The possibility of a digital currency issued by the BRICS nations has been a topic of discussion for several years. With Brazil, Russia, India, China, and South Africa at the helm of this initiative, experts believe that a BRICS digital currency could become a reality within the next five to ten years. This article delves into the potential launch of a BRICS digital currency, the reasons behind member states’ interest, and the progress made in recent years.
The Road to a BRICS Digital Currency
BRICS Summit: A Strategic Moment for Discussion
Experts anticipate that the upcoming BRICS summit will serve as a pivotal moment for the discussion and potential initiation of a common digital currency for the bloc. Evandro Caciano, the head of foreign exchange at Trace Finance, suggests that the nations should establish working groups during the summit to advance the conversation on a BRICS digital fiat. This move is crucial to ensure that all member states are on the same page and can collectively work towards the implementation of a shared digital coin.
Concrete Feasibility Plans and Regulation
Milena Araujo, an analyst at Nexgen, expects the summit to initiate discussions on a shared digital coin and pave the way for concrete feasibility plans. She emphasizes the importance of officials starting with a feasibility plan to outline the practicality and potential challenges associated with a BRICS digital currency. Caciano further suggests that the BRICS bank could play a pivotal role in issuing and regulating the digital currency, making the process implementable in stages over the next five to ten years.
Motivations behind a BRICS Digital Currency
Global Economic Climate and Trade Facilitation
The current global economic climate, coupled with the challenges faced by the United States, has created favorable conditions for the creation of a BRICS digital currency. The worst economic crisis in U.S. history has led Brazilian President Luiz Inacio Lula da Silva to support the idea of a common currency that could replace the dominance of the U.S. dollar in trade deals between BRICS nations. A digital currency could facilitate trade and strengthen economic ties among member states.
De-Dollarization Efforts and CBDC Development
The BRICS nations have been actively discussing the launch of a digital token since 2019, aligning with their de-dollarization efforts. Countries such as China, Brazil, and Russia have made significant progress in developing their own Central Bank Digital Currencies (CBDCs). China has been advancing with the digital yuan, Brazil with the DREX, and Russia with the digital ruble. The possibility of conducting cross-border trade using these CBDCs has been a topic of discussion, indicating a shared interest in exploring digital currencies for trade facilitation.
Collaboration and Co-Launching Opportunities
In addition to individual CBDC developments, there have been discussions within the BRICS nations regarding collaboration and co-launching opportunities. For instance, Russia and Iran have explored the possibility of launching a gold-pegged stablecoin, showcasing the potential for joint initiatives in the digital currency space. These discussions further emphasize the commitment of BRICS nations to explore innovative solutions for cross-border transactions and economic cooperation.
Challenges and Skepticism
A Former Goldman Sachs Economist’s Perspective
Lord Jim O’Neill, the economist who coined the term BRICS, has expressed skepticism regarding the idea of a common currency for the bloc. He deems the notion of creating a BRICS central bank as “just ridiculous” and questions the feasibility of such an endeavor. While his perspective sheds light on potential challenges, it is important to note that discussions on a BRICS digital currency have persisted throughout previous summits, indicating a continued interest and dedication to exploring this possibility.
Membership Expansion and Future Developments
While a common BRICS currency may not be on the immediate agenda for the upcoming summit, discussions on potential membership expansion are anticipated. Several countries, including Venezuela, Vietnam, Indonesia, Saudi Arabia, Iran, Argentina, Cuba, Nigeria, and Thailand, have expressed their desire to join the BRICS group. These potential future developments could have implications for the exploration and implementation of a shared digital currency within the bloc.
The launch of a BRICS digital currency could revolutionize cross-border trade and economic cooperation among member states. As discussions gain momentum and working groups are established, the feasibility and practicality of a common digital coin will be further explored. While challenges and skepticism exist, the progress made with individual CBDC developments and the shared interest in co-launching initiatives highlight the potential for a BRICS digital currency in the next five to ten years. As the BRICS summit approaches, the world awaits further updates on this significant endeavor.
BRICS leaders during a 2019 summit. (Source: Palacio do Planalto [CC BY 2.0])
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