The BRICS leaders’ virtual summit in Beijing late last month brought a host of proposals to bolster the group’s economic and geopolitical clout.
Russian President Vladimir Putin unveiled a plan for a new reserve currency based on a basket of currencies from the five members Brazil, Russia, India, China and South Africa, while promoting the use by members of the Russian financial messaging system as an alternative to the Western-dominated SWIFT network from which Russia was excluded following its invasion of Ukraine.
Chinese Vice Minister of Commerce Wang Shouwen suggested establishing a free trade agreement between the five, noting that although they collectively account for around a fifth of global trade, only 6% of their trade in goods and service was done between them. None currently have a bilateral trade agreement with another.
Perhaps most important was the fact that Chinese President Xi Jinping signaled the expansion of the group’s membership. “The infusion of fresh blood will inject new vitality into BRICS cooperation and increase BRICS representativeness and influence,” he said.
“It is important to move this process forward to allow like-minded partners to become part of the BRICS family at an early date.”
Like a character in a novel come to life, the BRICS group of nations leapt from the pages of a 2001 Goldman Sachs research report to become a global institution with the ambition to become for the emerging world what the G7 is for nations. advances. The ambition is for it to become the apex body for emerging nations capable of coordinating economic policies.
Five-nation leaders’ summits have been held annually since 2009. The group established an infrastructure finance institution, the New Development Bank, and also organized a “liquidity fund” to support members in times of financial crisis. . Other efforts to institutionalize the grouping include cultural programs and a BRICS sports tournament.
Yet the organization is hampered by the fact that the five economies have very little to do with each other, with little in common. While China and Russia would both like the BRICS to become the anti-G7 that rallies the emerging world against the “hegemonic” West, India’s Narendra Modi and South Africa’s Cyril Ramaphosa moved on from their BRICS summit on screen in the Bavarian Alps. participate as observers at the G7 summit, to which they had been invited, alongside the leaders of Indonesia and Senegal (which holds the presidency of the Organization of African Unity). For Modi, it was his third G7 summit, which he sees as a testament to India’s great power status.
The original 2001 Goldman Sachs article highlighted the size and growth prospects of Brazil, Russia, India and China (South Africa was a later addition to the group) and argued for their inclusion in global governance. A follow-up paper in 2003 predicted that by 2040, the four original BRIC countries would have a combined economic weight greater than the six major G7 countries (excluding Canada). In the early 2000s, the G7 emerged as an anachronistic forum for shaping global economic policy given the growing importance of developing countries.
In fact, initiatives for broader global governance had already been taken with the formation of the G20 in 1999 (initially as a group of finance ministers), but the four countries clung to the idea of becoming the supreme body of the emerging world, which was otherwise represented by the United Nations-based “Group of 77” (which actually has 134 members).
As a group, the BRICS have advocated for greater representation of emerging countries in multilateral institutions, including the International Monetary Fund, World Bank and United Nations institutions. However, they have never taken a coordinated stance on broader economic policy issues within the G20 or elsewhere.
Trade and investment ties between nations are weak. There has been no real growth in trade between the five members since 2011, and the trade that takes place is mainly the sale of primary products by Brazil, Russia and South Africa to China, and the sale by China of manufactured goods in return. Excluding China, the internal trade of the BRICs represents less than 3% of the total exports of Brazil, Russia and India, and 6% for South Africa.
A Brazilian study shows that only 0.1% of Brazilian offshore investments are in the other BRICS countries, while the corresponding figures for the other members are Russia 0.4%, China 2.3%, India 3 % and South Africa 24%.
Although Wang raised the possibility of a BRICS free trade agreement, it was not mentioned in the final statement. India demonstrated its reluctance to join any trade agreement that includes China by withdrawing from the Regional Comprehensive Economic Partnership in 2019. Even Russia and China only have a Trade Facilitation Agreement which falls under the Union Russian-led Eurasian economy.
Putin’s proposed new reserve currency was also not mentioned in the “Beijing declaration” at the end of the BRICS summit. The idea would be to create a product like the International Monetary Fund’s “Special Drawing Rights” (SDR), which is based on a basket of the most liquid member currencies. As noted by ING Banking Group’s global head of markets, Chris Turner, the main considerations for a reserve currency are security, liquidity and yield.
The cost of insuring against default on five-year bonds issued by BRICS countries is more than 20 times higher than the cost of similar insurance against SDR currencies. Although the returns of the BRICS currencies are higher than those of the US dollar or the euro, their liquidity is poor. “We doubt the mercantilist nations involved in the BRICS want to transfer valuable foreign exchange reserves into this more local sphere of influence,” Turner said.
Even Xi’s dream of expanding BRICS membership may be difficult to achieve. China, as BRICS chair this year, has invited the foreign ministers of Argentina, Kazakhstan, Saudi Arabia, Egypt, Indonesia, Nigeria, Senegal, United Arab Emirates and Thailand to attend a meeting of BRICS foreign ministers in May.
According to Pakistani media, China also wanted to invite the Pakistani foreign minister, but this was vetoed by India. Turkey, which is sometimes singled out as a candidate, may not win support from Russia, while Mexico may be seen as too close to the United States.
Argentina has accepted an invitation to join the BRICS development bank, which it sees as a precursor to joining the group. However, existing members may be reluctant to extend access to the group’s “contingency reserve” to a country whose economy is so notoriously mismanaged. Iran has also expressed its wish to join the group.
As the final communiqué pointed out, the five existing members had to “clarify the guiding principles, standards, criteria and procedures” governing the admission of new members before there could be any expansion.
The G7, like the BRICS, is also a somewhat arbitrary grouping that does not pretend to act in anyone else’s interests. Relations between its members have also been rocky at times, especially under the Trump administration. However, the economic ties between the members are strong, including much of their trade and investment, and they have proven able to coordinate their economic policies at times of international crisis.