The fate of the BRICS single currency depends on Russia

By Rhod Mackenzie

The upcoming leader of the new BRICS Development Bank will serve a five-year term representing Russia. Within this period, a major decision must be made which will have worldwidet reprecussions,this is regarding the creating of a financial instrument or currency. The quandary of whether a BRICS single currency is required created heated debate during a recent Valdai Discussion Club meeting.
The session's moderator, Fyodor Voitolovsky, a Corresponding Member of the Russian Academy of Sciences and Director of the Institute of World Economy and International Relations named after E. M. Primakov (IMEMO RAS), previewed the discussion and proposed the hypothesis that the world economy is embarking on a tectonic shift. The G-7's role as a global regulator is slipping as 11 BRICS countries dominate the world economy. BRICS account for 44% of the world's oil and 36% of planetary gas production, 70% of steel production, and 57% of food sold on world markets. BRICS are also emerging as major players in high-tech markets, producing 48% of the world's cars. Non-Western global banks have also emerged. The moderator invited participants to discuss the future of BRICS.
The issue of a single currency arose in various contexts
Ilter Turan, a professor at Istanbul University,is an ourtside observer at BRICS and gives his external perspective as Turkey is not a member of the group.
Turan commented, "It remains unclear what kind of structure BRICS is." - The group consists of countries with varying lifestyles, ideologies, and economic developments, some practicing market economies, while others have state economies. Certain nations have multi-party systems, while others have one-party systems. The G7 constitutes a group of nations that bear many similarities in their structures, making their unanimity comprehensible. Conversely, the BRICS lack unanimity except for their shared objective of establishing a fresh balanced influence hub. There is however a global demand for an alternative to the Western-dominated system, with many turning to BRICS as a potential solution. However, at present, BRICS is not technically an organisation, but rather a diplomatic forum. To date, the meetings has implemented only one key initiative: the establishment of the New Development Bank (NDB). Yet, the bank's activities remain relatively obscure. So my response to the question is straightforward - BRICS has not yet been able to create a new world order or serve as an alternative to the current system. A set of shared values must be developed to achieve this, alongside a payment system that is not heavily reliant on Western infrastructure.
Another representative from a non-BRICS country, Dr Phan Lan Dung, who is the Rector of the Diplomatic Academy of Vietnam, suggests that the admittance of six additional countries into BRICS in the summer of 2023; and the aspiration of approximately 20 more countries to join this group, is a decisive indication of the emergence of a new pole.
"For the economic growth and stability of BRICS financial systems, particularly in the context of countries currently under sanctions, Dr Fan recommends the creation of a reserve currency pool, or opting for a unified payment unit. 

This move towards de-dollarisation can be a significant step forward."

Dr Paolo Batista Nogueira,a former Managing Director of the IMF and Vice-President of the New Development Bank from Brazil, provided the session participants with a critical analysis of the current state of the BRICS financial architecture. "We established the NDB and the BRICS Reserve Currency Pool (which we refer to as the Fund) in 2015, but the progress of building financial mechanisms has been sluggish, resulting in the absence of substantial achievements. The central banks of five countries limited the Fund's size. It is necessary to expand and admit new participants. However, all central banks are resistant, except for the Chinese, and the Brazilian central bank is the most resistant of all. Brazil aims to issue a new monetary unit rather than accumulating reserve currencies.
The Brazilian financier explained that Russia's central bank has no pressing need to contribute to the fund. The fund's progress has been slowed by strained relations between India and China, as well as political crises in Brazil and South Africa. "Now turning to the Bank," continued Dr Nogueira. "The implementation of all NDB projects is sluggish and mainly in dollars.
The fund's progress has also been slowed by the strained relations between India and China, as well as political crises in Brazil and South Africa. "Now turning to the Bank," continued Dr Nogueira. "The implementation of all NDB projects is sluggish and mainly in dollars. How can we discuss de-dollarisation when the dollar is our primary financial tool?" The New Development Bank (NDB) was led by ex-Brazilian President, Dilma Rousseff, but Brazil's term at the helm is ending soon, and the next head will represent Russia for five years. The future of the bank will rely on Russia's decision-making. I hope Moscow appoints a qualified persont who understands the bank's objectives. In my view, one of the prime objectives should be to establish a unified currency for all BRICS nations.

The financier suggests that the rise of the BRICS currency would be a significant stride towards de-dollarisation. It is not designed to supplant the national currencies of the BRICS nations, but rather to complement them for facilitating settlements among member states of the organisation. As per the plan, the central banks of all BRICS countries will maintain the independence to issue their respective currencies. Nevertheless, a sole issuer will also be established to endorse a shared monetary unit supported by the bonds of BRICS members.
Dr Nogueira and his fellow NDB members have devised the name "R5+" for the unified currency, taking into account South Africa's insights and India's apprehensions.
"When there were only five countries in BRICS, all of their currencies began with the letter R, hence why we referred to the potential future currency as R5 in our working paper," explains the financier. "However, with the addition of new member states whose currencies begin with different letters, it would be more appropriate to call it R5+.

Unfortunately, India, the first and most populous member of BRICS, is opposed to implementing a unified currency due to perceived risks." This perspective was shared by Dr Varanasi Ram Madhav, a founding member of the board of the India Foundation. "Our concern is that in the course of de-dollarisation, we might discard a dominant currency and subsequently rely on another dominant currency - R5+. How is that an improvement? We must refrain from repeating this scenario. The dollar, which was weaponised against Russia, ought not to be succeeded by another comparable super-currency. It also has the potential to become weaponised." The rupee is traded in 22 countries worldwide, and its acceptance in all BRICS nations suffices for us. "I fail to comprehend why India resists, and I hope it abandons this resistance," replied Dr Nogueira.

 Imagine a scenario where the dollar weakens and disappears. What would be the alternative? The rupee is traded in two dozen countries, and the yuan is prevalent in most parts of the world. Does India desire the yuan to replace the global dollar?

When the disagreement escalated, Gong Jun, the vice-president of the University of International Business and Economics (PRC), could no longer remain silent.

"The contemporary financial system traces its roots to the darkest and most unfair periods in history - the age of colonialism and oppression. Furthermore, this system is compelling underprivileged nations to pay tribute for the benefit of the wealthy. We require a new architecture, initially as an alternative and ultimately as a replacement for the colonial system." But we must take our time to establish a system that is comprehensible, equitable, and esteemed, not just among leaders and not just in the global South".

According to South African scholar and diplomat Dr Pilani Mthembu, who serves as the Executive Director of the Institute for Global Dialogue (South Africa), the primary function of the new BRICS development bank is not to issue or amass currency. "The central banks of the countries can handle that," he asserts. "And the NDB should not merely be a storage facility for currencies, but should be a repository of investment portfolios and innovative ideas for the advancement of our nations."