Wednesday, June 26, 2024

BRICS – A Platform to Build Consensus between Two Asian Giants

Written By Darshan M (Grade 10)

The dynamic rivalry between two global giants, India and China, holds the potential for transformation into a more friendly partnership. BRICS means an organization that brings the top non-western countries together. Brazil, Russia, India, China and South Africa. Today, rumors are that BRICS wants to make a currency that will end the dollar’s dominance. Is this the beginning of de-dollarization? Can this be the reason India and China become friends? And how does it matter to us? This process seeks to diminish the pre-eminence of the US dollar in global financial systems. One wonders if this currency plan could improve relations between India and China. 

BRICS started after the 2008 financial crisis, when Brazil, Russia, China, and India, that is, India’s leaders met for the first time in Russia. Subsequently, South Africa joined the consortium in 2010. Although composed of just five nations, BRICS wields substantial influence, collectively representing a quarter of the world’s landmass and accommodating 42% of its population. Notably, at least one member nation of BRICS is involved in 17% of global trade. BRICS is so important that 23 countries have applied to become a part of it. Including countries like Saudi Arabia, Iran, and UAE.

The backdrop against which BRICS operates is the contemporary global landscape dominated by the United States, the singular superpower across financial, technological, and military domains. This extends even to China, which despite its remarkable growth and influence, struggles to rival the United States individually. This discrepancy in power might prompt the consideration that perhaps a consortium of nations, rather than a solitary entity, could challenge US dominance. BRICS, in this context, emerges as a coalition aspiring to unite the fastest-growing economies of the world, with its members’ leaders and representatives set to convene in South Africa this year.

However, the act of coming together, even among powerful nations, raises the question of purpose. Does mere engagement suffice, or must a more profound objective underpin these interactions? The nascent days of BRICS were marked by a lack of a distinct goal, but evolving geopolitical dynamics have bestowed clarity upon its objectives. These objectives are, in essence, the curtailment of Western influence particularly that of the West’s flagship power, the United States. Underpinning BRICS’ endeavor is a strategic economic blueprint aimed at achieving this objective.

The Russian-Ukraine war has reminded the whole world of one thing, that the US dollar is not just a currency, but a weapon, a geopolitical weapon. In response to Russia’s actions in Ukraine, the United States imposed an array of sanctions, including Russia’s expulsion from the SWIFT international money transfer system and the freezing of $300 billion in reserves. This incident underscores the United States’ control over 80% of global trade conducted in its currency. Moreover, central banks around the world, including those of other countries, hold 59% of their foreign currency reserves in US dollars, subject to control by the US Federal Reserve. Thus, this control extends not just to America but to nations beyond its borders.

China is an economy highly dependent on trade. China’s substantial GDP derives one-fifth of its value from exports. Notably, China’s interest in Taiwan closely mirrors Russia’s interest in Ukraine. China’s aspiration to integrate Taiwan into its mainland territory entails an eventual confrontation with Taiwan. The fear of American sanctions inhibits China’s actions, which could potentially disrupt its trade with major economies.

China is already preparing for this since 2009. Because today, 6% of the world trade is done in the Chinese Yuan. This year, Alexander Babakov of Russia said that Russia is focusing on making a new global currency. The easiest way to understand China’s economic master plan is to put all the recent events on a timeline. What have we seen so far? In 2009, BRICS started, and that too after the 2008 financial crisis. After that, since 2014, every year, BRICS countries have been meeting each other. 

The pandemic year of 2020 thrust many nations into economic turmoil, with several denied assistance by the International Monetary Fund (IMF). March 2022 bore witness to Russia’s invasion of Ukraine, leading to Western sanctions. Curiously, the rest of the world continued trading with Russia. December 2022 marked the onset of de-dollarization, and the following year witnessed the collapse of Silicon Valley Bank, a reminiscent echo of the 2008 financial crisis that contributed to the birth of BRICS. In the months from April 2023, BRICS nations escalated their gold reserves: India acquired 3 tons, Russia 31 tons, and China a staggering 102 tons. These signs converge to suggest that BRICS is poised to introduce a new gold-backed currency, a potent signal in the world of finance.

The viability of a new currency hinges on three pillars: expansion, acceptance, and trust. Expansion necessitates a wider embrace of BRICS, inviting additional nations into the fold. Acceptance pertains to the ability of all member countries to partake in decision-making. Trust hinges on tying the currency’s value to gold, bestowing stability and authenticity. These pillars resonate with BRICS’ current efforts, pointing toward the creation of a cohesive economic foundation.

Understanding the potential of a BRICS currency necessitates a comparative analysis with another successful currency initiative: the Euro. Euro serves as the central currency of Europe, in use across 20 EU countries as well as a few non-EU nations. Euro’s journey was a decade-long endeavor, marked by meticulous groundwork and thorough preparation. A telling distinction between the Euro and a potential BRICS currency is the vastly divergent economic, ideological, and geographical characteristics of the member nations.

For the viability of a BRICS currency, it is imperative to assess the state of relations between India and China. Economist Jim O’Neill introduces the notion that a common currency would be an improbable outcome until India and China mend their ties. This observation resonates with recent history—clashes between Indian and Chinese forces in the Galwan Valley in 2020 escalated tensions, resulting in military mobilization and strained relations. China’s failure to dispatch an ambassador to India for ten months further underscores this strain. These antagonisms are conducive neither to currency cooperation nor the broader BRICS alliance.

The success of BRICS hinges on the collaboration between its two pivotal players, India and China. Although ideologically and politically distinct, the collaboration between these Asian giants holds promise for their bilateral ties and the BRICS alliance as a whole. Diplomatic efforts, such as Chinese President Xi Jinping’s visit to India in 2017, point toward a potential path to reconciliation. Promising discussions within the foreign ministries of both nations serve as indicators of potential progress.

In summation, the concept of a BRICS currency presents a fascinating and necessary endeavor aimed at rebalancing the global financial landscape by reducing Western dominance. The cooperation among the five core BRICS countries must intensify to break this monopoly. The Euro’s inception offers lessons in patience and preparation, underlining the complexity of introducing a new currency. The prospects of a multipolar future loom large, one where a coalition of powerful nations collaborates to redefine global interactions, transcending the traditional framework of a single superpower. As BRICS nations endeavor to pave this path, the transformation of the India-China rivalry into a partnership could be the key to unlocking their shared potential.

Featured Image Courtesy – France 24


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