FEATURE: The BRICS bucks explained
The bloc of emerging economies is shaping up to be a force to be reckoned with, and their hope is for the currency to follow suit.
South Africa has had a positive relationship with the Brazil, Russia, India, China, and South Africa (BRICS) bloc since it joined in 2010. With the bloc’s intentions to deepen ties between member states and work together towards economic expansion, it was a match made in heaven.
BRICS member states like Russia and China have faced backlash around their intentions to move against the hegemony of the West, this shared vision a unifying force. The annual BRICS summits have sought to address the issues of Western dominance, and their most recent attempt was by introducing a new currency and including more countries to maximise their efforts.
It has been a year since the 2023 BRICS Summit in Johannesburg, where this initiative was announced, and much has happened since.
New members and new money
In January 2024, the bloc expanded its membership to include five new developing countries. The five new countries include Egypt, Ethiopia, Iran, Saudi Arabia, the United Arab Emirates and Argentina (who later chose to withdraw from the bloc), whose budding economies could prove to be a positive force in the new ‘BRICS+.’
In addition to the expansion, the bloc announced intentions to create a new BRICS currency system that would rival the US Dollar. The inclusion of more states into the bloc would strengthen the impacts of a new currency. As expected, this news caused quite a stir across the globe, and many have been anxious to see what that would mean.
Brazil’s president, Luiz Inacio Lula da Silva proposed this currency during the summit last year. “[It] “increases our payment options and reduces our vulnerabilities.” The BRICS bloc accounts for about 37,3% of the world’s Gross Domestic Profit and 41.3% of the global population. This seemingly gives them the ability to make sizeable contributions and impact change in the world order.
This endeavour is due to both economic and geopolitical factors. One such factor is the tensions between Western countries and BRICS states such as Russia and China which are a big reason for their desire to move away from the Dollar. During the 2023 Summit, Russian President Vladimir Putin expressed that the bloc aims to benefit the “global majority” and that their efforts would be in the best interest of the world at large, economically.
When the news broke, people across the world flooded social media to express their sentiments of both concern and excitement at the idea of a new currency that could give developing economies a chance to thrive in the global market. One TikTok user shared a video stating the value of the new BRICS+ currency against the Canadian and American Dollars, with 1 BRICS+ ‘dollar’ being worth about USD 55 and 75 CND respectively. This was not proven on any factual basis, but it is just one example of the misinformation surrounding the creation of this currency.
How would it work?
Wits University International Relations Professor Rod Alence has clarified what exactly the currency is. “A common misconception is that BRICS is working toward a single currency for member states, like the Euro.”
He explained that this is unfavourable as it would require members like South Africa to abandon their currencies in favour of this unified model. This would allow a new BRICS central bank to replace the South African Reserve Bank (SARB) and put the growth of the South African economy at the bottom of its priorities.
Alence explained: “The BRICS currency that has been proposed would serve solely as a unit for settling international trade and financial transactions.” This could mean a new system to facilitate intra-bloc trade and not necessarily the creation of an international currency.
This initiative would see the countries drop the US Dollar when trading between BRICS+ countries, allowing them to assert their financial independence in the global economy. The possibility of the BRICS countries using their own currencies to conduct trade could result in de-dollarization, a decline in the very high global demand for the US Dollar. Putin stated that the ‘objective’ and ‘irreversible’ process of de-dollarizing the BRICS nations’ economic ties was gaining momentum, a hope that he and his BRICS counterparts hold on to.
According to Alence, the prominence of the US Dollar in global trade is not mandated by any international laws. Still, the currency’s continued stability over time has made it a ‘safe’ trading currency for the world. The introduction of a new way for countries to trade with each other could shift the global economic paradigms in the way BRICS+ nations had hoped for.
Possible stumbling blocks for SA
Joseph Matola, Acting Head of the Economic Diplomacy Programme at the South African Institute of International Affairs (SAIIA) said that the creation of a BRICS currency could create some challenges for South Africa. One such challenge is that the bloc would need to establish “a stable financial market to support the new currency.” This means that a large amount of time and resources would be needed to establish a functioning system for this new currency to flourish.
When asked how likely it seems for the BRICS currency to succeed, Matola said, “[It is] Unlikely in my opinion. If it succeeds, it will take a long time given the complexities cited above. Besides, it is not clear if there is a complete buy-in of the project by all members.” There is also a possible issue with tensions between some BRICS members, like Egypt and Ethiopia or China and India.
As things stand, the BRICS countries will continue to move towards the use of their own currencies for trade but will investigate the viability of creating a common currency in the future. This may be discussed further in the upcoming summit in Russia.
Ultimately, the new BRICS currency system is still a work in progress, and it is likely to be an endeavour that requires much time, resources and preparation. The bloc intends to challenge the global status quo, and this is just one of the steps they are taking to do so. The next BRICS+ Summit will be happening again in Kazan, Russia from October 22 to 24, where the future of the BRICS+ bloc will be discussed, and more may be shared about this new system.
FEATURED IMAGE: An infographic highlighting the different members of the BRICS bloc. Photo: Kamogelo Kungwane
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