The whole world urgently needs to find an alternative to the US dollar, and everyone expects the BRICS group of countries to be the first to solve this problem.
Russia is most interested in this matter, due to Western sanctions, therefore, it wasn’t surprising that Russian experts and Russian financial authorities presented in-depth studies in discussing this issue.
I will try here to review what we can call, with some reservations, the Russian vision of this issue.
As I understood from the discussion of this issue during the recently held Eastern Economic Forum in Vladivostok, it is too early to talk about the existence of any agreed upon plan or at least the existence of a clear understanding of the stages and mechanisms for creating a BRICS currency among the Russian authorities themselves.
Today, we can only talk about the consensus that a unified currency for the BRICS member states isn’t yet realistic, as this would require giving up some sovereignty, and years, if not decades, of principled political and economic integration.
The realistic goal is to create a traditional unit of account in which the income of member countries isn’t traded, but is used only in settlements between countries, and is then exchanged by the central banks of the member countries in the local currency.
As a parallel, we can remember the “European Currency Unit” (ECU) in the period from 1979-1998.
This virtual currency may be linked to a basket of currencies of member countries and/or to a basket of commodities, perhaps the prices of which can be largely controlled by the member countries of the Organization.
When linked to currencies, a so-called “currency snake” can be included from the agreed exchange rates of participating countries, as was the case in Europe before the introduction of the Euro.
However, the option of pegging currencies, from my point of view, isn’t entirely realistic, especially during the global crisis, when exchange rates jump by 10%.
However, one of the serious obstacles to establishing the account currency is the need to set prices in the account currency and control the prices of basic commodities, which are currently completely controlled by Western financial structures.
In order for a currency to be linked to a commodity, commodity prices must be stable, and are determined through long-term contracts within the organization.
It’s also necessary to exclude the influence of international speculators, so the prices of these commodities must be determined on stock exchanges within the BRICS countries.
I would add that the BRICS countries, especially if the group continues to expand, can relatively easily control the prices of wheat, oil, coal, fertilizers, rare metals and a number of other commodities.
This is if there is a desire to do so, of course.
In my humble opinion, it’s inappropriate to determine the prices of raw materials on the stock exchanges of the United States and Britain, which are no longer the main consumer or producer of oil and other commodities.
Within the framework of the BRICS group, wheat prices can be determined on Russian stock exchanges, for example, and oil prices on the Saudi stock exchange.
Because of the aforementioned difficulties, Russian experts believe that the most realistic approach is to link the BRICS currency to gold, so that its price must be averaged over a certain period.
The settlement mechanism will be based on clearing, meaning that the balance of trade transactions between countries will be calculated once a year, and the deficit will be settled by transferring gold.
To do this, it’s necessary that the settlement currency area includes countries with mutual and balanced trade among themselves, then minor imbalances, at the end of the year, won’t require large amounts of gold for final settlements.
According to calculations, to achieve trade balance, this region should include Eurasia and some of the largest African countries.
Lending and settlement mechanisms similar to the Paris Club should also be established within the dollar system, and special classification and insurance agencies should be established.
Over time, it’s necessary to move from support with gold to support with bonds of the largest participating countries, which requires the development of the debt market and financial stability of the BRICS countries.
At the forum, in response to all this abundance of ideas, the Chinese representative responded clearly that his country now has neither the ability nor the desire to create an alternative to the dollar.
This is an issue for the coming decades, and perhaps for several generations.
First, we need to create a transport infrastructure (linked to China), and it needs to be developed, bringing cultures closer together and achieving a certain political unification.
I don’t think the Chinese are so naive as not to take into account the possibility of a sudden military conflict with the USA, thus forcibly separating their country from the US/global monetary system (as happened with Russia).
I believe that China is showing the United States false modesty in order to delay military conflict, and wants global hegemony to be transferred to it without a fight, as a result of the smooth growth achieved by China’s economic penetration in other countries.
For my part, I would like to point out that this won’t happen.
Secondly, China is interested in granting the yuan the status of a global trade currency and a reserve currency, without common currencies with anyone else.
In either case, China doesn’t seem keen to impose a confrontation with the United States, but it may find itself in the position of Stalin during World War II, when, on the day of Hitler’s attack on the Soviet Union in 1941, he ordered Soviet forces “not to respond to any provocation,” in an attempt to delay the war, which largely caused huge losses to the Soviet forces and their retreat in the first months of the war.
The Sino-American confrontation will most likely erupt between unprepared parties in the same way that the American-Russian clash broke out in Ukraine.
There is another factor: Of the $305 trillion in global debt, $75 trillion is external debt, a large portion of which is denominated in dollars.
Also, according to the World Economic Forum, there is $65 trillion of “shadow” debt in the world, which is also denominated in dollars.
To repay this debt, the debtor will need dollars, meaning that the debtors’ demand for dollars will continue for a long time, unless bankruptcy is declared and this debt is defaulted.
My conclusion from all that has been said is that an orderly transition from one global monetary system to another is highly unlikely at present.
Russia alone is interested in finding an alternative to the dollar to the extent that it’s able to take practical steps to achieve this goal, but this one isn’t enough for a complete alternative to the dollar to emerge.
But the lack of an alternative to the dollar won’t prevent its collapse.
The dollar will be replaced, but in an unregulated and emergency manner, through the collapse of the global debt pyramid and the collapse of the contemporary monetary system.
What will inevitably follow will be a period of chaos and a long, gradual recovery for global trade based on several currency areas, dominated by the strongest regional currencies, which are likely to be linked to gold.
As they say: Destiny leads those who come willing, and drags those who don’t come willing.