MNI INTERVIEW2: BRICS Currency A Nonstarter-EX-IMF Chief Econ

BRICS nations’ efforts to create a viable alternative to the U.S. economy’s global dominance and the dollar’s preeminent status as the world’s reserve currency are likely to fail, former IMF chief economist Maurice Obstfeld told MNI.

BRICS countries – Brazil, Russia, India, China and South Africa – are launching an effort to expand the group, and are also debating the idea of creating a common currency for trade.

But Obstfeld said in an interview that the agglomeration of countries is spread too far and wide to be workable.

“The reality is that a lot of the BRICs discussion is driven by geopolitics rather than basic economics. It’s a very diverse grouping of countries,” he said on the sidelines of the Kansas City Fed’s Jackson Hole conference.

“This is not a viable (starting point) for some sort of common settlement currency which is fully credible among group members. So even within their limited goals, I question how much progress this group could make.”

EXPANSION

South Africa announced Thursday that the BRICS were expanding to include Argentina, Egypt, Iran, Ethiopia, Saudi Arabia and the UEA.

“There are political tensions within the group – India versus Russia, Brazil which is closer to the U.S. not really wanting to bring Iran in but being strong-armed by China.

“This latest announcement – they’re bringing in some countries of real economic significance such as Saudi and Iran, UAE, but also Argentina which has a major crisis and the possibility of worse to come, Ethiopia, Egypt has significant economic problem.