There is no BRICS currency. All the stories about a dollar-alternative BRICS currency are hype and speculation.
Most of the BRICS Currency “news” is speculation based upon a vague statement by a Russian politician. On 30 March 2023, Deputy Chairman of the State Duma Alexander Babakov mentioned a “new currency component” in a speech, India TV reports.
“New Delhi, Beijing and Moscow are the nations that now institute a multi-polar world that is endorsed by the majority of governments,” Babaknov told the St. Petersburg International Economic Forum event in New Delhi. “Its composition should be based on inducting new monetary ties established on a strategy that does not defend the US’s dollar or euro, but rather forms a new currency competent of benefiting our shared objectives.”
Russian Official Did not Propose a BRICS Currency
Babakov did not propose a new currency or a BRICS currency. Instead, he deliberately uses the vague term “new component.” Shrewdly, Babakov threw the idea out and let the imagination run wild, which it did.
I think Babakov actually wants other currencies to serve as US dollar alternatives, not an international currency. Interestingly, Babakov mentions Central Bank Digital Currencies (CBDCs), not a BRICS currency.
To explain, a CBDC is a cryptocurrency a central bank issues. Ideally, people will accept a CBDC as a digital version of a nation’s paper currency. For example, people will view a Digital Rupee as an alternative to the paper Rupee. Hence, each Digital Rupee is an official Rupee you can use to pay anywhere.
Russian Politician wants CBDCs to replace Dollar
“It doesn’t matter whether it’s a Digital Ruble, a Digital Rupee, a Digital Yuan, or some other currency,” Babakov says. “But this currency must follow the laws of our respective nations.”
Notably, the Reserve Bank of India is testing a Digital Rupee CBDC. Moreover, the People’s Bank of China is testing a Digital Yuan, or e-CNY.
Hence, I think Babakov wants a worldwide digital market for many currencies, not a BRICS Currency.
Interestingly, such a market is developing. For example, the Federal Reserve is testing a wholesale US dollar CBDC in the foreign exchange (FOREX) markets. Similarly, the Bank for International Settlements (BIS) is testing interbank CBDC transactions in Hong Kong.
These experiments involvement digital versions of fiat currencies, not a multinational currency. Hence, there is no evidence of a BRICS Currency.
What is a BRICS Currency?
BRICS stands for Brazil, Russia, China, and South Africa. Essentially, BRICS is a block of emerging economies that can challenge the United States.
Ironically, a British economist, the Right Honourable Lord Jim O’Neill of Gatley, coined the term BRICS in 1991. O’Neill, a former British cabinet member and Goldman Sachs (GS) Chief Economist, thinks the BRICS should challenge the dollar’s dominance.
“The U.S. dollar plays a far too dominant role in global finance,” O’Neill writes in the Global Policy journal. “Whenever the Federal Reserve Board has embarked on periods of monetary tightening, or the opposite, loosening, the consequences on the value of the dollar and the knock-on effects have been dramatic.”
The world has changed dramatically since O’Neill invented BRICS. For example, The People’s Republic of China was the world’s top manufacturer. Safeguard Global estimates the People’s Republic had 28.7% of the world’s Global Manufacturing Output in 2021.
Conversely, only one other BRICS, India, was on the list of top manufacturing powers. India had 3.1% of global manufacturing output in 2019, Safeguard Global estimates. Hence, China will dominate BRICS, which can become a Yuan trading bloc.
There are no BRICS Currency Plans
Finally, the New Development Bank (NDB) posts no BRICS currency plans on its website.
The governments of China, Brazil, Russia, India, and South Africa formed the NBD to finance infrastructure and development projects in emerging economies. BRICS formed the NBD as an alternative to the US sponsored World Bank Group. Notably, NBD headquarters is in Shanghai. In contrast, the World Bank HQ is in Washington, DC.
Importantly, the World Bank is a lynchpin of the Bretton Woods system. To explain, Allied representatives created several international financial institutions, including the World Bank, at the 1944 Bretton Woods Conference. Notably, Bretton Woods established the US Dollar as the world’s reserve currency.
At Bretton Woods, US officials blocked British economist Lord John Maynard Keynes’ proposal for a commodity-based world currency called Bancor. Instead, they set up a new exchange rate based on the dollar and gold. That exchange rate collapsed in 1971 when US President Richard M. Nixon (R-California) ended the US dollar’s convertibility to gold, creating the modern financial system.
Yuan Rising
Hence, I think what is emerging is a Yuan system not a BRICS currency. Notably, Russian President Vladimir Putin says, “we are in favor of using the Chinese yuan for settlements between Russia and the countries of Asia, Africa, and Latin America.”
“I am confident that these forms of settlement in yuan will develop between Russian partners and their counterparts in third countries,” Putin adds. Accordingly, the Russian Ministry of Finance doubled the share of yuan in Russia’s Sovereign Wealth fund to 60% in December 2022, The Wall Street Journal reports.
They paid for 14% of Russian exports in yuan in September 2022. Plus, almost 50 Russian financial institutions offer yuan savings accounts, The Journal claims. Russian households held around $6 billion in yuan in December 2022, The Journal estimates. The Russian lending platform, Bistrodengi, is selling yuan bonds to wealthy Russian investors.
Finally, the Bank for International Settlements (BIS), a “bank for central banks” is developing a yuan liquidity pool for central banks. The Renminbi Liquidity Arrangement (RMBLA) creates a reserve pool of yuan that provides non-dollar liquidity for central banks.
The central banks of Malaysia, Chile, Hong Kong, Indonesia, Singapore, and China participate in the RMBLA. Interestingly, Chile, Singapore, Malaysia, and Indonesia are hysteric US allies and not BRICS. Hence, many central bankers are leery of the dollar and seeking an alternative.
Moreover, the government of Saudi Arabia is exploring the possibility of selling oil for Yuan, The Wall Street Journal reports. Specifically, Saudi and Chinese officials have been negotiating yuan oil price contracts.
Such a deal could change the currency markets because Chinese customers purchase 25% of Saudi Arabia’s oil, The Journal reports.
Yuan in Brazil
Similarly, Chinese companies can now pay for Brazilian products with Yuan. To explain, they are expanding the China Interbank Payment System (CIPS) to Brazil.
In particular, they will link the Banco BOCOM BBM in Rio de Janeiro to the CIPS network. China’s fifth largest bank, the Bank of Communications, owns Banco BOCOM BBM.
CIPS is a clearing mechanism that allows users to transfer yuan across borders. The system moves money by settling payments between banks in different countries. This allows Chinese to pay for Brazilian products with yuan.
Brazilian acceptance of the Yuan is a big deal because Brazil is the world’s 12th largest economy and a major exporter. Top Brazilian exports include Iron Ore, Soybeans, Crude Oil, Raw Sugar, and Poultry and Meat. China is already Brazil’s largest trading partner. Chinese importers bought $88.3 billion worth of Chinese products in 2021, OEC estimates.
I think Chinese importers can save money if they can pay for Brazilian products with Yuan because the yuan is cheaper than the dollar. A yuan was worth 15₵ on 10 April 2023.
CIPS is an alternative to SWIFT, the standard messaging system for cross-border payments and reporting. US and European sanctions blocked Russian access to SWIFT last year. Using CIPS allows Chinese and other companies to move money without SWIFT.
Thus, they are using the Yuan on another continent, South America. Yuan use is spreading.
The Yuan Economy
Thus, what is developing is a yuan economy and CBDCs that could form dollar alternatives, not a BRICS currency. Such a deal is important because Saudi Arabia is the world’s second largest oil producer pumping 10.816 billion barrels of oil in 2022.
They introduced yuan-priced oil contracts in 2018, but nobody outside of China uses them. China and Saudi Arabia are growing closer. Chinese diplomats brokered a peace deal between Saudi Arabia and Iran in March 2023.
I think the BRICS Currency is pure fantasy. Instead, the true story is the Yuan and CBDCS.
