India is unlikely to endorse a common BRICS currency, which is being envisaged by some as an alternative to the US dollar, as it fears that it would increase China’s dominance in the bloc and also further strengthen the yuan.

But it may not, at the moment, make definite moves to block discussions as not much movement on the proposed common currency is expected at the BRICS Summit in Johannesburg later this week, sources tracking the matter said.

“New Delhi is clear about not being part of the proposed BRICS currency as it sees it as China’s attempt to gain hegemony. But whether it will use its veto power to stop the attempt or allow other members to go ahead with their plans is a call that need not be taken immediately. It may take a long time for the plan to take a concrete shape because of the different levels of economic development of members,” the source said.

Leaders from Brazil, Russia, India, China and South Africa are scheduled to participate in the 15 th BRICS Summit in Johannesburg on August 22-24. Indian Prime Minister Narendra Modi and Chinese President Xi Jinping are both expected to attend it in-person.

It was Russia, which cannot trade in the US dollar because of the West’s economic sanctions against it, that announced earlier this year that a BRICS currency was under consideration to challenge the dominance of the US dollar and Brazilian President Luiz Lula da Silva was quick to back it. But it is China which is expected to gain the maximum economic mileage from it, feel experts.

“If we look at the euro experience, the exercise was driven by Germany, the largest economy, and the Deutsche mark became more of an intervening currency. China, which is the dominant economy in BRICS, will be calling the shots here. The BRICS currency will be de facto hinging on yuan and others will have to play ball,” pointed out Biswajit Dhar, Distinguished Professor, Council for Social Development.

Since yuan is already an international currency and is in the SDR basket, a BRICS currency will bring China closer to realising its dream of internationalising the yuan and challenging the dominance of the US dollar, Dhar said. The US dollar accounted for 58.36 per cent of global foreign exchange reserves in the fourth quarter of 2022 while euro accounted for 20.5 per cent and the Chinese yuan just 2.7 per cent, according to IMF data.

However, since all BRICS members have different economic situations and exchange rate plays a big role in the macro economic space to manage volatility, one of the biggest problems would be to determine the value of the currency.

“To operationalise the proposed BRICS currency, one would need a Central Bank kind of arrangement where China would be taking the decisions. If say India or Brazil has an economic problem and China doesn’t, one would not expect Beijing to agree to move the exchange rate. It would be like a fixed exchange situation which members will not be able to manipulate to suit their particular needs,” Dhar added.

It would also be difficult for BRICS members to have harmonisation of financial rules and regulations, that a common currency calls for, such as the debt-to-GDP ratio, volume of trade and hard currency reserves, the source pointed out.

“The weaker economies in the EU, like Greece and Portugal, suffered so much pain when the Euro was introduced despite the fact that there was free mobility of labour in the region and a strong social security net existed. BRICS is not geographically contiguous nor is there adequate social security for weaker countries to allow their economies to contract by accepting strict debt-to-GDP ratios,” the source said.

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