Pak Sahafat – In an analysis, “Atlantic Council” admits that the BRICS group is slowly putting together the pieces needed to create a new order and after expanding its membership as a powerful geopolitical coalition, it will be able to accelerate the process of de-dollarization and the transition to a multipolar world.
This American think tank stated that the BRICS group including the countries of Brazil, Russia, India, China and South Africa, which was created in 2001 as a gathering of a set of populous and fast-growing emerging markets, is now a powerful economic and geopolitical power.
The 15th BRICS Summit this week in Johannesburg, South Africa is considered one of the most important meetings in the history of this group. The outcome of the summit in South Africa has the potential to accelerate the transition to a multipolar world by expanding the group and creating a new financial architecture that is not dependent on the US dollar.
“Hippolit Fofak”, an expert of this research institute, has stated in his analysis that the BRICS countries were able to surpass the advanced economies of the Group of Seven (G7) in terms of their share in the world’s gross domestic product. The group now accounts for about a third of economic activity worldwide, measured in purchasing power parity.
The consequences of this economic growth are reflected in many fields, including trade. While trade between Moscow and the Group of Seven has fallen by more than 36 percent since 2014 under the pressure of economic and financial sanctions, trade between Russia and BRICS members has increased by more than 121 percent during the same period. After the European Union sanctions, China and India have become the biggest importers of Russian oil.
China’s trade with Russia reached a record 188.5 billion dollars last year, which indicates a 97% increase compared to 2014 and about 30% more than 2021. This increase occurred with the more than doubling of Russia’s rail exports of liquefied natural gas. With this action, Moscow diversified its exports, which were targeted by sanctions.
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According to the admission of this American think tank, BRICS has been a salve for Russia by not obeying the economic and financial sanctions of Western countries. By diverting Russian trade and providing other facilities to one of its founding members, the bloc has undermined the effectiveness of US-led pressure as a tool to advance its economic and geopolitical interests.
The author mentions in a part of the report titled “Attractive Multipolarity”, the neutralization of the sanctions regime had results that far exceeded the impact of the Ukraine crisis. The BRICS group has successfully strengthened itself on the economic and geopolitical fronts and is increasingly recognized by many countries in the Global South as an attractive trend towards multilateralism.
More than 40 countries of the world such as Algeria, Egypt, Thailand and the United Arab Emirates, and even some key countries of the Group of Twenty (G20) such as Argentina, Indonesia, Mexico and Saudi Arabia – officially expressed their interest to join BRICS before the Johannesburg summit.
If BRICS was able to reduce the effectiveness of Western sanctions against Russia, after the acceptance of new members, the process of neutralizing sanctions will intensify. In a win-lose (zero-sum) global trade environment, the bloc’s expansion also diverts demand away from the G7 countries.
Stating that the focus in Johannesburg is on welcoming new members, facilitating trade and investment in a challenging global environment, and bringing supply chains closer together, the report added: BRICS members will discuss sustainable development in the era of climate change, global governance reform and the trend of increasing trade in local currencies. Following the imposition of sanctions against Russia, an increasing number of emerging economies are exploring ways to do business in currencies other than the dollar. Although the dollar is still the global reserve currency, its dominance has been shaken by other currencies.
A significant number of experts, including senior US government officials, believe that Washington’s aggressive use of economic and financial sanctions to advance foreign policy could threaten the hegemony of the dollar in the coming years. US Treasury Secretary Janet Yellen recently emphasized: When we use financial sanctions related to the role of the dollar, there is a risk that the hegemony of the dollar will weaken over time.
New reserve currency?
The importance of dollarization has increased in the recent period, and this may lead to efforts to introduce a reserve currency by BRICS for members in cross-border trade. According to the balance of payments surplus in the BRICS group, this block has the necessary financial facilities to create such a currency or audit unit, but this group does not have an institutional structure and a specific criterion to achieve this goal.
According to the analysis of the Atlantic Council, assuming the full geopolitical alignment of the members and the desire for more cooperation instead of competition, the introduction of a common currency has challenges. For example, the creation of the euro, now the world’s second largest reserve currency, was accompanied by obstacles: achieving macroeconomic convergence, agreeing on an exchange rate mechanism, establishing an efficient multilateral payment and settlement system, and establishing an orderly and stable cash financial market.
In another part of the report, it is stated that BRICS countries currently use their currencies for bilateral trade payments; Saudi Arabia is also considering signing an agreement with China to settle oil transactions in renminbi. Meanwhile, India is expanding the use of local currencies for bilateral trade payments and settlements beyond the BRICS group. For this purpose, New Delhi has invited more than twenty countries to open special vostro bank accounts to settle exchanges in rupees. In a historic move, India made its first oil payment in rupees to the UAE earlier this month.
The expansion of membership in BRICS, although it brings some issues, but this development can lead to a transition from bilateral to multilateral settlement, and perhaps eventually make the introduction of a common BRICS currency necessary. Meanwhile, the expansion of BRICS may further weaken the effectiveness of US economic sanctions and accelerate the process of multipolarization of the world monetary order. Several members of the Organization of Petroleum Exporting Countries (OPEC) have announced their desire to join the BRICS group. This increases the co-benefits of using local currencies for cross-border transactions and can reduce the volume of global trade in dollars.