Decade-old Local Currency Push by BRICS Is Still A Pipe Dream

China, for one, has taken advantage of the US disarray and launched a sweeping campaign to promote the yuan’s global role. In a speech last month, Chinese central bank governor Pan Gongsheng outlined a vision in which the country’s financial markets are more open and the yuan plays a central role in the world’s capital flows.

Beijing is exploring the launch of the country’s first domestic currency futures, which could compete with similar hedging tools in offshore markets like Singapore and Chicago, and is expanding its own payment system, known as CIPS, to cover more foreign banks.

Trump pushback

BRICS leaders also reaffirmed their commitment to expand local currency financing, diversify funding sources and strengthen cooperation in trade to promote inclusive growth and sustainable development.

A document obtained by Bloomberg that outlines the latest thinking by the bloc shows that discussions around a new investment platform dubbed NIP are similarly stalled.

The platform is seen as potentially filling a gap in development finance, providing more flexibility and reducing the dependency on hard currency financing. But “given the variety of approaches and proposals raised, and the complex nature of the issues involved, further technical dialogue will be essential to advance a common understanding of the Platform’s potential added value and operational framework,” it reads.

Trump has threatened to slap 100% levies on BRICS if they ditch the dollar in bilateral trade. The pushback, in turn, has spurred interest in developing local payment systems and other instruments that can facilitate commerce and investment between the nations.

The idea of abandoning the dollar and setting up a common currency for the bloc isn’t under discussion, several officials have said. The US leader’s response has not delayed BRICS conversations for the integrated systems, three people said.

“One of the ways to bring countries closer together is to reduce financing costs for trade operations. And one of the ways is to use more local currencies,” Tatiana Rosito, secretary for international relations at Brazil’s Finance Ministry, said in an interview. “Banks say that, depending on the period in which you carry out the operation, they may need to use the rate converting renminbi to dollars. But the goal in the end is you one day don’t have it.”

If there’s a liquid market, “you will have a direct exchange rate real-renminbi, real-rupee, real-rand,” she said. “But this will depend on whether you have a critical mass and a volume of trade investments.”

High rates

The BRICS statement also references the added challenge presented by “fluctuations in financial and monetary policies in some advanced economies” for countries already grappling with high debt levels. “High interest rates and tighter financing conditions worsen debt vulnerabilities in many countries,” it reads.

The bloc is also in discussions to establish a multilateral guarantees initiative which would focus on improving “creditworthiness in the BRICS and the Global South.” The initiative, dubbed BMG, will be incubated within the NDB and start without additional capital contributions, according to the statement.

--With assistance from Alan Crawford.