Negotiations among BRICS countries regarding the potential establishment of a shared reserve currency among emerging economies, aimed at reducing the dominance of the US dollar in global trade, have encountered an impasse.
Standard Bank Group CEO, Sim Tshabalala, who spearheaded these discussions, provided an update on member states’ perspectives during the BRICS Summit held recently.
The notion of BRICS countries exploring the feasibility of a collective currency has captured international attention in recent weeks. These deliberations have centered around the potential consequences for the world’s reserve currency, the US dollar.
Collectively, BRICS nations represent nearly 40% of the global population, 25% of worldwide GDP, and nearly 20% of global trade. A shared currency that could replace the US dollar in trade within this bloc could pose significant challenges to the world’s largest economy.
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Tshabalala noted that the BRICS Business Forum conducted an in-depth examination of the international payments system. A noteworthy aspect of this discourse was the consideration of the Pan-African Payment and Settlement System (Papss).
Papss has considerable potential to stimulate trade and growth by enhancing the speed, certainty, and cost-effectiveness of cross-border payments within Africa.
During the discussions, participants also engaged in a debate regarding the feasibility and desirability of a BRICS currency. Tshabalala indicated that there were divergent opinions expressed on both sides of the issue, with limited consensus achieved.
From a banking perspective, Tshabalala suggested that the conversation might progress more effectively if a clear distinction were maintained between international payment systems and reserve currencies.
He pointed out that certain circumstances could facilitate simplified international trade and payments using a combination of domestic currencies, without reliance on any international reserve currency, as demonstrated by Papss.
Regarding the establishment of a BRICS currency, Tshabalala cautioned against underestimating the complexities of the task.
“It’s also important to be realistic about the necessary characteristics of an international reserve currency,” he noted. These characteristics include strong credibility in monetary policy implementation by a central bank, a robust track record in fiscal policy, widespread availability across jurisdictions, and full convertibility at all times.
“These attributes cannot be quickly manufactured or agreed upon but must evolve over years through consistent credibility and extensive utilization,” Tshabalala asserted.
The discussions during the initial day of the 15th BRICS Summit explored ongoing intra-BRICS trade and investment trends, as well as concrete strategies for unlocking additional trade and investment prospects within the BRICS nations and globally.
South Africa’s Finance Minister, Enoch Godongwana, who chairs the BRICS Work Stream of Finance Ministers, echoed sentiments that it might be premature for BRICS members to pursue an alternative payment system, as this idea “has not been sufficiently explored.”
Meanwhile, the fourth BRICS Sherpa and Sous-Sherpa meeting concluded with a focus on drafting a declaration for consideration by foreign ministers and leaders at the BRICS Summit.
The BRICS Sherpa collectively decided to prioritize strengthening trade in their local currencies to achieve greater independence from the dollar, rather than launching a shared currency.
Anil Sooklal, South Africa’s BRICS Sherpa and ambassador-at-large, emphasized that the objective was to enhance financial inclusion in global financial transactions, trade, and payment practices.
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