JOHANNESBURG, Aug 23 (Reuters) – Brazil’s president on Wednesday called on the BRICS countries to create a common currency for mutual trade and investment as a means of reducing their vulnerability to dollar exchange rate fluctuations.
Luis Inacio Lula da Silva made this proposal at the BRICS Summit in Johannesburg.
Officials and economists say such a project would be difficult given the economic, political and geographical disparities between Brazil, Russia, India, China and South Africa.
Why does Lula want Brix currency?
The Brazilian president believes that countries that do not use the dollar should not be forced to trade in dollars, and has also advocated a common currency in the Mercosur bloc of South American countries.
In the opening plenary session of the summit, he said BRICS currencies would “increase payment options and reduce vulnerability”.
What do other Brix leaders think?
South African officials have said the BRICS currency is not on the agenda of the summit.
India’s foreign minister said in July that there was “no idea of a BRICS currency”. The country’s foreign minister said he would discuss promoting trade in his country’s currency before leaving for the summit.
Russian President Vladimir Putin, who attended by video link, said the meeting would discuss switching trade between member countries from dollars to national currencies.
China has not commented on the idea. At the summit, President Xi Jinping announced the promotion of “reform of the international financial and monetary system.”
What are the challenges in setting up the BRICS currency?
South Africa’s Central Bank Governor Lesetcha Kganyago told a radio station in July that the creation of a BRICS currency would be a “political project”.
“We need a banking union, a fiscal union and macroeconomic convergence if we want it,” Cugagnago said.
“The important thing is that we need a disciplinary mechanism for countries that don’t follow that line…and we also need a common central bank…where is that?”
Trade imbalances are also a problem, said Herbert Poenisch, a senior fellow at Zhejiang University, in a paper. blog For the think tank OMFIF.
“All BRICS members have China as their major trading partner and have little reciprocal trade.”
Is the US Dollar in Danger?
BRICS leaders say they want to use their own currency more instead of the dollar. The U.S. Federal Reserve’s rate hikes and Russia’s invasion of Ukraine led to a sharp rise in the dollar last year, driving up dollar debt and the price of many imports.
Russia’s ban from the global financial system last year has also fueled speculation that non-Western allies might move away from the dollar.
“An objective and irreversible process towards the de-dollarization of economic relations is gaining momentum,” Putin said at a summit on Tuesday.
The dollar’s share of official reserves fell to a 20-year low of 58% in the final quarter of 2022, or 47% after adjusting for exchange rate fluctuations, according to International Monetary Fund data. .
However, the dollar still dominates global trade. According to Bank for International Settlements data, it is involved in almost 90% of global foreign exchange transactions.
Abolishing the dollar would require millions of exporters and importers around the world, as well as borrowers, lenders and currency traders, to independently decide to use other currencies.
Reporting by Rachel Savage, Ethan Wang from Beijing, Marcela Ayres from Brasilia, Gabriel Stargarter from Rio de Janeiro, Naomi Rovnick, Libby George and Mark Jones from London with additional reporting, edited by John Stonestreet
Our criteria: Thomson Reuters Trust Principles.