Amid all the hype about a Brics currency to dent the dollar’s dominance, our central bank has injected a welcome note of practicality and reminded us of our priorities.
Calls for emerging markets to reduce their reliance on the dollar have escalated since Russia invaded Ukraine, prompting the US to freeze hundreds of billions of dollars of Russian foreign exchange reserves.
Brazil’s President Luiz Inacio Lula da Silva upped the ante earlier this year calling for emerging markets to find alternatives to the dollar’s dominance as the global trading currency. And at the Paris climate finance summit in June President Cyril Ramaphosa appeared to sympathise, saying the issue of currency would be “on the agenda” at August’s Brics summit. And our foreign minister Naledi Pandor has reportedly promised the bloc will discuss the feasibility of introducing a common currency.
It is not clear whether those calling for change want a new reserve currency, a new international trading currency, or a full-on common currency, such as the euro.
If it is indeed a common Brics currency that is being talked about, this is no easy matter, as the Reserve Bank governor has emphasised. The common currency’s member countries would have to agree on public debt and inflation targets; they would have to agree on a single central bank with authority over all of them. That is not going to happen.
As it turns out, there has been no direct request from the bloc on de-dollarisation anyway, parliament was told last week by finance minister Enoch Godongwana. SA has, however, been approached by Russia and India about an integrated payments system. This would enable these countries to trade with SA and each other, clearing and settling payments in their own currencies without going via the dollar.
Again, it is no easy matter. And this is where priorities come in. SA has a payment system with 15 Southern African Development Community countries that makes trade and payments easier and faster across different currencies and borders. It is like our local payment system. A Zambian buyer can pay a Namibian seller as easily as we can use any bank’s ATM.
The Reserve Bank is busy working on refreshing and updating the regional settlements system. It plans to implement the new version in 2025. There is also a bigger project under way under the auspices of the African Association of Central Bankers to extend the system to include East and West Africa. That is keeping our Reserve Bank busy too, as it should. The new African Continental Free Trade Area is meant to be a priority for SA. We are meant to put the building blocks in place so that we can make the most of it, for ourselves and the continent.
As it is, Russia is irrelevant as a trading partner and even India is a far smaller trading partner for SA than the rest of Africa.
African integration is where our central bank and Treasury experts should be spending their time. The Russians and Indians will just have to wait. Meanwhile, Brics can busy itself with feasibility studies into projects that may or may not be workable.
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