Title: BRICS Cooperation Highlights Urgent Need for Diversification of International Monetary System
Xinhua News Agency, Beijing, August 26 (International Observation) – The recently released Johannesburg Declaration of the 15th BRICS Summit has underscored the importance of promoting the use of local currencies by BRICS countries in international trade and financial transactions. Experts believe that this move reflects the urgent need for a diverse and reformed international financial and monetary system, which aligns with the aspirations of emerging economies and developing countries.
The declaration instructs relevant institutions to conduct research on local currency cooperation, payment tools, and platforms among BRICS countries. This emphasis on local currency settlement cooperation aims to strengthen the representation and voice of developing countries and ensure the continued diversification of the international monetary system.
In recent years, there has been a growing trend among emerging economies and developing countries to promote local currency settlement and cross-border payments. This has been evident in energy trade, with examples such as the first cross-border RMB settlement transaction of liquefied natural gas between Chinese and French companies in March, and the first cross-border settlement of UAE crude oil in local currency by India in August. Additionally, ASEAN member states have expressed their intent to strengthen the use of local currencies, and numerous countries have signed various local currency swap agreements.
Furthermore, emerging economies and developing countries are actively diversifying their asset reserves. According to a survey by the World Gold Council, global central banks, particularly those in developing countries, have been increasing their holdings of gold, indicating a desire for more diverse reserve assets.
The international community has closely followed the progress of RMB internationalization, with China and Brazil signing a memorandum of cooperation earlier this year to establish RMB clearing arrangements in Brazil. Additionally, the Argentine government announced its intention to use RMB for trade settlements with China. Currently, the RMB ranks fifth in international payments, fifth in international reserve currencies, and third in the International Monetary Fund’s Special Drawing Rights currency basket, showcasing its growing internationalization.
The demand for a more diverse international monetary system is driven by developing countries’ aspirations for a fairer and balanced global financial order. The current international monetary system, largely dominated by the US dollar, has led to significant financial risks for developing countries due to self-interest-driven monetary policies pursued by developed countries, notably the United States. Developing countries want to avoid the adverse effects of developed countries’ monetary policies and seek more independent economic development.
The dissatisfaction with the US dollar’s dominance has prompted developing countries to explore greater independence in the international monetary system. Nigel Green, CEO of the Dwell Group, highlighted the benefits of promoting system diversification for Asia, including increased flexibility to implement policies aligned with economic conditions, stronger regional trade and investment cooperation, and enhanced stability and growth.
The diversification of the international monetary system represents a common expectation and necessity for improving global economic governance. Developing countries have significantly contributed to global economic growth, accounting for 80% of it over the past two decades. Moreover, their share of global GDP has risen from 24% to over 40% in the last 40 years. Therefore, it is crucial to enhance the representation and voice of developing countries in global governance structures.
Experts from various think tanks and universities have echoed the need for diversification. Dan Steinbock, director of international business research at the India, China, and America Institute, emphasized the importance of BRICS countries’ efforts in promoting diversified cooperation, stating that the international financial and monetary system cannot solely serve developed countries. Marcos Pires, director of the Institute of Economics and International Studies at Sao Paulo State University, viewed the promotion of currency swaps by developing countries as a significant step towards establishing a fair international financial order.
Jeffrey Sachs, a professor at Columbia University, highlighted that the status of the US dollar in the global financial system is disproportionate to the size of the US economy. Furthermore, frequent financial sanctions imposed by the US against other countries are eroding the dollar’s status. This development is expected to pave the way for the rise of currencies other than the US dollar.
As emerging economies and developing countries continue to forge closer ties and deepen their regional integration, the quest for a diversified international monetary system becomes increasingly crucial. The BRICS cooperation, in particular, serves as a platform for advancing these aspirations and pushing for reform in the international financial and monetary landscape.