The BRICS at the crossroads: partners or competitors?
Little attention has been paid to the recent summit of the BRICS (Brazil, Russia, India, China and South Africa) in Johannesburg. The concept was created by an economist of Goldman Sachs. Since 2009, they have increasingly formed into a more cohesive geopolitical bloc, with their governments meeting annually at formal summits and coordinating multilateral policies. They aim to promote peace, security, development and cooperation.
However, their ambition was to create a competitor to the G7 (the richest countries in the world). They created a multi-billion New Development Bank to finance projects and innovates tailored solutions “to help build a more inclusive, resilient, and sustainable future”. I met their Indian CEO in Beijing and was impressed by the potential of the bank.
Two main elements of the summit have attracted the attention of the world.
1. Replacing the hegemony of the US dollar
In some circles, eminent leaders have promoted that idea. The idea to replace the USD by the Special Drawing Rights (SDR) of the International Monetary Fund (IMF) has been studied for decades. The private use of the SDRs never emerged, and SDRs remain an instrument used by members of the IMF. Some voices emerged to promote the idea of creating a common currency for BRICS countries: this would even be more far-fetched.
While the USD and the Euro are equivalent as a means of payment -a remarkable achievement. The choice of a currency for investment is a totally different decision. The strength of the US economy and financial markets is not a matter of decision of other governments. It translates into a 58% share of global international reserves. The most liquid market in the world dominates the official and private investments.
Rather than fighting the hegemony of the dollar, the BRICS can look at their own situation: central banks can reduce their foreign exchange reserves, but at what cost? The Euro has managed to increase its share. The Russian (one of the BRICS members!) attack on Ukraine has seen brave attempts to create bilateral arrangements, mostly in the Chinese and Indian currency, both of which are not fully convertible. It is from within the BRICS countries that foreign exchange can evolve. Blaming the USD leads nowhere.
The fundamental reason China will struggle to dethrone the dollar. Making a currency a global standard demands deep trust in its issuer’s openness and reliability explains Alan Beattie in the Financial Times. [2] None of the five BRICS currencies has the outreach of a global currency: it can only develop through bilateral arrangements.
2. Will the enlarging of the BRICS weaken its efficiency?
During the summit, leaders from the five-nation bloc announced that Saudi Arabia, Iran, Ethiopia, Egypt, Argentina and the United Arab Emirates (UAE) would join the group starting in 2024. 40 countries applied…
The champion of this enlargement was China: it continues a project to replicate the multilateral structure in the South. It was at the origin of the creation of a replica of the World Bank, also located in Beijing, the Asian Infrastructure Investment Bank (AIIB) .
Enlargement is often the enemy of efficiency. The decision process at eleven is more difficult than with five. The most striking aspect is the composition of the new group.
· The presence of three oil producers in the Middle East is particularly interesting in the context f environmental efforts to reduce the dependency on fossil fuels.
· Iran must appear as a red flag. Will the group defend the nuclear developments of the country?
· Is Saudi Arabia reconciliation with Iran confirmed by this presence of former enemies and opposite Muslim faith?
· Egypt and Ethiopia give Africa 3 seats out of 11 in the group with the support of South Africa. However, the largest African countries such as Nigeria have been ignored.
The ability to form a consensus will be weakened. Most of those countries have nothing in common even though there are some associations. The ideology of those initiatives is anti-American, Western or capitalist … to no avail.
The multiplication of multilateral alliances.
Ever Since the IMF and the World Bank have been created to solve balance of payment imbalances during World Word II, they were the only arbitrator of international policies. As I was watching the multilateral scenery, I was struck by what seems to be a confusing set off alliances. The bigger the institutions are, the more vulnerable they are to vetoes and other obstructions.
This summer, world leaders attended not less than six “summits” or “forums” . Is this multiplication of multilateral institutions a positive development? Definitely not. The lack of consistency will lead to a difficult consensus.
The context of Russia’s attack on Ukraine provides a perfect example. Russia has been blocked by most countries in the world. India is everyone’s friend or rather undefined partner. The European Union experiences the difficulties of making decisions and acting on them as a result of its enlargement. There are at least half a dozen Asia Pacific alliances.
What is the efficiency of the UN COP forums that mobilize two weeks. How many days in the year are global leaders spending in forums who talk, decide and do not execute on those decisions. As it is right now, the BRICS organization will just be one of them and a weaker institution.
As wars, armed conflicts and military takeovers multiply, we need to ask ourselves whether rationalization is not needed. The current mess is globally inefficient, and their costs are astronomic.
The BRICS summit has sent messages that are confrontational to the West. While the idea of the Global South could make sense, it will depend on the execution of a macro strategy that will divide the world in divided blocs.
[1] https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-us-dollar-post-covid-edition-20230623.html
[2] https://www.ft.com/content/daa1f8a6-3c49-426c-b08f-2c569837bd6d?segmentId=114a04fe-353d-37db-f705-204c9a0a157b
[3] https://allstarcharts.com/can-the-dollar-best-the-brics/
