The Brics Common Currency

Lessons from the Eurozone crisis emphasise the need for convergence and robust institutions. Rather than rushing toward a uniform currency, India can opt for a calibrated approach: ex-panding the rupee’s international footprint, supporting local currency financing at the NDB, investing in payment technologies, and coordinating financial regulations

As the global economy undergoes transformative shifts, the notion of a common currency among the BRICS nations—Brazil, Russia, India, China, and South Africa—has resurfaced. Ad-vocates of BRICS common currency argue that such a currency could strengthen intra-BRICS trade, reduce reliance on the US dollar, and elevate these emerging markets’ collective eco-nomic heft. However, India’s decision-makers must carefully evaluate whether this ambitious proposal aligns with its economic realities, policy priorities, and strategic aspirations. This article examines how a BRICS common currency might affect India’s economy, monetary pol-icy, and broader international position while proposing practical alternatives and recommendations. India, on track to become a $5 trillion economy in the next three to four years, contends with a rapidly evolving international environment marked by digitization, geopolitical tensions, and reconfigured trade partnerships. The Reserve Bank of India (RBI) is central to shaping mone-tary policies that tackle inflation and ensure financial stability. Meanwhile, India aspires to advance its trade competitiveness, attract foreign capital, and gain a more significant voice in global economic governance.

Benefits for India

In 2022, India’s trade with BRICS reached roughly $100 billion. A single currency could cut ex-change rate fluctuations and transaction fees, benefiting small and medium-sized enterprises (SMEs) that grapple with currency hedging expenses. By eliminating these barriers, SMEs could expand their export portfolios and enter new markets. The dominance of the US dollar in trade exposes India to external vulnerabilities like shifts in American monetary policy and sanctions. An alternative settlement arrangement through a BRICS currency could lessen such risks. The RBI’s foreign exchange reserves, which stood at about $644.391 billion for the week ended December 20, might be conserved more effectively if the need to hold dollars is reduced. An active role in a BRICS-wide currency could elevate India’s global standing. By aligning with this initiative, India could showcase its commitment to south-south cooperation and economic integration. Strengthened leverage within international financial institutions may also follow, consistent with India’s strategy of advocating for emerging market interests in global governance.

Issues, Concerns

India’s monetary policy, aimed at maintaining inflation around 4% with a tolerance band of ±2%, is finely calibrated to domestic conditions. A common currency necessitates closer alignment with the monetary policies of other BRICS members, who face different economic dynamics. Brazil’s inflation in 2023 hovered near 4.59%, while Russia’s surpassed 5.86%. Such divergence could compromise the RBI’s flexibility to tackle localized economic con-cerns. Common currencies often go hand in hand with rules or guidelines that ensure member nations manage their fiscal positions responsibly. India’s fiscal deficit was about 6.4% of GDP in 2022–23, reflecting spending on public works and social programs. Enforcing uniform fiscal protocols to maintain a shared currency’s stability might curtail India’s discretion in funding its development priorities. Within BRICS, there is considerable variation in GDP size, industrial structure, and per capita income. China’s economy, for instance, is roughly five times larger than India’s. While China is a significant global exporter of manufactured goods, India’s econ-omy leans more on services and often runs a trade deficit. If a shared currency were to tilt monetary or fiscal policies to favor a more dominant economy, less competitive peers could be disadvantaged. The Eurozone experience offers a cautionary tale: a single monetary policy applied to heterogeneous economies can lead to severe strains if there is no robust mecha-nism for fiscal transfers or debt mutualization. Countries like Greece suffered when they could not deploy independent monetary tools. Should a comparable imbalance arise among BRICS, it could trigger vulnerability in the common currency area. India’s historical frictions with Chi-na and the fallout from Russia’s conflict in Ukraine highlight the complexities of trust within BRICS. Ongoing border disputes and the potential risk of sanctions on Russia amplify con-cerns regarding the stability of a shared currency project. Without a high degree of political cooperation, the monetary union’s viability could be undermined.

In a 2023 address, Dr. Rajan expressed caution, arguing that emerging economies like India cannot hastily relinquish monetary sovereignty. He warned that doing so could hamper a country’s ability to adjust its policies in response to domestic and external shocks. Subrama-nian Swamy underscored how diverging economic conditions among BRICS members could create a shaky foundation for a unified currency. Without marked convergence and policy co-ordination, a single currency might exacerbate imbalances rather than reduce them. Some believe emerging technologies can facilitate a common BRICS currency through a blockchain-based framework, streamlining cross-border transactions in real-time without full monetary integration. This approach, however, faces hurdles regarding cybersecurity, regulatory align-ment, and tech readiness across member states. Others advocate a phased transition, em-phasizing local currency usage first to promote trade and investment, then moving toward a shared currency. This gradual model might help the economies adapt and develop the neces-sary governance safeguards.

Way forward for India

India should strengthen the use of the rupee in bilateral trade, building on the RBI’s 2022 Framework for Facilitating Trade in INR. By promoting invoicing and settlements in rupees within BRICS, India can diminish dependence on the dollar without adopting a single currency outright. Institutions such as the New Development Bank (NDB) hold promise for funding large-scale projects across BRICS. Encouraging the NDB to channel trade financing in local curren-cies could stimulate deeper economic integration and ease currency-related risks. Moderniz-ing cross-border payment frameworks—such as linking India’s Unified Payments Interface (UPI) with comparable systems in BRICS nations—could expedite transactions and enhance security.

This synergy in financial technology might serve as a foundation for broader cooperation. India should champion collaborative platforms focused on regulatory norms and standards. Form-ing specialized working groups in areas like anti-money laundering, cyber protection, and banking oversight could cultivate the trust needed for more integrated financial partnerships. Closer financial ties with nations under sanctions or political isolation carry potential risks. Policymakers must develop contingency plans, weighing the pros and cons of deeper econom-ic entwinement in the face of external constraints and shifting alliances.

A BRICS-wide common currency could offer India advantages in trade facilitation and reduced reliance on the US dollar. Yet, challenges regarding monetary sovereignty, fiscal discipline, and geopolitical frictions are substantial. Lessons from the Eurozone crisis emphasise the need for convergence and robust institutions. Rather than rushing toward a uniform currency, India can opt for a calibrated approach: expanding the rupee’s international footprint, supporting local currency financing at the NDB, investing in payment technologies, and coordinating fi-nancial regulations.

Such measures could yield many benefits—reduced transaction costs, enhanced trade, and increased global clout—without compromising India’s monetary independence. Ultimately, Indian policymakers and stakeholders must engage in thorough deliberations, backed by em-pirical evidence and historical insights, to determine the best route forward. Suppose India pursues greater financial integration within BRICS while maintaining caution around geopolit-ical complexities. It can strengthen its economic standing without forfeiting the flexibility and autonomy essential for addressing domestic developmental needs.

(Dr Potharla, Asst Profes-sor at IBS, Hyderabad; Dr Chandra Shekar, Associate Prof. at IPE, Hyderabad)