Amid the rapidly approaching 2024 United States Presidential elections and the widespread attention on the infamous mugshot of former President Donald Trump, a significant development has been overshadowed by mass media – the enlargement of BRICS.
The BRICS expansion encompasses the inclusion of six additional countries into the fold starting January 2024: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE). This is in addition to the founding members and the original member states of Brazil, Russia, India, China and South Africa, respectively.
Although the economic consortium's effectiveness in achieving its intended objectives remains to be seen, this expansion bears considerable symbolic significance. It serves as an indicator of the bloc's growing influence, posing an imminent threat to the historically dominant currency that is the United States dollar (USD), which presently comprises 59% of global foreign exchange reserves according to the Center on Foreign Relations. This is the status quo the consortium wishes to break, earning them a reputation of having an anti-Western agenda.
Currently surpassing over 40% of the world population and over a quarter of the world’s GDP, the term “BRIC” was originally introduced in 2001 by economist Jim O’Neill to denote emerging economies Brazil, Russia, India, and China. The concept subsequently evolved into an informal alliance in 2009, followed by the inclusion of South Africa in 2010. The primary aim behind this expansion was to counterbalance the dominance of Western powers in the global economy and cultivate a more equitable and comprehensive global environment. As a part of this initiative, the BRICS alliance sought to introduce an alternative currency with the explicit aim of challenging the dominance of the US dollar. Their endeavour included an attempt to establish a gold-backed currency, but it did not reach full consensus during the recent Johannesburg conference.
Described by Egyptian President Abdel Fattah el-Sissi as “raising the voice of countries in the South”, the inclusion of Iran further fuels speculations regarding BRICS adopting an anti-Western stance. This speculation arises in light of the longstanding geopolitical tensions, including the Iranian Revolution, the Iran-Iraq War, and disputes concerning Iran's nuclear program. The conjecture has gained further credence against the backdrop of China's increasingly strained relations with the United States and Russia's ongoing standoff with Western nations over the Russo-Ukrainian War. These developments are poised to sustain enduring scepticism among the involved countries, even as the United States maintains that countries are free to join BRICS at will.
Before the expansion was officially confirmed, India expressed reservations about the potential transformation of BRICS into a platform primarily influenced by China, while Brazil voiced concerns about alienating Western nations. Ultimately, it was the influence of the two superpowers— China and Russia— that secured agreement and approval for the expansion.
The inclusion of oil giants Saudi Arabia and the United Arab Emirates underscores their gradual divergence from the hold of the United States over the global economy, and their aspirations to establish themselves as noteworthy players in the global field. Despite the US State Department's efforts to dissuade Saudi Arabia from pursuing BRICS membership, including personal outreach and a visit by US President Joe Biden to Riyadh, Saudi leadership remained committed to the pursuit. This persistence highlights the US's limited ability to prevent its allies from joining, signalling a shift in power dynamics and a potential erosion of the dominance of the world's largest economy.
Meanwhile, there have been extensive discussions surrounding BRICS and its potential implications for imperialism by the West. Within the BRICS member states, Russia and China possess veto powers, with the former currently embroiled in a conflict and the latter being portrayed as the principal rival of the United States. With the addition of Iran to the bloc alongside Russia, BRICS now comprises two member countries facing sanctions from the US and experiencing diplomatic isolation. The expansion has sparked debates about whether it might be attracting more actors antagonistic to Western powers, potentially bolstering an anti-imperialist agenda.
Economist O’Neill has criticised the inclusion of countries that offer minimal economic advantages to the bloc, prompting speculation about Russia and China's potential hidden agendas in expanding their spheres of influence and bolstering dominance over the United States under the guise of economic liberty. However, a study from the Fletcher School offers a contrasting viewpoint, contending that BRICS is not exclusively orchestrated by China. This perspective is supported by the fact that BRICS has previously rejected some of China's proposals, including those related to a free-trade agreement. Moreover, the participation of countries like India, Saudi Arabia, and Egypt, which maintain significant ties with Western nations, raises questions that complicate the arguments in this discourse. Nevertheless, it is important to acknowledge that BRICS, despite these complexities, with its consolidated power does indeed pose a challenge to the hegemony of imperialist institutions within the global economy.
Historian Vijay Prashad characterises it more as a new Non-Alignment Movement, historically a bloc devoid of alliances with either the East or the West, rather than a staunchly anti-imperialist one. Nonetheless, criticism has emerged on this front, with senior officials like Okechukwu, a founding member of Nigeria's All Progressives Congress, suggesting that Nigeria might be better off maintaining its decades-long diplomatic non-aligned stance instead of applying for BRICS membership. This hint implies that BRICS may not be as non aligned as it appears.
While the expansion of BRICS has received limited coverage in Western media, likely attributed to the United States being preoccupied with internal affairs, its profound geopolitical ramifications cannot be overlooked. This expansion bears significant implications, particularly in terms of augmenting the bloc's influence in international affairs, especially within the realm of global markets and trade.
Notably, this enlargement integrates three of the world's largest oil-exporting nations – UAE, Iran, and Saudi Arabia – which brings substantial economic prowess into the coalition. Given that a significant portion of global energy trade occurs in dollars, the expansion further bolsters the capacity of BRICS to steer trade toward alternative currencies, a phenomenon known as "de-dollarization."
China has already made substantial moves in pushing forward their de-dollarization campaign. In July, China permitted Argentina to utilise Chinese yuan for a portion of its International Monetary Fund (IMF) debt payment through an extended and expanded swap agreement. Further, China denounced the use of USD for mutual trade with Brazil early this year, and proposed the establishment of an Asian Monetary Fund (AMF) to reduce dependence on the IMF.
Currently, the USD is as strong as ever amidst BRICS’ proposition for de-dollarization. This situation presents challenges for countries that have borrowed in dollars, particularly in less economically developed countries (LEDCs). Their currency, during the transition, might depreciate or fluctuate, leading to volatility in exchange rates and increasing debt burden. Criticism has emerged from several of these nations, asserting that institutions like the IMF and World Bank demonstrate a Western bias. Instances such as G7 favouritism during the COVID-19 crisis, where their vaccine hoarding was overlooked, further support this claim. Vijay Prashad points out that the Western financial systems have limited global efficacy and emphasises the Global South's desire for equitable participation.
The consequences of de-dollarization are far-reaching and multifaceted. One of the most immediate impacts could be the devaluation of the US dollar, as reduced global demand for it may weaken its value. This, in turn, might trigger shifts in trade dynamics, as countries may increasingly opt for alternative currencies or transaction mechanisms in their international trade agreements, challenging the longstanding dominance of the US dollar in global commerce. The fluctuations in borrowing costs are another crucial implication, especially for governments that have issued debt in US dollars. As they endeavour to reduce their dollar exposure, converting such debt into their own currency or other stable denominations could introduce currency risk, leading to unpredictable servicing costs due to exchange rate movements.
Furthermore, the diversification away from US Treasury securities, traditionally considered a safe asset, can disrupt the demand for US government debt, potentially influencing interest rates in the United States, which has broader implications for the global financial market. These changes could also have ripple effects on inflation and deflation rates, as well as the overall stability of diverse economies, bringing uncertainties into monetary policy decisions. In addition to these economic consequences, the geopolitical implications of de-dollarization should not be underestimated, as it could reshape the balance of global economic power and influence the relationships between nations.
Realistically, enormous effort and time would be necessary for BRICS to create a dollar alternative. The challenge of a new reserve currency rivalling the dollar, backed by the US' economic size and credibility, appears nearly insurmountable. It is thus reasonable to conclude that the dominance of the US dollar is unlikely to be threatened immediately. As evidenced by the recent BRICS conference in Johannesburg, South Africa, the efforts to reduce dollar dependence have not yielded instant results, though there is a consensus to shift away from the dollar for trade settlements and promote the use of local currencies in international trade. There have been instances of this shift before, such as India employing China's yuan to purchase Russian crude and utilising rupees for oil purchases from the UAE. However, it is important to note that these developments account for only a fraction of global trade, and even though Saudi Arabia's pricing of oil exports to China and India in non-dollar currencies marks a notable shift, the dollar's status as the preferred international currency remains largely intact.
The collective GDP of the combined countries, with the inclusion of the trillion-dollar economy of Saudi Arabia, surpasses that of the G7 nations. Moreover, when considering purchasing power parity, the BRICS economies slightly outweigh those of the G7. This economic prowess places the BRICS nations at the forefront of global economic dominance. However, it's important to note that within both these groups, it is primarily the contributions of the United States and China that significantly shape these statistics. These dynamics underscore the fact that while the G7 and the BRICS, whether expanded or in their original form, possess considerable economic might, yet they may not be optimally equipped to address today's complex global challenges.
Beyond addressing trade agreements following the Russian invasion of Ukraine and establishing the New Development Bank to offer loans without stringent conditions, there appears to be little substantial action from BRICS— and the G7 alike. O’Neill argues for the inevitable resurgence of the G20, emphasising its crucial role in fostering economic growth, managing international trade, addressing climate change, pandemic prevention, and more, but only if the US and China can cooperate to reinstate its central position. Notably, President Xi Jinping was absent from the recently concluded G20 summit hosted in India. Instead, Premier Li Qiang of the Communist Party represented China, potentially impacting opportunities for compromise and consensus.
In light of these developments, how should the US respond? Is it necessary for the US to adopt a foreign policy stance against BRICS?
Disregarding BRICS is no longer a viable approach for the US, particularly as BRICS tends to coalesce when US global interests are at stake. With interest in BRICS growing among 40 countries, including nations like Algeria, Bolivia, Indonesia, and Cuba, all looking to engage in development finance and boost trade and investment, there is potential for further expansion. The international desire to join BRICS prompts a thorough reconsideration of Washington's foreign policy strategy.
Rather than adopting an antagonistic stance towards BRICS, the US could adopt a more welcoming approach, being prepared to provide a greater voice to countries of the Global South. This approach would foster the development of mutually beneficial relationships, promoting better alignment between Global South countries and the United States. Echoing this sentiment, experts like Mihaela Papa et al. from the Fletcher School emphasise that formulating a comprehensive BRICS policy could lead to a reimagined US foreign policy, ensuring the United States maintains a strong position with its contribution to and alignments with an increasingly multipolar world.
Edited by Thenthamizh SS and Nandini Sarin
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