Navigating the Challenges of Currency Unions: Lessons from the Euro and Prospects for the BRICS+

by Trent Wiseman | September 19, 2023

BRICS+ nations
Creating a currency union is a challenging undertaking that promises economic integration and enhanced global influence, yet it is filled with complexities and limitations. The journey of the Euro, which has spanned nearly three decades since its inception, serves as a compelling case study in the realm of common currencies. The Eurozone’s experience, which has been marked by fluctuating exchange rates along with economic challenges among its member states, offers valuable insights into the difficulties of maintaining stability within a currency union.

The emergence of the BRICS+ alliance, comprising of Brazil, Russia, India, China, and South Africa, along with new member states Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates, introduces the possibility for the creation of a new currency union. These nations, while united by their aspiration to forge a common currency and shift away from the economically dominant West, are marked by pronounced political and economic disparities. Notably, China’s political, economic and military dominance within the BRICS+ group, poses a significant challenge. This dominance could potentially lead to power imbalances that would affect the alliance’s ability to develop cohesive policies and strategies on the global stage.

There are several limitations to creating a successful currency union. The case of the Euro serves as a notable example. The creation of the Euro spanned nearly three decades and was fraught with difficulties. Within the Eurozone, many of its citizens have experienced a significant erosion of their purchasing power over time. See Figure 1. This is highlighted by the EUR/USD exchange rate, which reached approximately 1.60 around the time of the global financial crisis in 2008 but has since seen substantial fluctuations and an overall decline. This underscores the challenges of maintaining stability within a currency union, as economic disparities and diverging fiscal policies among member states can hinder its effectiveness.

Figure 1

Another challenge facing the BRICS+ countries in creating a currency union is that the nations involved have pronounced political and economic differences. China, in particular, stands out as the largest superpower within the BRICS+ group. The economic behemoth boasts a substantial 18.4% share of global GDP (See Figure 2), equating to 70% of the total GDP of the BRICS+ group. This is in stark contrast to the contribution of global GDP from India (3.6%), Brazil (2.0%), Russia (2.0%),and South Africa (0.4%). This wide disparity in economic strength raises concerns about the significant power imbalances within the BRICS+ alliance, potentially impacting its ability to forge unified policies and strategies on the global stage.

Figure 2

In terms of global reserve currencies, a dominant currency requires not only economic prowess but also the military capacity to safeguard crucial trade routes. See Figure 3. While China, the most prominent BRICS+ member, is on the rise militarily and has territorial ambitions, it is still far from surpassing the United States as a global military superpower. Although China’s territorial aspirations, such as the situation with Taiwan, are notable, the US maintains its unchallenged status as a global superpower.

Figure 3

However, on a global scale, the de-dollarization trend is underway. This is evidenced by the growing popularity of debt denominated in Euros and Japanese Yen. This trend is partly a response to the US using the dollar as a geopolitical tool. As a result, foreign entities are increasingly turning to alternative currency blocs. The share of global allocation to foreign exchange reserves in US dollars has decreased from around 80% in the 1970s to less than 60% today, reflecting a shift away from dollar dependency.

In the complex world of global currencies, it is clear that the BRICS+ nation’s goal of creating a new currency union goes beyond finances – it is part of a larger goal to shift geopolitical and economic dominance away from the West. However, these countries are dealing with economic differences, political intricacies, and the influence of major global military powers as they navigate this path. The BRICS+ nations are determined to reshape the global monetary system, evident in the trend away from the US dollar and their increased desire to use their own currencies for intra-group trade.

This high likelihood of the BRICS+ nations initiating intra-group trade in their respective domestic currencies will result in substantial benefits for the union. These benefits include;

  • Reducing the risk of effecting international trade in the dollar.
  • Enhancing trading volumes of the respective BRICS+ currencies which are largely illiquid, especially when compared to the currencies of developed countries.
  • Increasing economic and trade autonomy, thus, reducing the vulnerabilities associated with relying on a global reserve currency.
  • Promoting the development of more robust financial markets within the group.

However, the probability of the formation of a new currency union similar to that of the Eurozone, in an attempt to de-throne the dollar as the global reserve currency, remains relatively low at present.

Do you need assistance with managing your currency risk? Contact Dale Petersen on 021 819 7802 or at We’d love to connect with you.


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