APA-Harare (Zimbabwe) The proposed launch at the forthcoming BRICS summit of an alternative currency to challenge the dominance of the US dollar is expected to send shockwaves across the global financial markets – coming at a time the hitherto dominant Western powers are having sleepless nights over China and Russia.
According to state-owned Russian television network RT, the BRICS grouping – comprising Brazil, Russia, India, China and South Africa – plans to launch a gold-backed currency at its summit in South Africa in August.
“BRICS planning to introduce new trading currency backed by gold at August summit,” the network said.
The new currency is expected to challenge the dominance of the U.S. dollar and offer an alternative for trade and investment among the emerging economies.
The idea of a BRICS currency is not new. It was first proposed by Russia in 2009, but met with scepticism and resistance from other members, especially China, which at the time had its own ambitions to internationalise its currency, the Renminbi.
However, recent developments have given new impetus to the proposal. These include the rising US interest rates and debt-ceiling crisis, which have raised concerns about the stability and sustainability of the dollar.
Other push factors include the escalating trade war between the US and China, which has threatened global growth and stability, as well as Beijing’s growing assertiveness in global affairs which has increased its influence and leverage among other developing countries.
In addition, the recent diplomatic tiff between Russia and most Western capitals over its invasion of Ukraine has buttressed calls for an alternative currency that cannot be manipulated by the West.
Analysts argue that the BRICS currency will offer several benefits for the bloc and beyond.
“Although the finer details of the new currency are yet to be released, we foresee its introduction substantially reducing transaction costs and exchange rate risks for trade and investment among the BRICS countries, which presently account for about 26.6 percent of global gross domestic product (GDP),” said Harare-based analyst Ronald Porusingazi.
He added: “Second, it will enhance financial stability and resilience for the BRICS nations and other developing countries, which have faced volatility and vulnerability due to external shocks such as sanctions.”
The new currency is also expected to diversify the global reserve system and reduce the dependence on the dollar, which has been criticised for its hegemonic role and abuse of power, the analyst said.
It would reflect the growing economic weight and political voice of the BRICS countries in global governance and decision-making.
However, there are also many challenges and uncertainties facing the BRICS currency project.
“For instance, there are significant differences and divergences among the BRICS countries in terms of their economic size, structure, performance, development level, policy orientation and strategic interests,” Porusingazi said.
He gave the example of China, which is by far the largest and most influential member of the bloc, accounting for about 70 percent of its GDP.
“This raises questions about how the new currency will be designed, governed and managed in a fair and balanced way that respects the sovereignty and autonomy of each member.”
The project is also expected to face technical and institutional difficulties in creating a credible and viable currency that can compete with the dollar and other major currencies.
Monetary experts from the BRICS grouping would have to contend with many difficult questions such as how the new currency would be backed by assets or reserves and how its exchange rate would be determined.
“There are also political and geopolitical risks in that the US and her allies would try to do everything in their power to stifle this BRICS project, including cyberattacks. We could also see a flurry of sanctions and other punitive measures being imposed on the BRICS countries and their allies,” Porusingazi said.
The launch of a BRICS currency is a bold and ambitious move that reflects the changing dynamics of global economic power and politics.
However, whether it will be a game-changer or a pipe dream remains to be seen.
JN/APA