Creating a common reserve currency among the BRICS nations would be immensely complex and seems unlikely, with discussions among business leaders from the member countries yielding no progress and little consensus.
Considerable discussions have centred on a new BRICS currency that could challenge the US dollar as the world’s reserve currency.
According to PSG Wealth chief investment officer Adriaan Pask, deciding on and implementing a BRICS reserve currency is very far from straightforward.
“Implementing cross-regional policies introduces considerable complexity. The BRICS countries exhibit notable variations in their policy deployment, GDP generation, currency management, interest rates, and inflation policies,” said Pask.
“Achieving the required level of integration would be immensely complex.”
That being said, Pask believes it’s a good discussion and debate to have because it forces the hands of some emerging markets to adopt more investor-friendly policies.
China, for instance, faces certain constraints, such as governance and regulations, which can be erratic, and the currency is not fully convertible yet.
Refinement and improvement in these areas are necessary before it could even be considered a viable alternative.
“The ultimate goal is to enhance transparency, convertibility, and integration into the financial system, and achieving these objectives would offer investors greater security and more options in high-growth environments,” Pask said.
Currently, 84% of the world’s trade is done in the US dollar, but Pask cautioned that this does not mean that it will remain the world’s reserve currency indefinitely.
“However, how realistic is it for a BRICS currency to ultimately dethrone the dollar as the primary reserve currency? I think we’re still a very long way off from that,” said Pask.
These concerns were echoed by Standard Bank CEO Sim Tshabalala on the sidelines of the BRICS conference in Johannesburg this week.
The BRICS Business Council made little progress on a common currency, with some members doubting whether it was possible or desirable for the bloc to have its own currency.
“The forum discussed the international payment system in some detail. From an African point of view, the highlight of this discussion was the pan-African payment system, which has immense potential to reduce costs of cross-border payments,” Tshabalala said.
“Participants also debated the question of whether a BRICS currency is possible or even desirable. Strong views expressed were for and against, with little consensus being reached.”
The debate would have yielded better results if there had been a sharper distinction between international payments and the issue of a reserve currency, said the CEO of Africa’s largest bank.