BRICS Moves Forward on a Common Currency for Cross-Border

The BRICS group of nations is moving forward with plans for a shared currency for internal trade, potentially launching as early as next year. Last week, the Institute for Economic Strategies of the Russian Academy of Sciences announced a working prototype of a trade currency known as the Unit, structured to be backed by 60% of BRICS national currencies and 40% by physical gold.

The national currency portion is equally weighted among the Brazilian real, Chinese yuan, Indian rupee, Russian ruble, and South African rand, representing the bloc’s five founding members. Now expanded to include 11 nations, BRICS collectively accounts for more than a third of global GDP.

The organization has for some time been exploring the possibility of a payments system that operates independently of the U.S. dollar. The Unit is a key part of the BRICS Cross-Border Payments Initiative (BCBPI), designed as an industry-focused alternative to the Swift cross-border network, which currently functions under U.S. oversight. The group also plans to establish a parallel messaging infrastructure to replace the Swift system used for interbank communication.

The Unit is seen as a crucial step toward reshaping trade relationships among emerging and developing nations. The goal is to begin testing transactions next year involving Brazil, China, and Russia, to refine the efficiency and security of the new currency before its full launch.

Kinks to Iron Out

Despite progress toward creating a formal currency, the initiative still has many kinks that need to be ironed out. The BCBPI was first proposed in 2015, but issues like payment mechanisms, cost-sharing arrangements, and security protocols have slowed the development of a functional cross-border payments framework.

“There isn’t really all that much trade between this group of countries,” said Hugh Thomas, Lead Analyst, Commercial & Enterprise at Javelin Strategy & Research. “The main things they have in common are fast developing economies, save maybe Russia, and a general indifference to the U.S.”

Friendly Competitors

There are also concerns that these economies often compete with one another, especially China and India. This will make collaboration on a common currency inherently challenging.

“You’re talking here about harmonizing two countries’ monetary policies that tend to be geared to drive advantage over one another,” Thomas said. “My expectation is that they will continue to build spot solutions where they can find common cause on use cases and a willing audience, but business’s need for transparent systems in countries with independent regulators and a clear rule of law will keep most big flows on Swift.”

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Tags: BRICSChinaCross-BorderCurrencyIndiaRussia