Brics move to unseat dollar as trade currency by fin24.com | March 25, 2012
SOUTH Africa will this week take some initial steps to
unseat the US dollar as the preferred worldwide currency
for trade and investment in emerging economies.
Thus, the nation is expected to become party to endorsing
the Chinese currency, the renminbi, as the currency of trade
in emerging markets.
This means getting a renminbi-denominated bank account,
in addition to a dollar account, could be an advantage for
African businesses that seek to do business in the emerging
The move is set to challenge the supremacy of the US dollar.
This, experts say, is the latest salvo in the greatest worldwide
currency war since the 1930s.
In the 1930s, several nations competitively devalued their
currencies to give their domestic economies an advantage
And this led to a worldwide decline in overall trade volumes
at the time.
The north will be pitted against the entire south in a
historic competitive currency battle – whose terrain
has moved to the Indian capital New Dehli – where
the Brics (Brazil, Russia, India China and South Africa)
nations will assemble next week.
China seeks to find new markets for its currency and to
lobby to internationalise it throughout the Brics states.
For China this is not a new game. In 2009, senior Chinese
banking officials issued a statement that the international
monetary system was flawed owing to an unhealthy dependence
on the US dollar and called for a “super-sovereign”
international reserve currency.
Experts say Beijing’s first step is to internationalise
its currency (by expanding its reach beyond China), liberalise
it (to allow its value to be determined by the market instead
of actively managing it as they currently do) and then make
it a reserve currency for many nations in the developing
Africa’s largest bank, Standard Bank, says in a research
document: “We expect at least $100bn (about R768bn)
in Sino-African trade – more than the total bilateral
trade between China and Africa in 2010 – to be settled
in the renminbi by 2015.”
The bank anticipates that the use of the renminbi will
lower transaction costs in Africa, thus lowering the barriers
to doing business.
It also says that the Chinese will be more successful in
transacting in renminbi in Africa than anywhere else because
most currencies are weak and somewhat localised.
Not only will the US dollar be challenged, but also the
entire international financial regime – led by the
World Bank and the International Monetary Fund – which
has been dominant since the end of World War II.
South Africa’s place in the emerging international
financial regime is set to be enhanced.
Zou Lixing, vice-president of the Institute of Research
of the China Development Bank, told the Brics preparatory
meeting recently that “although the economic aggregate
of South Africa is small relative to the Brics, South Africa
provides a gate for the Brics to get access to the huge
The five-member nations have collectively called for an
end to the tacit agreement between the US and Europe that
ensures that the head of the World Bank is an American citizen,
and the International Monetary Fund head is European.
They have proposed that an emerging market candidate be
fielded when the term of the current World Bank head, Robert
Zoellick, expires in three months.
Fundacao Vargas, a member of the Brazilian delegation,
said Brics could confront “existing governance structures”,
and seek to strengthen the bloc's influence in established
institutions like the World Bank and the International Monetary
Fund, while creating alternatives.
The demand for greater political say in international affairs
dovetails with China’s expected rise as a financial
superpower in the next eight years.
Vargas showed the preparatory meeting projections indicating
that China’s economy will have eclipsed that of the
US by 2020, hence the promotion of the renminbi as the preferred
currency of the south.
The renminbi has traditionally traded at a deliberately
lower exchange rate, which gave a huge boost to China’s
domestic economic sectors and enabled its booming industrialisation
The US and other trading partners have long accused China
of being a “currency manipulator”.
Last week, Brazil declared its commitment to keep its own
currency – the real – low. Its Finance Minister,
Guido Mantega, reiterated his November 2010 declaration
that a global currency war has broken out.
He said: “We do not want to lose our manufacturing
"We will not sit back and watch while other countries
devalue their currencies.”
Brazil and China cried foul last year when, through a slew
of initiatives dubbed QE2 – quantitative easing Two
– the US indirectly devalued its currency by pumping
about $600bn into its economy to protect the economy from
sliding back into recession.
South African economists were in two minds about the moves
to extend the influence of the renminbi.
Economist and academic Peter Draper told City Press recently
that the decision to establish a Brics development bank
and to enlarge the renminbi's sphere “is political
and related to the current political dynamics within the
World Bank” and the established international financial
Tom Wheeler of the South African Institute of International
Affairs said developments in New Delhi (India) were “giving
substance to the previously (and) loosely arranged economic