BRICS common currency would help break Western financial hegemony

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October 28, 2014 BRICS Business Magazine

Oleg Sienko, Director General of UralVagonZavod Research and Production Corporation talks about how Russia can work with its BRICS partner to stimulate economic growth.
BRICS common currency would help break Western financial hegemony
Oleg Sienko, Director General of UralVagonZavod Research and Production Corporation. Source: Pavel Lisitsyn / RIA Novosti
Structural problems and Western sanctions have put the Russian economy in a tough spot. Russia must continue integrating with the BRICS countries  particularly by creating a common financial system and a single currency to avoid stagnation, guarantee access to critical technologies, and ultimately become one of the world’s technological powerhouses. Oleg Sienko, Director General of UralVagonZavod Research and Production Corporation, discusses this topic in an interview with BRICS Business Magazine.
In late September, the World Bank published three medium-term scenarios for Russia’s economic development, the best of which predicts low GDP growth in coming years. Among other things, the bank’s experts point out that further economic growth acceleration will not be possible simply by maintaining the current fiscal stimulus policy. Do you agree with their findings? How would you assess the current situation in Russian economy?

It is far from simple. It is already obvious that the sanctions have caused serious problems. It is difficult to argue with the World Bank experts – there will be no major growth, especially in brick and mortar sectors of the economy.
However, it is equally obvious that the country will need to take steps to stimulate the economy today – regardless of budgetary limitations. Other countries have managed to find their way out of similar crises by injecting money into the economy.
In my opinion, there is another aspect that is important in this case. If we want to get out of the crisis quickly, the government must be much more proactive than they have been. Slow decisions mean that efforts to combat the crisis have to be doubled.
How is the government’s slowness manifested?
There are key economic sectors that need immediate support. We ourselves created some of these problems – we have been adopting laws left and right, such as the government procurement act, and now we are valiantly trying to overcome them. For some reason, nobody seems to care about this kind of policy inconsistency, even though it is quite a critical point. But it does not stop there. Government help should not be limited to simply injecting money into the economy; it should also focus on protecting and preserving the domestic market. So far, it has been just the opposite. When Russia joined the WTO, nearly everyone gained access to the Russian market.
Could you cite any specific examples?
Take the automotive industry. The 50% localization target, which is built into agreements with overseas automotive corporations and governs industrial assembly, is still as unattainable as ever. Russian metallurgical companies manufacture auto body sheets, but they are not used, or at least not to the extent that they could be. By not producing the parts domestically, we fail to stimulate other sectors of our economy, such as the mining industry, metallurgy, the construction sector, and the list continues down the chain. This should be given more thought.

Are you calling for restricting access to these markets?
Take India, for instance. This country has been a WTO member since 1995, but I dare you to try to import cotton products there. You will end up paying a customs duty of between 50% and 100%. Try importing a car to Cyprus, an EU member country – you will have to pay a 100% duty. There are endless examples of this kind.
This does not even include the infamous anti-Russian sanctions, which run contrary to all rules of global commerce, and our WTO membership has no influence on them. This just goes to show that these things were implemented with one goal in mind – to open up our markets.
An alternative to the dollar
You have championed a rapprochement between the BRICS countries, including the creation of a common currency. Why is it so important? And most importantly, how feasible is it?
It is entirely feasible. The BRICS countries account for one-half of the planet’s population, and have already made an important step toward creating an independent financial mechanism of their own. I am referring to the recent agreement to create a BRICS Development Bank and a currency pool to counterbalance such institutions as the IMF. The next logical step would be to create a common currency for the BRICS countries. In my opinion, such a step would enable us to move away from the dependency on Western financial centers and the US dollar as the main international transaction and reserve currency. This is the most realistic step, which could herald economic improvement in all the BRICS countries, Russia included.
In your opinion what mechanism would be required to create such a currency?
They would have to select a ‘BRICS currency’ for all transactions between the BRICS countries and peg it to the euro to make the conversion easier, then create monetary and transaction centers and their own payment system.

I am sure that many countries in Latin America, Southeast Asia, and Africa would subsequently transition to this currency as they are getting increasingly tired of the hegemony of the dollar and euro – the only two currencies in which things are bought and in which investments are made. Mind you, people are fully aware that these investments are the function of a printing press, and not a product of a real economy. If this happens in the next three years, this new global payment system would include at least 70% of all countries, in terms of global population, which would get us off the US dollar once and for all.
How would a common BRICS currency be different from the dollar or the euro?
The difference would be that the BRICS currency would be backed by real assets and resources – including human, natural resources, and raw materials – which our countries are rich in. In all likelihood, once these measures are introduced the world will be split into two camps: the ‘progressive’ camp, which would include BRICS countries and the emerging markets aligned with them, and the ‘pessimists,’ which would include the United States, Europe, and the countries associated with them.
That is why creating our own currency is a vital step. The earlier it happens the greater the advances we will make in our economic development and the better our chances to build a powerful and independent alliance to counterbalance the United States.
So could you summarize the key steps that Russia and the BRICS countries should take to offset the consequences of the sanctions and, more importantly, to bring their economies to a new technological level?
As I said before, the first move would be to create a common currency. The second would be refitting our technological base in combination with our partners. Not all critical technologies are available from the nations that introduced sanctions against us. Furthermore, there are countries in the West that have adopted a more sober outlook; they have the technologies we need, but they do not possess raw materials of their own. We need to negotiate and find ways to reach out and explore opportunities for mutually beneficial exchange.

Obviously, we need to build technologies ourselves. Russia boasts a great tradition in this area and is already well underway to create new ones. For instance, we are the leading producer of nuclear-powered icebreakers and arctic oil platforms. We are also engaged in shelf development in the Arctic. We need to activate our brains.
Finally, the third step deals with infrastructure, and perhaps this is the most important area. Infrastructure would spur other industries into action because it is the foundation on which everything is built – from a nail to the most complex piece of equipment. To make this happen, we need to adopt a new way of thinking and start tackling these issues. We need to do it right away, and not procrastinate as old habits dictate.
This is an abridged version of an interview first published by BRICS Business Magazine.

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