Herbert Bohrisch Affirms UAE Dirham as Potential Driver Currency for BRICS Bloc
Herbert Bohrisch is a former Chief Economist at the Bank for International Settlements and Professor at Zhejiang University.
He asserts that the UAE dirham is the only suitable currency within the BRICS bloc to serve as a driver for the bloc’s economy and payments.
In an analysis published on the website of the OMFIF Research Centre, a think tank focused on central banking, economic policy, and public investment, Bohrisch highlights the following:
Five new members joined BRICS in January 2024: UAE, Saudi Arabia, Egypt, Iran, and Ethiopia.
This brings the total number of BRICS currencies to ten, including Brazil, Russia, India, China, and South Africa.
The BRICS mechanism currently lacks a driver currency for its payments system.
Similar to the role played by the German mark in the European Payments Union (EPU) established in 1950.
A New Driver Currency Could Offer Significant Advantages.
While the renminbi is expected to serve as the primary currency for trade, payments, and settlements within BRICS.
Bohrisch argues that a new driver currency could offer significant advantages.
Because it would facilitate trade between BRICS members, particularly for UAE and Saudi Arabia in their dealings with China.
It will also boost the global supply of renminbi and promote its internationalization.
In addition, transactions would be recorded via SWIFT and foreign exchange reserves would be managed by the International Monetary Fund (IMF).
Mentioning that conducting trade in local currencies would strengthen the UAE dirham and Saudi riyal within BRICS.
The Ideal Driver Currency for BRICS Should Have the Following Characteristics:
- Strength and stability
- Stable relationship with other global currencies, primarily the US dollar
- Full convertibility
He points out that the renminbi’s limited convertibility, currency depreciation and exchange rate volatility.
While China’s restrictions on financial accounts and external RMB management hinder its ability to effectively fulfill this role.
Among the New BRICS Currencies, the UAE dirham and Saudi riyal Are the Only Ones Meeting the Aforementioned Criteria.
- Both currencies are fully convertible for residents and non-residents.
- They have been pegged to the US dollar since the mid-1990s.
While Saudi Arabia may have reservations about internationalizing its currency, Bohrisch contends that the UAE is better suited for this role.
- The UAE is more open to trading in all other BRICS currencies.
- Its sophisticated financial center can provide BRICS partners with dirham-denominated cash deposits or instruments.
Or freely convert the currencies of BRICS nations into US dollars.
The Emirates Nuclear Energy Corporation announced the start of operations at the fourth station of the Barakah Nuclear Energy Plant The Corporation’s subsidiary Nawah Energy Company is responsible for operating and maintaining the stations which confirms the high of expertise. pic.twitter.com/pLPmLusIrg
— UAE Voice (@uae_voiceeng) March 1, 2024
The UAE dirham’s convertibility, stability, and the UAE’s financial market have made it a strong candidate to serve as a driver currency for BRICS.
He also notes that the absence of restrictions and exchange rate risks associated with holding dirhams abroad would reduce the reliance on US dollars.
Further strengthening the case for the dirham as a driver currency.
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