A Brics currency illustration which could shake the Dollar’s dominance. Image: OFP Funding.
South Africa will have to choose between the dollar and a Brics currency in which to trade – but going for either will land Pretoria in trouble.
A political analyst said for now, the de-dollarisation proposed by Brics countries was pie in the sky and could not happen when the West-controlled Swift system still dominated international trade payments.
As the idea of the de-dollarisation of international trade is gaining momentum at the 15th Brics Summit in Johannesburg, the push to use local currencies will present a dilemma for South Africa, which trades with China and the West.
However, as a member of Brics, SA has to be seen to be playing the Brics game of undermining the US economic dominance, including world trade.
International relations expert Dr Sithembile Mbete of the University of Pretoria said the de-dollarisation and international payment system were two separate conversations that should not be conflated.
She said de-dollarisation was about the use of local currency in intra-Brics trade and the concerns over international payment that was inequitable.
The idea was for countries in Brics to use local currencies when trading with one another, but SA was envisaged to continue using the dollar when trading with the West.
“The conversations around the use of the local currency is almost seen as a stepping stone to de-dollarisation because you can’t have everyone just stop using the dollar or stop using it as a reserve currency and create a Brics reserve currency out of nowhere.
It doesn’t work like that,” Mbete said. “The idea of using the local currency, as we heard from all five Brics heads of state, is almost a step towards that.
Even that is more complicated… we heard President Cyril Ramaphosa saying that the modalities and details of that will be sorted out by the finance ministers.”
With the Swift system still so dominant in trade exchanges, Brics would have to find a way around it. To do that without Swift would require each of the Brics countries to hold enough of one another’s currency to trade with and that’s a huge ask.
“And it’s much more complex,” said Mbete. Ramaphosa, in his address to the open plenary session of the Brics Summit yesterday, said South Africa would “continue discussions on practical measures to facilitate trade and investment flows through the increased use of local currencies.
But he contradicted Minister of Finance Enoch Godongwana, who did not see the need for a move to the use of local currencies as envisaged by Brics.
Godongwana believed the discussions around de-dollarisation were premature.
He also referred to SA’s participation as a trading partner with the West and Brics nations, particularly China, its largest trading partner.
READ: Brics leaders agree to expand membership at summit
In his address, Ramaphosa said there were concerns about the dollar being used as a hegemonic tool. “We are concerned that global financial and payments systems are increasingly being used as instruments of geopolitical contestation,” he said.
He said global economic recovery relied on predictable global payment systems and the smooth operation of banking, supply chains, trade, tourism and financial flows.
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