure, and international acceptability.
