Feasibility of a BRICS Common Currency

Abstract

In 2006, Brazil, Russia, India, and China created the "BRIC" group. South Africa joined in 2010, making it "BRICS". The group was designed to bring together the world's most important developing countries, to challenge the political and economic power of the wealthier nations of North America and Western Europe. Today, the BRICS countries are exploring ways to reduce their dependence on the US dollar in international trade and finance. By admitting new members into the alliance, they believe that a larger and more diverse group of countries can better challenge the dominance of the US dollar in the global economy. Consequently, the BRICS nations are promoting the use of their national currencies in bilateral and multilateral trade, exploring the potential of digital currencies and other financial instruments. In addition, Brazil’s president, affirmed by the Russian prime minister, has called for the creation of a shared currency within the BRICS group. The purpose of this research is to analyze the feasibility of a monetary union in BRICS through the examination of the extent of the bloc’s fulfillment of the OCA criteria. For this purpose, I employed a mixture of qualitative and empirical analysis using descriptive statistics and various econometric models. Results provide evidence of economic symmetry in GDP growth rates, efforts in enhancing labor mobility, technological, educational, and skill-sharing projects. Moreover, the results reveal upward trends in trade, positive development in bilateral trade agreements, and growing financial integration. Furthermore, the establishment of financial institutions such as the NDB and CRA reflect commitment to advance economic consolidation. However, the BRICS countries exhibit diverse economic profiles, political stability variations, discrepancies in economic dynamics and fiscal conditions, and lack of a shared vision. Therefore, for the monetary union project to be successful, the BRICS countries have to address those challenges and focus on coordinating macroeconomic policies, develop flexible monetary mechanisms, enhance fiscal policy coordination, reform their financial institutions (NDB and CRA), seek convergence across a broader range of macroeconomic indicators, foster legal and political readiness, commit to a shared vision, and most importantly, learn from previous monetary union experiences, mainly the EU.