The “non-Western” world increases the challenge to the economic and financial hegemony of the United States. From January 1, 2024, six countries, namely Iran, Saudi Arabia, Egypt, Argentina, the United Arab Emirates and Ethiopia, will join the “Brics” group, namely Brazil, Russia, India, China and South Africa. It will be the first step in a kind of “big bang” that is intended to change the geoeconomic balance of the world. At least 40 other countries have already applied to join the club, from Algeria to the Democratic Republic of Congo, from Indonesia to Cuba, from Kazakhstan to Gabon. Therefore, a coalition is emerging that unites major powers such as China, India and Russia with African, Asian and South African nations that are still being formed. This message was also given at the summit between Chinese President Xi Jinping and American President Joe Biden on Wednesday, November 15th in San Francisco. “The world – said Xi – is big enough for both of us. China and the US, despite their differences, are capable of growth.” After meeting Biden and the large US delegation, Xi Jinping went to dinner with some of America’s most important entrepreneurs, from Elon Musk to executives from Exxon Mobil, Apple, Citigroup and Microsoft . At the same time, Xi Jinping was the staunchest supporter of BRICS expansion. In other words: doors are opening for Western capital, but competition with Washington for global supremacy is opening up.
Birth of the Brics
The acronym Bric was coined in 2001 by Jim O’Neill, chief economist at the American investment bank Goldman Sachs, to denote four companies that should be focused on for high-potential investments given their turbulent development. O’Neill’s prediction actually did not take into account that a political-diplomatic process was also beginning. The governments of Brazil, Russia, India and China had already begun a dialogue that reached maturity with the first summit held in Yekaterimburg, southern Russia, on June 16, 2009. The photo with these heads of state and government appears somewhat faded today. Brazil’s President Luiz Inácio Lula da Silva is the only one still in office. Hu Jintao was at the head of China, now it’s Xi Jinping; of Russia, Dmitri Medvedev, now Vladimir Putin; of India, Manmohan Singh, now it’s time for Narendra Modi. In 2010, the four founders decided to open up to dynamic South Africa. And with the “s” in South Africa, the Brics became Brics.
The hand of Goldman Sachs
O’Neill had written to Goldman Sachs clients that the Bric countries would rise in the hierarchy of the planetary economy by 2040. China’s GDP would have equaled that of the United States; India would overtake Japan and take third place. And overall, the Bric states would have grown more than the G7, the elite of world capitalism consisting of the United States, Japan, Germany, the United Kingdom, France, Italy and Canada. The brilliant start of the first decade of the 2000s was followed by a slowdown. But overall, things went as the Goldman Sachs financier had imagined.
G7 and BRICS in comparison
The International Monetary Fund (IMF) notes that the five Brics produced 31.5% of global gross product at purchasing power parity in 2022. From next January, with the formation of 11, the “Brics Plus”, the share of total assets will rise to 37.3% and continue to grow: 37.7% in 2025, 38.5% in 2028. Just for comparison: in 2022, the European Union covered 14.5% of global GDP (also at purchasing power parity); while the G7 is 30.3%. And in 2028, their share of wealth will continue to fall: that of the EU (13.7%), that of the G7 (27.7%).
There are 800 million people living in the G7 bloc, a quarter compared to the 3.2 billion inhabitants of Brazil, Russia, China, India and South Africa. The gap will widen in 2024 with the contribution of the six newcomers: another 400 million inhabitants. A total of 3.6 billion: 44.4% of the total population will live in the “Brics Plus” area.
The G7 can count on gold reserves of 17,527 tons. The Brics have 5,493 tons. But the “emerging” countries already have 21% of oil reserves and with the arrival of Saudi Arabia, the United Arab Emirates and Iran they will reach the 41% threshold. On the Western Front, the only two producers, the United States and Canada, are worth 20% and 6%, respectively. So far the basic data of the two blocks. But the point is: what are the goals, where do the “Brics plus” want to go and above all: can they?
The goals
Its stated goal is to build an alternative economic, trade and financial order to that created by the United States at the end of World War II. The first step has already been taken: the establishment of the “New Development Bank” (Nbd). The company began operations in 2016 from its headquarters in Shanghai under the leadership of someone very close to Lula: Dilma Rousseff, former president of Brazil (a position she was replaced from due to a series of scandals). The institute was founded with the aim of becoming a monetary fund for emerging markets: lending money to struggling governments without demanding drastic reforms. The program summarized by Lula himself: “Save countries, not sink them, like the IMF does.” The bank’s shareholders are the five Brics states, to which Egypt, Bangladesh and the United Arab Emirates are added. In seven years of operation, the NDB has allocated the equivalent of $30 billion to finance around 100 infrastructure projects, with the aim of reaching $350 billion by 2030, bypassing the IMF, according to figures updated up to November 15, 2023, services approximately $110 billion in loans. The NBD primarily moves local currencies as part of a broader strategy: to abolish the “dictatorship of the dollar.”
Undermining the dollar’s dominance
The topic was the focus of the last Brics Summit on August 24, 2023 in Johannesburg, South Africa. Xi Jinping, Lula, Modi, Russian Minister Sergei Lavrov and South African President Cyril Ramaphosa assumed the central importance of the dollar. The American currency regulates 60% of international trade and 89% of transactions in the foreign exchange market, i.e. the purchase or sale of currencies. In the financial sector, the signals are more mixed. Central banks are reducing the share of the greenback in the composition of foreign reserves. According to the IMF, in 2016 it was 65% of the total, today it has fallen to 59%. At the same time, however, issuance of international bonds in dollars has increased: from 38.5% in 2003 to 48.5% in 2023. This means that over the last twenty years more and more states and more and more public or private companies have relied on them the US currency to seek resources in foreign financial markets.
Beijing nominates the yuan
But would the “Brics plus” really be able to introduce a single currency, perhaps along the lines of the euro, designed and tested from the ground up? The widely accepted answer in global financial circles is “no.” and it will stay that way for a long time.
The “emerging” group is too heterogeneous; public budgets and trade and economic policies are often incompatible. It is difficult to imagine finding a lowest common denominator between a debt-ridden country like Argentina and a capital-abundant power like China, to give just one example
In practice, “de-dollarization” is therefore interpreted in two different ways. The first is that of Beijing. Xi Jinping’s government is pushing to nominate its currency, the yuan, as an alternative to the American currency. But it starts very far away, perhaps too far away. Today, the yuan covers only 2.6% of the world’s foreign exchange reserves, compared to 5.8% of the Japanese yen, 4.8% of the British pound, 20% of the euro and, as we have seen, 59% of the dollar. The remaining 7.8% is expressed in Canadian dollars, Australian dollars, Swiss francs and other currencies. Since 2005, Beijing has entered into a series of agreements with the central banks of Malaysia, Argentina and Nigeria, among others, to offer the yuan as a currency for foreign reserves.
Lula’s suggestion
In addition, the Chinese, in collaboration with Thailand, Hong Kong and the United Arab Emirates, have developed a banking platform that is intended to serve as an alternative to Swift, the system most commonly used by global credit institutions to process financial and commercial payments. However, Beijing’s activism has met with strong resistance from the BRICS partners themselves. India and Indonesia, for example, have already made it clear that they have no interest in replacing the dollar’s dominance with that of the yuan. So here lies the second possible development of “de-dollarization”, as Brazilian President Lula explained: “If we trade with each other, we can do it easily with our currencies, we don’t have to resort to the dollar.” However, this project could only have limited impact on the world trade map. Unless cross trade between all Brics countries increases significantly. Starting with that between the two giants: China and India. In 2022, traffic between the two countries increased by 8.2% and reached the threshold of 135.9 billion dollars. However, the main trade routes still pass through the United States and the West. Two data, again referring to the year 2022: Trade between the USA and India amounted to 191.8 Billion dollars; that between the USA and China is even at 758.4 billion. In fact, the Brics are not yet in a position to approach the USA and the West, their products, their technology and their most important reference currency, the dollar waive.
The political weight
But there is another important complication: it is difficult to imagine that these 11 countries and the upcoming countries can act compactly at the political level and thus influence the discussion in international bodies, starting with the United Nations. Or in the G20, the group that regularly brings together the heads of state and government of the world’s 20 largest economies. The orientations are too different. The wars in Ukraine and the Gaza Strip have highlighted fissures and strong differences. China has not explicitly condemned Putin’s aggression in Kiev. India did it. There are always disputes about the definition of the national borders between Beijing and New Delhi. Xi Jinping wants to eclipse American influence in the Indo-Pacific region. Indian Prime Minister Modi, on the other hand, maintains dialogue with Joe Biden. On the Middle East: Iran wants to wipe Israel from the face of the earth; Saudi Arabia was willing to sign an economic cooperation agreement with Tel Aviv (the Abraham Accords) in exchange for Washington’s military protection as well as American civilian technology. However, the war in Gaza and the violent Israeli response have, at least for now, united the Muslim world against the government led by Benjamin Netanyahu. The challenges of “Brics Plus” will therefore be two. This vis-à-vis the West and, in parallel, the aim of smoothing out internal political conflicts and sharing the strategy for currency, trade and investment in order to challenge the geo-economic centrality of the West.