At the last BRICS summit held in March in New Delhi, development banks of the participating countries agreed on a proposal to extend credit in local currency for trade, project financing and infrastructure projects.
So far, no clear mechanism on how they will extend local currency credit has been announced. Some financial gurus even dismiss the BRICS agreement as purely symbolic. Yet banks in London, New York, Tokyo and Singapore would be wise to take a second look at what now could be the most significant agreement in international finance since the euro.
BRICS countries make up a massive trade bloc. Current intra-BRICS trade stands at $307 billion; it is set to reach $500 billion by 2015. Within BRICS, China is the dominant country, exporting $135 billion in goods and services a year to its partners. India imports $50 billion annually from China and Chinese goods account for 11.8% of India’s total imports, increasing their share of the Indian market by 2% in just four years.
As trade increases, China could move swiftly to provide renminbi for importers of Chinese goods.
At this time, China facilitates payment in renminbi through a central bank liquidity swap. Since 2009, 16 countries have exchanged local currencies for a total of 1.6 trillion renminbi; more are in line to participate—Japan and Great Britain are rumoured to be in queue. But after the Delhi meeting, China’s BRICS partners may leapfrog and be next on the list.