It’s being debated in academic journals and editorialised in the media. But if there are plans for a common currency for Brazil, Russia, India, China and SA, one place these are not under discussion is at the Brics themselves.
Word is that the finance ministers and central bank governors of the bloc have not even been asked to look at the topic ahead of August’s Brics summit. And the department of international relations & cooperation’s Clayson Monyela is insistent that the idea of a common currency is not on the agenda for discussion at the summit.
All of which raises the question of what President Cyril Ramaphosa meant when he said in Paris recently the “issue of currency” would be on the agenda at August’s meeting, nor what international relations minister Naledi Pandor actually said when Bloomberg in March reported her saying that a common currency would be on the agenda. It’s complicated, she reportedly said.
Complicated for sure, and the subject of much confusion. The idea of an alternative to the dollar has gained wide currency, as it were, in a context of rising trade tensions between the US and China, and of sanctions against Russia which include a freeze on its $300bn of foreign exchange reserves.
But dedollarisation and a Brics currency are not the same thing. And when people talk about a currency for the bloc, they could have in mind at least three different concepts.
The first is a common currency. And it’s hardly surprising that the Brics bloc is discussing no such thing. The five disparate economies of the bloc are a million miles away from being in a position to implement this, even if they wanted to. The euro is a common currency. It requires a monetary union with an overarching central bank — the European Central Bank — which can call the monetary policy shots for member states. It rests on demanding “macroeconomic convergence” criteria that they must meet. These set targets for price stability, fiscal soundness, exchange rate stability and so on. One can debate how it’s worked out for the eurozone. But it is impossible to imagine the Brics deferring to a single central bank; almost as possible to see how SA’s or Brazil’s fiscal and inflation numbers would stay in line with China’s.
Here at home we’ve looked at a common currency for the 15 countries of our own neighbourhood, the Southern African Development Community (Sadc). It is already a common monetary area with an integrated payments system (of which more later). But even here, in a region with close ties, the common currency idea proved not to be feasible.
Perhaps easier to imagine is a second notion: a reserve currency other than the dollar. This is gradually happening to a limited extent anyway as central banks diversify the mix of currencies in which they hold their foreign reserves. Rising geopolitical risk does come into those decisions and sanctions on Russia have highlighted this. China would love the renminbi to rival the dollar as a reserve currency, but the renminbi market just doesn’t have the dollar’s characteristics — it isn’t as liquid and transparent nor can investors rely on the free flow of capital or the predictable regulatory environment that they can with the dollar.
But these are not decisions by politicians. Central banks manage their foreign exchange reserves with different styles and strategies, in line with their countries’ needs. The dollar’s share of global central banks’ reserve holdings has gradually declined, to 58%, down from 70% in 2000, according to a recent survey of central bankers reported in the Financial Times. But it will still account for 54% a decade hence, while the renminbi’s share is seen growing from about 3% to 6%.
The third concept is of a trading currency or currencies other than the dollar. This is the one that Brazil President Inacio Lula da Silva and others have suggested, in the hope this might protect emerging market currencies from the pain they take when the dollar is strong and markets are volatile. “Why can’t we trade in our own currencies?” Lula has asked.
That Brics heads of states are keen on this idea doesn’t mean it’s under discussion by the bloc itself. Equally though, there’s nothing in theory to prevent Brazilian or Indian exporters and importers invoicing their customers or paying their suppliers in real or rupees or whatever. Whether this will make their lives easier or more profitable is a question, though, given how much of the world’s payment, settlement and clearing infrastructure is dollar based.
This is where the currency discussion gets quite technical and technocratic, and heads into the realm of payments and settlement rather than that of politicians and summits. We take for granted that when we pay the grocery store with a Nedbank point of sale machine from our FNB account there is a payments system behind it that allows for this to happen seamlessly — no longer do we write cheques which have to clear physically between banks and accounts. Likewise with countries: if there is an integrated payments system in place for a bloc of countries that do a lot of trade with each other and transact back and forth, it makes it much easier and quicker for companies and individuals to transact across countries and across currencies in that bloc. Sadc has just that. Each of the countries has its own currency but because it has an integrated payments system which enables clearing and settlement of transactions across the different countries and currencies, the process is not cumbersome
The Reserve Bank is busy upgrading the system with a new version launching in 2025. Under the Association of African Central Banks it is looking to expand it to include East and West African countries.
It’s hard to imagine why SA would want a similar integrated payments system with Russia, which accounts for hardly a fraction of our exports, or India, which accounts for just 4%. But that’s what these fellow Brics members have asked for, finance minister Enoch Godongwana has told parliament. Perhaps this is a first move to a Brics trading currency. More likely it is Russia wanting to bypass sanctions and the dollar.
But as the Reserve Bank politely told parliament last week, integrating our payments system with Russia, or India, is not a priority at this time given that the needs of our own region are keeping central bankers busy. Signs are it’s not much of a priority for the Brics either, despite the hype.
• Joffe is editor-at-large.
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