Explained | The BRICS common currency push Premium

The BRICS nations seek to deepen ties, expand and formalise the use of local currencies in international trade & financial transactions. We explore the various dimensions of this push.

The story so far: In a bid to deepen ties in Asia and Africa, the heads of the BRICS nations (Brazil, Russia, India, China, and South Africa) are scheduled to meet in Cape Town, South Africa on August 22-24 this year. The bloc, which is seen as a counter to the G7, is also mulling expansion.

The BRICS nations’ foreign ministers met in Cape Town on June 2, 2023, to strengthen the bloc’s influence globally. Expansion was on agenda as ministers from Algeria, Argentina, Iran, Saudi Arabia, the United Arab Emirates, Egypt, and Kazakhstan were also present.

In a post-meeting statement, South Africa’s foreign minister Naledi Pandor said that Shanghai-based New Development Bank (NDB) had briefed the BRICS minsters about potentially using alternative currencies to ensure the bloc does not become victim to sanctions which affect countries not involved in the original issue.

The bloc also issued a joint statement titled ‘The Cape of Good Hope’, underscoring the use of local currencies in international trade and financial transactions between BRICS and its trade partners. The BRICS represent 41% of the global population, 24% of the world’s GDP, and conducts 16% of the world’s trade.

Last year, soon after invading Ukraine, Russian President Vladimir Putin, proposed the idea of ‘alternative transfer mechanisms’ with BRICS partners and an ‘international reserve currency.’ Addressing the BRICS business forum via video link, on June 22, 2022, Mr. Putin said that Russia was actively redirecting its trade flows and economic contracts to ‘reliable partners’ such as India, China and other BRICS nations to counter crippling sanctions levied by the European Union, the US, UK and other Western powers.

Pushing for independence from the US dollar and Euro, Mr. Putin said that Western sanctions were neglecting basic principles of market economy, free trade and the inviolability of private property as Russia was forced to seek new markets and strengthen ties with nations in Asia and Africa.

The idea for a common BRICS currency is based on the bloc’s aim to globally realign the geopolitical situation to suit its member nations’ economic, geographic and demographic advantages. The bloc, which was created in 2009, established the multilateral New Development Bank (NDB) in 2015 for mobilising resources for infrastructure and projects in emerging markets and developing countries. Via NDB (previously known as the BRICS Development Bank), BRICS aims to counter the West’s dominance in global financial institutions like the World Bank or the International Monetary Fund.