Padma Rao Sundarji | New currency for Brics: How feasible will it be?

All South Asians are used to futuristic announcements about gigantic highways and bridges to link us cultural cousins to one another; all our governments make them periodically and with fanfare. What better than a Big-Ticket project to ensure bookings for conference centres, biz class cabins, five-star hotels, and -- headline fonts upward of 18 points, day after day?

The birth in 1985 of the South Asian Association for Regional Cooperation (Saarc) was intended to be one such upper. But four

decades on, Saarc paints a sorry picture.

Pakistan-sponsored aggression and terrorism against India go way back in history. Consequently, any grouping that includes South Asia’s two largest neighbours could have only been doomed from the start.

Then came the 26/11 attacks by the ISI-backed Pakistani terrorists upon Mumbai and Saarc slid into a terminal coma.

Meanwhile, though these are yet to attain major international visibility and support, India moved on to new regional groups with equally lengthy names like the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (Bimstec). And Saarc? It hasn’t met for nine years and remains, as the acronym suggests, entombed in a stone coffin.

But are Brazil, Russia, India, China and South Africa (Brics) doomed to a similar fate? Or, will the grouping of the world’s biggest developing economies take on the world?

Recent remarks by Russian leaders, including its foreign minister Sergei Lavrov, suggest that Brics intends to try.

On March 30, Alexander Babakov, vice-president of Russia’s lower house, announced that Brics will ditch the US dollar and float its own currency.

So far, the other Brics members have not confirmed Mr Babokov’s claim, which came days ahead of a meeting with Pretoria officials in Moscow to discuss the Brics summit due in South Africa in August this year.

The US dollar is mighty. Nearly 90 per cent of international trade is done in it, 60 per cent of global foreign exchange reserves are held in it. Still, experts see nothing unexpected in the idea of a new Brics currency.

“The US dollar has an outsized role, relative to the 24 per cent of world GDP the US commands,” said Miami-based financial John Quelch on US-based channel i24TV. “The GDP of the Brics nations combined is about 25 per cent. So, it’s not surprising that Brics are saying, hey… why should our macro-economic policies and exchange rates be at the mercy of the US dollar?”

Quelch points to the emergence of the euro, which was initially restricted to intra-trading within the European Union, but soon emerged as a strong global contender. So also, a Brics currency could, at first, serve trade between the Brics member-states.

There are many reasons for mulling a new currency.

Russia is under heavy sanctions due to its aggression in Ukraine and remains expunged from the SWIFT banking system.

Many emerging economies with external debt are struggling with the recent hike in US dollar interest rates.

Brics, whose joint share in worldwide GDP overtook even that of the G-7 in 2020, isn’t the first entity to come up with the idea.

Asean recently discussed dropping various global currencies to trade in local money instead. Brazil and other states will conduct bilateral trade with China with the yuan. India has just permitted 18 trading partner-countries to settle payments in Indian rupees.

However, a Brics common currency comes with heavy baggage. China’s economy dominates Brics, it alone constitutes 17.6 per cent of global GDP. At seven per cent, India is at a distant second place. “Any brand new currency would have no inherent value on its own, no demand and, in turn, no supply, since nobody would have started using it yet,” says analyst C. Venkatesh. “Therefore, such an infant currency would have to be initially linked with an existing one of a big, strong economy. Within Brics, that would be China.”

No wonder, then, that India has said little about a common Brics currency so far.

India’s former UN ambassador and key negotiator during crucial years at the World Trade Organisation, Asoke Mukerji, points out that keenness to drop the US dollar and the euro is largely due to unilateral Western economic sanctions on countries like Russia and Iran, and their “third-party” impact on other countries still conducting trade in those two powerful currencies.

However, the 67-year-old career diplomat stresses that trading in local currencies like the yuan or rouble would also “limit the canvas” of international trade, most of all with the United States. “No company would want to jeopardise that,” he says.

The catch for India lies in the fact that fellow Brics member China is not merely a benign trading partner. It is an aggressive, contentious neighbour which lays claims to Indian territory.

With the exception of Russia (which finalised a border agreement with China in 1991), none of the other Brics countries share an international border with the Asian giant. None have gone to war against the PLA.

And complicating this already dangerous face-off along the length of the 3,700-km shared border is the ceding of Indian territory to China by none other than terror sponsor and China’s close ally Pakistan.

As Mr Babakov was floating his thoughts on Brics in Moscow late last month, several near-simultaneous events in India, China and mutual neighbour Bhutan laid bare the bristling friction in South Asia yet again.

Bhutan’s PM caused ripples in India through a statement on Doklam, a pasture wedged between the three neighbours where China and India had stared each other down in 2017. A week later, border security dominated talks held by Bhutan King Jigme Wangchuk in New Delhi. And all the while, Beijing kept up its intentionally provocative running commentary by “renaming” various parts of India’s Arunachal Pradesh, which China claims as “Southern Tibet” and along whose borders it has amassed massive infrastructure and military presence.

Saarc collapsed because of the India-Pakistan face-off. It’s hardly likely then that India will mutely accept economic hegemony and a currency based on China’s yuan merely for the sake of Brics brotherhood.

Saarc loyalists argue that the organisation lives on through “soft power” initiatives -- a university here, a library there.

Brics may well survive in a similar fashion. But when it comes to hard-nosed decisions, such as on currency, India will not allow its own to be rubbed to the ground.

Least of all by China.