Brics move to unseat dollar as trade currency
Thandeka Gqubule and Andile Ntingi
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
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 markets.
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 over others.
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
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
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
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 and growth.
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 sector.
"We will not sit back and watch while other countries devalue
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 system.
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 bloc”.
- City Press