Why not band together and do a united currency like the Euro or the CFA Franc?
Because that requires a unified monetary policy. The BRICs countries don’t actually have that much in common, meaning they need to treat their domestic monetary policies to be most advantageous internally. Having one currency wouldn’t allow that. What it really boils down to is how a country included would be able to spend its own money and how much debt it would be allowed to carry.
Because that would fail very quickly. The CFA franc works because France dominated their exports. The euro took a long fucking time to make work and took a lot of planning and market integration. Even then it has some struggles.
brICs has very little market integration. While many of them do a good chunk of trade with China, it’s often not very even. Essentially it would be China dictating monetary policy which also ties itself to US monetary policy via a floating peg. There is also no freedom of movement between most of them. Without that, countries can very easily fall into a liquidity trap and be forced to deflate because of capital flight. As bad as the PIIGS financial crises were, they would have been significantly worse without people being able to move away from the countries.
The article said 95% of the trade will be denominated in Chinese Yuan for trade primarily between China and Russia. Russia really cannot use dollars right now because of sanctions, so we will see what their appetite is to hold large sums of Chinese currency as reserves.
I don’t get it. They’re still using all of their local currencies? Why not band together and do a united currency like the Euro or the CFA Franc?
Because that requires a unified monetary policy. The BRICs countries don’t actually have that much in common, meaning they need to treat their domestic monetary policies to be most advantageous internally. Having one currency wouldn’t allow that. What it really boils down to is how a country included would be able to spend its own money and how much debt it would be allowed to carry.
Because that would fail very quickly. The CFA franc works because France dominated their exports. The euro took a long fucking time to make work and took a lot of planning and market integration. Even then it has some struggles.
brICs has very little market integration. While many of them do a good chunk of trade with China, it’s often not very even. Essentially it would be China dictating monetary policy which also ties itself to US monetary policy via a floating peg. There is also no freedom of movement between most of them. Without that, countries can very easily fall into a liquidity trap and be forced to deflate because of capital flight. As bad as the PIIGS financial crises were, they would have been significantly worse without people being able to move away from the countries.
The article said 95% of the trade will be denominated in Chinese Yuan for trade primarily between China and Russia. Russia really cannot use dollars right now because of sanctions, so we will see what their appetite is to hold large sums of Chinese currency as reserves.