BRICS seeks revamp in global monetary system

By Sarwar Kashani, IANS,

Sanya (China) : Brazil, Russia, India, China and South Africa – the BRICS group of fastest growing economies – Thursday called for a revamp in the global monetary system and signed a pact to use their own currencies instead of US dollar in issuing credit or grants to each other.

The path-breaking agreement was signed at the 3rd BRICS summit here attended by Indian Prime Minister Manmohan Singh and Presidents Hu Jintao of China, Dilma Rousseff of Brazil, Dmitry Medvedev of Russia and Jacob Zuma of South Africa.

“Our designated banks have signed a framework agreement on financial cooperation which envisages grant of credit in local currencies and cooperation in capital markets and other financial services,” economist turned politician Manmohan Singh told the media with other BRICS leaders.

But the agreement is confined to credit and not trade. BRICS economies hold 40 percent of the world’s currency reserves, the majority of which is still in US dollars.

Under a tight security blanket, the BRICS summit was held in the coastal city of Sanya in China’s Hainan island following which the leaders jointly addressed the media but did not take questions from journalists.

In their restricted session, the Indian prime minister and four presidents deliberated on the international situation and the financial, development, climate and security issues.

Hu said the world economy was undergoing profound and complex changes. “The era demands that the BRICS countries strengthen dialogue and cooperation (in this direction).”

Manmohan Singh, who also addressed the plenary session of the summit, said: “The quality and the durability of the global economic recovery process depends to a great measure on how the BRICS economies perform.”

The grouping is expected to have a healthy global presence in the future as its member-countries are projected to contribute 48 percent to the global economy in the next decade.

At present they account for 40 percent of the world’s population and 20 percent of the global Gross Domestic Product (GDP).

Calling for stronger regulation in commodity derivatives to arrest volatility in food and energy prices, the leaders said the rising inflation was risking the recovery of the world economy post the 2008 downturn.

“Recognizing that the international financial crisis has exposed the inadequacies and deficiencies of the existing international monetary and financial system, we support the reform and improvement of the international monetary system, with a broad-based international reserve currency system providing stability and certainty,” they said in a joint declaration.

But they didn’t specifically mention any currency like the US dollar or euro — to be replaced as international trading medium.

Reserve currency, held in significant quantities by governments and institutions as part of their foreign exchange reserves, is also the international pricing currency for products traded on global market and commodities such as energy products or bullion.

Manbeer Singh, secretary (economic relations) in the Indian ministry of external affairs, said the agreement allowing the use of own currencies for credit was “not to diminish the dollar”.

“We want a broad-based international reserve currency system and change in the rubris of the international monetary and economic governance,” he told Indian journalists.

He said this “should not be construed” as a replacement of dollar. “We are looking for a substitute, not an alternative.”

They also pledged to jointly work on global political issues, with Manmohan Singh stressing that reform and expansion of the UN was necessary to make it truly representative.

The joint statement also called the Sanya declaration reaffirmed the need for a comprehensive reform of the UN, including its Security Council, to make it “more effective, efficient and representative, so that it can deal with today’s global challenges more successfully”.

The five countries coincidentally are now members of the UN Security Council. China and Russia are permanent and other three, including India, are non-permanent members.

Significantly, China and Russia, in the joint declaration, reiterated “the importance they attach to the status of India, Brazil and South Africa in international affairs, and understand and support their aspiration to play a greater role in the UN”.