BRICS foreign ministers met in Cape Town, South Africa last week to discuss the tools the bloc has at its disposal to escape the hegemony of the US-dominated global economic order.
The talks included negotiations on the potential use of alternative currencies to shield the bloc's New Development Bank from sanctions, and de-dollarisation in trade more broadly.
The meeting comes amid a flurry of reports and analyses about a new BRICS currency, its mechanics, and the possible time frame for its emergence as a challenger to the dollar.
The single currency concept, first articulated by Russian Foreign Minister, Sergey Lavrov, during his trip to Africa in January, has been floated in a variety of configurations – with ideas including pegging it to gold, a basket of commodities, or to BRICS countries' currencies.
But details remain to be further fleshed out.
"There appears to be broad acceptance that the concept is sound," said Chris Devonshire-Ellis, chairman of Dezan Shira & Associates, who has over 30 years of investment experience in Russia, China, and other Asian markets.
“However the make-up of any new currency needs to be worked out – should it be a basket of BRICS currencies? Or another make-up?
“That needs to be assessed together with current trade trends, respective currency values, and have some type of built-in protections as the US will certainly attempt to financially attack such a currency to devalue it,” the veteran investor said.
“All of these issues need to be worked out and this will take time.”
Right Place, Right Time
It's a no-brainer as to why BRICS countries are moving to challenge the US-led financial order at this moment, despite the risks involved, Devonshire-Ellis said, pointing out that the foreign and economic policies of the US and its allies have driven most of the planet to the realisation that Washington is not a “responsible global leader”.
“This seems a logical response,” he said.
“The main drivers are to do with an overall belief that the United States has become both unreliable and overbearing in its foreign policy. Unreliability such as issues concerning the recent US debt ceiling [drama] – which has only been pushed back to the end of the year – and the risks of sanctions.
“Overbearing in that it has used international mechanisms to punish countries it doesn’t agree with (cutting countries off SWIFT) and has appeared to use the G7 as an economic ‘gang’ to support and justify what it does elsewhere.”
These feelings are applicable not only to open US adversaries like Russia and China, but countries around the world – in Africa, Latin America, Central Asia, and the Middle East as well, Devonshire-Ellis said.
“Unsustainable debt levels and the imposition of a 'rules-based order' and global economics that only appear to service the US and its immediate allies – at the expense of everybody else” is something developing countries are increasingly hesitant to tolerate, according to the observer.
Consequently, he said, “they feel a re-balancing is necessary and are instigating this to change the global structure to a more sustainable model” – one that "includes the development and subsequent introduction of an alternative currency that can be used when not trading with the United States – or its immediate allies."
Alternative, Not Competitor
Devonshire-Ellis emphasised that the possible BRICS currency should be seen as an “alternative” to the dollar, rather than a "competitor."
"Competing suggests it has a relationship with the US dollar and the concept of this currency is to offer an unrelated alternative that operates without US dollar or economic pressures. The US will try and manipulate circumstances so there is a direct relationship but this will be avoided," the observer said.
Architecture: How Will a BRICS Currency Get Off the Ground?
Devonshire-Ellis says it would be logical for BRICS countries to initially limit their new currency’s use to its five core members, plus the eight nations which have applied to join, and the 17 that have expressed interest.
"The sensible thing to do is to [start by limiting] it to regional trade, understand[ing] operational issues, and then perhaps gradually roll[ing] it out to a wider audience. As the BRICS is expanding anyway this seems a tandem development," he said.
The investor expects the BRICS currency’s initial global impact to be "minimal," as most countries will continue to use dollars in trade.
“It won't initially be huge as part of the total" of even intra-BRICS countries' trade, he said, estimating that among the 20 percent of global GDP represented by intra-BRICS trade, the new currency could initially make up about 10 percent of that, or two percent of the world total.
This will gradually grow, "but getting to that level with a new currency will take time…The important thing is that it begins, and after that, confidence in the new currency can start to develop," Devonshire-Ellis believes, expecting the new currency to need more than a decade to be fully realised as an alternative to the dollar.
"But a lot could happen to the US dollar in that time frame as well," he said.
Euro as a Blueprint?
Dr. Iqbal Survé, the former BRICS Business Council chairman whose work was instrumental in creating the New Development Bank – better known as the BRICS Bank, told Sputnik that he and his colleagues at the BRICS Business Council had brainstormed the idea of a common currency some time ago, not so much as a "rival" to any other currencies as a tool for "seamless trade" between member countries.
"There are, of course, a number of obstacles that present themselves to the establishment of such a currency, which I think will be overcome in the next while. The logistics or the technicalities around the BRICS currency need to be ironed out. It is achievable in the next five to ten years, but it would require very serious commitment," not just from the current BRICS countries, but nations that have applied to join, Survé said.
The former official believes BRICS countries should see a common currency not as a "reactive" tool to sanctions, but as a currency for growing intra-bloc trade.
"Once the BRICS do that, the currency will find its natural base very much like the Euro did. If you want to understand the formation of a BRICS currency, then I think you need to look at how the euro was introduced by the European Union and became an essentially consolidated global currency for the European Union countries that until then had their own separate currencies," Survé said.
* This article was originally published by Sputnik.