Why BRICS wants a new digital currency? Detailed background explanation

Credit: Jernej Furman, Flickr

BRICS is an acronym for Brazil, Russia, India, China and South Africa, five emerging economies that have formed a political and economic alliance since 2009. Together, they represent about 40% of the world's population and 30% of the global GDP.

One of the main goals of BRICS is to reduce their dependence on the US dollar and the Western-dominated financial system. They have already established their own development bank, which lends money to member countries and other developing nations for infrastructure and social projects.

Now, they are working on creating a new form of currency that could facilitate trade and investment among themselves and with other partners. According to Alexander Babakov, the deputy chairman of the Russian State Duma, this idea will be presented at the next BRICS summit in South Africa in August 2023.

Babakov said that the first step is to transition to settlements in national currencies, which would lower transaction costs and avoid exchange rate fluctuations. The next step is to introduce a digital currency or any other fundamentally new form of currency that could be used in the near future.

He did not specify what kind of currency it would be, but he suggested that it could be backed by gold or other commodities, such as rare earth elements or land. He also said that India, Russia and China should form a new economic association with a common currency, which could be a digital ruble, rupee or yuan.

The idea of a common BRICS currency is not new. It has been discussed for years by experts and officials, but it has faced many challenges and uncertainties. Some of the issues include how to coordinate monetary policies, how to ensure trust and stability, how to deal with legal and regulatory frameworks, and how to balance national interests and sovereignty.

However, some analysts believe that the recent developments in the global economy, such as the Covid-19 pandemic, the rise of digital technologies, and the growing tensions between the US and China, have created new opportunities and incentives for BRICS to pursue their own currency project.

They argue that a common BRICS currency could enhance their economic integration, diversify their reserves, increase their bargaining power, and promote their financial inclusion and innovation. It could also challenge the dominance of the US dollar and create a more multipolar and balanced world order.

Of course, there are also many risks and uncertainties involved in such a project. It would require a lot of political will, technical expertise, institutional coordination, and public support from all the BRICS members and their partners. It would also face opposition and competition from other major currencies and actors in the global financial system.

Therefore, it remains to be seen whether BRICS can successfully create a new digital currency that can serve their interests and aspirations. It will be interesting to watch how this idea evolves and unfolds in the coming months and years.