A new reserve currency can be created in the world based on the basket of currencies of the BRICS countries (Brazil, Russia, India, China, South Africa). This opinion was expressed by the head of the department of global research “Opening Investments” Mikhail Shulgin. This would help to avoid the risks that certain currencies of the BRICS countries are exposed to and protect them from the risks of settlements in dollars and euros.
“A new reserve currency is needed in order to service the external debt and carry out mutual settlements between friendly countries,” he said.
To begin with, Russia and the BRICS countries need to reduce dependence on the dollar in mutual trade and external debt servicing, since “our new economic reality is to live under severe sanctions.” The decline in the role of the dollar and the euro and the increase in the role of the currencies of friendly countries and the ruble should become the main trend in Russian trade and finance.
As for the technical details, the New Development Bank could become the issuer of the new currency. It will have to be adjusted by the exchange rates of the BRICS basket currencies, and the role of each national currency should be equally important. The economist believes that the new “brix” currency will be highly demanded by Russian international partners.
In June, Deputy Chairman of the State Duma Committee on Economic Policy Mikhail Delyagin said that the need for a reserve currency based on the basket of currencies of the BRICS countries is long overdue, but the choice of its development must be approached very carefully.
Economist, leading analyst at the Golden Coin House Dmitry Golubovsky believes that the BRICS currency has the prospect of becoming an alternative world currency in 10 years, but only if countries start working seriously on its creation today and build it on new digital foundations.
— Let me remind you how the European Monetary Union was created. Initially, they did not set the task of creating a single European currency. The task was set to develop a common European policy towards the US dollar. They first achieved such a situation, when European currencies began to fluctuate synchronously against the dollar. And the volatility of each European currency against other European currencies has become lower than against the dollar.
The Americans at one time were extremely dissatisfied with this policy, which was carried out after the decoupling from the gold standard, because they saw it as a conspiracy against the dollar, and they saw it quite correctly. This coordinated monetary policy first made it profitable to settle accounts between European states in national currencies.
And only after this stage was passed, that is, the de-dollarization of European trade, which was encouraged by central banks, was already implemented, the so-called ECU, the non-cash currency of the European community, was introduced. Subsequently, the European Commonwealth became the European Union, and the ECU actually grew into the euro, the single European currency.
This whole process took about 30 years. Trade union currencies are not created at the snap of a finger. Especially when, within the framework of one commonwealth, they try to unite such conflicting interests as Indian and Chinese. China is already an industrial superpower, and India is a superpower in the future, it is predicted to be the second number in the world after China in 10 years, when China will overtake America. These are the main competitors in the fight for investments and markets in the future. Whether these two countries will be able to get along within the framework of one monetary union is an open question.
“SP”: – That is, the creation of such a currency is unrealistic?
– Really, but it is necessary to move from empty declarations and chatter to the point, namely, to a joint monetary policy. Without this, it is possible, of course, to make a common BRICS currency, but no one will need it. The central banks of the BRICS countries should get together and set limits for fluctuations of their currencies relative to each other. You need to start with this, and then open swap lines between these banks, create an exchange on which the liquidity of the currency changes relative to each other.
By the way, the Moscow Exchange is the best platform for this. Russia, if we take relations within the BRICS, is a neutral side. We are friends with both China and India. In addition, we are friends with Turkey, Iran, Brazil, and with everyone except America. Moscow would be a very good platform to launch trading in all these currencies and start managing their rates through the Moscow Exchange. Thus, the relative fluctuations of these currencies to each other will be less than their fluctuations against the US dollar.
That’s when it will encourage the transition to trading in national currencies. Volatility will be less, currency risk hedging will be cheaper, and then it will be possible to create our own mechanisms.
And one moment. It would be good if the formation of this new currency took place already within the framework of the new digital environment. Then it can immediately become a new generation digital currency. Under it, you need to create your own payment protocols, your own server infrastructure and mechanics, including the mechanics of evaluating capital flows. It would help to effectively manage exchange rates in real time.
All this is not so much the task of the Central Bank, but of IT specialists, but in a broad sense, of the entire scientific and economic community. This is the task of creating common BRICS standards and protocols for the common financial system, and it is a very serious one. Otherwise, if you are going to make these payments using the Western SWIFT system, then radish horseradish is not sweeter. You will be dependent on a foreign payment system. If you are going to conduct them not even using SWIFT, but using your own system, but created, again, on the IBM architecture or other Western software libraries, you will still be vulnerable.
The level of trust in such things should be very high. This means that it should be a completely sovereign digital environment, independent of those who would like to prevent its creation. So this is a very non-trivial task. Let’s say I would take it on because I know how these systems work, but I don’t know if we have people in the government who have the necessary competencies for this.
“SP”: – And if they took on this task, how many years would it take to create this entire system and launch the currency? The EU, you said, took about 30 years…
“Now all this can be done faster, because life requires it. Europe, in general, created its system in similar conditions – the dollar began to depreciate, there was high inflation. But now the world has stepped forward. If we talk about IT solutions, I think they can be made fully operational, proven and tested in five years. And over the same five years, it is possible to create and debug the basic mechanisms of interaction between central banks.
Accordingly, in five years this system could be launched, and in another five years it would have gained sufficient popularity for the common currency of the BRICS countries to be considered as a reserve one. 30 years is too long by today’s standards. Today, all processes are much faster, and technology allows us to solve problems more efficiently.
So this is a completely solvable task in ten years, but only if it is approached correctly. And in our country, unfortunately, they love big words, but not deeds. How long have we been creating the International Financial Center in Moscow, announced in 2012? It’s been ten years now. And only now life has forced Moscow to really turn into an alternative financial center, we already have a very liquid market for the Chinese yuan, where you can easily exchange it for the Turkish lira. There was no such place in the world before. If life compels, then the BRICS countries will stir. Although in this matter it is necessary to act proactively now, to gather competent economists, IT specialists, financiers, the Central Bank and create a commission to develop a new currency.