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How strong are the walls of BRICS

Published : Saturday, 2 September, 2023 at 12:00 AM  Count : 932
M A Masum
Over the next 50 years, Brazil, Russia, India and China-the BRICs economies-could become a much larger force in the world economy, Goldman Sachs economist Jim O'Neill made this prediction in 2001 in his paper "The World Needs Better Economic BRICs". O'Neill is the former chairman of Goldman Sachs Asset Management, a subsidiary of leading global financial institution Goldman Sachs. Besides, he was the Commercial Secretary of the Treasury during the time of Prime Minister Cameron of the United Kingdom. He is the proponent of BRICS economic theory. O'Neill said Brazil, Russia, India and China - the countries that make up the BRIC acronym - had GDP growth higher than the G-7 group. Note that the Group of Seven (G7) is an intergovernmental political forum consisting of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States; additionally, the European Union (EU) is a "non-enumerated member".

In 2006, BRICS was officially formed by Brazil, Russia, India and China. Four years later South Africa joined and BRIC was renamed 'BRICS'. The group is supposed to act as a bridge between the West and the rest of the world.

O'Neill found in his research that in 2000 Brazil, Russia, India and China accounted for about 23.3 percent of world GDP. Countries in the BRICS has surpassed the Group of Seven (G7) in terms of gross domestic product (GDP) calculated on purchasing power parity (PPP). The BRICS, on the other hand, are home to 41 per cent of the global population, mostly developing economies, and account for 16 per cent of global trade. BRICS countries together contribute nearly 31.5 per cent of the global GDP, compared to 30.7 per cent by G7 countries. At present, BRICS countries have a total population of 3.42 billion and a total area of 40 million square kilometers, which is 42 percent of the world's total population and 30 percent of the total area.

The BRICS countries think that the global economy is suffering due to unilateral system of the Western world violating international law & norms. BRICS emphasized on promoting use of local currencies in international trade and transactions among its members and trading partners. According to World Trade Organization (WTO) sources, BRICS' contribution to global GDP in 2021 was 31.5 percent or equal to $26.03 trillion, while FDA flows and stocks were $355 billion during the same period. Their contribution to world trade is 9.3 trillion dollars which is 18 percent of total global trade. One projection estimates that by 2030, the BRICS countries' contribution to global GDP will rise to 50 percent.

The 15th BRICS summit was held in Johannesburg, South Africa on August 22-24 this year. Ahead of the summit in South Africa, 22 countries applied to join BRICS. Another 20 countries expressed interest in joining. Bangladesh as the country had expected to be a member of this bloc. The leaders of the BRICS countries accepted only six new countries this time around: Iran, Saudi Arabia, United Arab Emirates (UAE), Argentina, Egypt, and Ethiopia. Their membership will be effective from January 1, 2024.

Inclusion of new members in BRICS is considered to be a win-win situation in the current geopolitical and geo-economic circumstances. Initially, the formation of BRICS was seen as a balancing force in the geo-economic landscape, which is dominated by the Western economies. Emerging economies require trade, investment, finance, and technology to continue their growth momentum and fight challenges. As multilateral financial institutions such as the World Bank and International Monetary Fund (IMF) failed to respond to the needs of countries in the Global South and reform their governance, BRICS member countries established the New Development Bank (NDB) with a contribution of $50 billion by each BRICS member. Later, Bangladesh, the UAE, Egypt, and Uruguay were invited to be members of the NDB. Recently, BRICS members have also been exploring the possibility of new international currency arrangements for trading among themselves and reducing the dominance of the US dollar.

The prospect of BRICS moving to establish an alternative currency to the US dollar for world trade has not proceeded beyond idle chatter. Indeed, BRICS emerged as a combination of some of the world's leading capitalist-imperialist and sub-imperialist powers. Brazil and South Africa, in the latter category, are their continent's leading economic powers, consistently using their financial and productive capacities to extract surplus value and otherwise dominate their regions. Any notion that the five BRICS nations constitute a progressive alternative to US imperialism is pure fantasy.

It is known that China, as most influential of current alliance, has responded positively to the expansion of BRICS. Russia, which is seeking to increase its international allies, also welcomed the decision. However, not all members agree that BRICS will become stronger if the number of members increases. However, Brazil believes that its influence in the alliance will decrease if the number of members increases. India, on the other hand, is not too keen on expansion. Whatever initiative is taken, BRICS will not be forced to choose 'any side', experts say. Experts believe there is no intention of choosing a single medium of trade between the BRICS in local currencies or in dollars with the US. Rather, there may be an opportunity to use the currency according to the circumstances.

Investors and analysts are skeptical about economic gains for BRICS members as a whole. Doubts about the success of new market integration, commercial advantages of fuel oil or increasing the use of the national currency against the dollar have not gone away. So the question has arisen how much BRICS could strengthen its walls this time.

According to calculations by ING, a Netherlands-based financial institution, exports from older BRICS members to new member countries increased by 23 percent to 30 percent after 2015. BRICS has overtaken Europe, the United States and other advanced economies in terms of trade expansion. One of the goals of BRICS is to reduce the dominance of the dollar and increase the use of national currencies. It also remained at the center of discussion at the Johannesburg conference. The members claimed that through this they can reduce their financial risk. A major reason for the accession of new oil producing members is to finance their oil supply in non-dollar currencies. In the short term, the effect of this change will be strongest on the fuel oil business. If any other currency enters the oil trade against the dollar, it would be considered a major event for the BRICS, even if only by a small amount.

The writer is a  banker and author of the book "Foreign Exchange Trade and Finance"



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