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De-dollarisation on upcoming BRICS Summit agenda

The official announcement is expected to be made during the BRICS Summit in August in Johannesburg, but the development of the currency could take years. Picture: File

The official announcement is expected to be made during the BRICS Summit in August in Johannesburg, but the development of the currency could take years. Picture: File

Published Jul 11, 2023


South Africa’s governing party, the African National Congress (ANC), has confirmed that the upcoming BRICS Summit will have a discussion about a common currency between the global south countries as part of “de-dollarisation” and strengthening trade.

ANC first deputy secretary-general Nomvula Mokonyane yesterday (Mon) said the BRICS countries (Brazil, Russia, India, China and South Africa) will definitely be evaluating the impact of having a unipolar currency (the US dollar) dominating the world’s trade.

This comes as media reports emerged on Friday that the Russian government has confirmed that BRICS will introduce a new trading currency backed by gold.

The official announcement is expected to be made during the BRICS Summit in August in Johannesburg, but the development of the currency could take years.

The latest development has added new momentum to the ongoing de-dollarisation trend unfolding in the global economy as the buying of gold at a historic pace by many central banks worldwide since mid-2022 is seen as an indication that a gold-backed currency was the next evolution in this process.

Mokonyane said it was time that BRICS countries did away with fiat money when trading with each other and strengthen trade among themselves.

“Dollarisation of trade in the globe has demonstrated that it does not work. Among other realities is that the formation of BRICS is also about consolidating our capacity in terms of trade among ourselves, in terms of growing the global economy and also making sure that we do away with the issues around dominance of one against many,” Mokonyane said.

“We must diversify the trading currencies around the globe. Let’s diversify and give the world options and choices. I think what Russia has said is but one of the issues that is going to be a subject in the meeting of BRICS in August.”

This comes as the ANC will next week host the BRICS Political Parties Plus Dialogue to be attended by more than 54 global political parties to discuss global peace and security, inclusive multilateralism, strengthening BRICS and expanding its membership, and partnership for mutually accelerated growth, sustainable development.

The dialogue will be attended by some of the eminent persons such as former Mozambique President Jaoquim Chissano, former Nigerian President Olesegun Obasanjo, former President of Namibia Sam Nujoma, and former Ivory Coast President Laurent Gbagbo.

At least 41 other countries have applied to be accepted into the BRICS formation, though some would prefer to just access the BRICS’s New Development Bank than actually formally joining the trade bloc.

Mokonyane said the recommendations that were going to come out of the political dialogue would inform each countries’ Head of State about the position the BRICS should take on these matters.

“We will be putting recommendations out of the meeting of political parties for our Heads of State to consider,” she said.

“There’s been different working groups looking at these issues, those recommendations will also emerge when the declarations of this meeting of political parties ends.”

Analysts have pointed to potential difficulty that may lie ahead for BRICS’s de-dollarisation attempts as the relatively transparent conduct of monetary policy in the US has led no less than 22 foreign central banks and currency boards to peg their currencies to it.

Anchor Capital’s investment analyst, Casey Delport, said the slow de-dollarisation trend had been observed not just in terms of trade invoicing, but also in terms of global foreign exchange reserve holdings as more central banks have shifted away from the dollar.

However, Delport said there was still a massive gap between the trade in goods, services and financial claims done in dollars and those in other currencies.

“Regardless of the greater idea that BRICS envisions, it is well worth remembering that simply replacing the fiat currency of the largest economy in the world with the fiat currency of some other smaller economy is hardly a viable replacement strategy.

“Moving away from the dollar brings substantial barriers to exit and network effects to overcome owing to historical, technological, financial, and habitual obstacles.”

Delport said they believe that a strong US dollar, in whatever shape or form, will be around for a long time to come.

However, she said the more instances of weaponising dollar dominance and permitting expanding mandates to disorient US monetary policy, the greater the de-dollarisation trend will be.

“Ultimately, whether de-dollarisation becomes a lasting trend or fades away as a fad will depend on various factors, including the actions of major economies, the stability of the global financial system, and the emergence of viable alternatives,” she said.

“It is possible that the trend of reduced reliance on the US dollar will continue to evolve, but it is unlikely to happen rapidly or completely in the foreseeable future, despite the hopes and ambitions of BRICS at large.”