De-dollarisation has been in the news for a long, with a concerted effort being made by countries like China, Russia, and India, among others, to reduce its influence on the global economy. In an attempt to challenge the US Dollar’s hegemony in the global financial system, particularly after the blockage of Russia from the SWIFT banking system and its access to its USD reserves, alternate trade settlement mechanisms are being developed. In the present context, the BRICS summit in Kazan is becoming important, with many other nations like Saudi Arabia, the UAE, Iran, Egypt, and Ethiopia also attending. The main agenda will be Russia’s bid to create a new denomination for oil – a Petroyuan – to mirror the mechanism of Project mBridge.
This new multi-central bank digital currency arrangement will connect different jurisdictions to a single common technical infrastructure, inviting further international participation. It will allow for immediate settlement among partner central banks without scrutiny by outsiders such as SWIFT and the US. However, to be successful, the petroyuan must fulfil three criteria: denomination, payment means, and value storage. While denomination might be simpler to achieve, it will be challenging to accept as a payment or value storage method. This is because many nations like India are net importers with a better trade balance in the negative by a considerable margin with China. Secondly, with the volatility in the Chinese markets, the slow collapse of its real estate market and the multiple geopolitical tensions has with various countries, including India, the feasibility of this option becomes questionable.
Another option could be a BRICS CBDC and Petro-BRICS currency. This would look like a unified BRICS currency indexed to the weighted average of a basket of currencies. Keynes first suggested this in the 1940s, explaining that a currency could be fixed to a basket of commodities like gold, wheat, and cotton, stabilising its value and preventing currency fluctuations. Many prominent oil-producing nations like Iran and Saudi Arabia want to join the BRICS. Moreover, Russia has also proposed the creation of a BRICSGrain Exchange.
Food security has become important since the pandemic and the Russia-Ukraine War. However, grain prices are decided based on data from the Chicago Mercantile Exchange (CME), with settlements in US dollars. Thus, despite being key participants in the global grain market, BRICS countries cannot influence the prices with BRICS expanding at the Kazan.
Summit’s global production and consumption share becomes 44 per cent at 1.24 billion tons. Leveraging these advantages, along with a unified transacting infrastructure along the lines of the CBDC settlement system, can enhance the ability of these nations to trade, ensure food security, reduce poverty levels, and ensure overall economic stability in the region.
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