This article is part of the BRICS thought leadership series, published by APRI in collaboration with the University of Johannesburg. It explores key themes from the 16th BRICS Summit and the group's broader initiatives. The series is edited by Ada Mare, Bhaso Ndzendze, Serwah Prempeh.
Introduction
The BRICS countries – Brazil, Russia, India, China and South Africa – represent more than 40% of the global population and nearly 24% of the global GDP (Zharikov, 2023). In the last twenty years, they have undergone substantial economic expansion and acquired growing political clout, prompting talks about greater economic integration (Irwin, 2024). As part of the implementation of a unified currency among these countries, their national currencies would be replaced with a single monetary unit (Bharat, Gautam & Rastogi, 2024), with the aim of bolstering the overall economic stability of these nations, streamlining trade and investment, and mitigating fluctuations in exchange rates. Although the concept has potential benefits, it faces challenges, such as the need to create a new financial system during a time of political and economic conflicts. The implementation of the currency would therefore be ambitious and intricate compared to other suggestions aimed at promoting integration among the BRICS countries.
Establishing a unified currency among the BRICS nations is not just an economic issue. It also has significant geopolitical implications (Bharat et al., 2024). Implementing such a currency could change the allocation of worldwide financial power, challenging the current dominance of traditional economic centres like the US and the EU (Ioannou et al., 2023). This proposed adjustment adds another layer of strategic importance to the discussion, making it a topic of significant interest for politicians, economists and foreign relations experts. This assessment therefore comes at a crucial juncture, examining the potential economic, political and geopolitical implications of a unified BRICS currency which could significantly alter global trade dynamics, financial stability and the balance of power in international monetary systems. This paper discusses the benefits and drawbacks of adopting a common currency among the BRICS states.
A key research gap in the BRICS currency conundrum lies in the lack of comprehensive analysis of the potential economic, geopolitical and financial implications of a unified monetary system within a bloc of countries with varying economic structures, political agendas and degrees of financial integration. Therefore, the paper examines the historical context of the BRICS economies, explores the theoretical foundations of monetary unions and assesses case studies from other regions that have pursued similar integration initiatives. Thus the paper presents an unbiased perspective on the viability of adopting a single currency as a means to enhance economic integration among the BRICS countries.
Theoretical framework
The analysis of the feasibility and consequences of a unified currency among the BRICS countries is based on the theoretical framework of Optimal Currency Areas (OCA) introduced by economist Robert Mundell (Singh, 2023). This theory delineates the requirements for multiple nations to derive advantages from a common currency, encompassing the ability for labour and capital to move freely, the capacity for prices and wages to adjust easily and the presence of comparable business cycles among the participating countries.
The ability of labour and capital to move freely within the BRICS countries is constrained by significant geographical distances, distinct regulatory frameworks and varying degrees of infrastructure development (Zharikov, 2023). Furthermore, the economic cycles of these countries do not exhibit strong synchronicity, as each nation undergoes distinct growth rates, inflation levels and economic shocks (Irwin, 2024). The OCA theory highlights the significance of fiscal integration and political coherence, both of which are currently absent among BRICS countries due to their unique political systems and governance structures (Singh, 2023). By utilising this theoretical framework, we may enhance our comprehension of the economic and institutional modifications necessary for a smooth transition to a unified currency among the BRICS nations.
Review and analysis of literature
Countries such as Brazil and South Africa, characterised by varied but relatively small economies, may gain from reduced exchange rate volatility and enhanced trade stability (Bharat et al., 2024). Nonetheless, they may encounter inflationary risks if economic circumstances among member states diverge. Amidst stringent Western sanctions, Russia perceives a unified BRICS currency as a possible means to circumvent the dollar-centric financial system. Yet, this may exacerbate its isolation from wider global markets (Zharikov, 2023). India exercises caution, as its expanding economy is interconnected with both Western and BRICS countries, and it may opt to preserve monetary flexibility (Harriss, 2020). China, due to its substantial economic stature, stands to gain the most from such a system, but it risks estranging other members if it asserts excessive influence over the currency's administration (Roberts, 2022). Although a unified BRICS currency could provide benefits such as increased global influence and monetary autonomy, varying economic circumstances and geopolitical tensions among member states hinder the practicality of this initiative. Each nation must evaluate these advantages and disadvantages prior to committing to a collective monetary future.
The concept of a unified currency
This concept seeks to improve economic integration, simplify financial operations and strengthen the overall economic stability of the BRICS bloc. To comprehend this notion, one must analyse the operational mechanisms, necessary institutional frameworks and probable ramifications for the global financial system (Pierret and Howarth, 2023). The implementation of a unified currency would entail crucial components. First and foremost, it would be necessary to establish a synchronisation of monetary policies among BRICS nations, encompassing the establishment of uniform interest rates, inflation objectives and exchange rate strategies (Bharat et al., 2024). A governing body, similar to the European Central Bank in the Eurozone, would supervise and execute these policies (Irwin, 2024). Moreover, the integration of fiscal policy would be imperative, encompassing the implementation of uniform budgetary regulations and the establishment of procedures for fiscal transfers among member states to tackle economic inequalities. Furthermore, the centralised management of the unified currency issue would be overseen by a central agency, which would regulate its supply in order to ensure price stability (Cheng, 2023). Ultimately, a key objective would be to eradicate variations in exchange rates across BRICS nations, so promoting seamless trade and investment activities while diminishing the risks and expenses involved with currency conversion.
The impact of a unified BRICS currency on the worldwide financial system will likely be substantial. By eliminating the risk of fluctuating exchange rates and reducing the costs associated with transactions, the implementation of a common currency inside the bloc might facilitate commerce and investment (Lukonga, 2023). This would result in the creation of a more integrated and competitive economic area, which would in turn attract higher levels of foreign direct investment. Furthermore, the creation of such a currency has the potential to alter the balance of global financial power by undermining the supremacy of the US dollar and the euro (Lukonga, 2023). This would result in an enhanced influence of BRICS states in global financial markets and international economic policy deliberations. Moreover, the adoption of a single currency would probably result in increased consolidation of financial markets within the BRICS alliance, facilitating the movement of capital, strengthening the availability of funding and promoting stronger economic expansion among member nations.
The historical context of BRICS economies
The BRICS nations have unique historical and economic paths that have influenced their current economic situations. Brazil, the most prominent economy in South America, has a historical narrative characterised by colonisation, a shift towards a republic and episodes of economic instability (Cardoso and Faletto, 2024). The region’s economy depends on agricultural, mining and energy resources. Brazil's ascent to the status of a significant global economy can be attributed to the identification of extensive oil reserves and agribusiness growth. Nevertheless, the country has encountered political instability, corruption and income disparity, which have hindered its progress (Cardoso and Faletto, 2024).
Russia's economic history is defined by its transition from the Tsarist Empire to the Soviet Union and, ultimately, to the Russian Federation (Zhuravskaya, Guriev & Markevich, 2024). The Soviet era was characterised by a system of centralised economic planning and the process of industrialisation, which was later followed by the implementation of economic liberalisation and privatisation in the 1990s (Zhuravskaya et al., 2024). Russia's economy relies primarily on its abundant natural resources, namely oil and gas, which have positioned it as a dominant player in worldwide energy markets (Bricout, Slade, Staffell & Halttunen, 2022).
India's economic trajectory is shaped by its history of colonisation, the economic policies implemented following independence in 1947 and its recent period of fast growth (Harriss, 2020). After gaining independence, India implemented a mixed economy that involved substantial government intervention (Harriss et al., 2020). The main objectives were to promote self-sufficiency and foster industrial growth. The economic liberalisation that occurred in the early 1990s allowed for the full realisation of the country’s potential, resulting in significant growth mostly fueled by the services industry, specifically information technology (Castells, 2020). However, the country still faces problems such as poverty, inadequate infrastructure and a complicated legal framework that can hinder entrepreneurial activities.
The economic ascent of China is one of the most noteworthy global advancements in recent decades. Following a prolonged period of seclusion and economic stagnation as a result of Maoist policies, the nation initiated a sequence of economic reforms in 1978 under the leadership of Deng Xiaoping (Roberts, 2022). The implementation of these changes facilitated China's shift from a centrally planned economy to a market-oriented one, resulting in swift industrialisation, urbanisation and unparalleled economic expansion (Roberts, 2022). China's strong industrial capabilities and reliance on exports have propelled it to become the second-largest economy globally. However, China is confronted with obstacles such as decelerating economic expansion and deterioration of the environment (Lu, Zhang, Xing, Wang, Chen, Ding, Wu, Wang, Duan & Hao, 2020).
The economy of South Africa is influenced by its abundant natural resources, as well as its history of apartheid. The fall of apartheid in 1994 presented fresh economic prospects and difficulties as the nation endeavoured to assimilate into the worldwide economy (Sindane, 2020). The economy of South Africa is characterised by diversification, with prominent industries such as mining, manufacturing and services (Bhorat, Lilenstein, Oosthuizen & Thornton, 2020). Nevertheless, it grapples with elevated levels of unemployment and social inequality. The enduring impact of apartheid is seen in the economic and social policies of the country as it seeks comprehensive growth and development.
Comprehending the historical circumstances of these economies is crucial for assessing the practicality and consequences of a unified BRICS currency. Any endeavour to integrate the monetary systems of different countries must consider the distinctive economic history and current obstacles each country faces. The variation in their economic bases, levels of advancement and policy preferences underscores the intricacy of establishing a cohesive monetary framework that would benefit all participating countries.
Pros (potential benefits of a BRICS unified currency)
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Economic stability
Using a unified currency among the BRICS nations might significantly improve economic stability by mitigating fluctuations in exchange rates and promoting a more predictable business climate (Singh, 2023). Volatility in exchange rates can significantly disrupt trade and investment, resulting in uncertainty and higher expenses for enterprises operating across the borders of BRICS countries (Lukonga, 2023). Implementing a unified currency would eradicate this volatility, enabling seamless and more effective cross-border transactions. The ensuing stability of the BRICS bloc might attract additional foreign investment as investors are more assured of the economic predictability of the region (Singh, 2023). Moreover, implementing a single currency could assist in reducing the effects of external economic disturbances by facilitating a more synchronised and coherent monetary policy reaction. Adopting this collaborative strategy could strengthen the ability of BRICS economies to withstand global financial disruptions, thereby promoting long-term economic growth and stability (Larionova and Shelepov, 2022). Through the synchronisation of monetary policies and the establishment of a more expansive and unified economic region, the BRICS nations have the potential to accomplish a higher degree of economic stability, which would be more difficult to achieve individually. -
Reduced transaction costs
The enactment of a unified currency across the BRICS nations would substantially decrease transaction expenses for trade and investment within the member countries (Kumar, Ghai, Tyagi & Gupta, 2020). At present, businesses and investors are required to deal with the intricacies and costs related to currency conversion, which include charges and unfavourable exchange rates (Bharat et al., 2024). A unified currency would enhance the efficiency of financial transactions by eliminating the currency conversion requirement, resulting in faster, more cost-effective processes. The decrease in transaction costs would specifically advantage small and medium-sized firms (SMEs), which frequently encounter greater expenses for currency conversion compared to larger corporations (Angelovska & Valentinčič, 2020). Reducing transaction costs could also improve price transparency and competition, facilitating easier price comparisons for consumers and businesses across different countries (Kumar et al., 2020). The resultant trade efficiency enhancement and cost reduction could stimulate increased economic activity and integration among BRICS nations, promoting a more vibrant and integrated economic zone. This would create a more favourable atmosphere for growth, innovation and investment, thereby strengthening the BRICS bloc's position in the global economy (Angelovska & Valentinčič, 2020). -
Enhanced political cooperation
An integrated BRICS currency has the potential to facilitate political collaboration among the bloc by promoting stronger economic connections and establishing a common objective (Kondratov, 2021). Establishing and managing a single currency necessitates considerable collaboration and coordination on monetary and fiscal policies, requiring constant communication and decision-making among the member nations. Enhanced engagement of individuals can foster confidence and promote shared comprehension, thus mitigating political tensions and bolstering diplomatic ties (Kondratov, 2021).
Increased political collaboration will also enable BRICS nations to portray a more cohesive stance in global economic forums, augmenting their combined sway over international economic policies and institutions. Moreover, a common currency might represent unity and dedication to sustained collaboration, fostering increased integration in several domains such as commerce, infrastructure advancement and safeguarding (Larionova & Shelepov, 2022). By enhancing the alignment of their economic interests, the BRICS nations have the potential to attain higher levels of stability and prosperity, both on an individual basis and as a collective entity. If fulfilled, this would also enable them to establish a more influential and powerful presence on the global scene.
Cons and risks of a unified BRICS currency
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Economic divergence
Economic divergence refers to the process by which the economies of different regions or countries move apart from each other, resulting in increased disparities in terms of economic growth, development and prosperity (Frankema, 2024). An important risk in creating a single BRICS currency is the economic disparity among the BRICS nations’ economic structures, growth rates and degrees of development: China's economy is characterised by a strong emphasis on industrialisation and exports, whereas India's economy is reliant on services and domestic consumption (Lu et al., 2020). Russia and Brazil are significant exporters of commodities, and have economies that are highly responsive to global price swings in oil and agricultural products, respectively (Cardoso & Faletto, 2024). South Africa, with its distinctive socio-economic difficulties, introduces an additional level of complexity. The divergences in economic cycles among BRICS countries result in a lack of synchronisation, posing challenges in implementing a uniform monetary policy that caters to all members (Kondratov, 2021). The issues are intensified by diverse inflation rates, varying degrees of budgetary discipline and differing economic policy agendas. Without a mechanism to rectify these differences, implementing a single currency could result in economic imbalances, with certain countries reaping benefits while others suffer. The economic difference may put pressure on the political unity crucial for the effective functioning of the currency union, ultimately jeopardising its stability and long-term viability (Kumar et al., 2020). -
Political and transition
The establishment of a unified currency for the BRICS nations faces disadvantages and hazards, mostly centred on political and governance concerns. First, it necessitates substantial political convergence and confidence among the member nations, which might be difficult due to the varied political landscapes and economic interests within the bloc (Liu & Papa, 2022). Tensions regarding currency exchange rates, monetary policies and economic plans have the potential to strain ties and impede the implementation process. Furthermore, there are worries surrounding governance, namely addressing the nation that would have the most influence in decision-making processes and how conflicts would be resolved (Petrone, 2022). These concerns could result in power struggles and unfair outcomes. In addition, the independence of each member country could be undermined, as a united currency requires a certain level of coordination and centralisation of fiscal policies, which may restrict individual economic independence (Liu et al., 2022). Furthermore, external geopolitical factors and global economic forces may have an impact on the stability and long-term success of a unified BRICS currency system, making the stability and value of a united BRICS currency more complex in the international market (Zharikov, 2023). Therefore, although the idea promises much economically, it is essential to evaluate the drawbacks and risks before undertaking such a substantial monetary integration project. -
Implementation and transition cost
The introduction of a consolidated currency for the BRICS nations would encounter significant difficulties and expenses (Kondratov, 2021). The logistical intricacies alone, such as the synchronisation of financial systems, the establishment of a central bank and the harmonisation of monetary policies, would necessitate substantial coordination and resources. The economic discrepancies among the BRICS countries have the potential to exacerbate these issues, resulting in disparities in inflation rates, levels of unemployment and economic resilience (Zharikov, 2023). This, in turn, might destabilise the united currency. Furthermore, the expenses associated with implementing a new currency system, such as issuing new money, modernising financial infrastructure and providing public education, could be excessive, particularly for economically disadvantaged populations (Batista, 2021). Meanwhile, the act of negotiating the political terrain and achieving consensus on important issues, such as exchange rate systems and governance structures, has the potential to impede or even disrupt the implementation process (Zharikov, 2023). Therefore, although the idea of a consolidated currency for the BRICS nations has advantages, the actual challenges and expenses involved emphasise the importance of preparation, collaboration and economic readiness.
Policy recommendations
A variety of policy recommendations address this complex issue:
Phased approach: Adopt a gradual method for integration, first with more collaboration in areas such as monetary policy, procedures for maintaining exchange rate stability and financial regulation. An incremental approach can establish trust, detect issues at an early stage and reduce dangers associated with a quick shift to a unified currency.
Flexibility and adaptability: Create a versatile structure that enables modifications in response to the economic and political circumstances of member nations. Acknowledge and adapt to the varied economic frameworks, stages of advancement and policy preferences inside BRICS in order to guarantee fair and inclusive involvement and advantages.
Institutional strengthening: Prioritise the strengthening of institutional frameworks, including central banking capabilities, financial oversight mechanisms and dispute resolution mechanisms. Robust institutions are essential for effective governance and management of a unified currency system.
Public engagement and education: Conduct thorough public outreach and educational initiatives to enlighten and equip individuals, businesses and stakeholders with knowledge about the advantages, dangers and procedures associated with implementing a standardised currency. For any monetary integration endeavour to be successful, it is essential to have transparency and gain public support.
Risk mitigation strategies: Develop detailed risk mitigation methods that specifically target potential economic shocks, uneven effects on member states and external geopolitical pressures. It is imperative to have contingency measures in place to effectively handle crises and guarantee the stability of the unified currency.
International cooperation: Interact with international financial institutions, such as the IMF and World Bank, as well as significant economies outside BRICS, to obtain support, exchange best practices and utilise knowledge in the integration of currencies and stabilisation of monetary systems.
Conclusion
The prospect for a unified BRICS currency offers opportunities and challenges. A unified currency might improve trade efficiency among member nations, diminish reliance on the US dollar and promote more economic stability inside the bloc. This transition may enable BRICS nations to exert greater influence on the global economic stage, potentially equalising competition against prevailing currencies. However, the adoption of a unified monetary system involves significant dangers, such as the necessity for strong budgetary coordination, possible economic differences among member nations and difficulties in establishing a central authority to oversee the currency. The success of this programme will ultimately hinge on the BRICS nations' willingness to collectively negotiate these challenges, balancing their varied economic interests while pursuing greater unity in a swiftly evolving global context.
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About the author
Makgamatha Mpho Gift
Mr. Makgamatha Mpho Gift is a Senior Researcher for Research and Policy Development at the South African BRICS Youth Association (SABYA) and a lecturer in the Department of Development Planning at the University of Limpopo (South Africa). He is currently finalising his PhD in Development Planning and holds a Master's degree in Development Planning and Management from the University of Limpopo.
