August 22, 2023
Good morning. In today’s either/view, we discuss whether a BRICS currency can dethrone the US dollar. We also look at the dress code for teachers in Assam, among other news.
📰 FEATURE STORY
Can a BRICS currency dethrone the US dollar?
Among the many geopolitical blocs in the world, BRICS has stood the test of time. However, quite a bit of time and attention has been devoted to questioning its relevance over the past few years. Geopolitical alliances have shifted post-pandemic and in the wake of the Russian invasion of Ukraine. We’ve got the 15th BRICS Summit, beginning in Johannesburg, where member countries will meet to discuss several issues.
One item on the agenda is the prospect of a BRICS currency. The question posed by some countries is, why not have an alternative to the US dollar? With countries like China and Russia part of the bloc, they have their reasons for wanting an alternative currency, given their relationships with the United States. But is a BRICS currency really feasible? Can it dethrone the dollar?
Context
The BRICS countries, i.e. Brazil, Russia, India, China, and South Africa, are staking their claim in a more complex, perhaps realigned geopolitical landscape. Broadly speaking, the Global South – Africa, Asia, and Latin America – are engaging in what’s being called active nonalignment. They see the superpowers involved in a conflict for their self-interests, so the Global South doesn’t necessarily take sides.
These countries are now more emboldened since they’re in a much stronger position than decades ago. For example, the GDP purchasing power of the BRICS countries is now more than that of the G7. With a better economic base, these countries have more clout on the world stage. The result is not having to rely on larger developed nations for things like trade to a certain extent.
As far as the Russian invasion of Ukraine is concerned, the position of many countries in the Global South is to not support Russia or NATO and the Western allies. The furthest they’ll go is voting to condemn Russia’s actions but not support economic or diplomatic sanctions.
We’ve come a long way since the Bretton Woods meeting post World War II, where the dollar was anointed as the world’s principal reserve currency. Decades later, the ground is shifting.
Perhaps the first concrete signs of a de-dollarisation movement came when Saudi Arabia signed a military cooperation agreement with Russia. The US would no longer be the protector of the Saudi kingdom. At this year’s World Economic Forum (WEF), Saudi Arabia’s Finance Minister Mohammed Al-Jadaan said the country was open to trading in other currencies along with the US dollar.
At last year’s BRICS Summit, Russian President Vladamir Putin said the bloc was working on an “international reserve currency”. If it did come to fruition, speculation is that it would be backed by gold. That would be historic.
A couple of important points to note here. First, central banks are stockpiling gold reserves. The IMF Gold Council said the first two months of this year saw the largest purchase of gold from Singapore, Turkey, Russia, China, and India. These countries anticipate some sort of change on the horizon. Second, the IMF Currency Composition of Official Foreign Exchange Reserves (COFER) said there was a declining share of the US dollar held by central banks. Something’s up.
Some have envisioned a day when the BRICS countries become self-sufficient and trade among themselves without relying on the US dollar. China certainly thinks so. Its extensive Belt and Road Initiative (BRI) is the proof of concept. So, there’s a lot of noise being made about a BRICS currency that would replace the US dollar. It might even come to pass. But can it replace the US dollar?
VIEW: Don’t bet against BRICS
The global geopolitical landscape has shifted, and BRICS will likely play a vital role in the future, and any talk of their demise is premature. While chatter about a BRICS currency isn’t new, current discussions seem to be gaining momentum. Sure, some practical questions remain unanswered, but this hypothetical new currency could usurp or shake things up, at the very least.
If the countries did use this new currency, it would help them go one step further than what they do now to sidestep the dollar – that is, bilateral trade agreements. How realistic is it for BRICS countries to only use a new currency for trade? The answer is, quite realistic. In 2022, BRICS had a trade surplus of $387 billion. A hypothetical new currency would be enough to finance their import bills. Such a new currency union would be among countries that don’t share territorial borders. So member countries could make a wide variety of goods. It’s something the Eurozone has struggled with, considering it has a $476 billion trade deficit.
Given that the BRICS countries have grown economically over the past decade, the emergence of a new currency wouldn’t mean they have to trade only with each other. Countries outside the bloc would have no problem doing business with BRICS. This would allow goods to bypass trade restrictions, which often take the form of tariffs.
For a new currency to work, BRICS would need some assets to be kept safe when not in use. If the plan to back the new currency with gold and other intrinsic metals is true, then the BRICS assets, denominated by the new currency, would become attractive to other investors. It would give them the diversifying properties of gold and the interest-bearing properties of bonds.
COUNTERVIEW: Nothing more than a pipe dream
Whether countries like it or not, the dollar is the dominant currency. It’s likely to remain so. Per the Society for Worldwide Interbank Financial Transactions, the US dollar is used for 42% of currency transactions. The Euro comes up to 32%. The Chinese yuan is 2%, and its foreign usage hasn’t extended broadly within Asia. With reports of the bloc possibly expanding, the likelihood of a new currency becomes less likely.
Let’s assume such a currency does come to fruition. There’ll have to be a single central bank, as South African Reserve Bank Governor Lesetja Kganyago has stated. It’s hard to see how China wouldn’t exert itself here and lobby hard to have this central bank’s headquarters in Beijing, for example. Will the other countries like that? Would India? Previous attempts at a new reserve currency, like the one from the Organization of the Petroleum Exporting Countries (OPEC), haven’t materialised.
How would BRICS form a new currency anyway? It would be akin to the introduction of the Euro adopted by 11 member states of the European Union in 1999. However, there’s no indication that any of the BRICS countries would give up their local currency. For example, India wants cheap Russian oil and coal in rupees. Also, reports suggest India won’t endorse any common BRICS currency.
Previous attempts at de-dollarisation at the multilateral and bilateral levels have failed. In 2014, BRICS launched the New Development Bank, spearheaded by China. Located in Shanghai, the goal was to provide financing in the local currency of a country. It began lending aggressively with loans totalling $30 billion in 2022. However, it relied on the dollar to provide capital to developing economies. Two-thirds of its own borrowings were dollar-dominated.
Reference Links:
- How long will the dollar last as the world’s default currency? The BRICS nations are gathering in South Africa this August with it on the agenda – Fortune
- The Global South is forging a new foreign policy in the face of war in Ukraine, China-US tensions: Active nonalignment – The Conversation
- De-dollarisation: shifting power between the US and BRICS – The Interpreter
- A BRICS Currency Could Shake the Dollar’s Dominance – Foreign Policy
- Can BRICS De-dollarize the Global Financial System? – Cambridge University Press
- BRICS raging against the US dollar is an exercise in futility – Livemint
What is your opinion on this?
(Only subscribers can participate in polls)
a) A BRICS currency could dethrone the US dollar.
b) A BRICS currency won’t dethrone the US dollar.
🕵️ BEYOND ECHO CHAMBERS
For the Right:
The Data Protection Board is problematic because all its members will be appointed by the Union government
For the Left:
Who is a Hindu: Why The Debate on ‘Hindu Identity’ Needs to Settle Now
🇮🇳 STATE OF THE STATES
Highest motorable road (Ladakh) – The Border Roads Organisation (BRO) is creating the ‘Likaru-Mig La-Fukche’ road in Ladakh’s Demchok sector. This road will set a new record as the world’s highest motorable road at around 19,400 feet, surpassing Umling La Pass. Launched on India’s 77th Independence Day, this project is essential for national security.
Why it matters: The ‘Likaru-Mig La-Fukche’ road links vital military posts in the sensitive Fukche area, just three kilometres from the disputed Line of Actual Control (LAC). It’ll enhance communication and access to remote military bases. In a remarkable move, a women-led unit of the BRO, led by Colonel Ponung Doming, is overseeing the project.
Water supply hit (Telangana) – Crops in Telangana and Andhra Pradesh face severe damage, especially near the Nagarjuna Sagar Dam, due to insufficient rainfall in the upper catchment areas of the Krishna Basin in Maharashtra and Karnataka. This year marks the first instance since 2018 that the Srisailam reservoir isn’t in a surplus. Both Srisailam and Nagarjuna Sagar reservoirs are now below half their capacity.
Why it matters: Water supply for cultivated lands (ayacut) comes from irrigation systems linked to Srisailam and Jurala backwaters. Telangana uses the Kalwakurthy lift, while Andhra Pradesh employs Pothireddypadu, Kurnool-Cuddappah Canal, and Handri-Neeva systems. In Telangana, Bhima, Nettempadu, and Koilsagar lifts use Jurala Project water. Andhra Pradesh’s systems like Handri-Neeva, Srisailam Right Bank Canal, and more rely on the Srisailam reservoir.
Online OPD booking (West Bengal) – The health department plans to introduce an online system for booking outpatient department (OPD) appointments in state-run hospitals to ease long queues and waiting times. Around 150 hospitals, including medical colleges, will adopt this QR code-enabled system, allowing patients to book appointments through mobile phones, enhancing convenience and efficiency.
Why it matters: The Bengal health department tested a successful pilot project for an online OPD ticket-booking system initiated at hospitals like SSKM in Kolkata. While the current offline ticketing system will persist, patients with smartphones can now scan QR codes placed around hospitals to access a web page for registration. They’ll have to select hospitals, departments, and doctors. The system will later extend to rural and small hospitals.
100% solar power (Goa) – Panaji aims to transform into a fully solar-powered city within two years, per the state government’s plan. The focus lies on installing solar rooftop systems and spreading consumer awareness. The initiative targets 81 housing complexes for solar photovoltaic technology adoption, aiming for 100% renewable energy reliance. This approach will cater to the city’s growing electricity needs while promoting sustainable development.
Why it matters: Panaji is strategically divided into zones to assess rooftop space in different building types. The state’s plan aims for 34.5 MW solar rooftop capacity, expandable with city growth. They’ll electrify all passenger transport with 100% EVs and target an additional 74 MW via solar parks or innovation. The current total solar capacity is 0.5 MW. However, 15 solar trees will be installed at identified sites to generate power, addressing the city’s 128 MW daily electricity demand and 22 MW peak load through renewables.
Dress code for teachers (Assam) – Higher education teachers received a dress code directive from the state government, urging them to avoid casual wear like T-shirts, jeans, and leggings while on duty. The move follows concerns about such attire not being well-received by the public. Male teachers were advised to wear formal shirts and trousers or traditional dhoti-pyjama, while female teachers are encouraged to opt for decent salwar suits, sarees, mekhela-chador, or other traditional outfits.
Why it matters: The notification requires both male and female teachers to wear clean, modest, and decent attire in subtle colours, avoiding flashy or casual clothes. Reactions to the dress code are mixed; some traditionalists support it, while others suggest the government clarify the definitions of decency and indecency and regulate clothing sales accordingly.
🔢 KEY NUMBER
$800.9 billion – From January to June 2023, India’s total foreign trade amounted to $800.9 billion, showing a 2.5% decrease compared to the same period in the previous year.