New Delhi, July 3: India, Brazil, Russia, China and South Africa - five of the world's biggest emerging economies - could soon trade with each other mostly in their local currencies, under a plan their leaders will discuss next week that may hit the US dollar's dominance in global markets.
Prime Minister Narendra Modi will attend a summit of the grouping, known as the BRICS, in the Russian city of Ufa on July 8 and July 9, in the shadow of the Greek debt crisis that has sparked fears that a scarcely recovering world economy may slip again.
The plans for trade in the national currencies of these five nations are a part of a series of initiatives the BRICS countries are taking to try and insulate themselves from over-dependence on Bretton Woods institutions dominated by the West.
"The possibility of intra-BRICS trade in national currencies is being envisaged," secretary (economic relations) Sujata Mehta from the ministry of external affairs said today. "The central banks of our countries are drafting agreements."
The five BRICS countries are among the G-20 - a group of the world's 20 biggest economies crafted in 2008 when the world was staring at its worst economic crisis in eight decades and emerging economies were viewed as possible engines to revive growth.
As the global economy, especially the US, slowly recovered from the 2008 crisis, some global experts started questioning the long-term relevance of the G-20. But the BRICS nations last year agreed to set up a New Development Bank that Mehta today said was an "alternative" to institutions like the International Monetary Fund and the World Bank that were born from a 1944 conference in Bretton Woods, New Hampshire in the US.
"Unlike the Bretton Woods institutions, the BRICS bank will have equal contributions from all five member states, and represents a new model for equality between participating members," Mehta said. The five BRICS nations will each contribute $10bn to the bank as seed money to start.
The BRICS grouping has also set up a Contingency Reserve Arrangement - a $100bn kitty that each member can draw from in a financial crisis. Countries have contributed differentially to this kitty - China with the largest contribution, and South Africa with the smallest.
Significant bilateral trade between five of the world's 20 biggest economies only in their own currencies, as opposed to the dollar, would reduce their dependence on reserves of the US currency at a time the Greek crisis looms large on the world economy. Four of these five nations - China, Brazil, Russia and India - are among the world's 10 biggest economies.
"I think the hope and assumption of BRICS members is that the rather fragile balance of the global economy will not be disturbed in any way," Mehta said, asked about the Greek crisis. "We hope for a resolution to this crisis."