Brazilian President Luiz Inacio Lula da Silva’s bold call for BRICS countries to establish a common currency has been met with skepticism.
Speaking to a packed audience at the 2023 BRICS summit in Johannesburg, South Africa, Silva argued that a common currency would protect these countries – Brazil, Russia, India, China and Africa South – tumultuous waves of dollar exchange rate changes.
But this idealistic vision is fraught with logistical conundrums, stemming from the profound economic, political and geographic differences that characterize the five nations. While Silva champions shared currency as a hedge against vulnerabilities and improved payment options, other BRICS leaders demonstrate varying, if any, enthusiasm.
Despite some initial concerns, the BRICS alliance has had little effect on the U.S. economy. THE S&P500 is up 17% so far this year. And the Nasdaq stock market (NASDAQ) has seen a record growth of 40.87% since the beginning of the year.
South Africa appeared unprepared for the currency discussion, saying it was not on the summit agenda. India’s position was more definitive, with its foreign minister rejecting the idea altogether. On the other hand, Russian President Vladimir Putin has hinted at a trend towards increasing trade in national currencies. Meanwhile, Chinese President Xi Jinping has maintained a diplomatic silence on the monetary issue, focusing instead on advocating for “reform of the international financial and monetary system.”
Such a colossal undertaking would not be purely economic; this would have profound political implications. As South African Reserve Bank Governor Lesetja Kganyago explained, this effort would require a banking and fiscal union, macroeconomic convergence and the creation of a centralized bank. Trade imbalances, especially when China is the largest trading partner of all BRICS countries, pose a significant challenge.
While BRICS leaders have expressed a desire to reduce their dependence on US Dollar, its dominance is undeniable. Despite official foreign exchange reserves falling to their lowest level in 20 years at the end of 2022, the US dollar remains paramount in global trade, featuring in almost 90% of global foreign exchange transactions.
As these discussions unfold, the intricacies of implementing such a system remain a colossal challenge. The real question is whether these nations, with their diverse agendas and priorities, can truly unite under the banner of a single currency.
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