Indian Foreign Minister Throws Cold Water on the Idea of a BRICS Currency

Yves here. The remarks by the highly respected Indian foreign minister Subrahmanyam Jaishankar should put paid to the idea that a BRICS currency is coming soon, if ever. Jaishankar raises a series of particular issues consistent with a point we have made: that a common currency would require a very substantial legal and systems architecture. Agreeing on the legal structure would entail a reduction of sovereignity (BRICS rulings would have to supercede national courts) which seems contrary to the notion that BRICS is meant to increase, rather than reduce, national sovereignity. Jaishankar also points out, as we have, that the BRICS nations are too economically diverse (as in often divergent) to make a common scheme work easily if at all.

Jaishankar points out that bi-lateral currency deals work well enough and appear satisfactory to most BRICS members. That does leave unsolved the point that your humble blogger and Michael Hudson have raise: that absent mechanisms to encourage balanced trade such as the ones that were part of Keynes’ Bancor, many countries are likely to wind up with sustained trade deficits relative to particular trade partners. What happens when those countries wind up with a lot more of that currency than they want? They can use it to buy assets in the chronic trade deficit country, but a lot of nations do or would place restrictions.

Finally, one of the experts quoted later makes a subtle dig, saying that proponents of a new BRICS currency are really seeking to promote the use of their currency internationally. We’ve reported earlier that China has been pushing for the renminbi to be the foundation of a new currency order and that India (perhaps among others) has been opposed. The renminbi acting as a replacement for the dollar was an obvious idea even before the US went about alienating many formerly placid dollar users. However, as we and others have regularly pointed out, China is unwilling to assume the burden of a reserve currency issuer, which is running sustained trade deficits to get its currency widely held outside its borders. That is tantamount to exporting demand, as in jobs, one of the last things China wants.

By Jackson Mutinda. Originally published at The East African; cross posted from InfoBRICS

A Brics+ reserve currency will not be easy to create, says Indian External Affairs Minister, Dr Subrahmanyam Jaishankar, citing the need for numerous protocols to align it with the different fiscal and monetary policies of member states.

Dr Jaishankar told journalists in New Delhi that the focus was much more on settling payments in each other’s currencies than on having a new unit for the bloc. “Brics members have their particular currencies, so, many of them say, why do I need a third currency to settle between us? Which is completely understandable. Sometimes it’s a liquidity issue, sometimes it’s a trust issue,” he said while addressing journalists from the Indo-Pacific region at the ministry.

“People have raised the issue that should there be a Brics currency. But, for countries to have a common currency, you need enormous alignment of their very fundamental fiscal policies, monetary policies, economic policies… And when you look at Brics’s standards, I think we’ve to be realistic about the extent of alignment among members.”

Brics is an intergovernmental organisation founded by Brazil, Russia, India, China and South Africa, and recently expanded to include Saudi Arabia, Iran, Egypt, Ethiopia and the United Arab Emirates.

There has been talk of the Brics creating a reserve currency, but this has been more about shaking up the dollar, and experts doubt that de-dollarisation would help to ease payment friction.

They point to the difficulty of creating such a currency, given that none of the founding Brics members was looking for an alternative currency.

“Certainly, each of the member countries has an interest in maintaining and spreading the reach of its national currency,” says Richard J Grant, professor of finance and economics at Cumberland University, Tennessee, in a paper for the Free Market Foundation think tank.

“Each currency serves as a domestic unit of account, medium of exchange, policy instrument, and potential source of government revenue called ‘seigniorage’.”

Those pushing for an alternative currency are really pushing for their national currencies to be accepted abroad, he adds.

In the run-up to the Brics summit in South Africa in August 2023, India’s Foreign Secretary Vinay Mohan was reported as saying, “The substantive part of trade and economic exchanges and discussions that have been a part of Brics discussions, have so far, in a major way, focused on how to increase trade in respective national currencies which […] is considerably different from a common currency concept.”

Issues that have arisen in discussions on the development of a Brics currency include availability and liquidity of the currency, exchange rate risk, banking infrastructure and international acceptance.

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54 comments

  1. Froghole

    So, basically, China’s determination to maintain an impregnable current account surplus which it perceives to be a rampart against the US and a key part of its 360 degree defensive posture means that there can never be equilibrium, either with the US or indeed other BRICS members. This, then, would prevent BRICS from being anything much more substantive than an ‘insurgent’ talking shop or ‘coalition of the willing’ united in antipathy towards US hegemony.

    Presumably, the only factors which would cause the Chinese leadership to adjust its present stance would be: (i) the realisation that the establishment of current account equilibrium within BRICS would give China far greater strategic defence in depth (by incorporating India and making BRICS itself a huge strategic rampart) that might outweigh the perceived advantages of a permanent current account surplus (of course that presupposes that India would wish to abandon its present deliberate strategic ambiguity); and/or (ii) diminishing political and economic returns to the Chinese regime (and its legitimacy) from its present policy of wage/consumption suppression in order to generate its surplus.

    The issues facing BRICS are now analogous to those facing the EC prior to the 1970 Werner Plan: integration risked being stillborn because the CAP was deranged by exchange rate fluctuations when the EC was essentially just a CET and agricultural support regime. Therefore moves towards currency integration became imperative if credibility and momentum were to be sustained. Such currency integration could only be sold by imposing a deflationary settlement upon the EC (via the ERM) and then the EU (via the euro). Once the structures of currency integration had been formalised, the German corporate class could only revive its profits (and the German state its surpluses, which had been diminished by the costs of reunification) via Hartz wage suppression. Therefore, if a BRICS currency were to work, it would not only necessitate euro-like structures, but also a fiscal union and would require governments to permit wages to find their natural level. I suspect few, if any, BRICS members (least of all China) would tolerate such fetters on their political sovereignty and discretion. As such, a BRICS currency might remain only a theoretical and rhetorical proposition and, if implemented, could amount to little more than a species of SDRs (which, in the dying days of Bretton Woods, were intended – at least in part – to function as a dollar substitute or auxiliary: https://global.oup.com/academic/product/special-drawing-rights-sdrs-9780199606467?cc=gb&lang=en&).

    Reply
    1. jsn

      Interesting comment, thank you.

      This was linked to the other day regarding what BRICS currently is, Kathleen Tyson shares some of your concerns.

      In her larger narrative, however, BRICS is doing a great deal of good at the State level coordinating cross border private sectors. A currency regime would, by structuring the legalities and governance of the currency, largely cut out States. This is what the Dollar system did until sanction mania took off, and largely what BRICs titular members are most concerned about.

      Reply
      1. iread

        fascinating link to “this” unbeknownst to me Kathleen Tyson interview
        which widens the historical perspective for thought considerably for non wonks
        such as me; thank you too.

        Reply
    2. JW

      The Eurozone is not the EU. Leaving aside the UK which when in the EU retained sterling, there are 7 existing EU members who are not in the eurozone. including Denmark and Sweden.
      The idea that BRICS would create a ‘Euro’ is plain crazy, I have not read anything serious that entertains such an idea.
      Besides mostly bi-laterals absorbing cross border trades , CBs could clear and settle some of any remaining large transactions, and USD could still provide a useful role at the margins for balancing say 10% or below ( at these levels its role as a political football is no more).
      Pragmatism not ‘big bang’ is the way forward that meets requirements.

      Reply
      1. Froghole

        Yes indeed, but in the late 1960s very few policymakers envisaged something akin to the EZ. Nonetheless, in order to resolve the problems of CAP finance the Werner commission came up with a three stage plan which initially fixed exchange rates with the intention of proceeding to monetary unification within the decade; that plan failed but created a prototype for the subsequent Delors committee, and also compelled policymakers to promote the snake (a watered down version of the projected first phase of Werner) – a task rendered all the more urgent by the adverse impact which floating had upon exchange rates and, therefore, upon the efficacy of the CAP. The view was that whatever was done needed to be something more substantive than the previous attempt at monetary unification if it were not to be abortive (https://global.oup.com/academic/product/money-and-politics-9780199243662?cc=gb&lang=en&).

        Of course no one in BRICS is yet talking about monetary unification in a manner similar to that of the EZ, given the dismal performance of the EZ since the GFC and its evident malfunctioning in the absence of a fiscal union. However, the very fact that some policymakers have a common currency in mind creates a certain conveyor belt logic which leads towards something at least analogous to the present single currency, and perhaps in that sense alone the European experience imparts some warnings to BRICS policymakers.

        Reply
        1. Susan the other

          so, dumb question: if we see we are working backwards why don’t we quit imposing a monetary superstructure until we have taken the bother to establish the fiscal under structure? Globally. In a way that does not undermine social sovereignty? This also sounds like a viable nexus to establish the Rights of Nature and functioning sustainability. All requiring sincere cooperation. My guess is that sincerity is the stumbling block. So maybe a Sincerity Workshop at the UN. Not being sarcastic, really.

          Reply
    3. Paul Greenwood

      You conflate too many disparate issues. German Unification was funded by Kohl through Sozialversicherungskosten – rather than income tax or corporate taxes or letting D-Mark revalue as had been forced on Germany by U.S. in 1972 which in itself necessitated the Werner Plan.

      West Germany under Helmut Schmidt faced the OPEC Crisis with a revalued D-Mark cushioning the effect on inflation but costing exports. It is a reason why Kohl came to power after FDP switched sides and SPD was out of government until Schroeder

      Schroeder was a Corporate Socidöidt from his time on board at VW when PM in Lower Saxony and knew those Social Security Taxes Kohl had used to fund Unification made labour costs unattractive so he brought in HR Director of VW – Peter Hartz (later disgraced in VW corruption scandal) to cut Social costs and Hartz IV became subsistence with unemployed being forced to sell cars or jewellery and life insurances before receiving benefit

      This destroyed SPD in GDR where Treuhand had killed jobs and sold off assets cheap. Deindustrialisation wiped out the East much as Thatcher in England had destroyed the North

      Germany should have revalued D-Mark and run trade deficits to fund the subsidised strategy in the East but used the ERM to extract from the rest of EU driving Italy and U.K. to brink and gifting hedge funds a killing

      Germany imposed deflation on rest of Europe instead of absorbing Unification costs itself. That led to undervalued D-Mark/Euro conversion 1999 and the whole EU Debt Crisis which had been funded with bank loans to Ireland and Club Med nations

      Germany caused the imbalances for mercantilist reasons. BRICS will not do so because it is not a captive market with external tariff wall predicated on Ever Closer Union

      Reply
      1. Froghole

        Thank you for that really fascinating comment. The customs union was completed in 1968, and the Commission then proposed “a general economic policy thought out and built up to the scale of the continent”. By the end of 1968 Barre had produced a plan for a common monetary policy, arguing that there should be complementary economic convergence (this differed from Triffin who argued that there needed to be monetary union before economic convergence). It was the accelerating disintegration of Bretton Woods in 1968-69 which forced EC leaders to agree at The Hague in late 1969 to harmonise economic policies via an economic and monetary union, hence the appointment of Werner in March 1970. The French (who were deeply concerned about the derangement of CAP finance) backed the Triffin approach, and Werner trailed in their wake. The debate between Pompidou, Brandt and the Commission was about whether the economic convergence cart should follow the monetary union horse, or vice versa.

        In other words, the monetary unification train (or cart) had essentially left the platform by 1970. Schiller had indeed floated the DM in 1969 under US pressure and continued to argue during the early 1970s that capital flows could not be controlled. Klasen wanted to maintain fixed parities. Schiller then proposed that there be a joint float of the DM and other European currencies. Brandt agreed, but Pompidou did not, which led to massive speculative inflows in May 1971 and the famous unilateral float of the DM. Schiller considered that unilateral floating would check the inflow of dollars, although Brandt feared it would also break the EC. There was a massive flight to surplus countries including Germany following the unilateral float. I agree completely that the de facto 20% revaluation of the DM against the dollar in 1969-72 (with Schmidt imposing controls to prevent further inflows following Schiller’s resignation) was the beginning of the end of the German economic miracle. The story of the foundation of the EMS is essentially that of Giscard dancing an elaborate gavotte with Schmidt, to try to get West Germany to bear a greater share in the burden of adjustment, even as German economic performance fizzled following the events of 1972-73. I have found these recent studies very useful for the crisis period of 1969-75: https://www.cambridge.org/us/universitypress/subjects/history/twentieth-century-european-history/trading-power-west-germanys-rise-global-influence-19631975?format=PB and https://www.cambridge.org/us/universitypress/subjects/history/economic-history/central-bank-independence-and-legacy-german-past?format=PB. The Americans essentially repeated much the same trick with the Japanese in 1985 and 1987.

        However I do feel that there are at least echoes of the European experience then with BRICS now. In the 1960s and 1970s the Europeans were confronted by what Servan-Schreiber famously called the ‘American Challenge’ (1967). They would have to integrate more closely in order to confront and defy that ‘challenge’. However, doing so meant that those countries within Europe would have to do something about their surpluses in order to realise a degree of equilibrium within Europe and so give coherence to integration. Much the same problem now confronts BRICS: are they to be merely a talking shop exchanging anti-American rhetoric, or are they going to give substance to their purported refutation of US hegemony? If they are going to give substance to it, then presumably that perforce means some degree of integration, which means primarily economic integration. But how to do so when one country has a vast surplus, and the others risk having to absorb that surplus and being in perpetual deficit? Who is to bear the burden of adjustment? Is this not Germany and the rest of the Six (or Nine) all over again? And, of course, if they decide that the monetary game is not worth the diplomatic candle (as seems likely) then how else do they give substance to BRICS? Moreover, if they conclude they cannot give economic substance to BRICS (beyond sporadic bilateral barter arrangements and/or a military ‘understanding’), then are they not effectively ceding continued hegemony to the US? In which case what is the point of the whole BRICS exercise? These are rhetorical questions, of course. Many thanks again!

        Reply
    4. CA

      “China’s determination to maintain an impregnable…”

      This is a really fine and interesting comment. But, please explain the assertion about the “Chinese regime (and its legitimacy) from its present policy of wage/consumption suppression in order to generate its surplus.”

      Does China have a government such as France or Japan or a “regime?” Could the Chinese government, which has built the world’s largest economy over the last 45 years, at a rate of growth that has been far faster than any other economy has experienced in that time, and which has ended poverty among the 1.4 billion, have a legitimacy problem?

      Also, how is the Chinese government suppressing wages and consumption, which have grown at dramatically fast rates for the last 45 years? Also, could the Chinese trade surplus have a lot to do with dramatic Chinese productivity gains?

      Reply
      1. Froghole

        Many thanks! Well, I have probably been reading too much of Michael Pettis (which is why I had referred to wage suppression)! However, I agree completely that China has enjoyed very high levels of productivity growth, has moved rapidly up the value chain, and has reaped the benefits of extraordinary rates of investment. Inevitably returns to that investment will diminish over time (and are diminishing in some sectors).

        I should certainly have referred to ‘government’ instead of ‘regime’, and apologies for that, but it seems to me that much of the present legitimacy of the Chinese state is indeed based upon the cultivation of a nationalist narrative which has aimed at purging the memory of the ‘century of humiliations’, and doing so much more effectively than the KMT after 1927. The construction of a large and permanent current account surplus may well be intended to recreate the international political economy of the period prior to the 1830s when China enjoyed surpluses with other countries and was a largely self-sufficient market. Of course it transpired that those surpluses were not enough, which is why there has also been heavy investment in the military, a notable improvement of relations with Russia and the economic penetration of Central Asia, which all give China massive strategic strength in depth to its north and west. The CCP has therefore aimed at improving upon the ‘grand strategy’ of China under the early Qing. It has (thus far) succeeded remarkably and, as Isabella Weber has shown, has done so by not repeating the blunders of the Soviets and their European satellites, and by treating the advice of ‘western’ economists with a good deal of circumspection.

        Reply
        1. CA

          “Inevitably returns to … investment will diminish over time (and are diminishing in some sectors).”

          The Nature.com Index * of high-quality science research publishing for the latest 12 months came out yesterday. The Index shows 4 of the top 5 international publishing institutions are Chinese, 7 of the top 10 institutions are Chinese, and 11 of the top 15.

          Harvard is at number 2. German institutions are at numbers 7 and 12. A French institution is number 10.

          * https://www.nature.com/nature-index/institution-outputs/generate/all/global/all

          1 June 2023 – 31 May 2024

          Reply
        2. CA

          “The construction of a large and permanent current account surplus may well be intended to recreate the international political economy of the period prior to the 1830s…”

          Really fine and helpful comment as before:

          https://www.nytimes.com/1982/04/18/books/the-china-the-west-knew-nothing-about.html

          April 18, 1982

          The China The West Knew Nothing About
          By Jonathan Spence

          SCIENCE IN TRADITIONAL CHINA: A Comparative Perspective.
          By Joseph Needham.

          JOSEPH NEEDHAM’S immense work, ”Science and Civilization in China,” which will probably total some 20 separate volumes when completed, * is the most ambitious undertaking in Chinese studies during this century. Ranging across the fields of chemistry and mathematics, navigation and medicine, botany and mechanics among many others, the work covers each scientific discipline from the earliest periods of Chinese history up until the middle of the 17th century, when China joined in the general dialogue of world science…

          * Twenty-seven books (1954-2008)

          Jonathan Spence teaches modern Chinese history at Yale.

          Reply
          1. Froghole

            Many thanks again! I have most of Needham (CUP has a really fine series of publications on Chinese art and culture, as well as the Cambridge History of China; the triple decker biography of Mao is pending), and knew people who knew him well when he was living in Cornwall during the war. Often likened to an ‘unmade bed’ he was a very sympathetic, but also rather curious, personality. Rather a chip off J. D. ‘Sage’ Bernal’s block, although I mean that as high praise.

            Alas, we must now say that Spence ‘taught’ rather than ‘teaches’ at Yale. It is a rather appalling commentary on the present state of the British press that there were no obituaries in 2021.

            Reply
            1. CA

              https://www.nytimes.com/2021/12/27/books/jonathan-spence-dead.html

              December 27, 2021

              Jonathan Spence, Noted China Scholar
              His classes at Yale and well-regarded books explored China’s vast history through details that illuminated bigger pictures and themes.
              By Neil Genzlinger

              Jonathan D. Spence, an eminent scholar of China and its vast history who in books like “God’s Chinese Son: The Taiping Heavenly Kingdom of Hong Xiuquan” (1996) and “The Search for Modern China” (1990) excavated that country’s past and illuminated its present, died on Saturday at his home in West Haven, Conn. He was 85…

              Professor Spence, who taught for more than 40 years at Yale University, where his lecture classes were always in great demand, found the big picture of Chinese history in small details. His books, deeply researched, examined individual lives and odd moments that were representative of larger cultural forces, wrapping it all together with vivid storytelling.

              “This is a delicate spider’s web of a book, deft, fascinating and precise as Chinese calligraphy,” Diana Preston wrote in The Los Angeles Times in a review of his “Treason by the Book” (2001), about a scholar who challenged the third Manchu emperor in the early 1700s. “It is also unnerving because it conjures so much that still resonates.”

              Among Professor Spence’s most ambitious books was “The Search for Modern China,” which made The New York Times’s best-seller list and is now a standard text. It took an 876-page view of China’s history from the decline of the Ming dynasty in the 1600s to the democracy movement of 1989.

              “Other books have attempted to cover the political and social history of China from imperial to Communist times,” Vera Schwarcz wrote in her review in The Times. “But they lack the narrative technique, the wealth of illustrations and the thematic focus of this work.”

              Professor Spence wrote more than a dozen books in all, beginning in 1966 with “Ts’ao Yin and the K’ang-hsi Emperor: Bondservant and Master,” based on his dissertation about a minor historical figure in the late 1600s and early 1700s.

              “No great claims need be made with regard to Ts’ao Yin’s personal importance,” he wrote in the preface. “He was not one of the great officials of the Ch’ing dynasty, nor even a major figure in the K’ang-hsi reign. His importance lies rather in what the course of his life can tell us about the society in which he lived and the institutional framework within which he operated.”

              That approach would guide many of Professor Spence’s subsequent works as well…

              Reply
            2. CA

              “Many thanks again!”

              Same here, many thanks; you are splendid.

              I am even now writing thoughts for myself on whether there need be slowing of productivity gains in China from here. I am arguing with myself, there need not be.

              Reply
    1. Trees&Trunks

      I wonder if they have watched how EU became a clown car and decided that this is something to avoid. Not only does the organization breed idiots like the current leadership but is also used to blackmail and force nations to do things against their popular will: EU vs. Greece, EU vs. Hungary.
      Maybe it is just the level of professionality of the BRICS ministers stopping them from saying it outloud: we learn from others’ mistakes. Just look at the EU-mess. The BRICS is about progress, not regress.

      Reply
      1. Tony Wright

        Yes, and the BRICS countries are even more socially, economically and religiously diverse/divergent, and probably also more distrustful of each other, than those within the EU.

        Reply
    2. .Tom

      The Commission isn’t strictly a political entity although it does, together with some other institutions, sometimes partly try to fill the void. As I understand the failed EU architecture from reading Varoufakis years ago, currency union reduces the policy freedom of member governments. Who then gains (gained) control of such policy space? Good question. Not the Commission. The Euro was deployed when the idea of “independent” central banks (a deft neoliberal power grab) was all the rage and so it was possible to arm wave instead of answering or even acknowledging the question. According to Varoufakis, the top Europols who actually understood the problem kicked it down the road expecting some crisis in the future to force the political union that logically has to go with currency union and a Euro central bank. But that didn’t happen. The bank remains “independent”. The broken architecture created its own systems of power from top bankers down through bureaucrats and pols and they defend this status quo, politically unstable as it is. In recent years it kinda looks like a lot of voters have sussed the illegitimacy of the arrangement. The imagined crisis Varoufakis mentioned is happening in slow motion but now it looks to me like it isn’t going to force political union. It’s driving popular political calls for independence.

      Reply
      1. Oh

        I see a US hand in helping to create the Euro. It’s easier to control and manipulate one currency and one country when it comes to foreign policy!

        Reply
        1. .Tom

          I don’t so much. I suspect it was more the Germans. I remember Americans being quite frightened of currency union back then.

          Reply
    3. humanitarian grenaid

      Thanks for the informative post yves.

      I understand the argument that most currency conversions occur within the context of investment transactions rather than commodity trades, but I’m still puzzled. While I see how investments can drive currency exchanges, I struggle to imagine such a high volume of investment transactions without a tangible connection to real-world goods. Shouldn’t there be effects from these investments, like the purchase of physical resources such as cement, iron, or food? After all, the investments have to be directed into something, but I’m unsure of what those things are exactly.

      In the context of the discussion on the potential for a BRICS currency, where the focus is more on using national currencies for transactions between member nations rather than a common currency, this confusion becomes more prominent. Wouldn’t the investments or currency exchanges eventually need to materialize in tangible economic activities or products?

      Reply
  2. Bugs

    “People have raised the issue that should there be a Brics currency. But, for countries to have a common currency, you need enormous alignment of their very fundamental fiscal policies, monetary policies, economic policies… And when you look at Brics’s standards, I think we’ve to be realistic about the extent of alignment among members.”

    Dr. Jaishankar obviously understands requirements for a common currency much better than the brain geniuses who devised the Euro…

    I think Yves has mentioned it here before but the obvious solution for BRICS is a settlement bank. I imagine that will happen if we don’t blow ourselves up first.

    Reply
    1. Polar Socialist

      It’s my understanding that main driver behind any common currency* in BRICS would be to make the settlements easier and lessen the currency risks in the absence of US dollars (a.k.a. de-dollarization).

      India’s reluctance could perhaps be explained by India being most dependent of the BRICS members on the US dollar, IMF and World Bank right now. The finance minister Nirmala Sitharaman is strongly pushing bilateral agreements using rupees with other countries. RBI is opening currency accounts for this purpose, while keeping rupee stronger that it probably should be.

      Maybe at the moment India is more interested in controlling rupee to serve India’s noticeable foreign debt, rather than start experimenting with something it would have much less control over. Even if the promise is smoother trade and more stable national currency.

      * Not as a domestic unit of account, medium of exchange, policy instrument, and potential source of government revenue, though. As a unit of international account.

      Reply
    2. Oh

      The settlement bank is a good idea. Countries like India could give a discount to countries with stronger currencies (non USD ones) as an incentive.

      The sooner the BRICS countries detach their trading form USD, the better for them in the long run.

      Reply
  3. .Tom

    Reads to me like American Free Market Foundation think tanker Richard J Grant made the subtle dig, not Indian FM Jaishankar.

    Reply
    1. Yves Smith Post author

      Sorry, I will revise the post. Other commentators have said India takes umbrage at China’s efforts to anchor a BRICS payments regime in the renminbi, and I allowed that knowledge to produce a misreading of my skim of the second half of the piece.

      Reply
  4. GM

    These clowns are in dire need of a military alliance with effective mutual defense clauses in it, or they will be destroyed by the West one by one, but they can’t even agree on trade settlements.

    So what exactly kind of an alternative are we talking about here, and what is the prospect for the future?

    In India’s case, it is especially brutal, because Russia holds a huge amount of rupees from all the oil that it sold to India as a middleman after the 2022 sanctions. And Russia has no use for those rupees. Except if India was to, you know, perhaps, support the war effort. There is a lot India could produce and send to Russia to help. Not even weapons, though India does have a substantial MIC and that would be certainly be even better. But what happened instead? The Ukrainian army is firing Indian shells at Russian troops (!!!), and that has been the case for about a year now. Maybe they got there through a third party, it doesn’t really matter — any such third party is an enemy of Russia so the final destination was obvious.

    So what do we have:

    1) Russia holding a bag of rupees with nothing to buy for them
    2) India not providing material support for the war effort
    3) India isn’t really helping all that much evade sanctions either — because if Russia is getting rupees for its oil, which then it cannot use to buy other useful stuff with, then effectively that oil is just wasted with nothing received in return
    4) India is, however, materially helping NATO in the Ukrainian war.

    India, the country that had such good relationships with the USSR all throughout the Cold War and was bailed out by Moscow in several critical geopolitical situations, now backstabbing Russia like that…

    And that is your “alternative” “multipolar” bloc…

    It would be laughable if the fate of the world didn’t depend on this, making this too serious a matter to laugh about…

    P.S. We have been hearing about Kazan and all the big events that are to come there for months now. And now the Kremlin has, you see, put any serious war action on pause until then, in order to not create too much drama that would overshadow the summit. Well, what exactly are those events going to be if there is not going to be a BRICS currency?

    Reply
    1. JW

      During the year there have been hundreds of events held under the BRICS umbrella, its just that hardly any have been reported in western media. For instance the BRICS games had 74 nations participating.
      The meeting of heads of state in Kazan is the culmination of an extensive program.
      God help Ukraine if the Russians have been throttling back on war action over the last few weeks. Your post reads like NATO propaganda where ‘red lines’ are invented for the Russians, and when they are ignored, its advertised as ‘Putin bluff’.

      Reply
      1. Kouros

        the points about Russia having bags of rupees and not much to do with them (to buy or invest in India) and the fact that India did sell shells are legitimate.

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    2. ebolapoxclassic

      Yeah, I really fail to see what India expects to happen here. It throws cold water on the idea of a BRICS currency (or trade settlement mechanism, it’s all still very vague) – fine. They run a chronic currency deficit, in contrast to Russia, China and Iran, and are mostly happy with the current order as long as the Western financial institutions (both public and private) that lend the money cover their deficits don’t impose too stringent restrictions to their sovereignty.

      But when dollars and euros obviously can’t be used to pay Russia for its oil, what do they propose be used instead? They refuse to pay Russia in yuan, because that’s China’s currency. They instead want to pay in rupees that the Russians can’t use for anything worthwhile.

      And in exchange for these practically worthless rupees, they expect to continue to get discounted oil, then either just mark it up or refine it and sell it to the West for a profit, along apparently with armaments that go to the Ukraine (this part was news to me, but I’m not entirely surprised).

      What makes India think it enjoys the same “exorbitant privilege” the United States does?

      And also why does Russia continue to sell oil to India under these conditions? Under current circumstances, it seems to make more sense to burn that crude in gas turbines (yes, there are gas turbines which can burn even unrefined crude oil) for electricity than to sell it a discount for worthless rupees, if further reducing production is not feasible for technical reasons.

      I even remember seeing some oligarch around the beginning of the war making exactly the suggestion of providing cheap fuel oil (not crude oil, but almost) to power producers. Even a broken clock is right twice a day, I guess, or there’s something I’m missing here. (Being on the same page as a Russian oligarch about anything is usually not a good sign, but there are exceptions to every rule.)

      Reply
      1. GM

        They instead want to pay in rupees that the Russians can’t use for anything worthwhile.

        As I said, that isn’t actually true. If India wanted to, they could have mobilized their MIC to provide weapons to Russia. Win-win for both sides — India gets the profit from reselling Russian oil, Russia gets something immediately useful for its oil instead of worthless rupee symbols on some screen.

        But nowhere is the stupefying dysfunctionality of the politics involved more in your face than this issue — India elites are so captured by the West that they could not only not find in themselves the strength to make such a deal, they even started supplying Ukraine instead.

        Under such circumstances, what future is there for BRICS?

        Reply
          1. GM

            It’s not about dependence, it’s about loyal allies helping, or at the very least not hurting.

            Iran and North Korea have done that.

            India, on the other hand, has been supplying shells and rockets to Ukraine.

            So has China, BTW, although not shells and missiles but drones — we will see if the drone export controls that were announced last week will have any effect. But the damage has already been done — nothing prevented DJI from redirecting all drone production to Russia, the Russians had the money to pay for it, and that would have finished off the war rather quickly. On both sides of the front — Russia would have been able to launch absolutely massive drone swarms, Ukraine on the other hand would have been deprived of drones and would not have been able to impose the long stalemate. But we only got export controls on drones a week ago…

            Serbia was the worst though.

            Orthodox South Slavs are traditionally strongly Russophilic, but with an important difference.

            Bulgarians are traitors to Russia by tradition — the population might be strongly Russophilic but the elites have repeatedly sided with the West — WWI, WWII, and now in the coming WWIII too.

            Serbia hasn’t been like that — it has been generally loyal to Russia in times of war. And yet now Serbian shells have somehow been finding their way in the hands of the AFU too…

            Reply
            1. Yves Smith Post author

              India is not an ally of Russia. I suggest you read Jerri-Lynn’s extensive discussion of what foreign minister Jaishaknar has said. India is pursing an independent path and has publicly rejected the US (and implicitly your) position, that you are either with us or against us. You are FURTHER arguing that Russia should attempt to use its leverage from being a net buyer of Indian goods (which is the position it would be in if it were accumulating rupees) to make demands as to how India runs its economy. Sound colonialist to me.

              Reply
            2. Lazar

              You are the worst. Real life does not function the way you imagine. Once you sell something, you can’t control how and where it will be resold. Russian oil ends up in Ukraine too.

              Reply
    3. CA

      “We have been hearing about Kazan…”

      As part of the Belt and Road radiating from Xinjiang, trade with and through Kazakhstan is flourishing:

      https://news.cgtn.com/news/2024-09-26/Ancient-Silk-Road-hub-Xinjiang-sees-31-foreign-trade-growth-1xdnRmSMSTS/p.html

      September 26, 2024

      Ancient Silk Road hub Xinjiang sees 31% foreign trade growth

      Northwest China’s Xinjiang Uygur Autonomous Region saw a yearly rise of 30.9 percent in foreign trade in the first eight months of this year, the local customs authorities said Thursday.

      The region’s total import and export volume from January to August reached 285.32 billion yuan (about $40.55 billion), according to Urumqi Customs…

      Reply
  5. bertl

    I seem to remember a paper produced by the UK Treasury when it still had one or two people capable of rational thought which argued that a better alternative to a single currency would be to allow the markets to develop and thereby rank their preferred currencies for trade and exchange reserves, and there might be 3 or 4 or more favoured currencies use for the bulk of trade. However the in-built flexibility of the system means that the rank order might change through usage over time. As the system settles, additional measures might be taken to enable the less wealthy countries to catch up through FDI or interest free loans and grants from surplus countries, which it seems that China and Russia are already doing.

    It might be useful to ask Andy Haldane to contribute his thoughts on the matter.

    Reply
  6. spud

    i think the era of free trade is over. it should have never been resurrected in the first place. its a really bad idea that just will not die, and drags the world into inevitable debt, poverty than war.

    no matter how many are enticed into another free trade debacle where where you dump one master for another, appears to be on the minds of many these days.

    time to set up some sort of barter clearing house, that includes bartering currency. it will not be a substitute for all trade, but its a start that allows for sovereignty and less debt.

    Reply
  7. Francesco

    BRICS do not need a common currency, the world does not need another currency, surplus countries do not want a Bancor-like monetary system. What BRICS want is what many other countries want and what the European central banks already have: a neutral reserve asset which can be used to settle trade imbalances and not an infinitely produced government bond of any nation that can be defaulted or turned into a weapon. The reserve asset is already here, it has always been here and if someone wants to start a tirade about its barbarity I suggest checking if we are living in a civilized world since tens of thousands of children are being slaughtered without any intervention by the so-called civilized countries. So, if we are in a barbaric world, we can only have a barbaric reserve asset.

    Reply
    1. Yves Smith Post author

      I suggest you bone up. Gold regimes are deflationary, as in destructive. Countries cheat on them by changing their currency values v. gold. Peter Temin describes long form in his book. Lessons from the Great Depression that the effort to restore the gold standard in the 1920s after it broke down in the Great War were the cause of the Great Depression (he even goes though other major theories and shows why they don’t hold up to scrutiny).

      So please don’t try selling a gold standard here.

      And in any event, some important BRICS players, like Indonesia. are opposed and I don’t see it coming up much/at all as an idea among BRICS players (the peanut gallery is a different matter).

      Reply
      1. ebolapoxclassic

        Using gold as a reserve asset (in place of US Treasuries) and putting your currency on a gold standard are not the same thing at all. And with the gold price dramatically surging for more than a year now, at a speed we haven’t seen since the 1970s, there is every reason to believe that the former is already happening behind the scenes.

        There is no reason that putting your currency account surpluses into gold, or for that matter into copper, or iron ore, or wheat, or whatever, would be deflationary, as long as you don’t tie your domestic money creation to the amount of gold availble (i.e. put your currency on a gold standard). This point has been made by me and others (including Michael Hudson) many times already.

        Jaishankar himself makes a very similar conflation, for reasons I can’t really fathom. He says, correctly, that going on a common currency like the euro requires convergence in monetary policy and so on. But as bizarre as the “BRICS trade currency” has always seemed to me (especially if it’s going to be gold-backed – then why not refer to gold grams on your central bank balance sheets like the Bank for International Settlements used to do for more than 60 years? why invent a whole new “currency” that just refers to gold?), the idea of a BRICS currency has never been presented or even implied as a replacement for the existing domestic currencies of the BRICS countries. It was always presented as a synthetic instrument that would be used for trade settlement only (and as such, as Michael Hudson has also pointed out, shouldn’t really be called a currency at all).

        Reply
        1. Ingolf Eide

          Excellent comment. It nicely untangles many of the confusions that persistently seem to arise around this topic.

          As well as being an obvious alternative reserve asset, gold is also (where needed) the most neutral and efficient means of settlement.

          Slightly off topic to your comment, but I say “where needed” because it seems to me some of the existing imbalance problems, particularly Russia’s accumulation of unwanted rupees, ought to be solvable through constructively employing the fruits of India’s oil imports . . . namely, the US dollars and Euros India is accumulating through its sales of the repackaged, mixed (and possibly refined) imported Russian crude.

          Reply
      2. Francesco

        I am not advocating a gold standard. That is foolish, stupid and doesn’t work. But gold as a reserve asset does not imply gold as a reserve or trading currency. Countries trade as they wish but gold is here as a reserve asset as it has always been. Trade imbalance settlement in Gold is perfectly fine. The behavior of most of the central banks supports this thesis.

        Reply
    2. Paul Greenwood

      that absent mechanisms to encourage balanced trade such as the ones that were part of Keynes’ Bancor, many countries are likely to wind up with sustained trade deficits relative to particular trade partners.

      These are fair points even if US usurped Bancor to run persistent trade deficits to keep the world lubricated with US dollars – starting with persistent wars in Asia to industrialise Japan, Taiwan, Korea, Thailand – and destroy US consumer electronics industries.

      Why there cannot be an Accounting Unit – not a currency in issue – but a Currency Unit as a settlement identity like “Transferable Rubles” were in CMEA – Had the Euro stayed as “ECU” it would have been much better…….indeed the corollary of the Euro as a physical currency is TARGET2 at BUBA which is the definition of an Accounting Identity to which noone seemingly pays attention !!!!!

      In UK it is permitted to file Company Accounts in any chosen Currency so long as Taxes are settled in national currency – it would be a different way of recognising currency risk on the equity account

      Subrahmanyam Jaishankar is someone I respect, and I know India has serious trade deficit problems with Russia for which it has no counterbalancing exports to generate Rubles. There was talk of China engaging in a trilateral arrangement which would involve Chinese production in India – but India’s coquettish relationship with USA makes matters more complex. Even the project with Sukhoi fighters assembled in India reveals terribly low productivity and India has serious problems as an energy importer.

      Hudson’s point however is paramount – India illustrates the problem when trading with a technology and resource rich partner like Russia or a technology-rich partner like China – what do you sell them ? As one who drinks Indian tea packaged in Russia and previously Sri Lankan tea packaged in Russia – very good quality – it is clear how these countries have few high-value product groups to fund imports of energy and fertilisers……..

      Egypt is inviting Russian firms to revitalise its food production industries – it is clear why India needs EU/US trade embargoes on Russian oil and diamonds – simply to generate supernormal profit on the spread when selling “Indian cut diamonds” and “Indian refined diesel” to Western Europe

      Reply
  8. Humanitarian Grenaid

    Thanks for the informative post yves.

    I understand the argument that most currency conversions occur within the context of investment transactions rather than commodity trades, but I’m still puzzled. While I see how investments can drive currency exchanges, I struggle to imagine such a high volume of investment transactions without a tangible connection to real-world goods. Shouldn’t there be effects from these investments, like the purchase of physical resources such as cement, iron, or food? After all, the investments have to be directed into something, but I’m unsure of what those things are exactly.

    Similarly, in the context of the discussion on the potential for a BRICS currency, where the focus is more on using national currencies for transactions between member nations rather than a common currency, this confusion doesnt go away. Wouldn’t the investments or currency exchanges eventually need to materialize in tangible economic activities or products, like oil or metals and similar things?

    Reply
  9. Michael Hudson

    There is a great difference between creating a common euro-like BRICS currency used by all countries for their trade and investment, and an inter-governmental means of settling the accumulating imbalances that develop.
    Creating a common money supply requires the political participation of all member countries, regarding who will get what. This requires a close degree of political integration. That will take a few years.
    Creating a central bank to deal with inter-governmental debt and credit balances does not require any such common currency. It requires an agreed upon artificial currency as a measure of value – and the conditions on which countries can run up large surpluses (China) or deficits. This problem was all discussed by Keynes in his proposal for the bancor back in 1944 as an alternative to the IMF. (I discuss this in Super Imperialism.)
    The only discussion of the latter that I have seen is a bitcoin-like cryptocurrency (the UNIT, according to Pepe Escobar) that would be used not only by central banks for the above purposes, but as a general speculative vehicle by exporters, importers, investors and savers (speculators). That might make early investors rich quickly, but is hardly aimed at solving the problems most urgent by the Global Majority

    Reply
    1. CA

      “There is a great difference between creating a common euro-like BRICS currency used by all countries for their trade and investment, and an inter-governmental means of settling the accumulating imbalances that develop…”

      Surely so, and there is a BRICS bank or “New Development Bank” with Dilma Rousseff as president.

      Since 1994, China has had the strongest currency in real terms among at least the 20 largest economies. I have no sense of China wanting to change the status of the Yuan, and foreign currency reserves of over $3.3 trillion, along with over $1.3 trillion in sovereign wealth fund reserves suggest no reason for China to be interested in a change of status for the Yuan.

      Reply
    2. ChrisRUEcon

      Thank you! Thank you! Thank you!

      > Creating a common money supply requires the political participation of all member countries, regarding who will get what.

      I called this out in my comment a few days ago on the “BRICS and De-Dollarization: An Alternative or Potential Disaster?” NC post. How does one determine who gets what in terms of their ability to issue or their allocation of a common currency? That would have to be agreed upon by all parties (issuers and users, if such a distinction is made).

      See also this comment about the varying systems of governance across the current BRICS on “BRICS’ Expansion Is Beneficial But It Also Isn’t Without Strategic Challenges”. I concluded there that perhaps the BRICS is not the entity from whence a common currency for the emerging Global South emerges. Thanks to NC, I can now suggest that maybe a good testbed would be a subset of the net importers from the G77 (of which China is also a member).

      > That might make early investors rich quickly, but is hardly aimed at solving the problems most urgent by the Global Majority

      Exactly. #BitCoin should be avoided like the plague.

      Reply

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