India is amidst a tug of war, and by that, I mean that it’s right in the middle
being pulled by two contrasting decisions. Number one, should it warm up with
the idea of having a common BRICS currency or #2? Should it be indifferent to
the whole idea of it, but the BRICS don’t want to only discuss how they can improve their trade
relations. They want a common currency, or at least that’s what
Russia wants. When Russia invaded Ukraine in 2022 economies in the West
slapped it with trade sanctions. They did not accept lots of goods from
Russia and denied non-essential exports to the country. They even froze
deposits and reserves the Russian government companies and its citizens had
with them so that they would not be able to withdraw and use this money to
fund their war. This obviously crippled Russia’s economy. So, Russia had an idea. It thought, what if we
get the BRICS member countries to agree to a
common and unified currency? It could act as a global reserve currency. Why
should currencies like the US dollar have all the power. The US dollar
has dominated reserves worldwide since 1944. Most countries want to hold
reserve money in the form of USD simply because that is the currency in which
most global goods are traded. So if a country wants to buy or sell commodities
it happens mainly in the USD. Roughly 80% of global trade and
around 60% of global reserves are held in the USD. The US pretty much
controls everything, so it seems like having a common currency for emerging
economies is a great plan, right? But why can’t these countries simply conduct
trade using their local currencies? Let’s take examples of Russia and India.
When Russia was locked out of the global financial system during the war, they
started selling oil at a discount. India jumped in and we consummated the
transaction using rupees. But what would Russia do with billions of rupees?
The exchange only works of Russia has a massive need for Indian goods and
services. It’s the only way they can put their rupees to good use. And pretty
soon Russia did not want our rupees anymore. They couldn’t use it to trade
with other countries either because of certain restrictions. So, maybe a
common BRICS currency makes sense for India too and maybe that’s why the
government seems amenable to discussing it. But we have to talk about
China. China’s been trying to fight the global

influence of the USD in every way it can. Over a decade ago, it got the
responsibility of establishing the headquarters of BRIC’s new development
bank at a skyscraper in Shanghai. Think of it as a bank for funding
infrastructure projects and handing over loans to emerging countries without
having to bow down to the USD. China
even launched SIPS or CIPS, which stands for Cross-border Interbank Payment
System, its very own global payment system that would challenge the US
platform, the SWIFT, which stands for Society of Worldwide Interbank Financial
Telecommunications as a global messaging system used to facilitate
transactions between banks across national borders. In 2023, SWIFT handled
150 trillion US dollars in transactions, which is only set to
rise. And since 7 out of 10 of these transactions happen in the USD
and Euro, China’s motive to challenge these currencies have only gotten
stronger. Some experts suggest that moving to a common currency would
benefit China. They’re the largest BRICS economy. Their UN already has a place
as a reserve currency, and at the end of the day that means that they will take
the decision for the common currency. What does that mean? Well, let’s look
at the Eurozone. It has taught the global economies that common currencies
can be a recipe for diaster, simply because a single currency has to take care of
monetary policies across different countries. When the global
financial crisis threatened the world economies in 2008, countries like Greece
and Portugal suffered in Europe. And that’s because countries like
Greece needed to have more liquidity to repay debts. So,
the European Central Bank would simply have to print more money to take
steps that would help Greece. But that would hurt big economies like
Germany, where printing more money would mean skyrocketing inflation. So, the big
nations eventually call the shots. India wouldn’t want such a situation. But the
bigger problem is how will a bunch of economies across the world borders with
really nothing in common even be able to work together? If you ask Jim O’Neill,
the Goldman Sachs economist who coined the BRICS acronym, he will say, “it’s
just ridiculous.” So yes, it does seem to be a far-fetched idea
for now.

Written by Tanish Singh