BRICS Financial Settlements
来源:Valdai Discussion Club;发表于:2024-04-18;人气指数:42
Thursday, April
18, 2024
BRICS Financial Settlements
By Paulo Nogueira Batista
The background to the recent discussions
between the BRICS countries on international monetary and financial matters
and, in particular, on possible joint initiatives is well-known in general.
There is, first and foremost, an increasingly widespread perception that the
current US dollar-centred international monetary system is becoming
dysfunctional. Second, the increasing multipolarisation of the world in
economic and political terms seems inconsistent with the indefinite
continuation of a basically unipolar world monetary system.
Let me address these points in turn. It
should be kept in mind that they are both international political economy
issues, i.e., problems that are at the same time both political and economic.
A dysfunctional international monetary
system
The perception of the increasing
dysfunctionality of the current monetary order (disorder is perhaps a better
word) is a consequence of both economic and political factors in the United
States that are eroding confidence in the system and its main currency.
On the economic terrain, we have
witnessed a relative loss of power and effectiveness of the US economy as a
whole and, in particular, the growing and intractable fiscal problems the
government faces. The rapid accumulation of public debt since the financial
crisis of 2008-2009 has no precedent in peacetime. Experts tend to agree that
there is no real prospect of bringing down these debt levels in the foreseeable
future. Now, enjoying the privilege of being the main provider of international
liquidity does give the US considerable extra leeway. But is this leeway
unlimited? Probably not. Economists that profess so-called modern monetary
theory may disagree, but most of us will agree that, at some point, a price
will have to be paid in terms of instability. As the perception of this risk
increases, confidence in the US dollar declines.
On the political terrain, the US dollar
suffers from it misuse by the US government, the so-called weaponisation of the
currency. Russia has been the major and most recent target of this misuse, so I
need not go any deeper into the matter. I only stress a curious paradox: the US
dollar has one main enemy – the US government itself. Nothing undermines
confidence in the dollar more than the violent unilateral measures that the US
and its allies have taken against a number of countries seen as hostile. “Rogue
states”, in arrogant Western parlance, have had their rights abused on a large
scale. Among others, they include Afghanistan, Venezuela, Iran, and now,
Russia. The methods used against these countries have been so uncivilized, to
say the least, and so disrespectful of basic property rights that the US and
its allies, perhaps more than anyone else, are actually the ones that deserve
to be called “rogue states”.
Inconsistency between a multipolar world
and a unipolar monetary system
The second background point, equally
momentous, is the tectonic geopolitical and geoeconomic shift taking place in
the world. This is often referred to as multipolarisation. Long gone is the
world that emerged after the collapse of the Soviet bloc and of the Soviet
Union itself, which lasted about 20 years. This unipolar moment of history,
when the North Atlantic pole under US leadership dominated the entire planet,
has passed, and will not return. Americans have trouble accepting this, as
Russians know better than anyone else, but they will have to come to terms with
this new reality.
Now, how can we reconcile a multipolar
world with a unipolar monetary system, based essentially on the US dollar and
on the reserve currencies of the main allies of the United States?
A multipolar economy is probably not
consistent with a unipolar international currency and payment system. Mind you
that, strictly speaking, this means that the US dollar cannot be replaced by
another national currency. An international system based on the renminbi or any
other national currency will suffer from some of the same structural problems
that have plagued the US dollar-centric system.
Can the BRICS offer alternatives?
The challenge before us is truly
daunting. Can the BRICS offer acceptable alternatives to the current monetary
and financial disorder? There is plenty of inertia in monetary and financial
arrangements. The decline of the US dollar has been slow. Granted. The current
international system will not come crashing down and disappear overnight.
Probably true as well. But the decline is steady and more and more visible. The
problems of the present system are increasingly difficult to deal with.
I turn to what we can do as BRICS. Make
no mistake about this: the whole world is watching us and trying to gauge
whether we, as a group, are really serious about dedollarisation.
Everyone is trying to surmise whether we
are technically and politically capable of developing alternatives to the US
dollar and the current system.
To tell you the truth, I think it is too
early to say whether we can indeed make a difference. There is, as you know, a
lot of hype concerning BRICS initiatives in this area, but much remains to be
discussed and done if we are to move at some point from hype to practical and
effective measures of our own.
This is one of the critical challenges
for the Russian presidency of the BRICS to address in 2024, and this challenge
will be carried over to the Brazilian presidency of the BRICS in 2025. It so
happens that presidents Putin and Lula have been the most outspoken among our
leaders in these matters. Last August, President Lula, in his final remarks at
the BRICS Summit in Johannesburg, spoke of the need to address the issue,
stating that the BRICS leaders had “approved the creation of a working group to
study the adoption of a reference currency of the BRICS. This will increase our
payment options and reduce our vulnerabilities.”
An expert group has indeed been created
by the Russian presidency of the BRICS and has begun to work. I hope this work
can produce some concrete results in 2024. A relatively simple step, proposed
by Russian economists, could be the creation of an SDR-like basket. It could be
called the R5, to reflect the fact that the names of the currencies of the five
original BRICS members all begin with the letter “R”. Why not create this unit
of account, with weights based on the size of the participating countries’ economies?
This monetary initiative could be taken further during the Brazilian presidency
in 2025, and steps could be envisaged to transform the unit of account into a
full-fledged reference currency.
Three dimensions of the issue of
financial settlements
The issue we are discussing today has,
in fact, at least three dimensions to it: a) the creation of a common reference
currency by the BRICS; b) the development of an international payment and
transaction system to replace SWIFT; and c) increasing the use of national
currencies in trade and financial transactions between the BRICS and with other
non-BRICS nations.
The last point is the one in which more
progress has been made by the BRICS. The US dollar is being replaced to a large
extent by the use of national currencies in bilateral transactions between our
countries. In this respect, dedollarisation is moving at a fast pace, reducing
transaction costs and political risks. Few people notice, however, that this
progress has limitations that can only be overcome by creating a common
reference currency.
Why is this so? If there are bilateral
surpluses and deficits, as is normal, the surplus countries will accumulate the
currency of the deficit countries. This accumulation may not be desirable if
there are doubts about the stability of the currencies of deficit countries.
This might then lead the surplus countries to dispose of their holding of
currencies of the deficit countries in international markets, causing
depreciations and possible instability. Now, if a BRICS reference country were
in existence and commanded confidence, surplus countries could accumulate
reserves in our reference currency. If a trustworthy currency is not there, the
use of national currencies would be inevitably limited.
Please note that I am not speaking of a
euro-like unified currency. That would not be thinkable among the BRICS.
National currencies and national central banks will continue to exist and
perform their usual functions. A BRICS reference currency would be used for
international transactions and as a reserve currency in lieu of the US dollar
and the other currently existing reserve currencies.
Requirements for success
This objective may sound easy but is
definitely not easy at all. I addressed some of the difficulties in two papers
that I wrote last year – one of them for the Annual Meeting of the Valdai
Discussion Group held in Sochi, in October; [Paulo Nogueira Batista Jr., “BRICS
financial and monetary initiatives – the New Development Bank, the Contingent
Reserve Arrangement, and a possible new currency”, a paper presented at the
20th Annual Meeting of the Valdai Discussion Club in Sochi, Russia, October
2nd, 2023.] the other for an event held on the side-lines of the BRICS Summit
in Johannesburg, in August. To conclude this note, I would highlight three main
requirements for the success of BRICS Financial Settlements initiatives.
First requirement: we as BRICS need to
demonstrate professional and technical competence in order to handle the
inevitably complex matters involved in these initiatives. It is not a Gordian
knot kind of problem.
It does require, however, and this is
the second hurdle, political courage. The reorganisation of international
monetary and financial arrangements is a critical world political economy
issue. The US and its allies can be fully expected to resist any initiatives
that challenge their privileged position. Americans, so it seems, would like to
reserve for themselves, ironically, the task of undermining the dollar! They do
not appreciate foreign interference in this matter.
Third and last requirement: a high
degree of cohesion among the BRICS is a sine qua non condition for success. All
our countries have to be convinced of the feasibility of these initiatives and
put some of their best specialists and officials to work on their formulation
and implementation.
Are these requirements present today? It
remains to be seen. In so far as courage is concerned, we could take
inspiration from our Russian partners, in the way they have faced up to the
military confrontation with NATO in Ukraine. Cohesion, however, has always been
a challenge for the BRICS, even when we had only five countries at the table.
To achieve cohesion and a minimum level of coordination, a whole lot of
discussion and persuasion will be needed.
But we should not allow these
difficulties to discourage us. The realisation of grand projects always implies
imagination and persistence in overcoming all sorts of barriers and all kinds
of resistance. Let us hope that the BRICS will confirm expectations entertained
by the Global South and rise to the challenge of providing constructive
alternatives for all.
Paulo Nogueira Batista Jr. - Brazilian
economist, Vice President of the New Development Bank (NDB) from 2015 to 2017,
Executive Director for Brazil and other countries in the International Monetary
Fund (IMF) from 2007 to 2015.
Valdai Discussion Club
Source: Valdai Discussion Club