Inflation convergence: The case of BRICS countries

The use of a common currency by a group of countries like BRICS would undoubtedly have a profound impact on the status of the dollar in the international economic and financial system. Even the mere possibility of such an event could have numerous military, political, and economic consequences. Therefore, this study is significant as it covers a sample group with an important role in the global economy, evaluates the potential for a common currency, and aims to provide policymakers with insights regarding such a currency union. Accordingly, the purpose of this study is to examine the presence of inflation convergence—a key economic criterion under the Optimum Currency Area Theory—among the current member countries of the BRICS group in the event of a potential common currency creation. Additionally, due to Türkiye's invitation to BRICS meetings, the study also investigates the presence of inflation convergence between Türkiye and the BRICS countries in order to assess the possibility of future membership. The stationarity of 12-month inflation (annual) series determined at a monthly frequency for BRICS countries was tested for the period 2012:M1–2024:M10. For this purpose, second-generation panel unit root tests that account for cross-sectional dependence among countries were employed, including the Bai and Ng (2004) test; the Carrion-i Silvestre et al. (2005) structural break panel unit root test (PKPSS test), which considers structural breaks in the series; and the univariate panel unit root test (FPKPSS test), which accounts for sudden and gradual breaks. According to the findings of the study, inflation convergence was detected among the BRICS countries. Including Türkiye in the sample does not change the results. In this context, it can be stated that one of the preconditions for these countries to create a common currency has been met.