by Mario Lettieri and Paolo Raimondi * –
What happens in the global monetary and financial world cannot be further ignored and buried under certain hostilities towards China and the global south in general. The process inherent in the use of different currencies compared to the usual use of the dollar is nothing other than a natural, non-military push towards a new peaceful geopolitical order based on international cooperation.
Meanwhile, Egypt has just declared that it intends to gradually abandon the dollar in its commercial activities and also urges its partners to use their national currencies in agreements. Remember that Egypt is a new entry in the Brics group. The decision and similar ones taken by many countries are the consequence of the sanctions policy and the uncertain value of the dollar due to the enormous growth of American public debt.
This concern was also highlighted at the recent meeting of finance ministers and central bank governors of the BRICS held in Sao Paulo, Brazil. It was stated, in particular, that the current international payments system “is used as a weapon of political and economic pressure”.
The emphasis placed therein is “on the growing importance of the multilateral format in the international monetary and financial system and on the need to increase the role of national currencies in mutual trade.” Therefore, the need for alternative mechanisms is also affirmed in cross-border payments, since the vast majority of states have realized that some Western countries feel authorized to dictate their will to others, threatening to interrupt access to global economic processes .
Many countries, most recently Nigeria and Pakistan, intend to escape the impositions of the major institutions of the Bretton Woods system, such as the IMF and the World Bank. In fact, the New Development Bank, the Brics bank, is increasingly active and is seen as the potential future credit center of the Global South. For example, it is preparing to create bonds in local currencies for the equivalent of over 28 billion dollars. Some Western observers speak of a slow process. Perhaps, but it continues to grow.
In Sao Paulo, the creation of the multilateral platform “Brics Bridge” was discussed which aims, among other things, to facilitate payments and settlements through the use of digital currencies created by central banks. The program is inspired by the “Project mBridge” of the Bank for International Settlements in Basel for the use of central bank digital currencies in cross-border transactions. And in parallel we are working to connect them with national financial messaging systems.
Another aspect of the platform is the use of a third currency in trade between two different countries. For example, Russia exports a lot to India but has limited imports. Payments made in rupees are likely to accumulate large amounts of Indian currency. At one point the imbalance reached $40 billion. Therefore, the use of another currency, such as the Chinese yuan or the UAE dirham, is being studied to overcome financial difficulties in trade between India and Russia. Another possibility is to use rupees to buy Indian bonds linked to infrastructure projects. Meanwhile, the use of the yuan to pay for Russian exports has increased 86 times, reaching 34.5% of total payments over the past two years, according to data from the Central Bank of Moscow.
The next and decisive step, also raised at the Sao Paulo summit, is the creation of a unit of account, that is, a non-circulating but essential currency for regulating trade and overcoming many difficulties. Moreover, in Europe we are well aware of the positive effects of the ECU, the unit of account that has favored economic union and the free exchange of goods on our continent.
* Mario Lettieri, former deputy and undersecretary of the Economy; Paolo Raimondi, economist and university professor.
