Alternative currency in Brics is very difficult, says economist – 04/13/2023 – Market

President Luiz Inácio Lula da Silva’s (PT) idea of ​​using the currencies of the institution’s members in the trade of the Brics countries (Brazil, Russia, India, China and South Africa) is even possible, but very difficult, since it is necessary to change the structures that support the dollar at the center of the global exchange rate, said this Thursday (13) the economist of the IMF (International Monetary Fund) Nigel Chalk, deputy director for the Western Hemisphere.

“Why can’t the Brics have a currency that can finance the trade relationship between Brazil and China, between Brazil and other countries?” asked Lula this Thursday on a trip to China. “Who decided it was the dollar? We need to have a currency that transforms countries into a slightly more peaceful situation, because today a country needs to run after the dollar to export.”

Questioned about the speech, Chalk stated that the use of the dollar in international trade was not a decision, but “a result of the market.”

“For a currency to be usable everywhere, in trade and finance, there needs to be a lot of institutional support. You need, for example, a certain depth and liquidity in the financial markets, the availability of dollars for financing, to provide resources for trade,” he said.

“Both exporters and importers would like to denote their own currency in place of the dollar. All these things happened organically, I don’t think there was a blueprint. But once you have that, it’s very difficult to switch to another ecosystem because you’re going to have to create a series of support structures”, said the economist.

Chalk stated, however, that this is possible, giving the example of the internationalization of the Chinese yuan, with financial institutions operating with trade and loans in the currency.

“So it’s not impossible to do. It’s possible, but it requires a lot of investment. Not only in trade, but you have to map the currency’s usability, reserves, currency infrastructure and financial markets.”

A Sheet asked the head of the Central Bank of India, Shaktikanta Das, whether there would be interest in Lula’s proposal, but he declined to comment based only on the president’s speech, without having access to a plan on how it would work.

Also in China, Lula criticized the IMF and defended that international investments do not mean transferring command of economic policy to developing countries. By upholding the right of countries to go into debt to invest, he stated: “It is not up to [ao FMI] to choke the economies like they are doing now with Argentina”.

Questioned about the speech, Chalk said that he “supports the program of the Argentine authorities”. “The authorities have calibrated their program in the way they think is best for their domestic circumstances. It’s the balance they need to stabilize the economy by reducing inflation while also meeting social needs, and the fund’s role is to support the authorities in that effort.”

Earlier, the economist had praised the fiscal framework proposed by the Minister of Finance, Fernando Haddad. He stated that the fund supports Brazilians thinking about formulating their institutional framework for fiscal policy and that it can share international experiences if the Brazilian government finds it useful.

“We were favorably impressed with what the fiscal adjustment proposes for the medium term,” he said, citing the improvement in the primary balance. “It’s ambitious, but it’s also aware of the country’s social needs,” he said.

The IMF forecast for the coming years in Brazil without approval of the fiscal framework in Congress is an increase in the public debt and a return to the red, with a primary deficit after two years of surplus. The fund forecasts that the debt-to-GDP ratio will increase to 88.4%, and will continue to grow until it reaches 96.2% in 2028, following the global trend. The country should also have a primary deficit this year, of 2% in relation to GDP.