Yves here. This post takes stock of how far BRICS have gotten, and seem likely to get over the near and intermediate terms, with their various new currency and new monetary organization initiatives. The short version is not very far. Even though it comes comparatively late in the post, author Eric Toussaint points out that two BRICS new programs, launched in the mid-teens, the Contingent Reserve Arrangement and New Development Bank, have not done much. One issue that Toissant does not spell out (no doubt due to space constraints) is both were very much oversold. Fans have called the Contingent Reserve Arrangement a “BRICS Monetary Fund” when it is no such think. It’s a short term currency swaps facility. By contrast, the New Development Bank can in theory do more but it really can’t because permitted loans are in proportion to each member state’s paid in capital. And on top of that, the New Development Bank has been criticized by former senior officers for being cautious and slow-moving
By Eric Toussaint, a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France. Originally published by the Committee for the Abolition of Illegitimate Debt; cross posted from InfoBRICS
In recent years, the rightful rejection of the policies promoted by the traditional imperialist powers (North America, Western Europe and Japan), followed by the announcements made by the BRICS (Brazil, Russia, India, China and South Africa), have aroused great interest and expectations of major changes, including the creation of a common currency to challenge the US dollar as the dominant currency. But what has actually happened? What has been achieved by the New Development Bank and the BRICS Contingent Reserve Arrangement (CRA)?
How big are the BRICS in a few figures?
The five founding member countries of the BRICS, created in 2011, are Brazil, Russia, India, China and South Africa. They account for 27% of global GDP, 20% of global exports, 20% of global oil production and 41% of the world’s population.
Furthermore, at the summit in August 2023, it was announced that the BRICS group would be enlarged, and the acronym of the enlarged group changed to BRICS+. Six more countries were to join: Egypt, Saudi Arabia, the United Arab Emirates, Ethiopia, Iran and Argentina. Finally, following the election of Javier Milei in November 2023, Argentina withdrew. If we add the five new members to calculate the weight of the BRICS+, the big change compared with the previous situation concerns oil production. The BRICS+ accounts for 42% of world oil production and 51% of greenhouse gas emissions. A few more figures: the BRICS+ account for 29% of world GDP, 25% of world exports and 45% of the world’s population.
There has been talk for years about the possibility of the BRICS launching a new currency. What’s the latest?
Despite hopes that such a measure will be on the agenda of the next BRICS summit, to be held in 2024 in Kazan (capital of the Republic of Tatarstan, part of the Russian Federation) under the Russian presidency of Vladimir Putin, the creation of a common BRICS currency was not included in the final declaration adopted at the BRICS summit held in August 2023 in South Africa. It is true that in his closing speech at the summit, the Brazilian President announced that the BRICS had spoken in favour of a “working group to study a reference currency for BRICS.” He also declared, “the creation of a currency for trade and investment transactions between BRICS members increases our payment options and reduces our vulnerabilities.”
The Brazilian economist Paulo Nogueira Batista, who represented Brazil at the IMF from 2007 to 2015 under President Lula, and who was then vice-president of the New Development Bank (created by the BRICS) from 2015 to 2017, is among those hoping that the creation of a BRICS currency will be on the agenda at the 16th BRICS summit. In a communication dated October 2023, Paulo Nogueira Batista said:
“President Putin himself, as well as President Lula, have often spoken of de-dollarization and the possible creation of a common or reference currency for the BRICS. Since at least 2022, Russian experts have been working on the topic. The reason Russia is the originator of the idea is quite clear”.
Of course, Nogueira alludes to the sanctions Russia has been under since the annexation of Crimea in 2014 and especially since the invasion of Ukraine in 2022.
Paulo Nogueira Batista goes on to summarise some of the progress made and the many obstacles encountered and concludes:
It is our good luck to have Russia presiding over the BRICS in 2024 and Brazil, in 2025 – precisely the two countries that seem to be most interested in moving towards the creation of a common or reference currency. If everything runs smoothly, the BRICS may be able to decide to create a currency at the Summit in Russia next year. By the Summit in Brazil, in 2025, the BRICS will perhaps be able to announce the first steps towards its establishment.
But there are other voices. Neoliberal economist, Lesetja Kganyago, Governor of the South African Reserve Bank, is far less optimistic than Paulo Nogueira. Here is what William Gumede wrote in Business Day newspaper on 21 August 2023, at the time of the BRICS summit:
“Kganyago has cautioned over the practicality of establishing a common currency in a trade bloc in which the members are spread over vastly different geographical locations. The success of the euro, the common currency of the EU, has been partially based on geographical proximity, similarity in economic and political institutions and regimes, and individual economies giving up their national currencies.
A BRICS currency will also require a BRICS central bank, commonality in monetary policy, alignment of fiscal policies, and synergy between political regimes across the trade bloc. Yet as things stand the BRICS currencies have mismatched central banking regimes and are not easily convertible — unlike the EU when the euro was established. China and Russia’s central banks are also state-controlled, whereas SA, India and Brazil have independent central banks. A big question is whether China or Russia would surrender sovereignty over their national currencies, which would be crucial to the success of a common currency. ”
We might add that it is hard to imagine India under Narendra Modi, who is likely to win the elections in May 2024, coming into conflict with the United States by endorsing the roll-out of a common currency, especially since Sino-Indian economic and military confrontations continue. Confronted with China, India is strengthening its relations with Israel, Washington, Australia and Japan, while supporting Russia in selling its oil and remaining a member of the BRICS. As Kganyago pointed out, India is keen to retain sovereignty over its currency. The same is true of Brazil, as monetary sovereignty enables both countries to maintain or strengthen their influence in their traditional areas of economic influence — Brazil with its neighbouring economies: Paraguay, Peru, Bolivia, Ecuador, Venezuela, etc. and India with Bangladesh, Nepal, Sri Lanka, etc.
I feel it is more crucial to assess what is currently in place than to speculate on the likelihood of a common BRICS currency materialising someday. What is certain is that, beyond the rhetoric of the Russian and Brazilian representatives, in practice, there has been no progress to date in setting up a common currency.
In a nutshell, what is the New Development Bank? What is the share of each BRICS country in the New Development Bank and how does it work?
The NDB was officially created on 15 July 2014 on the occasion of the 6th BRICS Summit held in Fortaleza, Brazil. The NDB granted its first loans at the end of 2016. The five founding countries each have an equal share of the Bank’s capital, and none has veto rights. In addition to the five founding countries, Bangladesh, the United Arab Emirates and Egypt are also members of the NDB. Uruguay is in the process of making its membership effective. The NDB has a capital of 50 billion dollars, which should be increased to 100 billion dollars in the future. The position of Chairman of the NDB is rotated. Each country has the right to hold the presidency in turn for a 5-year term. Dilma Rousseff, the current president, is Brazilian, and the next president will be Russian and will be appointed in 2025 by Vladimir Putin, who has just been re-elected president of the Russian Federation until 2030. The New Development Bank has announced that it will focus primarily on financing infrastructure projects, including water distribution systems and renewable energy production systems. It insists on the “green” nature of the projects it finances, although this is highly debatable.
What does Paulo Nogueira say about the New Development Bank?
In view of his responsibilities as Brazil’s representative at the IMF and subsequently as vice-president of the New Development Bank (NDB), it is worth publishing a large extract from Paulo Nogueira Batista’s comments on the new bank created by the BRICS:
The Bank has yet to make a difference. One reason is, frankly, the type of people we have sent to Shanghai since 2015 as Presidents and Vice Presidents of the institution. Brazil, for instance, during the Bolsonaro administration, sent a weak person to become President from mid-2020 to early 2023 – technically weak, Western-oriented, with no leadership, and without a clue as to how to conduct a geopolitical initiative. Russia is also no exception, unfortunately – the Russian Vice President is remarkably unfit for the job. As the saying goes, rot begins at the top. Weak Management has often led to poor hiring of staff.
These internal problems of the Bank were compounded by broader political hurdles, among which tense relations between China and India, the sanctions imposed on Russia since 2014 and, especially, since 2022, as well as the political crises in Brazil and South Africa. These macropolitical issues within and among the founding members have also hurt the NDB.
Brazil has now sent Dilma Rousseff, a former President of Brazil, to become President of the institution. She has, however, less than two years to turn around the Bank. Not enough time. Thus, the future of the NDB lies largely in the hands of Russia. This is because Russia will have the opportunity to appoint a new president for 5 years, starting July 2025. I hope Russia will this time be able to send a strong person for the job, someone of high political standing, technically sound, and with a clear view of the geopolitical purposes that led the BRICS to create the NDB.
Paulo Nogueira’s hopes that Russia will give the NDB much greater strength from 2025 onwards need to be qualified by two major factors. Firstly, developments in the war in Ukraine and the international sanctions imposed on Russia by North America, Western Europe and Japan. Secondly, the NDB’s decision on 4 March 2022 to stop granting loans to Russia. The NDB has chosen to respect the sanctions by Washington’s partners and has refrained from granting new loans to Russia due to fears of a credit rating downgrade, since nearly 7% of NDB liabilities are in Russia (the downgrade by New York rating agencies did indeed transpire in mid-2022). This can be verified on the NDB website under the section, All Projects and in particular under all projects in Russia where it can be seen that the last project financed by the NDB in Russia dates back to 2021.
What is the status of the BRICS Monetary Fund, known by its acronym CRA?
Let’s return to the opinion expressed by Paulo Nogueira Batista about the BRICS and their Common Monetary Fund:
The BRICS are undoubtedly a major force in the world and have been so since the beginning, in 2008. We can indeed be a crucial factor in the consolidation of a post- Western and multipolar planet. This is what is expected of our countries.
One can ask, however, whether the BRICS have lived up to this kind of expectation. How have we fared since we first started working together in 2008, at the initiative of Russia? What can we achieve going forward? In trying to answer the first question I will be frank and sometimes even a bit harsh. Please do not see my words as arrogant or pretentious. They will be the expression of an expert opinion, fallible as all opinions. I hope my remarks will not be completely off the mark. Is it not true that self-criticism, although painful, may be beneficial in the end?
I will speak not as an academic researcher but as a practitioner, having been involved in the BRICS process since the beginning in 2008, from Washington DC, and up to 2017, when I left the post of Vice President of the BRICS bank in Shanghai.
Beyond speeches, declarations, and communiqués, we have achieved so far two practical and potentially very important things: 1) a monetary fund of the BRICS, named the Contingent Reserve Arrangement – the CRA; and, more significantly, 2) a multilateral development bank, called the New Development Bank (NDB), better known as the BRICS bank, headquartered in Shanghai.
The two existing BRICS financing mechanisms were established in mid-2015, more than 8 years ago. Let me assure you that when we started out with the CRA and the NDB, there was considerable concern with what the BRICS were doing in this area in Washington, DC., in the IMF and the World Bank. I can testify to that because I lived there at the time, as Executive Director for Brazil and other countries in the Board of the IMF. As time went by, however, people in Washington relaxed, sensing perhaps that we were going nowhere with the CRA and the NDB.
Paulo Nogueira Batista argues that the slow implementation of the CRA and NDB by the BRICS has meant that the leaders of the IMF and WB, who had previously expressed great concern about the potential for competition, have come to feel reassured.
…This is a long way from building the new international architecture that people need.
The views in the article are the author’s own and do not necessarily reflect the editorial policy of InfoBRICS.
I think here that the problem is that people are expecting big arrow movements by BRICS instead of the steady progress that they are making. It was not many years ago that BRICS was more or less just a club. But since then, it has taken off in size and importance so of course it will take about a decade or so for it’s structure so start matching up with it’s increased membership – at least.
I have never understood the need for a new, separate BRICS “trade currency”, especially if it would simply be backed by gold. Michael Hudson has pointed out that it wouldn’t actually be a currency anyway, even if implemented as commonly described, since a currency is something actually used for everyday payments, not just an instrument for settlement between states.
If the BRICS countries want to use gold instead of dollars to settle trade imbalances between them, which might be a good idea (as opposed to going on a gold standard, which basically means replacing your own domestic currency with gold, and which is probably a bad idea), they can simply open something like gold-denominated swap lines between their central banks. If India pays Russia for oil with gold, the Indian central bank simply credits the Russian central bank a certain amount of gold in its account with the Indian central bank, and if Russia wishes it, it can then request that the physical bullion be shipped over to it. There is no need to invent a new “trade currency” and have that stand in for gold.
Since the term BRICS was first coined by Goldman Sachs, perhaps they should just ask Goldman’s advice on what currency to invent. I agree that there’s no need for a new currency, but using Gold as settlement currency is only appropriate given the Goldman connection, am I rite?
Gold, cowry shells…, are only useful if there is no international accounting system. If there is there is no need for it to be ‘backed’ by anything, except the agreement of all members to abide by it. It might need some mechanism to discourage or punish welching.
The need for it is (1) to get away from using Dollars, which is like using gold owned by a psychopathic troll, and (2) to receive something fairly fungible for your exports.
Russia has accumulated a bunch of Rupees for its oil. There’s not much India has that Russia wants, and nobody else wants that much either, so Russia is stuck with them. Better to get BRICS Credits that could buy stuff from any BRICS country.
There’s actually quite a lot Russia wants with the Rupees, the problem is that India doesn’t allow direct trade between Russian and Indian companies using Rupees. So instead of buying Rupees with Rubles and closing the deal, a Russian company buys Dirhams to pay and the Indian company buys Rupees with the Dirhams.
Indian exporters are really angry about the situation, but I guess India is too dependent on Western controlled international finance institutions to have sovereignty over it’s own trade.
No, sea shells are not a substitute for gold in international trade. Sea shells have (presumably, from archeological evidence) been used in small ancient societies exactly as a sort of accounting system, where the shells or other objects of symbolic nature have represented transactions of value among members of a group with trust for each other, which is precisely the situation where gold is unnecessary for transactions. Our national fiat currencies (with banknotes, coins made of non-precious metals, banking and national accounting systems) perform a similar function today. Gold is not needed for transactions within a country (i.e. where all parties belong to the same state).
An international accounting system doesn’t by itself solve the issue of cross-border settlements either, as long as trade and current accounts aren’t perfectly balanced every year (which they actually happen to be, more or less, between Russia and China). You can run up all the deficits and surpluses in national currencies (or something like “BRICS credits”) that you want, and be content with that, but if those can’t be transferred into goods that are useful, the party holding a surplus of the other’s currency would be vulnerable to the counterpart at some point burdening their currency (as they have every right to) with new capital controls or devaluation.
The current situation, where Russia no longer wishes to accumulate Indian rupees, illustrates this well. I disagree with Polar Socialist that the situation is not due to Russia not having enough opportunities for spending the rupees. That is contrary to what Russian officials, including Lavrov, have openly stated. They have also said that there has been work on finding goods India could export, and that this has so far not been completely successful.
This is a perfect example of where gold could step in to settle the balance of payments deficit. Whether the Indian state has the gold to pay for oil is another issue, and I merely used India as an example. (However, as long as India is buying Russian oil to refine and then sell at a profit to the West, finding the international surplus to buy gold to pay Russia with would actually not be an issue.)
There is good reason to believe that gold might return (and that it might already be playing such a role behind the scenes, to some extent) for ultimate settlement of the balance of payments between countries, complementing a system where central banks extend swap lines enabling each country to draw on the other’s national currency. But I want to stress again that this is distinct from a return to the gold standard, which would be deflationary and artificially cap the growth of countries who adopted it.
I agree that trade must be balanced somehow. Joiners of this system must agree to do that, which I think will be a big ask for many of them.
Gold in your vision just acts as another trade good, so really it just kicks the can down the road a short way.
In a previous thread on this topic I suggested that the exchange rate between the BRICS Credits and the national currencies could be varied according to the size of the trade imbalance so as to create a negative feedback loop. I haven’t worked out the details.
Sea shells were the de facto money among Native American tribes in my neck of the woods, they were damned scarce in the Sierra foothills and had fungible properties, especially when fashioned into bracelets.
Curiously, no tribes i’m aware of in what is now the USA had any interest in all that glitters, the first 49’ers found gobs in the rivers, one place in Downieville, Ca. is called ‘Tin Cup Diggins’ as you could expect to find that much in a day’s effort.
The idea that the Native Americans didn’t bother to do the same and glean it out of the rivers in the many thousands of years they were around, shows their disinterest, kind of similar to most Americans now-compared to say Indians of the far east variety.
Exactly.
And I feel that history is not a good indicator of the future in the case. We know that China and Russia had worked very hard to stay within the bounds of the dollar system and not rock the boat. But the extreme US led actions in recent years require them to act for self protection.
Yep, that is a bit of an irk of mine. The assumption again and again seem to be that this will become another Euro and that BRICS will be another EU.
Best i can tell, neither Russia nor China wants their currencies to become a reserve like USD as they see how much of a curse that can be.
But at the same time they need something to ease frictions when doing triangular exchanges, like say Russia selling to India and buying from China.
This may well be the closest we will come to see if Keynes old Bancor idea was actually practical.
And no, gold is not suitable. Because gold is inherently deflationary.
Gold is not deflationary unless the money supply is constrained to the supply of gold, as opposed to using it to settle trade imbalances with other countries. Don’t confuse the use of gold for settling the balance payments between countries with putting a country’s national currency on a gold standard.
One way to think of it is that if for example China moved to settling trade in gold instead of in the US dollar, they would basically be replacing the US dollar with gold (as far as China is concerned), while a gold standard would in effect replace the yuan with gold (and be deflationary). China is never going to do the latter, since it has shown that it can sustainably grow its economy much faster than the supply of gold expands.
What gold settlement (if it was strictly enforced, that is, imbalances would exclusively be settled with gold) would do, with time, is force countries with current account surpluses to reduce those, and the same for countries with persistent current account deficits. This if of course because countries with surpluses would need to trade with countries with corresponding deficits, but the latter would not have the means to purchase the gold to pay with (unless they happen to be gold producers). But this is precisely what the bancor was intended to achieve as well.
The dollar is not a common currency among nations. It’s the dominant currency established in the Bretton Woods System. The 44 nation signatories of BWS did not gave up their own currencies, as far as I know. That dominance somehow prevailed even in the post Bretton Woods regime.
If the BRICS countries are looking to establish an alternative to the dollar for international trade they don’t have to create a common currency, euro-like, for that will surely bring in issues about sovereignty and independence on matters of a flexible economic policy for member countries like we’re seeing now in the Eurozone.
All they have to do is perhaps prop up the Chinese Renminbi as the dominant currency in the bloc and use its value as the standard to settle international trade payments and ditch the SWIFT system.