BRICS leaders reach consensus on currency stance

XV BRICS Summit Open Plenary Session at the Sandton Convention Centre. 23/08/2023. Picture: Jairus Mmutle / GCIS

XV BRICS Summit Open Plenary Session at the Sandton Convention Centre. 23/08/2023. Picture: Jairus Mmutle / GCIS

Published Aug 25, 2023


THE 15TH BRICS Summit held in South Africa has given a lifeline to Russia as there was consensus on the use of local currencies in international trade and financial transactions between member states.

The summit came to an epic end yesterday with the adoption of the Johannesburg II Declaration and the acceptance of six additional countries after three days of intense deliberations. Saudi Arabia, Iran, Argentina, Egypt, Ethiopia and the United Arab Emirates will become full BRICS members in January 2024.

BRICS leaders committed themselves yesterday to strengthening the framework of mutually beneficial co-operation under the three pillars of political and security, economic and financial, and cultural and people-to-people co-operation.

In the declaration, BRICS nations welcomed the sharing of experience by BRICS members on payment infrastructures, including the interlinking of cross-border payment systems.

The declaration states that the leaders stressed the importance of encouraging the use of local currencies in international trade and financial transactions between BRICS as well as their trading partners.

The leaders also encouraged the strengthening of correspondent banking networks between the BRICS countries and enabling settlements in the local currencies.

They said this would further enhance co-operation among the BRICS countries and encourage further dialogue on payment instruments to facilitate trade and investment flows between the BRICS members as well as other developing countries.

President Cyril Ramaphosa said the summit noted that an unbalanced recovery from the hardship of the Covid-19 pandemic is exacerbating inequality across the world.

Ramaphosa said they encouraged multilateral financial institutions and international organisations to play a constructive role in building global consensus on economic policies.

This is in line with BRICS’s desire to lessen the countries’ reliance on the US dollar which is the world’s reserve currency and enjoys great dominance over their economies.

“We have noted that there is global momentum for the use of local currencies, alternative financial arrangements and alternative payment systems,” Ramaphosa said.

“As BRICS, we are ready to explore opportunities for improving the stability, reliability and fairness of the global financial architecture.

“The summit agreed to task the BRICS finance ministers and/or central bank governors, as appropriate, to consider the issue of local currencies, payment instruments and platforms and report back to the BRICS leaders by the next summit.”

The use of local currencies in international trade and financial transactions will greatly benefit Russia as it was removed from the Society for Worldwide Interbank Financial Telecommunication (Swift), an international payment system used by thousands of financial institutions, after its invasion of Ukraine in February 2021.

Since Russia was sanctioned by the US and Western countries and kicked out of Swift, it has been using its own currency the Russian rouble – in relation to those of the countries it trades and has developed its own payment and settlement system for cross-border transactions with countries like China and India.

Around June, Russia and India approached the South African government about the possibility of interlinking payment infrastructure for settlement in their own currencies.

However, the SA Reserve Bank stalled this move and proposed that attention be given to other priorities. The BRICS Summit discussed the international payments system in detail and also debated the question of whether a BRICS currency was possible or desirable.

However, in the end BRICS members agreed that the set of requirements necessary to create a common currency could not be quickly satisfied, but could only emerge over multiple years as a track record of impeccable credibility and wide use was built up.

In his virtual address, Russian President Vladimir Putin yesterday said he was confident that these issues would be much clearer by the next BRICS Summit in Russia next year.

“I believe that a single settlement currency definitely deserves our attention. This is a complex issue, but we have to move towards resolving it in one way or another,” Putin.

“The second issue deals with carrying out economic transactions between our countries.”

Independent economist George Magnus said, however, that dislodging the US dollar was not something that was likely to happen, and certainly not in the foreseeable future.

Magnus said the US dollar played a unique role in the world’s monetary system and global economy, unparalleled by the UK sterling which was mostly linked to gold.

“It is uniquely determined, quite perversely, by the structure of the global balance of payments – and in particular by surplus countries like China, Saudi Arabia and Brazil,” he said.

“These countries pursue macroeconomic policies that subdue domestic demand, sustain large savings that are reflected in balance of payments surpluses and then send these savings mostly to the only nation in the world with big enough capital markets, transparency, openness and trust to absorb them, that is the United States.”

“The end of the dollar, if and when it happens, will be accompanied by an upending of the world’s trading and commercial system. You cannot change one without the other. And a lot of countries that are hostile to or ambivalent about the United States certainly don’t want that.”