Mohamed Gangat, Abigirl Ncube
Abstract
This paper tests the economic feasibility of the Chinese Renminbi (RMB) for monetary integration among the BRICS and BRICS Plus countries which seek to de-dollarise and reduce reliance on the US Dollar (USD). The literature reviewed addresses the ascendancy of the Renminbi to superior reserve currency status, which gives it an edge over the idea of developing a new currency for intra-BRICS and BRICS Plus trade. Mundell’s (1961) criteria of real convergence, based on the optimal currency area (OCA) theory, is used to evaluate the feasibility of a monetary integration arrangement between the member states. Despite GDP, trade openness and exchange rate signaling that a monetary integration using the RMB may be possible, the study concludes that the RMB is not yet ready to act as the currency for intra-BRICS and BRICS Plus trade. This is due to the divergence in inflation and interest rates and the inadequacy of China’s total reserves, which creates unfavourable conditions for monetary unification. Future research on monetary integration may examine other aspects of integration such as diversity in exports, the degree of cross-border labour movement, cultural or social barriers, language barriers and comparing political systems and ideologies of the governments.