The former Goldman Sachs economist who coined the Brics acronym has dismissed as “ridiculous” the notion that the group of emerging nations might develop its own currency, as Brazil, Russia, India, China and South Africa prepare to discuss whether to expand the bloc.
Ahead of the group’s 15th summit next week, Lord Jim O’Neill told the Financial Times that the Brics had “never achieved anything since they first started meeting”, eight years after he created the phrase in a 2001 research note he wrote as the bank’s chief economist.
Brics nations such as Russia and China have called for the bloc to challenge the US dollar’s status as the world’s reserve currency, but South Africa, which is hosting this year’s summit, has said a Brics currency is not on the agenda for the gathering in Johannesburg.
O’Neill said creating a common currency for the five strongly diverging economies would be unfeasible.
“It’s just ridiculous,” he said in response to calls for a “trading currency” from Brazilian president Luiz Inácio Lula da Silva and other politicians from the bloc. “They’re going to create a Brics central bank? How would you do that? It’s embarrassing almost.”
O’Neill coined the Brics acronym in a Goldman paper in order to highlight the economic potential of Brazil, Russia, India and China and the need for global economic and political governance to be reshaped to include them. The countries themselves embraced the term and began holding summits in 2009.
With dozens of countries formally or informally expressing interest in joining the bloc, according to a South African diplomat, the summit could be its biggest leap forward in membership since South Africa joined in 2010. But criteria for admission have not been decided, and the issue of expansion has emerged as another faultline among the quintet.
The FT reported earlier this year that Saudi Arabia was in talks to join the New Development Bank, the lender set up by the Brics members in 2014 as an alternative to the World Bank, and subsequently joined by Egypt, Bangladesh and the United Arab Emirates.
“Quite what they attempt to achieve beyond powerful symbolism, I don’t know,” said O’Neill, who is now a senior adviser at UK think-tank Chatham House.
He said the dollar’s dominance over the global financial system was not beneficial for emerging countries. “The dollar’s role is not ideal for the way the world has evolved. You’ve got all these economies who live on this cyclical never-ending twist of whatever the [US Federal Reserve] decides to do in the interests of the US.”
While the bloc, which has a collective population of more than 3bn, is keen to increase the use of local currencies in trading activity between member states, Leslie Maasdorp, chief financial officer of the NDB, told Bloomberg TV last month that the Brics bloc was not in a position to create a common currency.
Reflecting on previous predictions that the yen, euro or renminbi would eventually surpass the dollar, O’Neill said: “None of these things will ever happen until those countries want to have their currencies used by people in other parts of the world.”
South Africa has already had to rejig the summit after Russia’s president Vladimir Putin opted to skip the event because of his indictment by the International Criminal Court. As an ICC member South Africa would have been legally obliged to arrest Putin on arrival in the country. He will take part remotely, while his foreign minister Sergei Lavrov will attend.
While China and South Africa are pushing to expand the Brics club to other countries in the global south, reports have suggested that India opposes the proposal to include more members.
“It’s a good job for the west that China and India never agree on anything, because if they did the dominance of the dollar would be a lot more vulnerable,” said O’Neill.
“I often say to Chinese policymakers . . . forget your endless historical battles and try to invite India to share the leadership on some big issues, because then the world might take you a bit more seriously.”