China and India are so far into frenemy zone that they may never join forces to topple the dollar

Xi Jinping and Narendra Modi holding a bouquet of flowers.
China's leader, Xi Jinping, with Indian Prime Minister Narendra Modi.REUTERS/Amit Dave
  • The BRICS group of emerging nations is exploring the idea of a common currency.

  • But China and India — the two biggest economies in the bloc — often can't get along.

  • The economist who coined the "BRIC" acronym said the currency idea seemed "crazy."

Whether it's the Chinese yuan or gold or even bitcoin, a discussion about alternatives to the US dollar as the world's reserve currency has been raging for over a year.

Fanned by fears that Washington is weaponizing the US-dollar-denominated global financial system against Russia over the Ukraine war, the debate has gotten so intense that there was even talk during a bloc summit in August about creating a dollar-challenging common BRICS currency.

The bloc is helmed by the major emerging nations of Brazil, Russia, India, China, and South Africa.

And one expert — the former White House economist Joseph Sullivan — even said a BRICS single currency could erode the dominance of the dollar.

Creating a common currency isn't easy, however, and would require the diverse BRICS countries to align on several issues, including setting up a central bank and phasing out their currencies.

For example, the euro took decades of preparation within Europe, and the currency's use globally is still a far second to the US dollar's. In August, the greenback accounted for 48% of global payments via the SWIFT messaging system — way ahead of the euro's share at 23%.

There's also one other problem. India and China — the two biggest economies in the bloc — can't quite get along.

Even Jim O'Neill, the former Goldman Sachs chief economist who came up with the BRIC acronym in 2001 (South Africa joined the bloc in 2010 to round up BRICS) has been fielding interview questions about the proposed idea of a BRICS single currency on repeat mode recently.

"You can't even get India and China in the same room, so the idea that they would commit to a shared currency and abandon their own domestic monetary policy, it's just kind of crazy," O'Neill told Insider.

Other analysts also described relations between China and India as tense.

China-India's terse relations are said to be a 'pain point' in the BRICS bloc

While Beijing and New Delhi appear actively engaged with each other, the two counties' ties have been strained. In short, they appear to be frenemies.

China and India's relationship goes back centuries, but the two have been embroiled in a territorial dispute along their shared Himalayan border in contemporary history — and even fought a war in 1962.

While recent decades have been more amicable, the neighbors have appeared to be getting deeper into frenemy territory since 2020 amid the border dispute and rising nationalism in both China and India.

The two sides appeared to make up in August at the BRICS summit in Johannesburg, when China's leader, Xi Jinping, and Indian Prime Minister Narendra Modi agreed to de-escalate tensions at the disputed border.

Barely a month later, the relationship was again in question when Xi did not attend the G20 Summit in New Delhi — the first time since 2008 when he didn't attend the conference. Beijing didn't explain Xi's absence, and Premier Li Qiang led the Chinese delegation instead.

Liu Pengyu, China's Washington, DC, spokesperson, told Insider that Xi most recently spoke with Modi on the sidelines of the BRICS summit — at the request of the Indian leader.

"President Xi stressed that improving China-India relations serves the common interests of the two countries and peoples, and is also conducive to peace, stability, and development of the world and the region," said Liu, who added that the situation at the border was stable.

Politics aside, it doesn't help that the two countries have become strategic competitors on the economic front, too.

China, the world's second-largest economy, is worth $19.4 trillion, per the International Monetary Fund. India is the world's fifth-largest economy, with a gross domestic product of $3.7 trillion. There's little indication India's GDP will overtake China's in the next five decades, but there's still no denying the world's top two emerging markets are fierce rivals.

By UN estimates, India overtook China earlier this year as the world's most populous country. As a large country with a young population — the median age is 28 — it's an enticing draw for companies looking to diversify their risks beyond China, which has been the factory of the world for 40 years.

Among the five BRICS members, the "biggest pain point" is India-China friction, Abishur Prakash, the founder of the advisory firm The Geopolitical Business, told Insider. He added it's "highly unlikely either country will rely on a currency dominated by the other party."

And given that China and India are the biggest players in BRICS, it's crucial they must at least come to some common ground for a common currency to happen, O'Neill said.

For what it's worth, the August BRICS summit ended with no new currency and all five members issuing differing and contradictory commentary on de-dollarization. It also appears that it's just Russia and Brazil that have really pushed for a BRICS common currency. China hasn't commented on the idea, while India and South Africa said it wasn't on the agenda at the latest summit.

A BRICS currency — if it comes to pass — could have a narrow use

For Amitendu Palit, the research lead for trade and economics at the Institute of South Asian Studies at the National University of Singapore, there are bigger issues standing in the way of a common BRICS currency — like diverse regulatory environments and how all its members' currencies can't be easily traded on foreign-exchange markets.

As for political differences, Palit thinks countries are ultimately rational. Both China and India are conscious that they are competitors, and while "nobody is going to really grant concessions to each other, that does not mean that they stop working with each other," Palit told Insider.

"The important thing," Palit continued, "is that both countries have stayed engaged with each other."

O'Neill, the skeptical father of the BRICS political bloc, still sees great potential for the group — if its members can only work together.

But even if a BRICS currency comes to pass, its use could be limited.

Prakash said a BRICS currency would be used in "very narrow and vertical settings, or for BRICS projects."

India's External Affairs Ministry did not respond to multiple requests for comment sent by Insider.

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