BRICS summit: What is the debate over common currency | Explained

The leaders of Brazil, Russia, India, China and South Africa are in Johannesburg for the 15th BRICS Summit. While Russian President Vladimir Putin skipped the event, leaders of other nations have started deliberations. The summit began on August 22 and will be on till August 24 in the South African city. Many topics are said to be on the agenda, including the development of a common BRICS currency.

The BRICS grouping brings together five major emerging economies of the world, which together comprise 24 percent of the global gross domestic product (GDP). The term was coined in the early 2000s by economist Jim O’Neill.

Ahead of the summit, the discussions over a common BRICS currency, which is being seen as a replacement for the United States dollar at least among the member nations of the block, have stirred a debate.

Former Goldman Sachs economist, Lord Jim O’Neill, who coined the BRICS acronym, has dismissed the idea of a common currency for the members of the block as “ridiculous”, according to a Financial Times report.

In April this year, the deputy speaker of the Russian Parliament, Alexander Babavov, first revealed that the BRICS grouping was considering a common currency, along with African countries.

The same month, Brazilian President Lula da Silva supported the idea and presented the currency as an alternative to the US dollar.

The primary objective behind the proposed move is de-dollarisation or reducing dependence on the US Dollar as the world’s largest reserve currency. This is in line with the group’s Development Bank (NDB), which wants to de-dollarise finance and offer a substitute to the Bretton Woods institutions, reported Reuters. The demand for de-dollarisation has gained steam in recent years, due to the high interest rate of the US Federal Reserve.

India aims to conduct its transactions in rupees or other currencies. Recently, the United Arab Emirates and India opted to settle their crude oil transactions using their national currencies.

The demand for a common BRICS currency is also linked to the Russia-Ukraine war. The sanctions imposed on Russia’s banking system after its invasion of Ukraine have shut it out of the global financial cycle. The freezing of Russian reserves worth $330 billion and Moscow’s inability to access SWIFT, the messaging system that enables central bank transactions, have spurred the demand for de-dollarisation, according to a Fortune report.

In July, Indian external affairs minister S Jaishankar stated that there was no idea for a BRICS currency. South African officials told Reuters that talk of a BRICS currency is off the table.

External Affairs Minister, S Jaishankar in a press conference in July said that India has no plans for a BRICS currency. Instead, India is focused on strengthening its national currency and making Rupee stronger will be the top priority of the Indian government, Jaishankar had stated, according to a Times of India report.