It is no secret that the development potential of the global financial system has exhausted itself, and currently the world economy is experiencing a powerful structural crisis. Given the various features of the development of this crisis, including irreconcilable geopolitical differences of key participants, various “covid” and other factors, the probability of overcoming this crisis through reform or, as they say in the West, through a “soft landing” is rapidly decreasing.
It is significant that the overwhelming majority of Western experts believe that the current crisis has a cyclical nature, and somehow the global economy will soon return to growth. At the same time, questions from the category of “what to do with industrial inflation, which in recent years has increased in developed countries from a couple of percent to 20% or more,” or “how to restore supply chains in the face of the destruction of WTO principles during the so-called sanctions,” are carefully ignored and remain unanswered.
Until recently, the beneficiaries of the global financial system were multinational corporations and elites in the United States of America. Today, the influence of the US dollar, as well as US policy in the world as a whole, has significantly weakened and continues to decline. The elites of different countries, realizing the dubious prospects of the still existing old model of the global economy, are trying with varying success to reduce the future negative effects on the economies of their countries.
For a long time, the unification of several countries into the BRICS bloc (BRICS) was perceived skeptically by Western experts, the potential of the organization was assessed as low, and its real significance was compared by them with the CIS union, which, in turn, largely showed its inefficiency and uselessness at a distance.
BRICS was founded in 2006, the name of the organization is formed by the first letters of the names of the participating countries (BRICS – Brazil, Russia, India, China, South Africa). Initially, the organization was called BRIC, since South Africa joined the organization only in 2010.
On May 19, 2022, the BRICS participants agreed on the possibility of expanding the organization. After that, within just a few months, a number of countries applied to join the organization or voiced a desire to do so in the near future. Among such countries are Argentina, Iran, Algeria, Turkey, Egypt, Saudi Arabia, Cambodia, Ethiopia, Kazakhstan, Malaysia, Senegal, Thailand, Uzbekistan, Indonesia, Nigeria and others.
Today, the BRICS (excluding the countries that will join in the near future) is:
– 42.1% of the world’s population (3 billion people)
– 26.7% of the global land area (39.7 million square kilometers)
– 21.8% of global GDP ($16.9 trillion)
According to economists, by 2030, BRICS will account for more than 60% of the world’s population and almost 50% of global GDP, and this is not counting the new promising members of the organization who will join in the near future. The active integration processes taking place in the organization leave no doubt about its prospects and importance for the future of the world economy.
Alternative reserve currency
In the situation of a tough course of confrontation, which the collective West has chosen in an attempt to maintain its economic dominance, economic sovereignty acquires special value for countries striving to be independent. There is no doubt that today the BRICS countries are in a tough confrontation with Western countries. At the same time, the goal of the BRICS is obviously to reformat the global economy on more favorable/fair terms.
Full integration within the BRICS and competition with the West is impossible in a situation in which the BRICS countries continue to depend on the US dollar. The process of de-dollarization has already begun and is gradually intensifying, the BRICS countries are reducing the share of the US dollar in their reserves in favor of their own currencies, as well as increasing the share of trade turnover in their currencies. Nevertheless, to protect against the risks associated with the use of the US dollar and the Euro, a full-fledged reserve currency is needed within the organization. Of course, such a project requires enormous resources (financial, human and time), and today this project is already in development.
In 2014, a New Development Bank was created under the auspices of the BRICS, which in the future is likely to become an analogue of the Fed and the IMF. The bank’s goal is to mobilize resources for infrastructure and sustainable development projects in the BRICS countries. According to information from various sources, the bank is currently actively involved in the development of the concept of a new reserve currency.
As of today, two main scenarios for the introduction of a reserve currency are being considered within the framework of BRICS:
– Using the currency of one of the countries as a reserve. There are certain difficulties in this scenario. Given the economic potential of the participating countries, it can be assumed that the Chinese yuan is best suited for the role of a reserve currency. However, this still causes a number of disagreements within the bloc, and China itself is in no hurry with such large-scale reforms that will affect its national currency.
– Creation of a supranational reserve currency. This option is more realistic. In practice, similar projects have already been implemented, for example, the ECU currency (European Economic Community / European Union, 1979-1991) or the transferable ruble within the framework of the Council for Mutual Economic Assistance (COMECON, 1949-1991), which ceased to exist with the destruction of the USSR. Currently, there are several existing examples of such projects. These are, for example, such quasi-currencies as the Sucre, used by Latin American and Caribbean countries, or as the so-called “Special Drawing Rights” (SDR, Special Drawing Rights), which are used by the IMF.
The project of creating a supranational reserve currency BRICS involves the need to solve a number of complex tasks, in particular:
– the issue of determining and maintaining the exchange rates of the participating countries to each other. In principle, the solution to this problem may lie, for example, in the plane of GDP ratios, foreign trade balances, or in relation to the gold reserves of countries, which is most likely, given that in recent years BRICS countries have been actively buying gold on the world market
– the issue of administration of the new common currency, including decentralization, issuance, provision of liquidity and investment and credit mechanisms
The project name of the new currency, “R5”, has leaked into the public space. Coincidentally, the names of the currencies of all the BRICS countries begin with the letter R: real, rouble, rupee, renminbi (the official name of the currency of the People’s Republic of China, translated as “people’s money”) and rand.
Most likely, initially the currency will be created in the same quasi-format as the “special drawing rights”, that is, in non-cash form and will be used as an addition to settlements in national currencies. As the parameters of foreign trade balances between countries become more precise, an increasing number of transactions will fall on the new reserve currency, and in the future, paper issue is not excluded. It is possible, given current trends, that the new currency will appear in the CBDC format.
Another important function that the new reserve currency can assume almost from the very beginning of its existence is the allocation of reserves of the participating countries. Naturally, against the background of a number of negative precedents of the current crisis, guarantees should be provided for the safety of reserves as opposed to the manifested toxicity of the US dollar, Euro, Swiss franc and pound sterling, which have shown their political motivation and, as a result, unreliability.
Given the enormous potential for de-dollarization of the global economy, the new reserve currency of the BRICS block has a huge prospect. If successful with the solution of all technical and political issues, as well as timely implementation, there is no doubt that the new currency will replace the US dollar in the future, and the most popular in the cryptocurrency sphere may be a stablecoin tied to this new currency. There is not much time left to wait, according to experts, the appearance of a new currency should be expected in 2024.
Source: BRICS website