Global Courant
The New Development Bank, a financial institution created by the BRICS bloc of emerging markets, has no immediate plans for the group to create a common currency, its vice president and chief financial officer said.
As the members of BRICS – Brazil, Russia, India, China and South Africa – push for more mutual trade in local currencies, they are not ready to challenge the dollar’s global dominance, Leslie Maasdorp said in an interview on Wednesday with Haslinda Amin from Bloomberg TV.
“Developing something alternative is more of a medium to long-term ambition,” he said. “There is no suggestion to create a BRICS currency at this time.”
Formed in 2009, the bloc has sought to gain more global influence as a way to counterbalance the dominance that the US and its traditional allies have in multilateral financial institutions such as the World Bank and International Monetary Fund.
Yet even China’s renminbi is “still far from being a reserve currency,” Maasdorp said.
An important part of the BRICS strategy is Shanghai-based New Development Bank, which has $50 billion in subscribed capital and plans to add several new emerging countries this year in an effort to expand its lending capacity, Maasdorp said. .
In addition to the core BRICS countries, the bank already has Bangladesh and the United Arab Emirates as members. Uruguay is in the process of joining and Saudi Arabia has applied.
“It has always been the intention to create a global bank anchored in emerging markets,” said Maasdorp.
Maasdorp also said the bank aims for 40% of lending to climate-related projects.
Not on the table
Responding to a written parliamentary Q&A last week, Finance Minister Enoch Godongwana said there had been no immediate discussions on a new currency, but reiterated the move towards further cooperation with BRICS countries to conduct non-dollar transactions.
One of the driving factors behind talking about creating a new currency is to become less dependent on the dollar.
The value of the US currency has grown amid rate hikes and geopolitical conflicts, which in turn has hurt many emerging economies.
This has led to calls to use alternatives to the dollar as the global trading currency, with China, the world’s second-largest economy, supporting the idea of adopting a new currency.
A new currency would also lessen the impact of sanctions, especially after the West imposed sanctions on Russia following its invasion of Ukraine in early 2022.
The BRICS members want to “make sure we don’t fall victim to sanctions that have secondary consequences for countries not involved in issues that led to those unilateral sanctions,” said Naledi Pandor, South Africa’s international relations minister.
Pandor added that proposals are being considered by the Shanghai-based and BRICS-created New Development Bank on how the new currency would work.
However, Godongwana said there has been no direct request from BRICS to focus on de-dollarization.
Other areas of cooperation
That said, the minister said discussions and agreements have been made in the BRICS Payments Task Force to look at several other areas.
For example, a feasibility study into the implementation of the following parts of the G20 Crossborder Payments Roadmap:
Building block 1: The development of a common vision and objectives for cross-border payments. Building Block 10: Improving access to payment systems by banks, non-banking institutions and payment infrastructures – broadening the number of eligible candidates for clearing accounts by changing access policies, technical standards and oversight or oversight regimes; and Building Block 14: Adopt a harmonized version of ISO 20022 for message formats (including conversion/mapping rules) – promote adoption of common message formats, such as a harmonized version of ISO 20022 and common rules for mapping/converting data between different data formats .
In addition, the minister said more information is being shared between BRICS members on lessons learned from sandboxes, such as how to inform regulatory frameworks.
BRICS members will also share experiences on central bank digital currencies (CBDCs).
In addition, BRICS member states said they would consider bilateral interconnected payment infrastructures for settlement in their own currencies.
Godongwana said the South African government has been approached by Russia and India to introduce interconnected payment infrastructure, with preliminary talks between the South African Reserve Bank and the two foreign central banks already taking place.
He said the meeting with the Russian central bank looked at the interconnection of both genuine instant payment systems and settlement systems, while the arrangements with the Reserve Bank of India were based on the interconnection of settlement systems using their respective currencies.
However, the SARB said interconnected talks with Russia and India will be suspended while it focuses on its various domestic and regional payments initiatives, including its Real Time Gross Settlement System (RTGS) Renewal, the Association of African Central Banks (AACB) and the initiatives of the Southern African Development Community (SADC).
He added that progress and development will also be driven by the market’s desire to move into alternative currencies.
(with Bloomberg)
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