WHAT IF THE BRICS….
It is well known that the BRICS are aiming for a dedollarisation of exchanges, at least between them. Brazilian President Lula da Silva recently launched the proposal that the BRICS develop its own currency. In the Financial Times Jim O’Neill, not quite an August temp, dismissed the idea as ridiculous. Indeed, how one can think of putting it on the ground is something to shake the wrists. Overcoming the current dollar-centric system, made up not only of technological systems and tools, but also of institutions, rules and legal systems developed over eighty years, is not something that can be done with a snap of the fingers.
The options, at least on paper, are however various:
- A common ex novo currency: technically very complicated. The Europeans, in a very different context of cultural, geographical proximity and economic cycles, know something about it. On the other side of the pond, it took the Americans a hundred years and a civil war, in a context of social, territorial and economic flexibility that was simply unthinkable for the BRICS. And then he would mean creating a Central Bank like the ECB or the Federal Reserve, an idea that the FT defines as almost embarrassing..
- A basket of currencies as a unit of account (ECU like, before the euro): politically very complicated. It would mean giving the yuan (who else?) a leading role. India would not be happy to assign this role to the currency of the country with which they are in semi-permanent open conflict. All the issues mentioned above are still valid in relation to the implementation of an operating legal technical framework, as well as the economic-cultural context.
- The currency of one of the BRICS: politically very complicated. It means replicating, mutatis mutantis (again with the yuan), the experience of the US dollar. Only that for the USA that was possible after winning a couple of world wars. Better not. Perhaps some more legal technical tools would already be available, but are we sure that, even, once more, leaving India aside, everyone would be so enthusiastic about moving from an American run system to one in the hands of the Chinese? As they say, heart to the left, wallet to the right.
- Basket or currency anchored to gold (gold standard): technically complicated. The five founding BRICS are countries, including producers, with strong gold reserves but anchoring a currency to gold means structuring controls on the gold stock of each country. Not easy, even for the above. Very complicated to bring other countries on board: perhaps easier with Saudi Arabia, but with Argentina or other countries perpetually on the verge of default (and often off the cliff)? What about Ethiopia? All the topics relating to the technical-legal ecosystem remain unchanged.
And then all these solutions have the problem of how to get out of the corral. Unless all BRICS members are absolutely balanced, whoever finds himself with a surplus of Brics-coins, what if no one wants it outside the corral. Like it or not, USD doesn’t stink, perhaps turning up their noses and making bombastic declarations in front of the press, everyone accepts it more than willingly.
And so, what’s left? Cryptocurrencies. Not so simple, but we can think about it, even if only by way of intellectual speculation. Of course, cryptocurrencies would quickly overcome the problem of technical infrastructure, double spending above all, even if the legal one would remain. Of course, it remains to be seen whether all this transparency inherent in cryptocurrencies, especially if based on public and decentralized blockchains, would be so welcome in exchanges between sovereign countries, with a certain… shall we say… democratic deficit? There are two basic options:
- New crypto: in fact it would be a CBDC (Central Bank Digital Currency), or something very similar, and we would probably fall back into the problems seen above for the traditional context. And then it would mean implementing a paranoiac check on algorithms and code so that a country cannot take advantage of it, effectively making everything very cumbersome. Let’s see what will happen with the digital euro and let’s make it (at least) the cube for the Brics which, in any case, do not have a central bank.
- Existing crypto among those with the largest market capitalization: that would be a plug-and-go solution from a technical point of view. Here the choice appears reduced to Bitcoin (BTC) and at most ETHer (ETH) . The others are too thin to support exchanges in the order of USD 200Bn/year. Even the volatility typical of cryptocurrencies doesn’t help. Even the volatility typical of cryptocurrencies doesn’t help and as soon as the possibility were perceived, speculation would fly unchecked to levels never seen before. ETH would have the advantage to be developed by a Russian, which could help politically. The other altcoins are light years away from a vaguely sufficient market cap. BTC would provide greater guarantees in terms of security and the low transactional throughput perhaps would not be a big problem, at least until a retail extension is not thought of. A few words can be spent on XRP, which, beyond a currently miserable market cap for these purposes, would have some real advantages in perspective: being designed for banking exchanges with a certain degree of central control of the transaction validation mechanisms (consensus), perhaps even negotiable with Ripple from a strong counterparty. And then, if the SEC wins the appeal vs. Ripple Labs, would be a crypto if not banned in the US at least greatly scaled down, which, again, could, politically, help.
The above is a collection of some instant reflections. Analyzes of much greater depth would be necessary for a complete picture and presumably who knows what other problems would emerge. On the other hand, to date, only El Salvador and other even smaller countries have adopted a cryptocurrency (Bitcoin) as legal tender, moreover with not so exciting results, at least so far.