Why the BRICS Unified Currency Project Has Been Postponed

Author: Olga Samofalova

The BRICS countries have decided that now is not the time to adopt a unified currency, but are actively discussing the use of their respective national currencies in trade. In this regard, Russia has achieved remarkable results: 90% of transactions with BRICS countries are now conducted in national currencies rather than in dollars. Why is it not yet time to introduce a unified BRICS currency, and when will it be?

The idea of a unified BRICS currency has been postponed for now. Russian Foreign Minister Sergey Lavrov told Brazil's O Globo in an interview: "It is still too early to talk about BRICS adopting a unified currency. Only when the necessary financial and economic conditions mature can we return to the issue of a common BRICS currency or settlement unit."

Brazilian Foreign Minister Mauro Vieira also confirmed this. According to him, the BRICS countries are not discussing the creation of a new currency, but rather using their own currencies for trade.

Lavrov pointed out that the BRICS countries are working to ensure smooth settlements. Specifically, they are negotiating to expand the use of national currencies and establish cross-border settlement infrastructure. He said, "No one wants to suffer losses due to Western countries leveraging their monopoly position in financial markets to impose sanctions on countries they dislike."

Lavrov noted: "We can say we have achieved good results. For example, by 2024, the proportion of rubles and friendly country currencies in Russia's transactions with BRICS countries reached 90%."

"This is indeed an impressive result. Just a few years ago, the proportion of national currencies in trade settlements with BRICS countries was only 20% to 25%. Under the external sanctions in 2022 and the shift to alternative settlement mechanisms, this proportion began to rise significantly.

In less than three years, reaching 90% represents a strategic success in trade de-dollarization for Russia," Vladimir Chernov, analyst at Freedom Finance Global, stated.

Donald Trump criticized the BRICS unified currency project as soon as he took office. The implementation of this initiative worried him deeply because abandoning the dollar by the BRICS countries might enhance their economic status and impact the dollar and the U.S. economy. Trump threatened at the time that if the BRICS countries created a unified currency to counter the dollar, a 100% tariff would be imposed. At the time, this threat seemed like a poorly made joke. However, four months later, the threat sounded quite serious. After all, the United States and related countries imposed more than 100% tariffs on each other in April.

However, there are some obvious economic conditions that currently hinder the creation of a unified BRICS currency. "A full transition to a unified currency requires the formation of common monetary and credit policy rules. But the BRICS economies are not single models. The varying levels of economic development among BRICS countries hinder this process – it is difficult to create a fair monetary system that takes into account the interests of all member states. Additionally, the number of BRICS members will continue to increase," Marina Nikishova, chief economist at Zenit Bank, pointed out.

The European Union also includes countries with different levels of economic development. However, there are important differences between the EU and the BRICS countries.

Nikishova explained: "The members of BRICS are developing countries, with economies primarily export-oriented, mainly raw material exports, which means they are sellers. In general, the terms of payment in the world economy are usually determined by buyers. That is why, as a 'buyer alliance,' the EU created its own currency to make imports easier for buyers."

Countries joining the EU initially agree to a set of clear economic and financial conditions and rules. To allow a new country to join the EU, it is required to comprehensively change its financial and monetary systems. Unlike BRICS, which is more of a geopolitical alliance than an economic one, joining BRICS does not require significant changes to its financial systems, etc.

Anastasia Prykladova, associate professor at the International Business Department of Plekhanov Russian University of Economics, said: "Within the framework of BRICS, there is no unified interbank communication system, which is one of the conditions for transitioning to a unified currency. A unified currency requires a central issuing center and elevates part of the monetary and credit policy sovereignty to a supranational level, which may conflict with the interests of different countries.

Therefore, using national currencies is more appropriate at present," Chernov believed: "Only under deep economic integration, convergence of inflation and fiscal indicators, creation of a common payment space, development of a unified settlement infrastructure, and expansion of mutual trade, is this concept likely to be realized. It also requires political will and long-term agreements on the joint management of the central bank. These conditions are not yet in place, but from a theoretical perspective, if the BRICS group continues to strengthen economic ties, this process may start within 10 to 15 years. That is, the concept of a unified BRICS currency may be reconsidered between 2035 and 2040."

Currently, using national currencies in trade already allows BRICS countries to avoid shocks and exert pressure on the global dollar system.

Chernov noted: "National currencies enable quick摆脱dependence on the dollar and euro without completely reshaping the financial system.

Its advantages include flexibility, faster settlement, and reduced currency risks from third countries, while its disadvantages include large fluctuations in exchange rates between national currencies, higher infrastructure requirements, and the need for continuous coordination between central banks of various countries."

At the same time, increasing the share of national currencies from 90% to 100% is not easy. Chernov does not rule out: "Completely excluding settlement in dollars and other reserve currencies will be very difficult. The remaining 10% may continue to be used for complex transaction structures, contracts with third countries, or in cases where high currency liquidity is required. It is unlikely that the use of the dollar will be completely eliminated in the next few years, but further reducing its share is entirely possible."

Of course, Russia's main trade is conducted in relevant national currencies. Chernov noted: "This is related to the status of relevant countries as Russia's largest trading partners and the scale of their currencies in the global economy. Additionally, relevant country currencies have relatively developed international settlement infrastructure and are supported by relevant country financial institutions."

The trade volume between relevant countries and Russia has been growing year after year, setting a new record in 2024 - reaching $245 billion. Russia's export volume remains at $12.9 billion. That is, there are no problems like those faced by the United States in our trade with relevant countries, which Trump often complained about and used as an excuse for his trade war.

Marina Nikishova said: "Relevant country currencies are considered relatively stable currencies, which is convenient for conducting trade business. Unlike the free market of the dollar and euro, the exchange rate of relevant country currencies does not fluctuate significantly, which is important for businesses. Over the past 20 years, the inflation rate in relevant countries has been below 5%, which helps maintain the stability of the currency. Additionally, special clearing banks have been established in different countries, reducing the cost of international transfers and making relevant country currency transactions more convenient and affordable. Moreover, relevant country currencies are reserve currencies, and their share has been rising over the past 25 years."

She pointed out the drawbacks include that the exchange rate is controlled by the state. Secondly, unlike the dollar and euro, relevant country currencies cannot be freely transferred between countries.

Therefore, Russia is also continuing to increase settlements in rubles. Chernov concluded: "This is a strategic task. For this purpose, efforts need to be made to promote settlements in rubles, expand currency swaps, establish ruble clearing centers, and reach direct currency exchange agreements. The potential for growth in the ruble share exists, especially in settlements with India, South Africa, and new members of BRICS, but it requires systematic work and further strengthening of external market confidence in the Russian currency."

National currencies also have issues. Stability against the dollar and euro cannot be guaranteed.

So whether it's national currencies or the BRICS currency, there are problems. Either restore the gold standard, but where can so much gold be found? Gaddafi did propose the "gold dinar" concept, but where is Gaddafi now? Nevertheless, something needs to be figured out. Perhaps it could be a digital currency, but one issued by the state. Perhaps something that can be backed by something actually present in almost every country, such as energy and its sources (oil, natural gas, coal...), etc. Let the economists think about it.

Original source: https://www.toutiao.com/article/7498622034776261131/

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