By Dmitry Skvortsov
The US is sounding the alarm - the BRICS organization, which includes Russia, is looking to create its own currency and thereby oust the hegemony of the dollar. Indeed, dozens of countries already want to join the BRICS. However, not all BRICS members support the expansion of the organization, and even the creation of its single currency. What is the reason for this, what are the interests of each of these countries, and what important tasks does Russia face in this regard?
The heads of all of the states that have applied to join the BRICS have received an invitation to take part in the next summit of the organization, which will be held in South Africa in the next few days. There are currently 23 countries, according to the South African Foreign Ministry.
The possible expansion of the BRICS, and especially the creation by this group of countries of their own currency, already frightens many in the West. “We, in fact, spurred the creation of the BRICS. 40 countries are now threatening to abandon the dollar as the world's reserve currency. If this continues, the Great Depression will seem like a cakewalk to us,” says, for example, US presidential candidate Robert Kennedy Jr.
However, among the current participants - Russia, China, South Africa, India and Brazil - there is no consensus on how quickly to expand their ranks. And whether it should at all. There is also no unity on the issue of creating a common BRICS currency. Some BRICS countries do not want to abandon the dollar at all. And the position of each of the countries is based not only on political, but also on economic considerations.
India Depends on Western Capital
Of the five BRICS, only China and Russia can boast a stable trade surplus over the past two decades. For example, in India, imports consistently exceed exports. In 2022, the country's trade deficit approached $280 billion.
India can cover such a deficit only thanks to the inflow of funds from the global financial marketsThis is the influx of capital into the Indian stock market, and loans taken from Western banks by the largest Indian conglomerates. Therefore, New Delhi cannot afford drastic steps to exit the dollar system.
What troubles could follow, India was shown in January 2023, when the American Hindenburg Research brought down the shares of Adani Group companies owned by Gautama Adani, a longtime associate of Indian Prime Minister Narendra Modi. Adani Group's direct losses then amounted to $118 billion. But most importantly, the companies included in the group for a long time lost the opportunity to develop by attracting loans or placing new shares.
India would like to enjoy the benefits of being in the BRICS and at the same time not leave the global world based on the dollar. At the same time, it is not the dollar itself that matters to Indians, but the dollar investments that are collected in the financial markets of the West, where the shares of subsidiaries bought by Indian conglomerates are listed. If the story of the Adani Group repeats itself on a larger scale, India will face a severe financial and general economic crisis.
Brazil Dreaming of a Latin American Common Market
Brazil is also included in the global stock markets. And it also experienced an experience similar to the Indian one, when in January 2023, the largest retail chain in Latin America, Americanas SA, went bankrupt. For Brazilian President Lula da Silva, this story served as another argument in favor of his economic platform, which provides for greater state participation in the economy and stricter regulation of private capital.
Brazil has a different attitude towards the introduction of a common BRICS currency than India - with enthusiasm. Moreover, the BRICS Development Bank is headed by Lula da Silva's longtime associate, Dilma Rousseff.
But Brazil, on the contrary, is very wary of the rapid expansion of the BRICS. And this is connected not only with the fear of strengthening the political influence of Beijing and fears that the West will become more hostile to the BRICS (and members of this association) if it sees in it a counterbalance to the US, the EU and the international institutions they have created.
Brazil sees its role in the future as the leader of the Latin American community. And Brazil's membership in the club of leading non-Western countries, which today is BRICS, but which other Latin American states have no access to, is a good argument to reinforce Brazil's leadership ambitions. Well, and a potential source of benefit, since for Latin American countries access to the BRICS markets and connection to interesting programs of this community will be possible only through Brazil (or through Brazil it will be easier and easier).
South Africa and the shadows of the colonial past
South Africa, as the most economically developed country on the continent, could also claim the role of the economic leader in Africa and the center of the African macro-region, if there were prerequisites for the formation of such a region. But Africa is too complex and diverse a continent, and South Africa is burdened with problems inherited from its colonial past.
If we talk about the dependence of the South African economy on the global financial system, then this dependence is somewhat stronger than that of India or Brazil, but it has a qualitatively different character.
Since the times of the apartheid regime and being under international sanctions, the industry of South Africa has become accustomed to developing at the expense of domestic resources. At the same time, South Africa has the largest ratio of stock market capitalization to the country's GDP - 348.3% (this is according to the data of 2020, in which India's stock market capitalization was 103%, China - 83%, Brazil - 68.4% and Russia - 46 ,8%). Such a huge capitalization is explained by the fact that large global corporations owned by British and American capital are still registered in South Africa. For diamond miner De Beers or gold miner Gold Fields, the market is the whole world. At the same time, the mines and enterprises of the companies are located not only in South Africa and even not only in Africa (De Beers operates in 25 countries of the world. Gold Fields owns mines, in addition to South Africa, also in Ghana, Peru and Australia,
It is difficult to imagine a scenario of pressure on the leadership of South Africa through the collapse of the shares of these companies. But at the same time, these companies themselves can effectively defend their own interests within the country, and in extreme cases, in unfavorable conditions, they can redirect investments in production from South Africa to other countries. At the same time, Western capital present in South Africa has enough opportunities to defend its influence on the domestic political agenda.
Given all these circumstances, it is difficult to imagine the actions of South Africa to fence off from the global economy (and what then to do with diamonds and gold?). Therefore, it is too early to talk about the possibility of forming an African economic macro-region around South Africa.
But the situation will change if BRICS becomes a more integrated and capable structure. In this case, Pretoria can successfully and not without benefit play the role of representative of this structure on the African continent. At the same time, without breaking ties with the West for as long as possible.
China between the mirage of Chimerica and the logic of deglobalization
China, on the one hand, is the BRICS country most involved in the global economy (last year its trade surplus amounted to $877.6 billion). At the same time, China benefits most from trade with the United States (surplus of $404 billion), with the EU (surplus of $276.6 billion) and India (surplus of $103 billion). This state of affairs suited Beijing quite well if the United States and the collective West did not seek to change it by imposing sanctions against Chinese companies and entire industries and closing their market.
From the point of view of China's interests, the rapid collapse of the world into macro-regions/currency zones is rather a negative scenario.
At the same time, the actions of the United States and the European Union make it clear to Beijing that the implementation of such a scenario is already beginning. Therefore, China is interested in preserving as long as possible what can be preserved from the "old" global world, while simultaneously building a new world that includes as many countries as possible. Based on this, Beijing is interested in expanding the BRICS and the emergence of effective institutions within the framework of this association. Another thing is that there will be serious discussions with the rest of the BRICS members regarding the powers of such institutions and the mechanisms for developing their policies.
A separate very important point is that earlier third world countries were of interest to Beijing mainly as suppliers of raw materials, food and energy resources. Now China is forced to look for new markets. The One Belt, One Road project, which used to be aimed at creating a guaranteed transit infrastructure for the access of Chinese goods to Europe, is now becoming less relevant in its previous form. And Beijing willy-nilly becomes interested in the development of the One Belt countries so that they can buy more Chinese goods (which Europe and the United States will inevitably refuse over time).
Russia is the lookout for BRICS
In the five BRICS countries, Russia occupies an average place in terms of GDP at PPP (5.3 trillion dollars) - less than India (11.9 trillion) and China (30.3 trillion), but more than Brazil (3.8 trillion) and South Africa (953 billion). In terms of a positive trade balance, Russia (+$332 billion in 2022) is in second place in the BRICS after China (+877.6 billion).
Moreover, Russian exports are diverse. These are hydrocarbons and other raw materials (which India and China are interested in importing). Then there is is food, which is also important for these two most populous countries in the world. Finally, it is a wide range of industrial products. In some positions, Russian and Chinese industrial exports can compete for markets. But in some areas, Russia has unique competitive advantages.
In terms of capitalization to GDP, Russia is in last place in the BRICS (46.8% of nominal GDP, because it would be absurd to compare capitalization with GDP at PPP). But this is evidence not so much of the underdevelopment of the Russian stock market as of a lesser integration of the real sector of the Russian economy into the global financial system. The investment contour of the Russian economy is much less dependent on stock prices and cross-border capital flows. Which has helped Russia resist the sanctions in 2022.
In the context of these sanctions, Russia, more than other BRICS partners, is objectively interested in expanding the composition of this association and building common institutions, including the introduction of a common currency. The collective West can threaten small states with secondary sanctions and achieve at least partial success. But if these countries start working with each other (and with Russia) through the BRICS structures that are not controlled by the West, then Washington, London and Brussels will face an unpleasant alternative. Either cut themselves out of the growing markets of countries with more than half of the world's population, or come to terms with the fact that sanctions hardly work.
Russia needs BRICS not only in connection with sanctions. Russia needs markets for its exports, and Russia is ready to negotiate cooperation that will help its partners develop (which makes them more solvent in the future, and therefore more profitable). And here the BRICS mechanisms would be very useful.
But in order to get a step forward from its BRICS partners, Russia needs to demonstrate to everyone that this step will be in their interests. This is a truly large-scale task that is now facing Russian foreign policy.