By Trophy Shapange
The role of Brazil, Russia, India, China and South Africa (BRICS) as emerging protagonists in international development cooperation is significantly and rapidly changing. BRICS have caused changes in the architecture of international development cooperation, not only with regard to trade and financial flows but also as emerging donors.
In June 2023, foreign ministers from the BRICS countries met along with ministers from other countries, including Iran, Egypt, the United Arab Emirates and Saudi Arabia. On the agenda was the possibility of expanding membership of the group to include these countries, and Russia added urgency to the proceedings because of the impact of western sanctions. But the main topic of discussion was the creation of a common BRICS currency.
The New Development Bank, rather than the International Monetary Fund, was tasked with finding ideas for how to achieve this. It was hailed by some as a major step towards the demise of the dollar. Creating a common currency is not a new idea. But if such a currency is ever achieved, it is unlikely to replace the dollar. It would exist in addition to the established dollar-based global monetary system. It will likely be a regional initiative rather like the euro.
In the case of Europe, the process from bilateral settlements to a common currency took close to 50 years. While each of the BRICS nations has its reasons for supporting this initiative, vital questions arise regarding the benefits this will offer to developing countries like Namibia. One important benefit, is a reduced dollar dominance of international transactions which might make it easier for the developing nations facing a dollar crunch to repay their debts owed to international organisations.
The Russia-Ukraine war has also highlighted the need for a new global currency. The US and its allies have imposed sanctions on Russia, which has made it difficult for Russia to trade with other countries. This has had a negative impact on the global economy, and more specifically developed countries like Namibia. The launch of a BRICS currency would be a major step towards a more multipolar world economy. It would give countries like Namibia more options when it comes to their currency reserves, and it would also make it more difficult for the US to use its financial power to exert political pressure on other countries.
The US dollar is the world’s reserve currency. This means that it is the currency that is most widely used for international trade and investment. The US dollar is also the currency that is used to price many commodities, such as oil and gold. The BRICS countries are trying to reduce the influence of the US dollar by increasing their use of their own currencies and by launching a common currency. The BRICS countries have not yet announced a timeline for the expansion of the group or the launch of a new currency. However, the fact that they are even considering these steps is a sign that the US dollar’s dominance is under threat.
When we look at the broader aspect the BRICS Expansion plan and launching of a common currency are ambitious projects. However, they could have a significant impact on the global economy. If successful, these projects could lead to increased economic cooperation, reduced reliance on the US dollar and provide options to developing countries like ours.
Finally, the introduction of a new BRICS currency could potentially boost economic stability for developing countries by reducing their defenselessness to fluctuations in exchange rates and currency markets, thereby providing greater security and predictability for investors and inspiring more sustainable economic growth in developing countries.
Trophy Shapange is the Managing Director at Hangala Capital Investment Management (Pty) Ltd