Defying their doubters and reports of internal rifts over the question of expanding the bloc, the BRICS leaders announced last week the admission of six more countries to the grouping from next year as the economic grouping of large emerging nations seeks to increase its global influence to reshape the global financial order.
The BRICS nations — Brazil, Russia, India, China and South Africa — have agreed at their 15th summit to make Iran, Argentina, Egypt, Ethiopia, Saudi Arabia and the United Arab Emirates full members of the bloc from January 1, announced South Africa’s President Cyril Ramaphosa at the conclusion of the three-day summit on Thursday.
It will be the first expansion of the bloc since 2010 when the club admitted South Africa as its full member.
BRICS, the group of non-Western states, currently represents 40 per cent of the world’s population and a quarter of the global GDP, which is set to rise to 36pc as the new members include three biggest oil producers — Saudi Arabia, the UAE and Iran. The expansion of the group is expected to boost its global heft and counter the dominance of the US-led bloc of G-7.
Trade exchange within the enlarged alliance of BRICS in local currencies is a possibility
Many of these ‘middle powers’ are frustrated with the existing international financial order and are vexed by the “US hegemony”. Others are wary of the use of economic sanctions as a tool to preserve the political dominance of the US and its wealthy allies over the rest of the world. For them, BRICS presents an alternative.
There’s a lot of resentment against the existing global financial architecture or world order, and developing countries resent Washington’s influence over the Bretton Woods system. Many believe that the International Monetary Fund (IMF) and the World Bank are tools for the US and its wealthy Western allies to exercise their dominance over developing economies and squeeze wealth out of them. The Bretton Woods institutions are often blamed for the impoverishment of their people.
There is also a growing feeling in the Global South that the dominance of the dollar as an international reserve currency and its use for international trade is responsible for the recurring balance of payments crises and price inflation in developing economies.
Others are worried about Washington’s “unilateral sanctions posing a threat to many countries, as they could put countries under great pressure and destroy them.”
“The world has watched for decades how the US uses the dollar as a weapon against countries that oppose its policies and interests. Many countries have suffered from these sanctions, including Iran, Cuba, Venezuela and Sudan, which have caused catastrophic harm to their peoples and economies as a whole.
“Countries or companies that try to deal with the economies under sanctions may also suffer sanctions. As such, the US puts these countries in permanent economic and political blockades,” Hisham AbuBakr Metwally Mohamed, an Egyptian economist, writes in a recent article. He says, ‘the US cares only about its own interests rather than about the harmful effects of its financial policies on other economies’.
Beyond the enlargement question, boosting the use of member states’ currencies in trade and financial transactions to lessen their dependence on the US dollar is also on the BRICS agenda.
Trade exchange with these countries in local currencies represents a quick and effective solution to their dollar scarcity problems. The New Development Bank, which was founded by the BRICS nations and provides financing for many states searching for alternatives to the Western-dominated Paris Club, and its availability to finance without stringent conditions provides an important option for countries that have suffered or are suffering from acute shortages of financing and its high costs.
BRICS has an immense potential to offer an alternative to traditional financial and political systems. Among its notable achievements has been the establishment of the New Development Bank or the BRICS bank, a multilateral development bank with $50bn in subscribed capital to fund infrastructure and climate-related projects in developing countries. The bank, which includes BRICS members as well as Bangladesh, Egypt and the United Arab Emirates among its shareholders, has so far approved more than $30 billion in loans since its inception in 2015.
BRICS has also created a $100bn Contingency Reserve Arrangement, a foreign currency liquidity facility that the members can tap into during global financial turmoil. The bloc is also pushing for the creation of a common currency in a bid to challenge the dollar’s dominance.
For now, the bloc is focusing on deepening the use of local currencies in trade between members. The BRICS leaders have tasked their finance ministers and central banks to consider the issue of local currencies, payment instruments and platforms and report back to the bloc at its next summit, said Mr Ramaphosa.
With BRICS membership, the countries hope to have influence within a rising coalition of non-Western states with ambitions to reshape the global order. Though Pakistan has expressed its interest in joining the bloc, it has not formally requested for its membership. It’s time for Pakistan to consider joining the group and become part of an influential voice in world affairs.
Published in Dawn, The Business and Finance Weekly, August 28th, 2023