THE rapidly expanding Brazil, Russia, India, China, South Africa (BRICS) bloc is starting its quest for a common currency with a strategy to make 80% of all trade amongst members in local currencies.

The BRICS bloc will also be looking to create a settlement payment system that would be independent of foreign currency and foreign banking systems, as moves are made away from the dominant US dollar.

The BRICS Experts Forum met this past weekend to discuss, “The Role of BRICS in the Search for a New World Order” on the sidelines of the St. Petersburg International Economic Forum (SPIEF), where Russia announced that it was already spearheading the initiative.

Russia's first deputy chairman for the State Duma, Alexander Zhukov, said there was a “major trend” for the alliance nations to have committed to lessening their reliance on the US dollar as they continue to facilitate the integration of a multi-polar world.

“It is necessary to enhance the role of BRICS in the international finance system and expand the use of national currencies in settlements,” Zhukov said.

“It is one of the key topics nowadays. It is necessary to create a settlement payment system that would be independent of foreign currency and foreign banking systems.”

Analysts said much as this was a good a starting point to develop a common currency, the reality of the currency change was far off, as there were no good economic reasons as opposed to political reasons for it.

They pointed out factors such as the BRICS members’ geographical distant, a lack of common language, and limited trade with each other as opposed to European common currency members as factors that would hinder the progress of the BRICS currency.

Old Mutual Wealth investment strategist, Izak Odendaal, said the main use for haste on a BRICS currency was insulation of some countries from US sanctions, an issue for Russia and China, but not for India, SA and Brazil.

“It would also help the commodity importers, India and China, by not having to earn US dollars to pay for imports,” Odendaal said.

“But for the rest, it doesn’t necessarily help much. One of the main benefits of the US dollar is that everyone uses it, so it is like having a common language.”

Momentum Investments economist, Sanisha Packirisamy, said it was expected that the the US dollar will remain the world’s reserve currency in the short-to-medium-term given that despite China and Russia dumping US treasuries of late, the overall trend of US treasury ownership has been upheld over recent years.

Packirisamy said the demand for US assets remained robust and demand for the US dollar for transactional purposes remained steady.

“Even though major central banks like the People’s Bank of China have been mopping up gold reserves, the predominant currency in foreign currency reserves for central banks across the globe remains the US dollar,” she said.

“Extra-BRICS trade remains small and the intra-BRICS trade is still largely with China and this will influence the currencies used for trade.”

Packirisamy also pointed out that longer term, they would expect further efforts to develop a BRICS currency.

However, Packirisamy said this will remain a significant challenge given the differing economic situations of the countries involved, their differing monetary policies and inflation outcomes.

Moreover, she said there was no common central bank across these countries to effectively govern the currency.

“In our view, US dollar supremacy will wane in the long term given the enormous debt challenges that the US faces and the risk of diminishing sovereignty, but this is likely a longer-term story that will unfold,” she said.

Meanwhile, Minister of International Relations and Cooperation, Dr Naledi Pandor, said BRICS members can realise the full potential of economic partnership for mutually beneficial and inclusive economic growth, and sustainable development.

“We therefore welcome the establishment of a Task Force to prepare a “BRICS Report on Improving the International Monetary and Financial System” and Central Bank discussions on the feasibility of establishing a BRICS international settlement and depository platform,“ Pandor said.

“South Africa supports efforts to improve the stability of the International Monetary and Financial System, particularly through enhancing the interconnectivity of supply chains and payment systems to promote trade and investment among BRICS members and the broader global South.”

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