I Wanna BRICS Free

GLOBAL GROUPING THREATENS LONG-STANDING US DOMINANCE

International relations give the impression of men and women of great stature, all dressed in their power suits with great gravitas, deciding on major matters that would shape the world. The cynical reality is that international relations is analogous to that of a typical teenage drama, where cliques, groups of nations gravitate towards one another. Since the end of the Cold War, the dominant clique has been the Group of Seven (G7) most industrialised countries in the world. But now a new group is emerging that may change the order of things… Meet BRICS.

Collectively, the G7 – which comprises the United States of America (US), the United Kingdom (UK), Canada, Germany, Italy, France and Japan – has a GDP of US$43.5 trillion, or 30 percent of the global economy. It used to be more, but the emergence of economies such as China, India and Brazil has reduced the G7’s share of the cake. Nevertheless, the G7 had and has sought to shape the global narrative, through a mix of economic power play, the use of media and strong-arm tactics.

When the G7 was formed in 1975, the seven member states were the seven largest capitalist economies in the world. Today, that has changed. China has become the second largest economy in the world, while India is now the sixth. As The Spectator puts it in 2019, “Simply by its make-up, the G7 is beginning to look like a doomed effort to preserve the hegemony of white power.”

Of course, there have been calls to expand the G7. Perhaps to open it up to other Western-centric nation in the top 20 like Australia, Spain and the Netherlands, maybe even South Korea. But there is the qualifier. “Western-centric”. Just like teenage cliques in school, if you don’t dance to the same tune, you can’t join the gang.

So, what happens when the “cool kids” don’t let you join their club? You form your own.

And this was what happened in 2006 when the foreign ministers of four emerging economies – Brazil, Russia, India and China – met on the sidelines of the UN General Assembly meeting in New York.

This grouping was given the name BRIC – for Brazil, Russia, India and China. This acronym came from a phrase coined by former British government minister and Goldman Sachs’ chief economist Jim O’Neill, who in 2001 identified them as the four fastest growing economies in the world that would be major players by 2050.

Set up to push for the establishment of an equitable, democratic and multi-polar world order, BRIC aimed to give the emerging world a louder and more significant voice in the running of global affairs. Later in 2010, South Africa joined the quartet, thus making it a quintet and giving the grouping its current form and moniker – BRICS.

The Rise of BRICS

Since 2010, BRICS has become more prominent in international affairs, as the collective strength of its members has given it a more significant voice. To illustrate, in February 2023, Russian Foreign Minister Sergei Lavrov announced that as many as 20 emerging economies have applied to join BRICS, among which are Saudi Arabia, Turkey, the UAE, and Mexico.

Even without expansion, BRICS already accounts for 31.5 percent of global GDP according to purchasing power parity (PPP), outstripping that of the G7 as a whole. In addition, since the 1990s, the collective GDP of the G7 has been dropping whereas that of BRICS has been rising, spurred by the surge of economic growth of China and India.

Given that BRICS is on the rise and G7 is on the decline, it is no surprise that emerging economies want to join the newer, more exciting and more dynamic grouping. But there is more to it than that.

The fact is that the G7 is and has always been a clique of the US and its allies, wherein members all share similar political and economic views. The same cannot be said about BRICS.

In BRICs, you have the world’s largest democracy by population in India and a single party state in China. Nor are all BRICS members “friends” with one another – case in point, China and India are long-time rivals. And India is both a long-standing Russian ally and also a member of the Quadrilateral Security Dialogue or QUAD which also comprises the US, Japan and Australia.

In other words, BRICS is seen as a more open and inclusive group than the elitist G7. And it does not demand that members sing

from the same songbook. More pertinently, it does not demand that of others as well. And this has become extremely attractive to developing nations who previously found themselves hostage to Western whims and fancies, particular when it came to receiving development financing.

World Bank Duopoly

For most of the post-Second World War period, countries that needed to borrow money for development financing would do so from two sources – the International Monetary Fund (IMF) or the World Bank. While on paper, every member of the United Nations are members of these two institutions, the majority of the voting power lies in the hands of the US and European Union, which gives them power on deciding who gets their favour.

Often, getting loans from the IMF or World Bank comes with stringent conditions which borrowers need to fulfil. Of course, it is up to the borrowing country to decide on whether to accept such conditions or to forego the loan. Case in point, in 1998, during the Asian Financial Crisis, Malaysia decided to refuse an IMF loan owing to concerns that the IMF’s conditions threatened national sovereignty.

In 2014, the members of BRICS fired the first salvo against the IMF and World Bank duopoly by setting up the New Development Bank (NDB). The aim of the NDB, according to its founding agreement is to “support public or private projects through loans, guarantees, equity participation and other financial instruments”.

Whereas the IMF’s and the World Bank’s shareholding structures are dominated by the US and the EU, the NDB is more equitable. At its inceptions, each of the BRICS countries held a 20 percent stake in the institution.

Since then, Bangladesh, Egypt and the UAE have become shareholders – albeit with much smaller stakes than the founders. Uruguay has also expressed interest in becoming a shareholder, but as of time of writing, the amount of its contribution has not been confirmed.

The NDB presents the biggest challenge to the IMF – World Bank duopoly since those two institutions were set up as a result of Bretton Woods, and also to the US dollar hegemony. This was illustrated in mid-April this year when NDB President Dilma Rousseff (who incidentally was the President of Brazil from 2011 to 2016) revealed that the bank aims to provide 30 percent of its loans in the currencies of member countries. Most likely the Chinese yuan or the Brazilian real, since those are the two strongest currencies in BRICS.

Shifting Away from the US Dollar

This pivot away from the US dollar is seen as a step towards increasing acceptance of using alternatives to international trade settlements. In fact, China has been doing so for some time, reaching agreements with 25 countries to do so in the yuan and the other countries’ currencies.

One of the biggest being the agreement reached between China and Brazil earlier this year to use the yuan and real in bilateral trade. Incidentally, trade between the two countries was valued at more than US$150 billion as of 2022 – a 10 percent increase from 2021. This has reinforced China’s position as Brazil’s largest trading partner for a 14th consecutive year.

Closer to home, one significant step towards de-dollarisation was taken in late March during a meeting of ASEAN Finance Ministers and Central Bank Governors in Indonesia. There, discussions were held to reduce dependence on G7 currencies, namely the US dollar, euro, Japanese yen and UK pound sterling, and to move towards financial transactions and trade settlements in local currencies.

In addition, Malaysia’s Prime Minister Dato’ Seri Anwar Ibrahim revealed in April that during his visit to China in late March, he and China leader Xi Jinping spoke on setting up an Asian Monetary Fund (AMF) as an alternative to the IMF thus further reducing dependence on the US dollar.

A BRICS Currency on the Cards?

Not all parties are on board with the idea of trading in yuan. In fact, not all BRICS members are on board. As reported by Reuters, officials in India are said to have been asking traders not to settle international trades in yuan. The main reason seemingly being the tensions between the two nations caused by border disputes in the Himalayas.

Regional and national rivalries aside, using the yuan as an alternative to the US dollar may not be entirely palatable as well owing to the fact that it may place China as the leader of a group touted to be a collective of equals.

A more equitable, and acceptable, solution would be to create a new currency for international trade used by all BRICS member nations and those who want to trade and invest with them.

This BRICS currency, the idea of which has gained traction over the past two years, will reportedly be backed by gold and other commodities, according to Alexander Babakov – a Russian lawmaker and close ally to Russian President Vladimir Putin.

Together, the five members of BRICS have an estimated total of 5,287 tonnes of gold. Still lower than the more than 8,000 metric tonnes that the US presently has, but more than the 3,355 metric tonnes currently held by Germany in second place. It is in rare earths that BRICS hold the upper hand, with a combined reserve of 7.776 billion metric tonnes of the minerals that are vital to the modern day electronics industry.

The Inconvenient Truth About US Power

But why has the notion of a BRICS currency become more popular since 2022? As mentioned, economics is one answer but it is not the only one. After all, it is not as if people woke up recently and realised the disproportionate power and influence of the US dollar and decided to do something about it.

Perhaps, more than anything, the one incident which has pushed nations to seek alternatives to – if not to abandon – the US dollar was the decision by the US and its allies to impose sanctions on Russia following its invasion of Ukraine in February last year.

We have previously discussed the issue of US sanctions and their extraterritorial reach in The US Sanctions Dilemma in edition 148 of our publication – which you can read by scanning the QR code on this page. So, the US imposing sanctions on another country is not entirely new.

What makes the sanctions against Russia remarkable are their size and scope. For the first time ever, the US and its allies have imposed far-reaching sanctions against a great power, by not only preventing trade with the sanctioned nation but also freezing the assets of Russian officials and Putin’s alleged close allies, as well as removing Russian banks from the Society for Worldwide

Interbank Financial Telecommunication (SWIFT) network which facilitates cross-border digital banking payments.

It is not just in trade and finance that the West has tighten the screws on Russia. Debates have been going on about banning Russian athletes – as well as those from its close ally Belarus – from international competitions, and performers from performing.

In fact, the All England Lawn Tennis and Croquet Club, which organises the world-famous Wimbledon tennis tournament, decided to ban Russian and Belarusian players for the 2022 edition after the Ukraine war broke out. Other reports also emerged that there have been demands that Russian athletes and performers denounce the war in Ukraine before they are allowed to play or perform.

Without going into a debate or discussion over the rights or wrongs of Russia’s actions, one can’t help but see a hint of double standards over the West’s reaction. After all, 20 years ago, the US and its allies launched the invasion of a sovereign nation – Iraq, that cause massive deaths and damages and destabilised the Middle East.

And yet no one imposed sanctions on the US or its chief partner in crime, the UK. No one talked about banning American athletes from sporting events. In fact, the winner of the Wimbledon women’s singles championship was American Serena Williams.

As cynical as this might sound, this writer cannot help but feel that if Ukrainians were brown and swarthy instead of pale and white, the reactions from the US and its allies would not have been as hard as they are.

Cynicism aside, the sanctions imposed on Russia would have sent alarm bells ringing in many countries. For one thing, there is the fear of being caught up in secondary sanctions as a result of continuing to trade with Russia. This was mentioned by Indonesian President Joko Widodo during the aforementioned ASEAN meeting, where he called for the group to move away from Western payment systems citing the need to protect payments from global repercussions.

Presently, Singapore is the only ASEAN country to have imposed sanctions on Russia. The rest have decided to continue trade as normal. Yet, there is little doubt that their leaders have this thought at the back of their heads, “What if we fall foul of the US and the West for continuing to trade with Russia or for any other reason? What if we are next in the firing line?”

US Treasury Secretary Janet Yellen has acknowledged that while sanctions may push nations away from the US dollar that the use of sanctions are, nevertheless, “judicious”. However, it is doubtful that others do not see it in the same way. What they see instead is the weaponisation of the US dollar and its position as the world’s reserve and trade currency to ‘punish’ anyone that steps out of line.

What they see is arrogance caused by more than half a century of currency hegemony and 40 years of being the sole superpower in the world. It is an arrogance which has turned the US into a nation that many regard as having a “my way or the highway attitude”. Now with BRICS in the picture, there is a promised alternative. And like so many empires before it, hubris might just cause the sun to the set on US dominance. We might just be seeing the beginning of the end.