The dynamic landscape of global economics is currently undergoing a momentous transformation revolving around the BRICS group. The 15th BRICS summit was recently convened in Johannesburg, South Africa, from August 22 to August 24. The agenda included the further expansion of BRICS and the initiative of de-dollarization. The inclusion of South Africa as a full-fledged member occurred in 2010, leading to the renaming of the collective to “BRICS,” signifying its composition of Brazil, Russia, India, China, and South Africa. This year’s summit hosted by South Africa was particularly significant, taking place at a critical juncture in the global economy as states try to shift away from USD.
The acronym BRICS was coined in 2001 by Jim O’Neill, the chief economist of Goldman Sachs, in a research paper that envisaged the formation of a prospective association comprising emerging economies. Subsequently, the concept took root and materialized in the inaugural summit held in 2009. With its immense demographic presence encompassing over 40% of the world’s population, commanding GDP figures, and a substantial lineup of more than 40 prospective member nations, the BRICS consortium found itself in an unprecedented position of influence.
Significance of the Addition of Six New Members
The BRICS bloc of top emerging economies has taken a significant stride in expanding its scope and influence. Opting for an expansion, a pivotal decision marking the bloc’s initial enlargement in thirteen years, BRICS leaders also left the door open for future enlargement. Over 40 countries, including Saudi Arabia, Iran, the United Arab Emirates, Argentina, Indonesia, Egypt, and Ethiopia, have expressed interest in joining BRICS. This collective interest resulted in the submission of approximately 20 membership applications. Notably, pronounced disparities persist among the aspirants across political structures, economic frameworks, cultural contexts, and even diplomatic stances. Considering the substantial number of nations expressing their aspiration to join the grouping, the original five members panned down the list in the Johannesburg summit, and six more nations were invited to join with the status of full members from 1 January 2024, aiming at fostering a more equitable global landscape.
The expansion serves to enhance the economic strength of BRICS. This development can also amplify the stated aspiration of BRICS to assume a leadership role for the Global South. But persistent historical tensions may continue within the members, who want to forge the grouping into a counterweight to the West – notably China, Russia, and now Iran despite and those that continue to nurture close ties with the United States and Europe. This expansion could lead to differences and discord due to the diversity and representation within the collective. However, with this announcement, Latin America, Africa, and the Middle East become better represented within the BRICS. But new members bring with them their individual political links and economic alignment.
The inclusion of Argentina, Egypt, and Ethiopia in BRICS, as agreed upon by its members, strengthens the position of Latin American and African nations within this group. Notably, Argentina was one of the first countries to present its candidacy to BRICS in 2022 officially. Argentina perceives that its association with the group will fortify its image and make a constructive contribution to the economic recuperation efforts. Additionally, Argentina has formally communicated its aspiration to participate as a New Development Bank (NDB) member. However, Argentina has a weak economy and has a bailout progress with the IMF currently.
Meanwhile, Egypt and Ethiopia are addressing concerns related to the representation of Africa within the group, including concerns about South Africa’s leadership. Ethiopia’s entry has been facilitated by its position as the headquarters of the African Union (AU), first in 2013 at the Durban Summit. This initiative aims to bolster the connections between BRICS and the continent. Egypt, the second-largest economy in Africa after Nigeria, formally joined the NDB in 2023, shortly after the United Arab Emirates, which became a new member of BRICS in 2021.
Lastly, and perhaps the most significant debate, the entry of Saudi Arabia and Iran poses a complex set of challenges for BRICS, encompassing both political and economic aspects. In the political realm, both states deviate from democratic governance, with Saudi Arabia being a monarchy while Iran functions as a theocratic republic, with a lifelong religious leader as its head of state. Saudi Arabia enjoys a degree of understanding from Western nations, whereas Iran has experienced decades of severed diplomatic ties with the United States, coupled with recurrent imposition of sanctions. Economically, both states are integral members of the Organization of the Petroleum Exporting Countries (OPEC), with Saudi Arabia holding the largest share of OPEC membership and concurrently standing as the preeminent economy in the Middle East. This adds a new dimension of influence to BRICS amid the intensifying global competition for access to vital energy resources.
De-dollarization
BRICS member states collectively aspire to shift away from the internationally dominant financial framework based on the US dollar. The increase in interest rates of the US Federal Reserve Bank can have far-reaching repercussions, potentially destabilizing smaller economies. This action exposes them to external disturbances unrelated to their domestic conditions, and the dollar provides the US with a mighty hammer to wield for its interests.
Rather than presenting a singular replacement for the US dollar, the endeavors to diversify are anticipated to amplify the significance of the national currencies of BRICS member states. With differing degrees of effectiveness, all members except Brazil have introduced alternatives to the dollar-centric international payment messaging system, SWIFT. In Africa, the Pan-African Payment, and Settlement System (PAPSS) has been instituted as an intercontinental framework to reduce dependence on dollar-based transactions.
Most of the bilateral trade payments of BRICS states are made through their respective national currencies. In this regard, the declaration issued during the Johannesburg Summit introduces further initiatives to enhance this practice. Additionally, member states actively pursue strategies to diversify their foreign reserves, reducing their reliance on the US dollar by mostly switching to the Euro, Swiss franc, British pound, or Japanese yen.
The most significant transformation in the power of the US dollar will materialize when the pricing of oil and gas ceases to be denominated in US dollars. This motive likely played a central role in incorporating Saudi Arabia and the UAE into the BRICS membership. While the prospect of a unified currency within BRICS is generally deemed improbable by most experts, it is undeniable that the group’s leadership is progressively striving to reduce its dependency on the US dollar.
In a recently published article outlining some of the objectives of the BRICS summit, the group promised to “reduce the reliance on the US dollar and promote the use of national currencies in international trade.” During the event, Russian President Vladimir Putin addressed the attendees through a video connection, remarking that the process of economic de-dollarization is an irreversible and ongoing endeavor.” Furthermore, South Africa’s Finance Minister Mr Godongwana acknowledged that central bank officials are deliberating methods to “facilitate cross-border transactions” utilizing local currencies instead of the dollar. He also indicated that China is actively pursuing recognition of the renminbi as a reserve currency.
The 15th summit in Johannesburg marked a significant milestone, reflecting the group’s commitment to expanding its influence and diversifying its approach. The global economic landscape is transforming, with this annual BRICS Summit at the forefront of driving these changes.
As the group progresses, efforts to reduce dependence on the US dollar, and initiatives to utilize national currencies in trade and international transactions, are reshaping the financial landscape and challenging the dollar’s supremacy. The evolution of BRICS demonstrates a concerted effort to address geopolitical and economic shifts, seeking a more balanced and equitable global order. As BRICS navigates these changes and develops its role as a counterweight to Western influence, the world watches closely to see how this group continues to reshape the global economic paradigm.
On the political front, it remains to be seen how the disparate system prevalent in the BRICS as well as the new countries that have joined it can work out a common consensual approach to global issues.
About the Authors
Ms Amna Saqib is Research Officer and Mr Syed Ali Abbas is Associate Ressearch Officer at the Center for International Strategic Studies (CISS), Islamabad.
