Why Is South Africa Quiet on BRICS Currency Proposal?

During the BRICS summit in Kazan, a commemorative banknote showcasing the flags of participating countries was revealed. This event sparked discussions on creating alternatives to the US dollar and fostering a more independent economic system. Interestingly, this potentially history-changing milestone in BRICS countries has not grabbed headlines in South Africa as it should have.

This raises questions about what is said and what is not said, especially the stance of South Africa’s top economic policy honchos, the Treasury and the Reserve Bank. The de-dollarisation debate has also not been widely received or spread to ordinary citizens. This is unsurprising, as economic policy is rarely open to discussion, let alone citizen involvement.

Concerns about the US dollar’s dominance have increased due to its role in moving wealth from peripheral to core economies, especially after Western sanctions were imposed on Russia in 2022. These sanctions sparked a renewed focus on de-dollarisation, prompting some countries to investigate alternatives to lessen dependence on the US-dominated system.

Despite representing only 4.3% of the global population, the US was responsible for over 60% of global current account deficits in 2022. This has heightened concerns about capital outflows and increasing debt among developing countries. Argentina and Bolivia have begun using the Chinese yuan for IMF debt settlement and trade, while countries like Russia, Venezuela, Iran and Cuba seek alternative currencies due to US sanctions.

Also, China’s increasing economic power, exemplified by advancements such as WeChat and digital currencies, is purportedly threatening the dollar’s dominance. Its systems, such as the Cross-Border Interbank Payment System and UnionPay, now offer options that rival Western systems like SWIFT by incorporating cloud funding to enhance financial services. In all fairness, only China stands a better chance of driving the de-dollarisation, and Russia is a good partner to assist it.

Nevertheless, the US and China recognise the strategic importance of digital networks. They are actively competing to shape these networks to their advantage, aiming to establish themselves as global leaders in technology and influence. This involves setting standards, controlling key technologies and building digital infrastructure. The debate on de-dollarisation is happening in the background of the competition between these superpowers.

At the BRICS summit in Kazan, Russia, a symbolic BRICS banknote was unveiled, igniting discussions on reshaping global finance. The banknote, which features the flags of Brazil, Russia, India, China and South Africa, symbolises these countries’ collective ambitions to explore alternatives to the US dollar in cross-border transactions. BRICS also endorsed the use of local currencies for cross-border payments, signalling a significant move to lessen reliance on the US dollar

This development is claimed to highlight the growing effort within the BRICS to establish a more independent economic system that is less reliant on Western financial structures. Despite the increasing discussions on de-dollarisation, Chinese economist Yuefen Li argues that there is scant proof that the dollar’s dominance in the global sphere is under significant threat.

While some people think BRICS will offer a different option, Paulo Nogueira Batista Jr, a Brazilian economist and former executive at the IMF and the New Development Bank, adds that such expectations are too optimistic because the US vigorously defends the dollar’s special status. For example, Donald Trump’s warnings about implementing tariffs on nations that ditch the dollar show his commitment to this position.

When Putin revealed a symbolic BRICS currency, he noted that the BRICS does not aim to challenge the dollar directly but would consider alternatives if necessary. This stance suggests that the BRICS intend to complement rather than overhaul the existing financial system and its power imbalances.

In this context, the NDB aims to supplement existing multilateral economic bodies. It has a less confrontational relationship with Bretton Woods institutions than expected, as seen through its adherence to Western sanctions on Russia. It will be interesting to see what will happen when Russia takes over the rotating presidency at the NDB in mid-2025.

Although the NDB offers loans in domestic currencies without any requirements, it is condemned for failing to transform the worldwide financial system. Instead of promoting radical change, Patrick Bond believes the preference is to maintain the current state of affairs. However, the NDB is seen as a “turning point towards financial options” due to increasing dissatisfaction with traditional institutions.

The BRICS currency was more of a political show of power than a substantive economic step toward consigning the US dollar to the annals of history. It is part of the broader BRICS Cross-Border Payments Initiative, which promotes voluntary, non-binding use of local currencies. Having an actual currency is still light years ahead, and the likes of South Africa remain cautious on the project.

At this point, it is not feasible to create the BRICS currency as it lacks adequate backing to counter the US dollar and the necessary infrastructure. Without a robust economic foundation, such as gold reserves or a solid fiscal system, any new currency risks instability and a lack of trust among potential users.

Additionally, integrating member countries’ economies and financial systems remains a significant challenge. The absence of unified monetary policies, regulatory frameworks and reliable payment systems undermines the credibility of a BRICS currency.

Even the Eurozone faces significant challenges due to the absence of a centralised treasury system. Unlike the US, which has a federal treasury for managing fiscal policy and economic stability, the Eurozone's lack of a unified fiscal authority complicates crisis management and coordination. During economic downturns, member states struggle to respond effectively, as they cannot easily borrow or implement fiscal stimulus without centralised support.

Moreover, reliance on the ECB for monetary policy can create tensions, as its focus on price stability may conflict with individual countries’ growth needs. With the BRICS supposedly moving towards a single currency, it is uncertain whether its member countries would want to subject their economic sovereignty to Chinese authority and the yuan.

Fellow South Africans…
Siya yi banga le economy!