BRICS AND INITIATIVES FOR A COMMON CURRENCY

 Consequent on the Bretton woods Monetary and  financial conference held in July 1944 to promote economic and financial cooperation and facilitate balanced growth and trade among the member countries,  the IMF started functioning from March 1,1947.Two economist's whose ideas were largely  incorporated were  that of US expert Harry D White and partly that of UK's John Maynard Keynes. The International Monetary Fund (IMF) which aims to provide both balanced growth and balanced trade across countries are bound to provide not only adequate international liquidity but also alleviate problems associated with exchange rate management and balance of Payments disequilibrium  of member countries.IMF has been often critcised for improper handling of various financial crises ranging from East Asia to Latin America and more recently crisis in Srilanka and Pakistan. 

It was the  UK  Goldman Sachs Group  Chief economist in International Economics  Jim O Neil who coined the acronym BRIC (Brazil, Russia, India and China) in his paper published in Global policy Journal  in March 2001. He analysed  the benefits of integrating these four major emerging economies. Consequently BRIC was established in 2009 after the admission  of South Africa in 2010 it became BRICS. During the sixth BRICS summit in Brazil  in 2014 the New Development Bank was created to provide financial assistance to member countries. It has to be observed here that while USA account for      $ 25.46  trillion GDP, followed by China with $18.1 trillion for India the corresponding figure is only $3.3 trillion While India topped the list in terms of population followed by  China with 142.8 crores USA had only 34 crores population. . 

Jim O Neil  in his recent paper argued that BRICS should expand and work to counter the dominance of US dollar. But at the same time BRICS should apply strict criteria to ensure that the addition of new members to the group helps to promote trade, growth and development ensuring international liquidity improving health, human development and climate finance. Already discussions have started in the group about the feasibility of introducing a BRICS common currency. Even Though tensions have  been mounting in the past against the hegemony of US dollar it was further aggravated by the Covid19 and more specifically after the Russia Ukraine conflict and stoppage of availing SWIFT facility and notorious sanctions imposed against Russia.  According to Russian law expert Alexander Babakov "BRICS are in the process of  creating a new currency  that does not defend the dollar or Euro. The  currency would be secured by gold and other commodities such as rare earths". Currently despite BRICS account for 45% of global population it's share in the voting rights of both IMF and World Bank is hardly 15%.If BRICS plans to admit new members as mentioned earlier strict criteria and scrutiny need to be adopted in compliance with the interests of already existing members. 

          Saudi Arabia and Iran are the dominant countries who have evinced interest to join the group As per O Neil new members should have a population of at least 100 million. However  in the case of countries like Saudi Arabia or Iran they might have persistent trade surplus which in turn can provide international liquidity in the search for a common currency. On the other hand if population of at least 100 million is taken as the criteria countries like Indonesia, Bangladesh, Vietnam, Pakistan and Philippines are potential candidates, whereas Mexico, Turkey, Nigeria, Egypt and Ethiopia could also be considered. 

BRICS  has to undergo different stages before successfully embarking on a common currency. It requires to adopt rigorous pre conditions  ranging from common free trade agreement, tariffs,economic,fiscal, monetary and trade policies and even GDP inflation and fiscal deficit targets. For instance Maastricht Treaty which led to the European integration and adoption of European Monetary Union and introduction of the common currency  Euro. The Maastricht Treaty had laid down four macro economic convergence methods for the establishment of European Monetary Union and common currency (Euro) which might have to be replicated in principle in BRICS as well  namely- 1.Inflation of one country should not be above 1.5% average of other three countries 2.Country must have maintained stable exchange rate under the exchange rate management system without inflation.3.Generally public deficit should not exceed more than 3% of country's GDP. and 4.Public debt should  be below or equal to 60% of GDP. If  materialised the advantages of a common currency include greater degree of  market integration and absence of risk of fluctuations in exchange rate between countries,Already dominance of  US dollar created significant challenges when countries like China and India started to trade in their domestic currencies. If BRICS expands to include other emerging economies with persistent surpluses " a fairer multi currency global system could emerge".Both India and China have internationalized their currencies to settle their trade payments in Indian rupee and Chinese Yuan, Of course success of internationalisation of Indian rupee is yet to be established in relation to Chinese Yuan.

Achieving more or less uniform macro economic policy objectives are necessary prerequisite for introduction of of  a common currency. Since the size and clout of individual economies varies ranging from that of China to that of South Africa very much, meeting uniform economic targets would be difficult. More Over prevailing geopolitical and border conflict between India and China is a major stumbling block. China is even challenging India's trade, geopolitical and investment ambition along with China's strategic ties and military exercises with countries like, Oman, Kazakhstan and Turkmenistan. In any case a concerted and coordinated approach towards settling border disputes and  achieving favourable accommodation of  each other's genuine concerns and interests could only pave the way towards attainment of a BRICS common currency and reducing the dominance of US dollar. Let us hope that some building blocks towards this direction will be laid down in the forthcoming August BRICS summit to be held in South Africa

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