BRICS countries have reached a stalemate about the potential establishment of a common reserve currency among emerging economies in a bid to lessen the dominance of the US dollar on global trade.
Standard Bank Group CEO Sim Tshabalala, who led these discussions, gave feedback of member states on this issue at the BRICS Summit yesterday.
The issue of BRICS countries discussing the possibility of establishing a common currency has gripped the headlines over the past few weeks. Discussions have revolved around the potential impact this could have on the world’s reserve currency, the US dollar.
BRICS countries account for nearly 40% of the world’s total population, 25% of global GDP, and nearly 20% of global trade, and a common currency that could replace the US dollar in trade among them could be disastrous for the world’s largest economy.
Tshabalala said the BRICS Business Forum discussed the international payments system in detail, but a highlight of this conversation was the discussion of the Pan-African Payment and Settlement System (Papss).
Papss has immense potential to stimulate trade and growth by increasing the speed and certainty, and reducing the costs of cross-border payments in Africa.
Tshabalala said participants also debated the question of whether a BRICS currency was possible or desirable.
He said there were strong views expressed both for and against, but little consensus reached.
“Seen from a banker’s perspective, the debate would probably progress more fruitfully if the discourse maintained a sharper conceptual distinction between international payments systems, on the one hand, and reserve currencies on the other,” Tshabalala said.
“For example, and as the example of Papss illustrates, under certain circumstances it may be possible to simplify international trade and the attendant payments using a collection of domestic currencies without reference to any international reserve currency.”
Tshabalala said the issue of establishing a BRICS currency was not as easy as many would think.
“It’s also important to be realistic about the necessary characteristics of an international reserve currency,” he said.
“These include being a currency issued by a central bank with very high credibility in the implementation of monetary policy; being the currency of a state or supranational entity with an equally strong track record on fiscal policy and meeting its debts; being freely available in large quantities in many jurisdictions; and full convertibility at all times.
“This set of characteristics cannot be quickly wished – or agreed – into existence, but can only emerge over multiple years as a track record of impeccable credibility and very wide use is built up,” Tshabalala said.
The discussions at the first day of the 15th BRICS Summit yesterday examined current intra-BRICS trade and investment trends, and explored tangible solutions to unlocking further trade and investment opportunities in the BRICS nations and worldwide.
South Africa’s Finance Minister Enoch Godongwana, who is also the chairperson of the BRICS Work Stream of Finance Ministers, also endorsed views that it was premature for BRICS members to start looking at an alternative payment system because it “has not been sufficiently canvassed”.
Meanwhile, the fourth BRICS Sherpa and Sous-Sherpa meeting came to a conclusion yesterday after focusing on a declaration to be considered by the foreign ministers and the leaders at the BRICS Summit.
The BRICS Sherpa decided that the five emerging economies would focus on bolstering trade in their local currencies to gain greater independence from the dollar, rather than launching a common currency.
“What we are talking about is creating more financial inclusion in terms of global financial transactions, global financial trade and how we conduct our payment,” said Anil Sooklal, South Africa’s BRICS Sherpa and ambassador-at-large.
BUSINESS REPORT