You may have heard of the BRICS countries–Brazil, Russia, India, China, and South Africa. The term was initially coined by a Goldman Sachs economist way back in 2001 (initially sans South Africa), but somehow perplexingly caught on. The five countries’ leaders first gathered in 2011 in Hainan, and have met every year since.

This is despite the fact that the five countries are quite different. Politically, Brazil, India, and South Africa are all (flawed) democracies, while Russia and China are about as authoritarian as they come. Ideologically, India and Brazil are grudging US allies, while Russia and China work to end American hegemony. Economically, they are quite lopsided, with China’s GDP being more than twice larger than the four other countries’ combined GDP. And it certainly doesn’t help that China and India have waged a low-intensity border skirmish for the past six years. But what the BRICS do have in common is a belief that, because they are the biggest players in their respective parts of the world, they should have a greater say in global affairs. This shared sentiment of being slighted has largely kept the BRICS coalition alive for the last two decades.

(Incidentally, semi-randomly picking five countries and coining a cool acronym is a sweet gig, since it means journalists will come ask you for quotes whenever anything happens in one of your countries. Accordingly, I hereby announce that I am inventing the term PANJU, which stands for Pakistan, Argentina, Nigeria, Japan, and Ukraine, which are arguably the runners-up to the BRICS countries, and hence have even more grievances. It’s a sure-fire winner, and I look forward to all your media inquiries.)

Over the last couple of years, the BRICS have made some interesting moves, many of which can be seen as establishing an alternative to the US’ economic and financial domination . In 2015, the five countries established the New Development Bank, the BRICS’s version of the World Bank, which provides long-term loans for infrastructure and development projects to both governments and private companies. In 2016, the BRICS established a joint funding pool worth $100 billion, from which the members can borrow during liquidity crises for a short period (thereby avoiding the painful conditionality that comes with borrowing from the IMF). Buoyed by this surge of activity, a dozen or so countries have expressed interest in joining the BRICS, of which the most credible seem to be the Persian Gulf petro-states.

Now the latest story that has been making the rounds is that the BRICS might try to establish a common currency. Depending on who you ask, this new currency could either be an accounting currency (merely used for bookkeeping purposes); a reserve currency akin to the IMF’s Special Drawing Rights (intended to sit on the balance sheets of central banks); a trading currency (used when one government purchases something from another); or even a legal tender used by ordinary BRICS citizens. Various statements by Russian, South African, and Brazilian officials have all whetted popular interest in a potential BRICS currency, potentially to be named the R5 (from the names of the existing national currencies: the real, ruble, rupee, renminbi, and rand). Proponents have argued that the sheer size of the BRICS economies–with 43% of world population and nearly a quarter of world GDP– could make their common currency a contender right from the get-go. (Intriguingly, there seems to be pronounced interest in a BRICS currency among crypto traders, ever on the lookout for things which might take down the almighty dollar and the TradFi system it upholds. The most insane among them think a BRICS currency might somehow restore the gold standard.)

But don’t hold your breath that a BRICS currency will ever happen. Why not?

• For starters, the domestic politics of a common BRICS currency don’t make sense. A common currency typically necessitates a single central bank, which means that each BRICS country would lose the ability to conduct its own monetary policy. It is unlikely that the BRICS members, ever conscious of their sovereignty, would accept to surrender their ability to determine interest and exchange rate policies to a “union” central bank.
• Then add the thorny problem of power relations. Why would China agree to tie its hands by creating a new BRICS currency when it can instead just insist that its trading partners use the renminbi? Conversely, why would Russia, Brazil, and South Africa, all commodity-exporting countries already dangerously over-reliant on China as their main market, put themselves even more in China’s thrall by establishing a currency union with Beijing?
• Another issue has to do with trust. For economic agents to embrace a new currency, they must believe that the new currency will be stable. One thing they will look to is how the new currency’s issuer(s) handle their existing currencies, particularly in the areas of exchange rate policies (does the issuer allow market forces to set the currency’s price?) and capital controls (does the issuer impose legal limits on users’ ability to buy, sell, and move the currency?). The BRICS’ existing currencies score poorly on both dimensions. According to an IMF classification, China, Russia, and India currently are in the worst tier for capital controls, while South Africa and Brazil are in the second-worst tier. Users are unlikely to embrace a new currency backed by central banks, which meddle so heavily with their existing currencies.
• Lastly, the historical track record of common currency initiatives is poor. By my quick and dirty count, since 1975* there have been at least ten proposed common currencies. Regional groupings are always talking about launching new currencies, including:
  • the African Union;
  • the East African Community;
  • the Economic Community of West African States;
  • the Association of Southeast Asian Nations;
  • the Gulf Cooperation Council;
  • the “Union State” of Russia and Belarus;
  • the Eurasian Economic Union (also involving Russia and Belarus);
  • left-leaning South American countries;
  • left-leaning South American countries (again) [are you picking up on the fact that Latin Americans really like common currency projects?]
• But over the past 53 years, only one common currency project has come to fruition: the Euro. Those aren’t great odds.

Ultimately, the most useful way of thinking about this perennially recurring trope of establishing a common currency is that it’s a form of “regime-boosting regionalism”:

[These initiatives] seek to strengthen the status, legitimacy and the general interests of the political regime (rather than the nation per se), both on the international level and domestically. Many ruling regimes and political leaders… engage in symbolic and discursive activities, whereby they praise the goals of regionalism and regional
organizations, sign cooperation treaties and agreements, and take part in “summitry regionalism,” but without having a commitment to or bearing the costs of policy implementation.

Fredrik Söderbaum

In other words, it’s all smoke, no fire.

* Why did I use the fairly arbitrary 1975 cut-off? To be able to exclude the Southern African Common Monetary Area, whose predecessor the Rand Monetary Area was founded in 1974. I need to read up more on this interesting case. If you have suggestions, send them to me.