Introduction

In today’s dynamic global landscape, BRICS—comprising Brazil, Russia, India, China, and South Africa—has emerged as a prominent force in global political and economic arenas. Recently, the group has expanded its membership, incorporating countries such as Saudi Arabia, Egypt, Iran, the United Arab Emirates, and Ethiopia. This new composition has enhanced the group’s diversity in political, economic, and geographical contexts. Collectively, BRICS nations represent about 45% of the global population and nearly 26.98% of the world’s GDP, playing an increasingly influential role in global developments.

The growing inclination of countries to join BRICS highlights their aspiration to reduce dependency on the US dollar and Western-dominated markets. To that end, BRICS is exploring the introduction of a common currency to enhance economic cooperation and facilitate trade among member states. This currency is envisioned to serve as an alternative to the US dollar in global transactions.

This article delves into the feasibility, challenges, and implications of creating a BRICS common currency and examines its potential impact on the global economy.

Feasibility of a BRICS Common Currency

The creation of a common currency for BRICS could fulfill several key objectives:

• Reducing Dollar Dependency:
  Since the establishment of the Bretton Woods system in 1944, the US dollar has held a dominant position in international trade. This dominance further intensified after the dollar abandoned the gold standard in 1971. One of BRICS’ primary motivations for introducing a common currency is to decrease reliance on the dollar, providing member states with protection against currency volatility and US-imposed sanctions.

• Strengthening Economic Cooperation:
  A shared currency would eliminate the costs associated with currency conversion, making trade within BRICS more efficient and cost-effective. This could enhance the competitiveness of member countries’ goods and services in domestic and international markets, fostering faster economic growth.

• Enhancing Political Influence:
  The establishment of a common currency would strengthen BRICS’ position on the global stage, challenging Western financial dominance and reducing the influence of the dollar in international trade. Additionally, it would bolster international cooperation and political ties among member states.

• Facilitating Investment:
  A common currency, accompanied by financial stability, would attract foreign investment. Investors would find it easier to participate in BRICS projects without the complications of currency conversion, ultimately promoting trade and economic collaboration.

Prerequisites for Success
For a common currency to succeed, BRICS must address several prerequisites:

• Economic Cooperation: A unified understanding of trade, financial, and economic policies is essential.
• Centralized Financial System: A shared financial institution, such as a joint central bank, must manage monetary policy and ensure stability.
• Political Support: Strong and sustained political will from BRICS leaders is crucial for navigating the challenges of implementing a new currency.

Challenges to Implementation

Despite its potential benefits, establishing a BRICS common currency faces significant challenges:

1. Economic and Structural Disparities:
   Member states vary widely in economic size and structure. For instance, China and India are large, rapidly growing economies, while Russia, Saudi Arabia, and Iran rely heavily on natural resource exports. In contrast, Brazil and South Africa have smaller economies focused on specific sectors like agriculture and mining. This diversity could lead to conflicting priorities and policies, complicating consensus on a shared currency.

2. China’s Dominance:
   As the second-largest economy in the world, China’s influence within BRICS is substantial. While this could provide stability, it may also create dependency among smaller member states, leading to potential imbalances within the bloc.

3. Political Divergences:
   BRICS nations have differing political systems, from China and Russia’s centralized governance to the democratic frameworks of Brazil, India, and South Africa. Additionally, geopolitical tensions, such as the Russia-Ukraine war and Middle Eastern conflicts, could hinder cooperation and trust among members.

4. Strategic Disparities:
   While some members, like China and Russia, aim to challenge Western dominance, others, such as Brazil and South Africa, maintain close ties with Western nations. This divergence in strategic goals could delay or derail progress toward a common currency.

5. Managing Financial Risks:
   Introducing a new currency requires robust mechanisms to manage risks such as inflation, exchange rate fluctuations, and economic crises. BRICS must establish financial safety nets, such as a stability fund, and regulatory frameworks to ensure smooth functioning.

Impact on the Global Economy

1. Reduced Dollar Dominance:
   A BRICS common currency could weaken the US dollar’s hegemony, paving the way for a more multipolar global financial system. This shift could reduce Western economic influence, creating new opportunities for developing economies to thrive.

2. Enhanced Trade Efficiency:
   A unified currency would simplify trade processes among BRICS nations, reducing transaction costs and increasing transparency. This could lead to stronger economic ties, greater exports, and accelerated economic growth within the bloc.

3. Reshaping Financial Policies:
   The BRICS currency could encourage other nations to reduce reliance on the dollar, fostering greater financial independence and influencing global monetary policies.

Conclusion

The BRICS initiative to establish a common currency represents a bold step toward reducing dependence on the US dollar and strengthening economic cooperation among member states. If successful, this endeavor could significantly reshape the global financial landscape, promoting a multipolar system and challenging Western-dominated structures.

However, the path to a BRICS common currency is fraught with challenges. Economic and political disparities, governance differences, and financial risks must be carefully addressed. Sustained political commitment and collaboration among BRICS members will be critical to overcoming these hurdles.

Despite the obstacles, the creation of a common currency holds transformative potential. By fostering economic and political unity, BRICS could play a pivotal role in shaping a more balanced and equitable global financial order, benefiting its members and the broader international community.

Author: Kaihan Barakzai