Written by
HO, Chi-ping Patrick
LUFT, Gal
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BRICS, the union of five major emerging economies: Brazil, Russia, India, China and South Africa, has no charter or bylaws, with no headquarters and no president. And yet, it has become one of the most influential groups in the world.
BRICS was first convened in July 2009 in Yekaterinburg in central Russia, and its five members have been gathering annually ever since to craft a common agenda and seek a greater role in the world economy and its financial institutions. Culturally and geographically, BRICS members do not have much in common. They are situated in different continents, and representing different cultures and political ideologies. What they do have in common is a strong desire to be reckoned with by the existing order proportionate to their growing collective economic power. The alliance of the underrepresented.
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The five BRICS countries represent more than 41.5 % of the world’s population and their combined nominal GDP is 26.6% of the world’s total. More importantly, they are the principal engines of global GDP growth. Combined, they contribute nearly one half of the world economic growth. This makes BRICS members an incredibly powerful subgroup within the G-20 structure.
Yet, of the five, only Russia and China have seats on the UN Security Council.
BRICS members are underrepresented in major international institutions like the IMF(total share 14.15%) and the World Bank(voting rights 14.06%), and they want to change global institutions in ways that make it more advantageous to developing countries and emerging economies.
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One of the main principles BRICS members swear by is non-interference. BRICS leaders are in no mood to be lectured to about governance, human rights, environmental misbehavior, territorial aggression or other transgressions for which they are often criticized by the West. Instead, they want to shift the international agenda to issues closer to their heart like economic development, investment, productivity, trade and currency.
As BRICS members have about $4 trillion in combined foreign exchange reserves, with the lion’s share held by China, they want to have a greater say in how development money is being allocated.
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In 2012, BRICS pledged $75 billion to the IMF to boost its lending power, but also demanded a voting reform within the IMF to allow better representation for them in par with their growing weight in the global economy and contribution to global growth. In 2014, at the sixth BRICS summit in Fortaleza, Brazil, BRICS leaders went further and decided to set up a development bank called the New Development Bank (NDB), which competes with the World Bank as a source of project financing for the developing world. Headquartered in Shanghai, the NDB concentrates on infrastructure development, energy exploration and exploitation, including clean energy.
BRICS countries have also created a $100 billion Contingency Reserve Arrangement (CRA), meant to provide additional liquidity protection to member countries during balance of payments problems just like the IMF does. As they stated at the conclusion of their October 2016 summit in Goa, India, BRICS members believe that the NDB and the CRA may eventually challenge Bretton Woods’ World Bank IMF hegemony over matters such as emergency assistance, infrastructure building and post-war reconstruction.
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At the 2017 BRICS Summit in Xiamen, China, there is a sense that if the group is to turn into the key organization of the post-Pax Americana world order, as many would expect and like it to be, then the next logical step in its evolution will be the creation of a BRICS+ circle, building on the fact that BRICS is represented by one major power on virtually every continent of the developing world. Members already have leadership roles in major regional integration blocs like the Shanghai Cooperation Organization (SCO), South African Customs Union (SACU), Eurasian Economic Union (EAEU), South Asian Association for Regional Cooperation (SAARC), Mercado Común del Sur (or Southern Common Market, the South American trade bloc comprised of Argentina, Brazil, Paraguay and Uruguay), as well as the China-ASEAN FTA.
In the upcoming 15th summit of the BRICS group in Johannesburg, South Africa , August 22-24, 2023, 23 countries have put in applications to join BRICS, and another 22 countries have expressed interest in becoming members.
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Should this happen, BRICS+ countries could potentially challenge and block U.S. and European efforts from steering these international institutions in ways that they believe hurt the group’s members. In the IMF, for example, the United States currently maintains a 16.73 percent majority that allows it to block other countries. The consolidated share of BRICS members at present is just around 14 percent. But the addition of BRICS+ partners would raise the consolidated share of the vote to a point BRICS+ can have a blocking stake with respect to the key decisions of the IMF.
A similar power shift can take also place in the WTO at a time the United States and Europe are discussing ways to reform the organization in ways that may not be to the benefit of the developing economies.
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One of BRICS’ top priorities is denting the hegemony of the U.S. dollar and the petrodollar in the global financial system. To this end, the group could serve as a platform for extending the use of non-dollar currencies in trade and investment transactions. The NDB is expected to be an important player in the process. To a large extent, this will be enabled by the group’s holding most of the world’s energy resources. Today, BRICS members control nine percent of the world’s proven reserves of conventional oil and 21 percent of all global natural gas. As BRICS expands to become BRICS+, the figures will increase to 40 percent of the world’s oil and 40 percent of the world’s gas. With so much of the world’s energy under the group’s control and with some of the world’s largest energy importers among its members, BRICS will be able to reshape the contour of world’s energy trading and this could pose a serious challenge to the petrodollar system.
Shifting their internal trade among the Group to national currencies is a necessary step in the effort to challenge the dollar’s reserve currency status. To achieve their ultimate goal, BRICS members may have to introduce a common currency as they have already begun to discuss at the 2018 BRICS summit in Johannesburg. One approach they could take is to follow the Special Drawing Rights (SDR) model of the IMF and create a competing basket of BRICS currencies. BRICS members would certainly prefer their own basket to the SDR due to the heavy weight of the dollar in the SDR – 41 percent (the only currency of a BRICS member in the SDR is the yuan which comprises just 10 percent of the basket). A BRICS or BRICS+ version of SDR would be based on the Five R’s—the Brazilian Real, Russian Ruble, Indian Rupee, Chinese Renminbi and South African Rand.
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But the problem with the SDR is that it is not really a currency but a unit of account of the IMF and some other international organizations. SDR can be used to settle debts among governments as well as between governments and the IMF itself, but is not designed to be used by private sector players. Until markets offer an option for SDRs to be bought and sold with ease and until banks can receive SDR denominated deposits and issue SDR denominated loans, SDR use will remain limited.
Just as in the case of SDR, all Five R’s could be part of a basket whose value would be determined daily based on market exchange rates. However, building private markets in Five R’s denominated financial instruments will require the main stakeholders to invest a great deal of effort in improving the liquidity of their markets and developing financial products that central banks and other international investors find attractive. This will be a long and agonizing process. An even less likely scenario would be the formation of a currency union for all BRICS+ members such as the euro. If a BRICS currency is to fare better than the euro, it must be based on the old concept of representative money rather than the highly compromised system of fiat money.
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Whereas the formation of a currency union may take a long time for serious discussions, this 15th summit in Johannesburg will most likely see on its agenda, priorities such as payment and settlement systems being alternative to SWIFT, and local currency transactions. And we will certainly see BRICS being rapidly built into a “BRICS wall” against the dollar hegemony.
Edited by Fang Fang
Proofread by Wang Yan