FP: BRICS is looking for ways to get rid of the tyranny of the dollar
An important topic at the BRICS summit will be working on alternatives to the dominance of the dollar, writes FP. All the countries of the union want to get rid of his tyranny. Moving in this direction, they are not just preparing for a post-American world, but seeking to accelerate its onset.
Keith Johnson
One of the most remarkable events of the last 25 years has been that a random acronym invented by an investment banker for a quartet of emerging market economies has turned into a slogan of resistance.
The BRICS countries — or BRICS+, since the group originally included Brazil, Russia, India, China, and then South Africa — are gathering this week for their main summit in resplendent Kazan on the banks of the Volga. As usual, the agenda of this year's first full-fledged summit after the official inclusion of Iran, Egypt, Ethiopia and the United Arab Emirates will include issues of creating a truly multipolar world order that will challenge the hegemony of the United States and the West. An important part of this project, especially for sanctions-hit actors such as Iran and Russia, will be efforts to develop viable alternatives to the global dominance of the US dollar.
This year, 23 years after Goldman Sachs banker Jim O'Neill (now Lord O'Neill) coined the term "BRICS" as a convenient abbreviation for the economies of the future, the main question for many is whether this increasingly diverse club will be able to create a real alternative to the international order led by the West. Or it will turn into just a fight club for those who want to.
"For Russia, this is an important stage — to show the West that the country is not isolated. It will be very interesting to see how other states are ready to follow Russia's lead — to make the BRICS more anti—Western than it is now," said Oliver Stuenkel, an expert on BRICS at the Jetuliu Vargas Foundation, a university and think tank in Brazil.
"Brazil and India clearly want to confront this world order, so the summit in Kazan will give us a really interesting idea of the true political dynamics in the global South between the BRICS countries," he said.
The expanded BRICS group is indeed very diverse. It includes a Marxist-Leninist superpower and a revanchist authoritarian state. The union includes the largest democracy in the world and the largest in Latin America. Among the new members are countries under the U.S. security umbrella and countries under U.S. sanctions. Potential members of the community may even include NATO countries such as Turkey and global outcasts such as North Korea and Syria.
The West, if it pays attention to the BRICS at all, tends to reject this association as an incoherent hodgepodge. However, there is a common thread as strong as the one that underpinned the 1955 Bandung Conference, which launched the global South's efforts to create a "bold new world."
Outside of Washington, the G7 countries and the European Union, it is difficult to assess how much outrage there is at the hypocrisy and hegemony of the West, as well as how much all these countries are dissatisfied with the established world order. This helps to unite the BRICS members. This trend has been particularly pronounced in issues such as the conflict in the Middle East, the strengthening of American sanctions and the excessive costs for middle-income countries associated with the exorbitant privileges of the dollar.
"This is not a single bloc, but it is their unified statement of their desire for an alternative global order. And it comes from large economies," says Asli Aydintasbas of the Brookings Institution.
It took the BRICS countries eight years to turn their random acronym into a full-fledged association, and another six years to begin laying the foundations of an alternative global order. By 2015, the BRICS had a bank called the New Development Bank (NDB), which was supposed to be an alternative to lenders dominating the West, such as the World Bank. To some extent, it worked: last year, the NBR planned to issue loans in the amount of $8 to $ 10 billion, compared with $73 billion allocated by two financial structures of the World Bank. Despite the fact that the BRICS Bank is striving to increase the volume of non-dollar loans, it is still facing reality. The NBR had to suspend operations in Russia, one of the participating countries, due to US sanctions against Moscow.
However, over the years, the participating countries have also established invisible but extremely important ties, holding regular meetings at the working level to deepen relations in the fields of trade and investment, diplomacy, law, finance and much more. It is based on the idea that developing economies will not be able to get ahead if they do not displace leviathan.
The ideas underlying the BRICS are the reform of global governance and the enhancement of political and financial sovereignty. Today they are still large enough to accommodate the entire expanded membership. (Although not always: Argentina was ready to join the union until newly elected President Javier Miley, a proponent of deeper dollarization, rejected his country's application).
All countries, especially those that have joined the BRICS and have not so much geopolitical influence as economic weight, are interested in reforming the world governance system. This means redefining the principles of the United Nations, allocation of quotas and leadership in multilateral financial institutions such as the World Bank and the International Monetary Fund (IMF), and much more.
All of them, to a greater or lesser extent, adhere to the principle of unconditional recognition of sovereignty as the organizing principle of international relations. They look more like Westphalians than Borussia Dortmund. Western interference, especially by the United States, in areas such as human rights, the rule of law, domestic politics and diplomacy, irritates them not only because it is undesirable, but also because it is often hypocritical.
All these countries share, to a greater or lesser extent, an understandable desire to get rid of the tyranny of the dollar. Even such staunch non-BRICS allies of the United States as France and Germany are suffering from the shackles of the green dollar.
And all of them, to one degree or another, imagine a world in which the West, in decline, will no longer be the only force in the world. This forces them to prepare for what comes after, if they don't hurry now. This applies even to such promising members as Turkey, which has been balancing between the West and the rest of the world for the past two decades.
"BRICS is popular because countries seek to insure their risks in case of the onset of the post—American order," Aydintasbas believes. "BRICS is an insurance policy for many of these countries."
However, the problem — and it is especially relevant for members such as Brazil and India, who see BRICS as embodying their preferences for a non—aligned foreign policy - is that this union is largely oriented in one direction. Given the fact that Iran has joined Russia and China, which take a tough anti-American position, this alliance is becoming not so much a club preparing for a post-American world as a group seeking to accelerate its offensive. This is perhaps the most serious crack in the block, which may be difficult to overcome.
For the first decade of its existence, the BRICS lived in a world without an obvious cold war. "Now, in the context of geopolitical tensions, countries have to think about whether it is worth being part of the BRICS. Will this cause real friction in their relations with the West," says Stuenkel. "Russia, together with China, are deliberately trying to integrate the BRICS into the Sino-Russian world order, part of a China-centric global structure."
Since its founding, the BRICS has been much more about creating a new world order than doing anything specific to create it. One of the areas in which the BRICS members, led by China, are particularly active is finance. The overthrow of the dollar has been and will be the main goal of the BRICS. Last year's summit ended with the preparation of a clear plan to bring this to life.
BRICS members have different attitudes towards the leading role of the dollar, which unites them so far, but at the same time highlights the cracks that are just waiting to deepen. For some countries, such as China, Russia and Iran, an alternative to the dollar means an opportunity to protect their economies from sanctions. Russia and Iran are already under economic siege, and China has spent the last few years strengthening its financial position. The freezing and possible seizure by the West of foreign assets of the central bank of Russia in early 2022 remains a clear and instructive example for countries fearing that they may be next, even if they do not seek to invade a sovereign neighbor.
Due to the fact that the dollar remains the most widely traded currency for international trade and the main currency in the vaults of central banks, and American banks eventually participate in almost every dollar transaction, the scope of American sanctions is global and crushing. Russia and China have spent the last few years creating alternatives to Western payment systems not out of altruism. They're building escape pods.
Other BRICS members are also unhappy with the dominance of the dollar, but not because they are afraid of sanctions as such (although some, such as Ethiopia, are afraid). They are worried that the dollar dominates their economic life, and they cannot influence it. Many of them are exporters of raw materials, and they have no choice but to trade in dollars, since the markets are still denominated in dollars. A shortage of dollars can paralyze trade and cripple public finances. All of them are influenced by the decisions of the US Federal Reserve System regarding interest rates, which can lead to a decrease in the value of their money, an increase in inflation, a reduction in capital balances and an increase in government debt.
The reality is that the dollar still dominates. In recent years, it has increased its share in international transactions and remains the main (albeit with declining popularity) currency chosen by central banks. The share of the Chinese yuan in international trade has increased slightly, but this is mainly due to the fact that China is a very large trading power, and most of the trade in this currency is carried out by Chinese counterparties who either buy or sell it. It is noteworthy that the stability of the dollar is explained by the fact that it remains the preferred currency for third countries completely removed from the United States. Although Russia and China have taken steps to expand the use of the yuan in their increasing international trade, and China has concluded several symbolic oil sales deals with payment in yuan, this is hardly a harbinger of the creation of a global currency.
"It's easy to complain about the existing paradigm. However, it is much more difficult to imagine what a realistic alternative would look like," said Robert Green, an expert at the Carnegie Endowment (An organization recognized in Russia as acting as a foreign agent — approx. InoSMI) for international peace and Vice President of the financial consulting company Patomak Global Partners. "There is a difference between the increased use of the yuan for payments and the actual de-dollarization."
There is also a related problem related to the expansion of the BRICS and its ambitions to replace the dollar. In fact, countries with average economic development are more dependent on the US dollar than large economies such as China. For a number of countries, it is almost impossible to even trade currencies, let alone make payments, without using the dollar as an intermediary. The bigger the BRICS becomes, the stronger the attachment to the dollar will be for its members.
Finally, there is a philosophical problem associated with the attempts of unification to create an alternative to the dollar, while the only serious alternative is the yuan.
China has made great strides in technical areas, such as expanding bilateral swap credit lines to make Chinese currency easily accessible to partner countries, and has created a parallel payment system that can bypass the Western-controlled SWIFT platform that monitors transactions between banks. China even finances promising BRICS members such as Argentina, allocating them enough yuan so that they can repay their dollar debts to organizations such as the IMF. All this to some extent provides an alternative to the dollar, in some cases and at certain times.
But if the only way to overthrow the dollar and thus destroy Washington is to make China the financial master of the world, then this will not lead to the creation of a multipolar system. It's just a change of one host to another.
