- The member countries of the BRICS economic interests bloc have proposed having their reserve currency, which could have global economic implications, with Nigeria in the fray.
- Critics argue that the economic growth trajectories of BRICS have been uneven, and the group lacks clear unifying ideological principles or a shared vision for managing the global order.
- Some experts believe that the proposed impact of a BRICS reserve currency cannot be ignored in the world, while others stress the need to diversify Nigeria’s reserves and reduce dependence on the dollar.
The proposal by the member countries of the BRICS economic interests bloc, which comprises Brazil, Russia, India, China, and South Africa, to have its reserve currency, has been touted to have global economic implications, with Nigeria in the fray.
For the first time in the past 60 years, there is a realistic plausibility of the dollar being rivalled by another currency as a reserve. The US dollar has been the world’s primary reserve currency since the 1960s.
Under the Bretton Woods system, the dollar was pegged to gold, and most other currencies were pegged to the dollar. As a result of this arrangement, dollars were used as the main intervention currency and, hence, reserve currency.
Critics of the policy indicate to Nairametrics that the economic growth trajectories of BRICS have been so uneven, and the group lacks clear unifying ideological principles or a shared vision for managing the global order.
The Chief Executive of Anthill Concepts Limited, Dr Emeka Okengwu, shared a similar perspective. While acknowledging that the BRICS common currency idea is good for trade and that it would undermine the strength of the dollar if it works, he caveated that it’s not going to happen overnight. He cited an example of a common African currency being on the table for the past five years, but the continent has not been able to come to a convergence point.
Dr Felix Echekoba, a Lecturer at Nnamdi Azikiwe University, argued that because Nigeria/China trade has hit $26 billion, the development would be positive for Nigerian businesses as smoother transactions and trade will be enhanced.
He said the development would reduce the pressure on the local currency because the dollar will cease to be the middle currency to trade with China, which is a growing partner of Nigeria.
More perspectives from experts
The Chief Economist of PricewaterhouseCoopers (PwC), Dr Andrew Nevin, acknowledged that there is competition for the top reserve currency. He said people have said for a long time that the US dollar was declining as a reserve currency. He said:
- “The reality is over the last 20-25 years we haven’t seen a lot of people going away from it. The BRICS makes sense by trying to form a currency that can serve as a reserve currency but I wonder how the BRICS, which is five disparate countries, can do it together. We only have one reserve currency from multiple countries, which is the European Union, and that took decades to come together, and it’s a set of contiguous countries that have a common history. But the BRICS is trying to create a reserve currency between five different nations, with five different stages of development, five different stages of history, and different historical contexts, five different languages. It’s difficult to see how that will work in practice.
- “With respect to the dollar, it has been resilient as a reserve currency, but Americans can’t take this for granted in the world financial system. I think the United States needs to continue to have a robust economy. The reason it’s a reserve currency is that people have faith in it and they’re happy to hold on to the currency. So far, the United States has shown that through the crisis caused by Covid and the increase in interest rates, the U.S. dollar strengthened and continues to show great confidence in itself. But the U.S. can’t be complacent if they want to keep the status of a reserve currency. At the same time, it remains in a very strong position.”
Commenting on how Nigeria should view the emergence of a BRICS currency, Nevin said Nigeria should have a basket of reserve currencies. He said at the Central Bank level, for example, it should have dollars, euros, Japanese yen, and some British pounds.
- “But if there is a new reserve currency there is nothing wrong with that in the basket as well. The whole point of having these reserves in the Central Bank is to create stability and resilience, and of course, having diversified reserves is a great thing in that context. As to individual Nigerians, anybody who has wealth should have it in a diversified portfolio. As the old saying goes, you can’t have all your eggs in one basket,” he added.
Also commenting on the possible emergence of a BRICS reserve currency, the chief executive of Economic Associates, Dr Ayo Teriba, told Nairametrics that the fact that China is a successful producer and may soon become the biggest economy in the world, a successful trader, the biggest exporter in the world, and attracting investments does not necessarily put it in the position to have the yuan as a reserve currency.
He noted that the United States currently attracts $11 trillion of the $44 trillion global stock of foreign direct investments (FDI), which is a quarter of the global FDI, whereas China holds just above $2 trillion, which is about 5.5% of global FDI. He added that unless an economy can attract and retain money, its ability to back a reserve currency is suspect. “Unless you attract the finance, you may not have the muscle to back a reserve currency,” he said.
He stated that before analyzing any impact it might have on the Nigerian economy and investors, you have to analyze the feasibility of that proposal. He added that you have to analyze whether it will become a significant reserve currency. He questioned the strength of BRICS countries as hosts to global financial centres.
- “If you look at the regular ratings of global financial centres, what is the position of Beijing, or Shanghai? What is the rank of the biggest financial centre in China relative to the top ten or top twenty financial centres? All of that tells us how you will weigh when you jump on a scale. I don’t know about any of the other BRICS countries that have any significance in terms of the global ranking of stock markets. The biggest financial centres in the world are in the United States, London, Tokyo, Singapore, etc. The fact that you have a big economy, or you trade big does not mean you have financial clout. Countries choose where to produce, who to trade with, and where to keep their money. Many trades in the Euro area but keep their money in London or New York”, he said.
The world can’t afford to ignore BRICS’ planned reserve currency
But a professor of Accounting and Finance and the current Head of the Banking & Finance Department at Nasarawa State University, Joseph Uwaleke, said due to the investment and economic base of the participating countries, the proposed impact of a BRICS reserve currency cannot be ignored in the world. He said it will promote the economic growth of a large population economy.
- “Already records indicate that BRICS has surpassed the G7 on a global GDP basis. So the launch of a currency, which is a bold idea at this time, will create economic consequences, particularly global trade among the participating countries and other countries that may want to depend less on the U.S. dollar as a reserve currency.
- “Its impact on the dollar may suggest a need for the redistribution of global currency reserves and the demand for the U.S. dollar. Nigeria and its policymakers may need to be more aware of current global trends to consider options best for the country. Potential economic expansion and diversification amongst the host nations can’t be ruled out if the currency formulation is credible and done transparently,” he stated
What Nigerian forex traders think
Also, the president of the Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, emphasized the need to diversify Nigeria’s reserves and reduce dependence on the dollar, adding that the naira should become a convertible currency in the West African economy.
- “So, it is not surprising to see the emergence of other blocks agitating for an overhaul of the world payments systems. One of the positive implications of this development to our economy is the opportunity to diversify our reserves and reduce our dependence on the dollar. Our higher volatility to the payments terms of trade always puts us on unbalanced terms of payments with less revenue and higher debt burden,” Gwadebe said.
He stated that the current situation, where the naira is tradable in countries such as Sudan, Central Africa, Saudi Arabia, Ghana, and the Benin Republic, should be leveraged to ensure acceptance of Nigeria’s e-naira product launched by the CBN.
- “Right now, the naira is tradable in faraway Sudan, Central Africa, Saudi Arabia, Ghana and the Benin Republic.
- “We should leverage the platform of ACFTA to ensure acceptance of our e-naira product launched by the CBN,” he added.
The brics currency is dead on arrival and not feasible anytime soon – more propaganda than reality – or savvy investors will ditch the openly auditable dollar and it’s legal systems for the closed and secretive Russians or Chinese or the underdeveloped South Africans? Russia is even under sanctions as we speak and won’t recover economically for decades at least and won’t be welcome back openly for international trade as well for a while – so why would anyone take this serious?
@Japa queen, who (mis)informed that a BRICS currency is being muted as an “investment”?
The original 4 BRICS nations constitute 25% of the global economy (and 40% of the world’s population). A BRICS currency (if it ever comes to fruition) would simply be targeted at facilitating trade among the BRICS nations (and their friends and/or ‘client’ states) without resort to the Western-controlled dollar-denominated international trading system. In effect, less of their trans-national trade would be subjected to Western political considerations and/or restrictions.
The selection of reserve currencies is often influenced more by the availability of liquidity from the home capital markets and legal systems that support them, rather than trade.
When conducting international trade, many businesses prefer to transact in currencies like the dollar, euro, or sterling because if a dispute arises, they can seek resolution within the US, EU, UK, and receive support from the financial and legal institutions that are associated with that particular reserve currency.
I agree with @Japa Queen 100%.
The reality is that until another country can offer the most deepest and most liquid capital markets on earth, efficient legal systems that protect the rights of investors and creditors regardless of their nationality, origin, or status, and stable political institutions that conduct economic and political policy in a transparent and predictable manner, it is unrealistic to expect the US dollar will be replaced as the preferred global reserve currency.
In few words, you know what you are talking and that’s a fact.
The dollar is weaponized now. If you don’t accept America’s interest, then your economy will be crippled. They can freeze your external reserve anytime they want.
The Indians don’t agree with the Americans on many fronts, tell me has their economy been crippled?
The Americans know India is strategic to their geopolitical ambitions in the Indo Pacific, so don’t expect them to mess with India anytime soon.
Mr Yusuf talked about every country that doesn’t do accept the American interest being crippled, my point is why haven’t they crippled the Indians? Simply put that was a wrong notion. If India was their problem they have it figured out
The dollar is now an economic weapon which can be unleashed anytime
It’s naive to believe that China, Russia, or any other country in a similar position would not weaponize their currencies against their opponents. For instance, China has a history of bullying its neighboring countries that maintain friendly ties with Taiwan through its trade policies, while Russia has used its gas reserves as a weapon against Europe and other countries.
However, the main difference between the dollar and China’s trade balance or Russia’s gas reserves is that the United States is more predictable in demonstrating its red lines. In addition, the US often provides impartial due process in courts when an individual or state actor’s US-based assets are frozen. A good example of this is the recent situation in Afghanistan, where the US Treasury froze $3.5bn in foreign reserves after the Taliban regained control. Following litigation, the US unfroze the capital and transferred it to a new Swiss foundation tasked with returning the funds directly to the Afghan people in the form of aid. This approach ensures that the Taliban cannot use the capital to purchase weapons or finance their opium trade, while returning that capital to its rightful owners.
However, it’s doubtful that China, Russia, or any other country would follow similar due process with their political opponents.
Therefore, we should not fall for the desperate propaganda attempts by insecure autocrats in Russia and China, who seek to delegitimize the dollar and gain freer reign in oppressing their people and foreign enemies through financial means.
all these can be done,all we knows now,is the decline of the dollar,either by mistake or by design,here is no doubt,this character is an american white who aims to infulences nigerian opinion.
The dollar is under attack from many front, for the first time in 40 yrs,especially from those nations from the BRICS,WHO ARE the brazillians,russians,china and south african,even saudis arabia and tunisia,all of them are determined and have decided to topple the dollar and this have started early this year,although China and india are not aggresive in their aim to dethrone the dollar,with russia,they felt,they are being insulted by the american and the british.
We do have the MINT countries that are not active,which are mexico,indonesia,nigeria and tailand,all of them have population more than 100 million.now who said that u.s.a have attracted 11 trillion dollar out of 44 trillion.where is he getting his fact,whatever on what he saw and on what he will see.america is already in decline of which he will not get out of it,as he had made a lot of enemy ,and bullied some other countries.
Very soon other countries that were bullied or place under unjustied sanctions,.this is why the dollar is under attack from all frontThey are determined to get the americans to pay.Tunisia,Ghana and malaysian are not core members of the BRICS,they joined the brics to counter our global infulences,that are in the G7.
I Do NOT THINK NIGERIA WILL JOIN any alliance,EITHER POLITICAL OR ECONOMIC except the AFRICAN UNION,maybe China or south africa and ethiopia.
@Anodebenze The person you refer to as the “white American” na omo Yoruba. Even know that shouldn’t matter…
Our corrupt officials have a tendency to convert their assets into dollars for a reason.
When things get tough, I know which currency I want to hold, and it’s certainly not the Chinese Yuan or the Russian Ruble. Despite the presence of American hegemony, there is no credible alternative to the stability and efficiency of the American capital markets, Delaware general corporation law, and the credibility of the US Fed and the dollar.
Sensible international investors and corporations will not hold currencies from the BRICS until they actually establish institutions that can provide the same level of stability and efficiency as the United States.
Keep this in mind and find peace.
This is a welcomed development, we should look deeply on how Nigeria should leverage this opportunity to it’s favour
@anadobenze. I agree with you 100. Countries are tired of being bullied anymore. Big countries are already joining the alliance. This is the beginning of multi polar world.
Then why write like a traitor ?read obasanjo writing or Mohammed lai statementThen you Knows who they are,they speaks and writes through their soul,the yorubas are the most proud African in our continent.a yoruba man does not take a prisoner in his principle.they are the most honest people in our planet,There is no nigerian,that can write the way you do
Then why write as an or a yoruba man.it is full of prejudice and faulty reasoning, are you being be paid ?.when i write,i sometimes i targets my audience to makes clarification..people in uganda,south africa,ruwanda and in america read this nigerian website,when those outside nigeria,who read a particular article,they act and pushes themselves and act through their soul for their betterment.nobody is decieved and what a man that sow she will reapif you doubt what iam saying,go and checks for yourself