A BRICS currency is nothing more than a pipe dream

Except for a unilateral statement last April issued by Alexander Babakov, Deputy Speaker of the Russian State Duma, who said that the new currency will be backed by gold and other rare commodities, it is not yet clear on what basis a unified currency will be issued to support it, preserve it, and ensure its strength in bilateral transactions between member states.

Moreover, it's also unclear how much confidence it will gain in international trade, compared to the US dollar, which still accounts for more than 80% of such transactions. This includes about 78% of the financing provided by the very New Development Bank established by BRICS in 2015, with the aim of offering financing in the local currency of the borrowing country.

It should be noted that the bank is currently facing difficulties in raising funds in dollars to repay its debts, while it has nearly ceased to provide new loans.

A survey of the basket of the group's currencies raises concerns about its effectiveness, given each country's unique economic and political situation and intricacies with some being more stable and secure than others.

For instance, Russia — which is subject to Western sanctions — has seen its currency, the ruble, lose nearly a quarter of its value against the dollar since the beginning of the current year, and nearly 50% compared to its peak value in June 2022.

This places it among the three worst-performing emerging-market currencies, along with the Turkish lira and the Argentine peso.

Read more: Turkey in the throes of strong economic headwinds

Bilateral trade

Enhancing the usage of local currencies in transactions and bilateral trade may be the only solution available for these countries to reduce their reliance on the dollar and alleviate its impact on their economies.

This is the driving force behind the efforts of many countries, including Arab nations — particularly Egypt — seeking membership in the group as a means to diversify their trade transactions using different currencies, which serve as a buffer during economic growth or crises and may have a long-term impact on global markets.

Read more: Egypt seeks BRICS membership to free itself from the dollar

However, bilateral trade between BRICS nations is not translating into the strong economic cohesion needed for countries to push forward with viable joint projects — especially given the fact that the group accounts for less than 20% of global trade. Moreover, various statistics indicate that trade between the group's countries does not exceed 10%.

The weakness of intra-BRICS trade may explain why financial integration has not been achieved among these nations. China appears to be the exception as it continues to strengthen its global relations, especially with Gulf countries, positioning itself as a global player with influence and impact.

Read more: China's silk road to the Middle East runs through Riyadh

The Chinese Renminbi (RMB) could be the primary beneficiary of this approach after Beijing agreed with Gulf Cooperation Council countries to use it in the oil and gas trade.

Read more: Is the petrodollar losing its lustre?

Additionally, China established the Shanghai International Energy Exchange in 2018 to negotiate oil shipment contracts exclusively in its currency.

A protracted undertaking

Launching a unified currency continues to be just a pipe dream, and its realisation could be a protracted and difficult undertaking. Achieving a single BRICS currency is impossible without strong regulatory foundations and an atmosphere of financial, economic, and political openness based on governance, transparency, rule of law, and freedom of capital movement.

It is critical to have an agreement on economic constants that protect member countries and guard the group against fluctuations, such as public debt levels, budget deficits, inflation and interest rates, and control over local currency exchange rates.

Without these protections — especially given the existing divisions among BRICS countries — the addition of new influential economies to the group will do little to further this goal.

The idea of BRICS emerged in 2001 (before South Africa joined) when the American investment bank "Goldman Sachs" flagged the strong growth rates in Brazil, Russia, India, and China, as favourable options for investors after the 9/11 attacks.

The four countries did not hesitate to run with this idea and leverage their collective power and influence by forming an economic bloc.

This idea — born without a clear vision or plan (unlike the Euro for example) — is still driven by coincidence and has not yet established itself as a coherent force except in name.

It is certainly not enough to measure its global economic impact without looking at its strength as an entity. In addition, it is no longer an investment option to a large extent due to the changing geopolitical dynamics and the different economic paths of its member states.  

Until major international changes occur, talk of a unified BRICS currency remains a fantasy more than a reality.