BRICS financial and monetary initiatives – NDB, CRA, and a possible new currency. By Paulo Nogueira Batista Jr.

Preliminary version – Paper that served as the basis for a presentation made in the 20th Annual Meeting of the Valdai Discussion Club in Sochi, Russia, October 2nd, 2023.

I thank the Valdai Discussion Group for the opportunity to present my views in its 20th Annual Meeting. Our session is called “A World Beyond Hegemony: BRICS as a Prototype of a New International Architecture”. The theme is vast and ambitious. Ambition is appropriate. Without ambition nothing much is achieved. The BRICS are undoubtedly a major force in the world and have been so since the beginning, in 2008. We can indeed be a crucial factor in the consolidation of a post-Western and multipolar planet. This is what is expected of our countries.

One can ask, however, whether the BRICS have lived up to this kind of expectation. How have we fared since we first started working together in 2008, at the initiative of Russia? What can we achieve going forward? In trying to answer the first question I will be frank and sometimes even a bit harsh. Please do not see my words as arrogant or pretentious. They will be the expression of an expert opinion, fallible as all opinions. I hope my remarks will not be completely off the mark. Is it not true that self-criticism, though painful, may be beneficial in the end?

I will speak not as an academic researcher but as a practitioner, having been involved in the BRICS process since the beginning in 2008, from Washington D.C, and up to 2017, when I left the post of Vice President of the BRICS bank in Shanghai.
Beyond speeches, declarations, and communiqués, we have achieved so far two practical and potentially very important things: 1) a monetary fund of the BRICS, named the Contingent Reserve Arrangement – the CRA; and, more significantly, 2) a multilateral development bank, called the New Development Bank (NDB), better known as the BRICS bank, headquartered in Shanghai. This paper will cover briefly these two mechanisms and then move to discuss a possible future initiative – a common currency of the BRICS.

The two existing BRICS financing mechanisms were established in mid-2015, more than 8 years ago. Let me assure you that when we started out with the CRA and the NDB, there existed considerable concern with what the BRICS were doing in this area in Washington, DC., in the IMF and in the World Bank. I can testify to that because I lived there at the time, as Executive Director for Brazil and other countries in the Board of the IMF. As time went by, however, people in Washinton relaxed, sensing perhaps that we were going nowhere with the CRA and the NDB.

Indeed, progress has been slow. Why? It is a long story that will be addressed telegraphically here. I wrote a book about the negotiations that led to the NDB and CRA, as well as the first five years of these two financing mechanisms [1]. What happened in the subsequent three or so years, from mid-2020 to now, was not sufficient to overcome the shortcomings depicted in the book. A brief synthesis will be attempted here, starting with the CRA.

The BRICS Contingent Reserve Arrangement

The CRA has been frozen by our five central banks. It remains small, only has five members, its working is hampered by numerous restrictions and safeguards, the surveillance unit we foresaw has not been established, no balance of payments support operations have been carried out, only test runs. Now, if the BRICS are serious about offering an alternative to the Western dominated IMF, the CRA must be expanded in total size of resources, new countries must be allowed to join, the flexibility of the CRA must be increased, a sound surveillance unit (similar to the one the Chiang Mai Initiative has in Singapore) needs to be established as soon as possible, and the link to the IMF needs to be gradually relaxed.

All this is easier said than done. Having participated intensely in the two years of negotiations that led to the CRA, I can tell you that the main reason for lack of progress is the fierce resistance of our central banks, with the exception of the Chinese central bank. The Brazilian central bank is probably the worst. The South African central bank was not far behind in making the CRA inflexible – very strange given that South Africa is the only BRICS country that could conceivably need balance of payments support in the foreseeable future. What about Russia? Can the Russian central bank be made to understand that the CRA is now potentially even more important than when we conceived it, given the changes in the geopolitical context?

Don´t tell me, by the way, that the CRA suffers from the same problems of all other monetary funds created as alternative or complements to the IMF. For example, the small FLAR – Latin American Reserve Fund and the Arab Monetary Fund (AMF) have more members than the CRA and are active institutions that have carried out many operations for balance of payment support. Meanwhile, our CRA is dormant.
The New Development Bank

What I said about the CRA applies to some extent to the NDB. The Bank has yet to make a difference. One reason being, frankly, the type of people we have sent to Shanghai since to 2015 as Presidents and Vice Presidents of the institution. Brazil, for instance, during the Bolsonaro administration, sent a weak person to become President from mid-2020 to early 2023 – technically weak, Western oriented, no leadership, and without a clue as to how to conduct a geopolitical initiative. Russia is also no exception, unfortunately – the Russian Vice President is remarkably unfit for the job. As the saying goes, rot begins at the top. Weak Management has often led to poor hiring of staff.

These internal problems of the Bank were compounded by broader political hurdles, among which tense relations between China and India, the sanctions imposed on Russia since 2014 and, especially, since 2022, as well as the political crises in Brazil and South Africa. These macropolitical issues inside and among the founding members have also hurt the NDB.

Brazil has now sent Dilma Rousseff, a former President of Brazil, to become President of the institution. She has, however, less than two years to turn around the Bank. Not enough time. Thus, the future of the NDB lies largely in the hands of Russia. This is because Russia will have the opportunity to appoint a new president for 5 years, starting July 2025. I hope Russia will this time be able to send a strong person for the job, someone of high political standing, technically sound, and with a clear view of the geopolitical purposes that led the BRICS to create the NDB. It is an expensive initiative, by the way, and requires careful handling by our countries. Suffice to say that the Bank’s paid in capital from the founding members reached USD 10 billion, making it one of the largest multilateral development banks in the world from this angle.

Why can it be said that the NDB been a disappointment so far? Here are some of the reasons why. Disbursements have been strikingly slow, projects are approved, but are not transformed into contracts. When contracts are signed actual project implementation is slow. Results on the ground are meager. Operations – funding and lending – are done mainly in US dollars, the currency which also serves as the Bank’s unit of account. How can we, as BRICS, credibly talk about dedollarization if our main financial initiative remains predominantly dollarized? Don´t tell me that operations in national currencies cannot be done in our countries. The Interamerican Development Bank, the IDB, for instance, has had for many years considerable experience in operating in Brazilian currency. Why the NDB has not tapped into that experience beats me. One can expect Dilma Rousseff to start solving these problems.

The NDB is also far from being the global bank we envisaged at the time of its creation. Only three new countries have joined the Bank after more than eight years of existence – compare with the Asian Infrastructure Investment Bank, the AIIB, led by China, established more or less at the same time as the NDB, that has had more than 100 country members for some time. Moreover, governance in the NDB is poor, rules are not respected by Management. The Board is ineffective. Transparency is not observed, the Bank is opaque, little information about loans and projects is made public. HR is weak. Many important positions in the Bank remain unfilled, discouragement among employees is rife leading to staff departures, and thus the total number of staff is falling.

Despite all that, the NDB remains an institution of great potential. It has a large capital base and support from five of the most important countries in the world. Support from the host city and host country has never failed. The Articles of Agreement were carefully negotiated and are mostly fit for purpose. Therefore, the NDB can still become a Bank of developing countries, by developing countries and for developing countries, to paraphrase Abraham Lincoln. And the NDB can have an important role, alongside the CRA, in an initiative that I now turn to – the possible creation of a common currency for the BRICS.

A common currency for the BRICS?

This idea originated in Russia. President Putin himself, as well as President Lula, have often spoken of dedollarization and of the possible creation of a common or reference currency for the BRICS. Since at least 2022, Russian experts have been working on the topic. The reason Russia is the originator of the idea is quite clear. Russia is the most important case of the weaponization of the US dollar, the euro and of the Western financial system. The equivalent of about US$ 300 billion dollars, roughly half of the country´s official international reserves, were simply frozen – a unilateral moratorium that is probably among the largest such events in history. If this can happen, anything can happen.

There are controversies among economists about whether the role of international reserve currency is an “exorbitant privilege” or an “exorbitant burden” for the issuing country. We need not go into that. The United States has always understood that money is power and holds on tightly to the status of the dollar as the hegemonic currency. At the same time, paradoxically, it undermines the dollar by resorting to the currency and the Western financial system to sanction countries that are hostile to the US or seen as such. Russia is the largest and most recent case in a long list of victims. Since the US dollar (and the euro) can no longer be fully trusted, it is natural that dedollarization should proceed, probably in a gradual manner. A BRICS currency could be an important step in that direction.
Aleksei Mozhin, the Russian Executive Director at the IMF, a former colleague, and close friend of mine, hit upon a curious coincidence – the five currencies of our countries all begin with the letter R – real, ruble, rupiah, renminbi, and rand. He proposed that the currency be called the R5. Sadly, only two of the currencies of the six countries invited by the BRICS in their Johannesburg Summit to become new members of the group as of January 2024 also begin with the letter R (the currencies of Saudi Arabia and Iran) – something that ruins a bit Mozhin’s proposed name for the currency. Perhaps it could be renamed R5+, since the BRICS political formation will now, I assume, be called BRICS+.

But let us leave nomenclature aside. Russian experts have proposed that the BRICS currency starts as a unit of account, taking the form of a basket of the currencies of the participating countries, with weights reflecting relative economic size. This first step is relatively simple. The R5+ could be used, to take one example, as a unit of account for the CRA and the NDB. Both use the US dollar. If we are serious about dedollarization this may need to change.

Discussions among Russian experts did not, in so far as I am aware, go much further than this, except for problematic refences to backing the new currency with gold or a basket of commodities.

How could we proceed? I presented a paper at a recent seminar in Johannesburg, ahead of the BRICS leaders’ summit of 2023, in which I sketched out a possible road map [2]. I can send this paper to those that may be interested, as well as the one that serves as the basis for my intervention today.

There is no need to repeat the road map sketched out in the previous paper. It is enough to quickly recapitulate a few basic points: 1) The R5 or R5+ need not be a physical currency, it can be digital. 2) The new currency would not replace the currencies of the BRICS countries but would circulate alongside them, being used mainly for international transactions. 3) The BRICS central banks would continue to exist as now, fulfilling all the functions of a monetary authority. 4) An Issuing Bank would need to be created, in charge of issuing the new currency and putting it into circulation, according to predetermined and carefully designed rules. This would help create confidence in the R5+.

Could the currency be backed in some way? Not by gold or other commodities, given the instability of their prices. One approach would be to back the R5+ by bonds guaranteed by the BRICS countries. The Issuing Bank would be in charge of issuing the guaranteed R5+ bonds, at different maturities and interest rates. The currency could be freely convertible into these bonds. This arrangement would be the financial expression of the guarantee that the BRICS would give to the new currency. The CRA and NDB could play an important role in putting the currency into circulation. Not only could the R5+ be their unit of account, but loans by the NDB and currency swaps by the CRA could be denominated and paid in R5+. The NDB would also issue bonds in R5+.

The Johannesburg Summit and possible next steps

To conclude, let me address possible next steps for the BRICS in this area. A new currency is a complex issue, political and technical at the same time, and needs much further discussion. Some progress was made in the Johannesburg Summit. The Leaders’ Declaration addressed the matter of dedollarization and new payment instruments in a few significant paragraphs. They stressed, for instance, the importance of encouraging the use of national currencies in trade and financial transactions between BRICS and with other countries (paragraph 44 of the Declaration). The Leaders also tasked their Finance Ministers and/or Central Bank Governors, as appropriate, to consider the issue of local currencies, payment instruments and platforms, and report back to them by the next Summit that will be held here in Russia. Furthermore, the establishment of a BRICS Think Tank Network for Finance in 2022 and its further development and practical implementation (paragraph 47) will create a channel for these monetary and financial 3 A BRICS currency? Paper that served as the basis for speech given at the BRICS Seminar on Governance & Cultural Exchange Forum 2023, in Johannesburg, South Africa, August 19, 2023. discussions. The Declaration was not as explicit as it could have been on these issues and on a possible new currency because, so it seems, of India´s resistance, for reasons that are not entirely clear.

Be as it may, the process has been launched. In his concluding remarks in Johannesburg, President Lula stated that the Leaders had “approved the creation of a working group to study the adoption of a reference currency of the BRICS”. He added that “this will increase our payment options and reduce our vulnerabilities”.

We can assume that Russia will now establish this group of experts. I will refrain from making now any considerations as to how the group could be set up. Let´s leave that to our Russian colleagues. I say only this: it would be advisable to draw lessons from the negotiation and implementation of the CRA and the NDB. It is our good luck to have Russia presiding the BRICS in 2024 and Brazil, in 2025 – precisely he two countries that seem to be most interested in moving towards the creation of a common or reference currency. If everything runs smoothly, the BRICS may be able to take the decision to create a currency in the Summit in Russia next year. By the Summit in Brazil, in 2025, the BRICS will perhaps be able to announce the first steps towards its establishment.

[1] The BRICS and the financing mechanisms they created: progress and shortcomings, London: Anthem Press, 2022.
[2] A BRICS currency? Paper that served as the basis for speech given at the BRICS Seminar on Governance & Cultural Exchange Forum 2023, in Johannesburg, South Africa, August 19, 2023.

Paulo Nogueira Batista Jr., a Brazilian economist, is a former Vice President of the New Development Bank (NDB), from 2015 to 2017, and a former Executive Director for Brazil and other countries in the International Monetary Fund (IMF), from 2007 to 2015. E-mail: