The 15th BRICS summit wrapped up in Johannesburg on August 24, and the implications for Africa could be significant in the coming years.
Written by Kola Sidibe
Photo: XV BRICS Summit Open Plenary Session at the Sandton Convention Centre (Johannesburg, South Africa) (Government ZA/ Flickr)
The bloc, composed of five major emerging nations – Brazil, Russia, India, China, and South Africa – represents 40% of the global population Its invitation to six new countries to join – Iran, Argentina, Egypt, Saudi Arabia, the United Arab Emirates, and Ethiopia – is only set to give it more weight in the coming years. BRICS has aimed to provide a counterbalance to the prevailing international order, which remains heavily influenced by the United States and the Western world. Its new members are slated to become part of the organization on January 1, 2024.
On the issue of counterbalancing power, the summit discussed establishing a new shared currency to eventually challenge the dominance of the US dollar. The BRICS nations have been drawn to the idea of dethroning the greenback, because they perceive it as a tool wielded by the United States and the West, particularly evident in the wake of the sanctions imposed on Russia after the Ukrainian invasion.
The BRICS’ objective, then, is to free themselves from the dollar's grip, thereby depriving the United States of one of its primary geopolitical levers. While the dollar has played a diminishing role in international trade of late, it still accounts for a substantial 58% of global foreign exchange reserves, making short-term abandonment challenging.
So, could BRICS create its own unique, single currency akin to the euro? The short answer: Probably not anytime soon. It would necessitate harmonizing vastly different monetary systems, among other major challenges, and economists argue that such a step is unrealistic at this stage.
What does appear to be emerging instead is a surge in transactions conducted in local currencies. Several countries have already taken this step, such as the United Arab Emirates, which has agreed to accept Indian rupees as payment for its oil purchases instead of the dollar. It will be critical to monitor how such arrangements evolve and proliferate in the coming years, as they could represent an early signal of countries’ openness to alternative non-dollar systems.
Photo: XV BRICS Summit Open Plenary Session at the Sandton Convention Centre (Johannesburg, South Africa) (Government ZA/ Flickr)
The impact of this opening and the (eventual) potential creation of a new BRICS common currency – or the adoption of an existing BRICS currency as a reserve – on Africa would hinge on various factors, including Africa's response and engagement in the process. Here are potential consequences:
Diversification of Foreign Reserves: If a new BRICS common currency gains significance in international trade, African countries might consider diversifying their foreign reserves, reducing their reliance on the US dollar to guard against dollar fluctuations.
Reduced Dollar Dependency: Many African economies, like others globally, rely heavily on the US dollar for international transactions. An alternative could mitigate risks associated with dollar, euro, and yuan exchange rate fluctuations, bolstering Africa's economic stability.
Trade Opportunities: Successful promotion and use of a new common currency by the BRICS could unlock fresh trade opportunities for African nations with BRICS members. This could incentivize increased trade in this common currency.
Harmonization Challenges: Implementing a new BRICS common currency in Africa would pose challenges due to diverse economic and monetary systems across African nations, making a seamless transition difficult. We have seen previous common currency efforts stall on the continent, like the Eco in the ECOWAS region and the long-discussed but yet-to-be-realized Afro.
Risk of Trade Imbalances: If Africa increases trade with BRICS using a new common currency, there could be risks of trade imbalances if African countries fail to maintain equitable trade relationships with BRICS nations.
Geopolitical Influence: An alternative to the dollar could reduce the economic and financial influence of the United States in Africa, potentially affecting political and economic relations between Africa and the United States.
Ultimately, the actual impact on Africa would depend on how African countries respond to these developments and their ability to adapt to shifts in the global financial landscape. As well, BRICS countries represent vastly different interests and often have competing priorities. It would be essential for them to harmonize at a more fundamental, philosophical level before embarking on any kind of financial integration.
What do you think: Does BRICS represent a viable counterweight to the United States and Western countries? And what other changes – financial or otherwise – do you think we might see in the coming years?