Opportunities for the formation of a new international monetary, financial and trade and economic architecture of Eurasia

The expert opinion was prepared based on the results of the WEF 2023 session “Greater Eurasia: drivers for the formation of an alternative international monetary and financial system.”

The need to expand the global economic system to continue its development naturally leads to the concept of technological zones — those. large self-sufficient systems of division of labor (where economic interaction between systems is less than economic interaction within systems), supporting the process of deepening the division of labor through constant expansion.

Since the current infrastructure of the division of labor system (primarily - financial) is built for global markets, as demand falls it becomes unprofitable. This means that beyond the growth of the existing economic system, it becomes profitable to divide the world economy into several new technological zones, which will require the creation of new financial and economic systems and new currencies serving them (currency zones). This has already led to the emergence of a tendency for the collapse of the Bretton Woods dollar system, the emergence of “currency wars” and the problem of accumulated debt.

«Now we are going through a certain stage of development of a global system, similar to the one that existed between the two world wars, where there is one dominant currency, — British pound, — was losing its influence. <...> Therefore, the prerequisites for the transition to a more diversified structure of international payments and global financial turnover — they are"

Oleg Solntsev, Deputy General Director, Head of Monetary Policy Analysis, Center for Macroeconomic Analysis and Short-Term Forecasting.

Types of currency zones

As part of the EEF 2023, at the session “Greater Eurasia: drivers for the formation of an alternative international monetary and financial system” the invited experts tried to formulate the basic requirements for the formation of a new international monetary, financial, trade and economic architecture of Eurasia.

In the current conditions of reaching the growth limits of the existing world economic model, a number of countries and regional blocs are becoming interested in creating new currency zones or promoting their currencies as the core of new zones for use as world reserve money.

Depending on the volume of distribution, a currency can become a regional and even a global currency. A regional currency is distributed and circulated in a particular region, while a global currency is distributed throughout the world and is used as a reserve and a store of value. At the moment, one world currency is most widespread — US dollar.

Account currencies (used mainly in settlements) include: euro, pound sterling, Japanese yen, Swiss franc.

Possibilities for the emergence of new international currencies

The important question now is the prospects for introducing a new world currency intended for international trade. The relevance of creating such a currency is due not only to sanctions that block the possibility of participation in foreign economic exchange between large and medium-sized states, but also to the greatest extent by the achievement of growth limits by the existing world economic system and, in connection with this, the emergence of general requirements for the transition to a new world economic structure (a new division of the world into technological (including currency) zones.

The injustice of the current monetary financial system is obvious. Its vulnerability is also obvious, because it becomes an instrument of a global currency war, when countries issuing world reserve currencies use their currencies for political purposes, discrimination and even to rob their opponents.

The new realities are such that almost all existing freely convertible world (including reserve) currencies: dollar, euro, pound, Japanese yen, Swiss franc have become toxic. In this regard, they are unacceptable for world trade and, in particular, have ceased to perform the functions of a world currency for the BRICS states, the Eurasian Economic Union (EAEU) and many countries friendly to Russia. Thus, many friendly and neutral sovereign countries respond to the risks by sharply increasing payments in national currencies. And this process will continue because the currencies that served as world currencies have ceased to be such for a group of important countries and economic associations under Russian chairmanship.

Models for creating new currency areas

Many experts still do not see the changes taking place in the world, namely, that the world is already abandoning the dollar and the euro as world currencies. Many countries have stopped accumulating reserves in these currencies and are moving to using national currencies. For example, the topic of using national currencies became one of the leading topics at the BRICS meeting held in South Africa, where Russia’s proposal to introduce a new global settlement currency, which would be tied to two baskets: the basket of national currencies of the BRICS member countries and the basket of exchange-traded goods, was discussed.

«The model we have developed is <...> has shown its very high stability due to the fact that one of its foundations is a basket of commodities."

Sergey Glazyev, Member of the Board (Minister) for Integration and Macroeconomics, Eurasian Economic Commission.

This Russian model, which has been discussed at the level of experts from different countries for several years, has shown high stability due to the fact that one of its foundations is trading in exchange goods that are produced and consumed in the BRICS countries.

Within the model, it is important that not only a new payment currency is created, but also a payment infrastructure, i.e. creation of a settlement system in national currencies. Almost all the leading countries of the world today have begun to maintain digital analogues of their currencies. And if the leading countries of the world (for example, within the framework of the associations of the BRICS countries, SCO, EAEU, etc.) agree that they allocate certain quotas in their national currencies in digital form, then an equilibrium exchange rate will be found on the digital exchanges within a fairly limited time ratio. Then digital national currencies could help exclude banks from foreign exchange turnover (through which the sanctions policy is largely implemented) and, relying on blockchain and modern digital technologies, overcome the consequences of sanctions restrictions.

Pricing system

The most important part of the global economic system is also pricing. At the moment, the existing economic system of Russia, the BRICS countries, the SCO, and the EAEU is highly dependent on financial speculators, mainly of American, English and generally Western origin, who continue to “rock” the market with their play on the stock exchanges. commodity prices.

Thus, trade in goods produced and consumed in Eurasia between countries is carried out here, and pricing for these goods is carried out in centers located in countries that, generally speaking, do not even produce all of them and consume little of what made in India, Russia or China. For example, prices for Russian metals are determined on the London Metal Exchange, although they are produced in our country.

Thus, the most important element of the monetary, financial, trade and economic architecture of Eurasia is the development of a new pricing system.

There is a need for a transition to stable price relationships from chaotic pricing of commodity commodities, which are generated by international stock exchange speculators. We need a transition to stable price proportions based on long-term contracts. This does not mean excluding market mechanisms from the processes of price formation, but only bringing them into line with the relationship between supply and demand, i.e. exclusion of currency speculators from the pricing of oil, metals, intervention of financial speculation, which interferes with the expanded reproduction of goods.

When transitioning to a new pricing system, the model should include the possibility of creating a single exchange space.

This model is embedded in the formation of the economic space of the EAEU, within the framework of which a pricing system for common exchange goods will be formed in national currencies. The mathematical model of creating a new world currency with a basket of commodities shows high stability.

Thus, the model of a new currency zone and trade and economic system should ensure freedom not only from sanctions, but also from the disturbing influences of Western financial speculative structures, which not only “rock” the economy. market and prevent the BRICS, SCO, and EAEU countries from developing: they deprive their currencies of stability, generate inflationary waves and prevent the emergence of a new world economic order based on the principles of equality, transparency and mutual benefit.

The model should also include the possibility of developing a coherent system of national currencies.

«For us, the experience of the „currency snake“, <...> when one way or another some agreed upon mechanism for the movement of currencies arises. We don’t have this yet, even within the EAEU. Countries must come to this mechanism within the framework of BRICS, especially since during the creation of BRICS an agreement was signed that we are creating funds for the potential possibility of foreign exchange interventions to maintain the stability of national currency exchange rates."

Andrey Klepach, Chief Economist, VEB RF.

In addition, the new model should contribute to “strengthening cooperation between banks.”

«This is a very important milestone, it was expressed in the conclusion of a memorandum between the chairmen of the Central Bank of Myanmar and the Bank of Russia. We have made great progress in this area and strengthened ties between commercial banks in both countries. <...> We opened accounts in rubles and yuan, we accept the „Mir“ card. in Myanmar. <...> An important point — this is dedollarization, which is our common goal. <...> To do this, we are trying to create a new payment unit that would be used in international payments."

Kang Zaw, Minister of Investment and Foreign Economic Relations of the Republic of the Union of Myanmar.

Discussion about the timing of the implementation of the plan to create a new currency zone

Experts agreed that the creation of a new BRICS currency zone is possible, but a debate arose over the time frame for its creation: from a year to several decades.

In particular, “Look at the history of what happened to the dollar. <...> It took the dollar half a century to create an alternative system to the pound. <...> So we understand how much it will take to create an alternative system based on the yuan.”

Wang Wen, Executive Dean, Chongyang Institute of Financial Studies at the People's University of China (RDCY).

In contrast to the Chinese approach, Brazilian economists believe that the contours of a new international monetary, financial and trade and economic architecture for Eurasia can be presented at the BRICS meeting in 2024 in Russia.

Recommendations for government authorities

1. The implementation of paragraph 45 of the Declaration of the XV BRICS Summit is required: “We instruct the finance ministers/central bank governors of the BRICS countries, as appropriate, to consider the issue of using national currencies, payment instruments and platforms and report on the results at the next summit.” .
2. Proceed to the formation of working expert groups in the ministries of finance and central banks of the BRICS countries to discuss possible conditions for the creation of a single currency by the next VI BRICS summit in Kazan (Russia).