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Editorial Articles


Issue no 25, 16-22 September 2023

BRICS: The Building Blocks of a New World Order

Ritesh Kumar

The BRICS Summit 2023 marked a momentous occasion with 6 more nations being invited to join. Equally remarkable is the fact that no fewer than 43 nations have conveyed their aspirations to join this coalition, with a solid 22 of them formally lodging applications. This implies that beneath the veneer of verbal exchanges and diplomatic gestures lies a profound undercurrent of transformation that appears poised to disrupt the established global order. At its core, this transformation aims to amplify the voices of economically disadvantaged nations, bolstered by the burgeoning economic prowess of emerging economies.

From BRICS to BRICS+

The 15th BRICS Summit concluded on August 24, with the highlight being the invitation extended by the current BRICS members - Brazil, Russia, India, China, and South Africa - to invite a further six nations to join them. Invitations have been issued to Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates. All had previously expressed a desire to join the bloc and had sent official applications to do so. The six new members are expected to officially join the bloc from January 1, 2024. This expansion, which effectively doubled the group's membership, marked an extraordinary development unprecedented in recent years as the bloc is now poised to transition from BRICS to BRICS+, signifying a more inclusive approach to international cooperation.

In today's rapidly evolving world, the geopolitical landscape is shifting, and nations are increasingly exploring new possibilities and seeking to reconfigure international relations beyond traditional paradigms. A noteworthy aspect of the BRICS+ format is the reluctance, particularly in the Global South, to become embroiled in the ongoing global power struggles. While the BRICS+ has not yet articulated a comprehensive model of global governance, it is essential to recognise that this coalition is not solely driven by political maneuvering aimed at advancing a particular nation's vision of international order. Each member of the BRICS+ and potential future partners brings their unique agenda to the table, seeking to promote their visions and enhance their participation in the global economy. This sentiment highlights that the BRICS+ will continue as a diverse and heterogeneous coalition with ambitious aspirations.

The expansion of the BRICS group carries significant implications for future global trade and cross-border investment. While critics argue that the BRICS is not a formalized trade bloc, its flexible nature enables swift consensus-building and allows for the negotiation of agreements without immediate institutionalization. This informality serves the BRICS well at its current stage of development, as it facilitates agility in decision-making, deferring the establishment of rigid institutional structures for a later time. This fluidity can be intentional, making the BRICS group less susceptible to categorization and thus more challenging for external parties to engage with effectively. Specifically, in dealing with Western counterparts, this approach resembles a 'divide and conquer' strategy, as there is no centralized BRICS secretariat, making the group immune to sanctions.

However, it is essential to recognize that the BRICS members are actively working on constructing institutional frameworks, as exemplified by the BRICS New Development Bank, among other initiatives explicitly outlined in the BRICS 2023 Summit Official Declaration. Notably, the policy document underscores the group's commitment to reforming existing global institutions, including the United Nations, World Bank, International Monetary Fund (IMF), World Trade Organization (WTO), and World Health Organization (WHO). The BRICS states intend to pursue these reforms through democratic platforms within the UN. As the BRICS expands its influence over an additional 69 countries, with China's Belt and Road Initiative already encompassing 147 nations, these collective votes hold potential leverage for reshaping the United Nations and its affiliated organizations.

Consequently, this evolving landscape implies that the traditional dominance of the G7, an exclusive club of affluent nations, may increasingly appear out-dated. The outcomes of the 2023 BRICS summit align with its stated objectives, signaling the commencement of an irreversible transformation towards a multipolar global trade environment, in contrast to the previous unipolar structure. This transition carries far-reaching consequences for the international trade and economic order.

The broader membership, nonetheless, brings challenges in terms of reaching consensus and introduces new layers of complexity. For example, Egypt and Ethiopia continue to grapple with disputes over the management of the Nile River. While tensions have eased with a Chinese-brokered deal, historical rivalry between Saudi Arabia and Iran for regional dominance in the Middle East persists. Argentina, facing economic challenges and an impending presidential election, faces an uncertain political future. Iran's resentment against the United States Israel could put neutral countries like India is a dillema.  Meanwhile, the United Arab Emirates and Saudi Arabia, both modernised and oil-rich nations, increasingly focusing on Asian commodity markets is also poised to ruffle some feathers within the grouping.

BRICS+ Collective Clout

The BRICS, despite cynicism regarding their lack of commonality, represent a group of nations that each holds a significant position within their respective regional trade blocs. It is more appropriate to view them as individual pillars supporting a progressively stable structure.

 

The expanded BRICS, including its new member states, now accounts for 37% of global GDP when measured on a Purchasing Power Parity (PPP) basis, surpassing the G7's 30% share based on PPP values. Furthermore, the expanded BRICS, with the inclusion of new members, constitutes a substantial global trade bloc. Importantly, the expanded BRICS platform effectively brings an additional 69 countries into its sphere of influence, owing to its leadership roles in regional trade blocs. This signifies the BRICS' expanding global footprint and its potential to shape economic and geopolitical dynamics on a broader scale.

1.      Brazil is a key player in Mercosur - the Southern Common Market- considered Latin America's largest trade bloc.

2.      Russia has a substantial presence in the Eurasian Economic Union (EAEU) and the Commonwealth of Independent States (CIS).

3.      India stands as a significant member of the South Asian Association for Regional Cooperation (SAARC) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC).

4.      China is a central figure in the Regional Comprehensive Economic Partnership (RCEP).

5.      South Africa holds prominence in both the Southern African Customs Union (SAEU) and the African Continental Free Trade Area (AfCFTA). Moreover, recent additions to this dynamic have further reinforced their trade influence:

6.      Saudi Arabia and the United Arab Emirates (UAE) are pivotal members of the Gulf Cooperation Council (GCC) and the Greater Arab Free Trade Area (GAFTA).

7.      Egypt participates actively in GAFTA and is also part of AfCFTA.

8.      Iran is an integral component of the EAEU and plays a significant role in the International North-South Transport Corridor (INSTC), facilitating connections between the Middle East, Central Asia, and South Asia.

9.      Argentina holds a substantial position in Mercosur, serving as the bloc's second-largest economy after Brazil.

10.  Ethiopia is actively involved in the Common Market for Eastern and Southern Africa (COMESA) and AfCFTA.

Quest for a New Global Currency

In recent times, there has been an increasing global discourse advocating for the adoption of alternative currencies to the US dollar, primarily due to the economic disruptions arising from Western sanctions against Russia and its subsequent exclusion from international dollar-based trading systems, such as SWIFT. The concept of a common currency among BRICS nations, referred to as the "R5," was not on the formal agenda during the 2023 BRICS summit in Johannesburg. Instead, the focus lied on increasing trade using their respective national currencies. Presently, about 30-35% of intra-BRICS trade is conducted in their national currencies, with the majority still relying on the US dollar and euro. The next step in liberating BRICS trade from US dollar and euro dominance is the introduction of sovereign digital currencies. China, India, and Russia are already conducting usage trials of their digital currencies, backed and managed by their central banks, with plans for widespread adoption by 2025. Brazil and South Africa are following suit, albeit with a slight delay. The introduction of digital sovereign currencies will enable BRICS nations to conduct financial transactions independently of the global SWIFT system, allowing them to bypass financial sanctions and expand trade within their own currencies.

The idea of a common BRICS currency may only materialise after a global digital financial transformation has been completed, as it involves complex questions about governance and ideology. While these are longer-term perspectives, they nonetheless reflect the evolving dynamics in the world of finance and geopolitics. In this context, it becomes imperative to study whether the concept of a BRICS currency is viable.

Is BRICS Currency Viable?

In April, the BRICS nations announced their intentions to introduce a new reserve currency. But the key question is whether BRICS fulfills the requisite criteria for establishing a global currency on par with the US dollar. These criteria encompass:

·         Economic Size: The US dollar is presently the most extensively traded currency, accounting for nearly 90 percent of global foreign exchange transactions. One significant factor buttressing the dollar's dominance is the United States' status as the world's largest economy, boasting a GDP of approximately US$25.46 trillion, equivalent to 24 percent of global GDP. In contrast, the BRICS collective wields a GDP exceeding US$32.72 trillion, representing 31.59 percent of the global GDP. Collectively, BRICS projects a significantly greater economic prowess compared to the United States.

·         Financial Outreach: The United States possesses a vast and sophisticated financial system comprising a network of banks, investment firms, and financial institutions adept at managing intricate international transactions. Global investors favor acquiring dollar-denominated securities due to their safety and high liquidity in exchange for dollars. In 2014, BRICS established the New Development Bank (NDB) as an alternative to established international entities like the World Bank and the International Monetary Fund (IMF). The NDB's Contingent Reserve Arrangement (CRA) liquidity mechanism has garnered substantial interest from developing countries, addressing their shortfalls in dollar reserves and enabling the settlement of international debts. The NDB has also issued bonds denominated in local currencies, signifying BRICS' expanding financial influence.

·         Military Strength: The United States derives considerable influence in international affairs from its formidable military capabilities, consolidating the dollar's status as a pre-eminent global currency. Nevertheless, the BRICS coalition encompasses Russia, China, and India, all of which possess robust military forces, ranking second, third, and fourth, respectively, after the United States, as per the Global Firepower Index. Although a military alliance was precluded in 2018, the primary objective of the bloc remains enhancing cooperation with developing nations. The feasibility of such an alliance remains remote, particularly considering the ongoing India-China border dispute and divergent stances on various geopolitical issues.

·         Challenges: Foremost among the challenges is the potential for political motivations underpinning de-dollarisation to supersede practical considerations. While transitioning from the US dollar to their national currencies for trade settlements, certain countries may opt for a specific national currency within the group which could cause frustration among other members striving to boost their own national currencies. Such discordance in interest could undermine the prospects of introducing a common alternative currency.

The second challenge pertains to the escalating reliance on China as BRICS approaches the possibility of evolving into a currency union analogous to the European Union (EU). Such prospect is high owing to China's substantial share of BRICS GDP. The liberalisation of intra-BRICS trade, potentially leading to a substantial reduction or waiver of tariffs on imports from fellow member states, could result in an augmented bilateral trade deficit, particularly with China. Increased dependence on Chinese goods may amplify China's influence and afford it a more significant role in shaping the bloc's trade regulations, potentially fostering a new form of hegemony.

 Given the divergent perspectives among BRICS member states, it remains uncertain whether the advantages of a common currency would outweigh the associated costs. While an alternative currency would effectively eliminate the expenses associated with dollar conversion in international transactions, BRICS members must exercise caution before proceeding with the creation of a new currency, as their actions may potentially contradict their individual foreign policy interests, considering their varying rationales for endorsing this novel initiative.

Strengthening the New Development Bank

The New Development Bank's (NDB) involvement in the 15th BRICS Summit in August 2023, centered around the theme of "BRICS and Africa: Fostering Accelerated Growth, Sustainable Development, and Inclusive Multilateralism," highlights the pivotal role of the African continent in BRICS' endeavors to reshape the global financial landscape. The BRICS coalition, comprising Brazil, Russia, India, China, and South Africa, recognises Africa as a critical partner in promoting accelerated growth, sustainability, and a more inclusive global order. The chosen theme underscores their joint commitment to a fairer, multipolar world where emerging economies actively contribute to shaping international norms and institutions.

During the NDB's eighth annual meeting held in Shanghai earlier this year, the primary focus was on fostering technology transfer, promoting innovation, addressing challenges related to food and energy security, advancing sustainable infrastructure projects, and creating opportunities for development. The NDB's approach remains open to admitting new members (even non-BRICS countries are free to join) and fostering collaboration with international organisations. Bangladesh, UAE, Uruguay and Egypt became members of NBD in 2021 and 2022. The bank has partnerships with fellow multilateral development banks such as the World Bank, the African Development Bank and key national and global institutions including the China Construction Bank and the Food and Agriculture Organization of the United Nations. Since its foundation, the NDB has signed more than 35 Memoranda of Understanding with various institutions, such as national development banks, enterprises and academia.

The NDB has already allocated $33 billion to support over 96 eco-sustainable projects within its founding-member countries. Additionally, it is transitioning towards financing projects in local currencies to shield borrowers from the impact of currency fluctuations, a move initiated in 2021 when the NDB ceased providing loans in USD and Euros. This reflects the BRICS nations' determination to recalibrate the global financial order in alignment with the development priorities of emerging and developing economies.

Conclusion

The expansion of BRICS carries a clear and impactful message to the established post-World War II order. It underscores the need to recognise the multipolar reality of the contemporary world and adapt to changing dynamics. The increasing number of countries interested in joining BRICS reflects deeper systemic issues, including dissatisfaction with Western unilateral financial sanctions, manipulation of international payment systems, unmet climate finance commitments, and inadequate consideration of food security and global health concerns in

the Global South during the pandemic.

Additionally, the growing trend of trading in national currencies, exemplified by the recent rupee-designated oil transaction between India and the United Arab Emirates, challenges the long-standing dominance of the petrodollar and signals a shift in global commodity trading. While the expansion of BRICS may not establish an entirely new world order, it undoubtedly signifies an effort to shape an alternative global order more in line with the aspirations of developing nations.

The future challenge lies not only in determining which countries become BRICS partners but also in defining the authority behind policy decisions. Although BRICS' consensus-based decision-making approach may present complexities, the sincere pursuit of democratisation within the organisation holds inherent value and deserves dedicated pursuit.

(The author is a Delhi-based correspondent for an international multi-media platform. You can send us your feedback on the article at feedback.employmentnews@gmail.com).

Views expressed are personal.