BRICS currency has been in the news a lot lately. India’s statement that it does not support the idea of a single BRICS currency is a surprise. Or is it?
BRICS is frequently in the news, even in countries of the Global West. Common BRICS currency is getting attention pretty much everywhere.
India does not support the creation of a single BRICS currency, Foreign Minister Subramanyam Jaishankar said on the eve of the organization’s summit.
India’s statements that it does not support the idea of a single BRICS currency is getting a lot of attention. What is behind this position by India?
The first is about what BRICS, the now trendy negotiating mechanism of Brazil, Russia, India, China and South Africa, can turn into. The second question is what India wants and can turn into.
As expected, one thing is intertwined with the other, and together we get a picture of tomorrow’s world with many question marks. Can we get any answers?
The BRICS countries have been working on the single currency project for a whole year. The most active position on this issue was taken by Brazil and Russia. China and South Africa supported this project, but cautiously. India appeared silent but has now taken a negative stance.
Is this failure temporary or permanent?
Why did the project fail? Is this just a temporary obstacle or a long-term (if not permanent) failure of the idea? The most obvious option is that the parties could not agree on the terms of the method for determining the rate of the new currency. The most obvious option is to create a multi-currency basket of BRICS countries and determine its ratio. Approximately the same as available in the currency of the IMF – SDR.
The question is how to agree to determine the proportions. Naturally, each country wants a larger share, which in the future should have a positive impact on the stability of the national currency since, albeit indirectly, the demand for it is increasing. And the next stage with a sovereign monetary policy is an increase in the money supply for this demand. That can be used to develop the national economy.
India is focused on strengthening its national currency, the rupee, which will be a top priority for the Indian government. Moreover, Foreign Minister Subramanyam Jaishankar he said that the association of five states at the summit in August does not plan to discuss “ideas about the BRICS currency.”
It’s one thing to talk about “parallel money” as such, backed by gold or not, and another thing to introduce a unit of account for those who want it in their foreign trade transactions. All these options in the BRICS (and not only there) are not just being discussed. They are being tested in practice. The results are being evaluated, and this will continue to be the case.
What are the possible two reasons for this position by India?
First, India is not satisfied with the share it was offered in the multicurrency basket. If you look at the proportion of nominal GDP, then 70% of the BRICS is occupied by China. India – only 13.5%. In this case, there is a direct hit in the dependence of the new BRICS currency on the yuan. I don’t need to waste my words to explain why India is not happy with that.
Second, India does not want to become dependent on excessively volatile currencies. Only the yuan is stable. The Brazilian real and the South African rand are constantly depreciating against the dollar. The exchange rate of the ruble is also constantly changing.
The devaluation of the rupee is also happening. However, if it is correlated with the new BRICS currency, this depreciation may increase.
BRICS – now and in the future – what it wants to become?
BRICS was always a way of communication between very different countries located in different regions and even competing with each other. Now we are seeing a growing list of countries that want to join. However, it is not least because of the efforts of the BRICS to create their own financial system, independent of the Western one. But, if there are even more members, then there will be more differences (for example, between Argentina and Brazil). How to deal with that? Is that really a problem, after all?
One way out is to create a “club of five founders” with veto power and something like that. But this is not too democratic, and no one will like it. Another option can be learned from the APEC mechanism, despite the fierce enmity of the two main ones – the United States and China. Each of the 21 APEC economies is not obliged to participate in them. Everyone is voluntarily there. Those who have doubts can join later.
Why India holds a special position not only in the BRICS but also in world politics? The national goal of India is not to become dependent on anyone, but especially on China. The general idea of the Indian political class is that India today is much weaker than China militarily and economically and, therefore, should not participate in anything that could get it in a position subordinate to China. However, in three decades, there will be just China and India. West? Maybe… India is convinced that time is working for it and will resist changes till it believes it will be in a stronger position to negotiate.
Is there an exit for BRICS common currency idea?
That the BRICS countries failed to agree in a year is quite negative news for the prospects of a new geopolitical and geo-economic union. However, not everything is as bad as it might seem.
As an alternative to the “currency basket” to determine the rate of a new currency, you can always revive the gold standard. Moreover, this option has already been discussed in BRICS.
This would rule out the possibility of one currency (yuan) dominating the BRICS, remove the risks of excessive volatility and ensure the fairest pricing of the new currency.
Speaking of gold. The current changes in the world have not bypassed the West, as well as the system it has built. After the unprecedented sanctions against Russia, it suddenly dawned on many countries that it is better to keep foreign exchange reserves closer to your heart.
Gold is safe – if you keep it at home
Alarming bells rang in this regard back in 1965 when France had to actually buy its gold from the United States. Germany was even less fortunate in this regard since it was announced to Berlin that the presence of German gold in the United States serves as a guarantee of the presence of American troops in Germany to protect the Germans from possible “Soviet aggression”.
Recently, the most alarming call was from Venezuela. It turned out that the Anglophone Hegemon might not give you your gold because a “dictator” rules in the country. Well, who is a dictator and who is not will be decided by the one who keeps the gold. Thus, the Bank of England refused to return the gold reserves to Venezuela because of the “wrong” president.
The British did not give precious ingots to India either. Although India has long since returned all its debts. But gold still remains in the UK. It is not being returned allegedly due to “insurance and security issues.”
In addition, even when the West does give away gold, it may turn out to be counterfeit. This burned China in 2009 when it bought about 70 tons of gold. However, when the ingots were delivered to Beijing, it turned out that they consisted of tungsten, only on the outside covered with a small layer of gold.
Now the confidence in the US Federal Reserve and the Bank of England in the world has definitely fallen to zero. In 2023, almost 70% of respondents from different countries would prefer to store gold at home. Three years ago, there were about 50%.