Brazilian Economist Presents Proposal for BRICS Currency
Paulo Nogueira Batista is a highly-respected Brazilian economist who served as Vice President of the BRICS New Development Bank (NDB) from 2015-2017. In a sharp speech delivered on Oct. 3 at the Valdai Club Dialogue meeting in Sochi, Russia, he both reiterated his proposal for creating a BRICS-linked new currency to issue development credit, and addressed the mistakes that led to years of inactivity of the group’s NDB and its Contingent Reserve Agreement (CRA).
On his proposal, he noted that “Since the U.S. dollar (and the euro) can no longer be fully trusted, it is natural that de-dollarization should proceed, probably in a gradual manner. A BRICS currency could be an important step in that direction.” This new currency could be a unit of account used by the NDB and the CRA, made up of the five BRICS currencies, dubbed the R5. He recapitulated a few basic points of his proposal as follows:
“1) The R5 or R5+ need not be a physical currency, it can be digital. 2) The new currency would not replace the currencies of the BRICS countries but would circulate alongside them, being used mainly for international transactions. 3) The BRICS central banks would continue to exist as now, fulfilling all the functions of a monetary authority. 4) An Issuing Bank would need to be created, in charge of issuing the new currency and putting it into circulation.”
Concerning the key question of credit creation, he asked how the new currency could be backed in some way, but “not by gold or other commodities, given the instability of their prices. One approach would be to back the R5+ by bonds guaranteed by the BRICS countries.” The NDB could then issue loans and bonds in R5+.
We would add that an approach of giving backing to a new currency by using it to issue credit for productive investments is the only viable alternative to the current London-controlled speculative dollar system.