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New BRICs Currency? Not So Fast Says Russian Independent Media

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Russian independent media outlet The Bell is throwing cold water on efforts by BRICs nations to form a common currency, as proclaimed by many politicians of the bloc over recent months.

The effort will be harder than it seems, writes The Bell, a non-Kremlin controlled entity.

The U.S. dollar and euro were used to pay for 30% of Russian exports in July (compared to 87% before the war). On the one hand, by continuing to trade in euros or U.S. dollars, Russian companies make themselves more vulnerable to Western sanctions. On the other hand, switching to the rupee or the yuan is far from ideal due to problems with conversion, risk management and capital flow, writes The Bell.

The problems with using rupees to buy Russian crude are a classic example. After the European oil embargo, India became the biggest buyer of Russian oil. That led to a radical imbalance in trade between the countries: in the first half of 2023, Russian exports to India were worth $30 billion, while imports were just $7 billion. Russian exporters are paid in Indian rupees, which is only partially convertible and literally has nowhere to go — at the moment, most of the money is just sitting in Indian banks. Many believe this was a major reason for the ruble’s collapse over the summer. Others feel the “rupee problem” is overstated. Either way, it is a direct consequence of the de-dollarized Russian economy.

One solution to this problem is the Holy Grail of anti-Americanism — the introduction of a single currency for the BRICS countries of Brazil, Russia, India, China and South Africa. However, most believe that, even as this geopolitical club expands, a single currency is either an impossible dream or an expensive political sleight-of-hand.

At one end of the spectrum, we have a true single currency like the Euro. But this cannot be replicated. There is no free movement of capital between BRICS countries since the authorities in Russia, China and India all restrict cross-border currency operations to varying degrees and their currencies are only partially convertible. There is also no free movement of labor between these countries. More importantly, the BRICS countries — apart from India — are on synchronized economic cycles that are driven by China’s demand for raw materials. And, while inflation in China is stable, in other countries it is not — which means the Central Banks cannot synchronize monetary policies. Any political decision to introduce a single currency would cost China dear.

A more realistic possibility is a synthetic unit, like the European Currency Unit (a precursor to the Euro). A closer parallel might be the International Monetary Fund’s Special Drawing Rights (SDR). Much like the SDR when it was created in 1969, a BRICS unit of account could be based on a basket of currencies from participating countries. It could then be used to settle accounts instead of the U.S. dollar, euro, yuan or ruble.

Theoretically, it would be possible to introduce a specific unit of account that is not backed by anything, and use it to get away from pricing in U.S. dollars. But this does nothing to encourage de-dollarization — and, ultimately, is more or less the same as bartering.

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