If there is one objective that brings together the five major member countries of the somewhat disparate BRICS club (Brazil, Russia, India, China and South Africa), meeting this week at the summit in Johannesburg, it is to reduce their dependence against the US dollar. The club of five major emerging countries, at whose door Saudi Arabia and, among others, Algeria are knocking, has already taken its first steps in “dedollarization”.
In 2015, he created his own bank, the New Development Bank (NDB). Stated objective: to offer an alternative to the Bretton Woods institutions, the IMF (International Monetary Fund) and the World Bank, in the hands of Westerners. The establishment, based in Shanghai, is currently chaired by Dilma Rousseff, the former president of Brazil. “We hope to lend $8 billion to $10 billion,” she told the Financial Times the day before the Johannesburg summit. Our goal is for 30% of our loans to be denominated in local currencies.”
In other words, the credits granted to South Africa will be partly in rand, those to India in rupees. China, for its part, is pushing to multiply loans in its currency, the yuan, which it aims to internationalize. “Local currencies are not an alternative to the dollar, argues Dilma Rousseff, they are an alternative to a (…) unipolar system (…) which will be replaced by a more multipolar system. The NDB also claims not to condition its loans on economic reforms, intended to restore public finances, which are often unpopular, as the IMF does.
Switching from a world dominated by the greenback since the post-war period to a multipolar financial world will not happen with the wave of a magic wand, nor by political will alone. A Brazilian exporter paid in yuan has more difficulty converting Chinese currency into reals than dollars into reals, warn Mark Williams and Shilan Shah of the firm Capital Economics in a note.
Suffice to say that the idea of a common currency of the Brics seems even more utopian. Yet it is mentioned. Brazilian President Lula backed it recently, reports Capital Economics. As for Vladimir Putin and his Minister of Foreign Affairs, Sergei Lavrov, they have also made themselves their advocates. Nothing suprising. Russia is targeted by Western sanctions which cut it off in part from the financial circuits in dollars. However, the common currency is not on the agenda of the summit, assures the South African presidency of the BRICS.
A variant, which may seem more realistic, is also discussed. For this club of Five, it would be a question of creating a basket of currencies, as the IMF did with its SDRs (special drawing rights). But the difference in economic cycles and the political differences between some of the Brics, in particular China and India, also make this path hazardous.
