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BRICS and the Political Economy of the New World Order
https://valdaiclub.com/a/highlights/brics-and-the-political-economy-of-the-new-world/
Nivedita Das Kundu 29.06.2023
The BRICS countries are asserting themselves in global politics, aiming for greater representation and influence. They have the potential to drive global economic growth and innovation, particularly through investments in education and emerging technologies. The development of a consolidated and constructive global governance model and potential trade using a common currency could further enhance their global influence and solidify their position as a powerful force in global leadership, writes Nivedita Das Kundu.
Introduction
The BRICS (Brazil, Russia, India, China, South Africa) alliance is reshaping the world order by shifting power from the “Global North” to the “Global South”. Originally coined by Jim O’Neill in 2001 as BRIC, the acronym was expanded in 2010 to include South Africa, becoming BRICS. This group of nations represents almost half of the world’s population and boasts a combined GDP contribution of 31.5%, surpassing that of the G7 (30.7%).
BRICS has become a significant forum for addressing critical global issues such as trade, finance, climate change, and energy security. Its impact extends beyond discussions to shaping the global economic landscape. In 2014, the member nations launched the New Development Bank (NDB) with $50 billion in initial capital. The NDB serves as an alternative to the World Bank and the International Monetary Fund, providing funding for infrastructure and sustainable development projects.
Additionally, the BRICS nations established the Contingent Reserve Arrangement (CRA), a liquidity mechanism designed to support member countries facing payment difficulties. These initiatives demonstrate the BRICS nations’ intention to create institutions that represent the interests of emerging economies and provide an alternative to existing global financial institutions.
One of the strengths of BRICS is its potential to assist poorer countries without pursuing any political agenda or indirectly manipulating local economies.
The NDB and the Asian Infrastructure Investment Bank (AIIB) are more reflective of the priorities and interests of emerging economies.
The 15th BRICS Summit is scheduled to take place in South Africa from August 22-24, 2023. The summit will be hosted at the Sandton Convention Centre in Johannesburg, Gauteng. This gathering of BRICS leaders will provide an opportunity for further discussions and collaboration on various issues of importance to the member nations and the broader global community.
Political Economy
The past two decades have witnessed significant political and economic transformations within the BRICS countries, which have influenced their regional dynamics. These nations have embarked on ambitious infrastructure projects, reflecting their respective visions for smart and sustainable development. For instance, China’s Belt and Road Initiative aims to establish extensive infrastructure networks connecting Asia, Europe, and Africa. India has planned the development of 100 smart cities linked by bullet trains, while Russia seeks to build up the Russian Far East as a new economic bridge between Europe and Asia through Advanced Special Economic Zones. Brazil and South Africa have focused on large-scale farming and industrial expansion.
To support infrastructure projects globally, new multilateral financial institutions have emerged, including the Silk Road Fund, the BRICS New Development Bank (NDB), and the Asian Infrastructure Investment Bank (AIIB). These institutions aim to raise additional liquidity for infrastructure development worldwide, offering alternatives to traditional financial mechanisms.
Furthermore, the ’Global South’ has taken steps to introduce alternatives to the dollar-based trading system. China and Brazil, for example, have agreed to engage in cross-border trade using their own currencies, bypassing the dollar system. The ASEAN nations have also called for alternatives to dollar-based trading. Moreover, countries like Russia and India have engaged in trade using their own currencies, and India and Bangladesh are in the process of doing the same.
These developments highlight the efforts of the BRICS countries and other nations in the Global South to establish more diversified and independent trading systems. By promoting trade in local currencies, they aim to reduce reliance on the dollar and enhance economic autonomy.
Overall, the BRICS countries’ political and economic transformations, as well as their initiatives for infrastructure development and alternative trading systems, demonstrate their aspirations for smart, sustainable development while reshaping the global economic order.
New World Order
The BRICS countries are increasingly asserting themselves on the global political stage, particularly in areas such as international negotiations, peacekeeping, and conflict resolution efforts. It is important to understand that the BRICS countries are not aiming to replace the West; rather, they seek to achieve greater representation and influence in global affairs. The BRICS alliance advocates for a more equitable and inclusive global economic and political system.
One of the key areas where BRICS can make a significant impact is through joint investments in education, research and development, as well as in the sharing of knowledge and expertise. By leveraging their collective strengths, the BRICS countries have the potential to drive the transition to a more sustainable and equitable global economy. Their investments in emerging technologies such as artificial intelligence, blockchain, and renewable energy can position them as major drivers of global economic growth and innovation in the near future.
Moreover, the BRICS countries are working towards developing a new global model of governance that is consolidated and constructive, rather than unipolar. If the BRICS countries reach an agreement to conduct trade using a common currency, it could accelerate the process of de-dollarization. This move would not only enhance the BRICS countries’ global influence but also establish them as a powerful force in global leadership. It is projected that by 2030, the BRICS countries, with their proposed enlargement, could contribute over 50% of global GDP, which would further solidify their significance on the global stage.
In summary, the BRICS countries are asserting themselves in global politics, aiming for greater representation and influence. They have the potential to drive global economic growth and innovation, particularly through investments in education and emerging technologies. The development of a consolidated and constructive global governance model and potential trade using a common currency could further enhance their global influence and solidify their position as a powerful force in global leadership.
The Way Forward
The success of BRICS has generated significant interest from other nations, including the United Arab Emirates (UAE), Saudi Arabia, Argentina, Algeria, and Mexico, to invest in this bloc. Algeria, Argentina, and Iran have already submitted applications to join BRICS, while Saudi Arabia, Turkey, and Egypt have expressed their keen interest in becoming members and are currently engaged in the membership process. The inclusion of these countries in BRICS would have a profound impact on the global economy and the world order.
BRICS countries are advocating for reforms in multiple global institutions, arguing that they are currently under-represented. They emphasize the need to address the structure of the United Nations, shareholdings in the World Bank and International Monetary Fund (IMF), and membership and renewal processes to strengthen global organizations such as the World Trade Organization (WTO) and World Health Organization (WHO). By pushing for these reforms, BRICS aims to create a more inclusive and equitable global order.
The objective of the BRICS group is twofold: to advance the national interests of its members and to gain autonomy. In the process, it counters Western hegemony economically and politically. Against the background of the ongoing war in Ukraine and the intensifying competition between China and the US, the momentum for expanding the BRICS group has been growing.
In 2014, the BRICS nations launched the New Development Bank as an alternative to the World Bank and the International Monetary Fund (IMF) and opened their doors to new members. The bank was established with a capital of $50 billion, of which 20 per cent was paid by the countries of the BRICS group, the equivalent of $10 billion.
In 2021, Egypt, the UAE, Uruguay, and Bangladesh took up shares in the New Development Bank. However, the value of these shares was much lower than the $10 billion investment made by the bank’s founding members. Even so, as the BRICS becomes a platform for cooperation, many countries are now more interested to join. Proposed BRICS members include Iran, Argentina, Turkey, Egypt, Saudi Arabia and many other nations.
Egypt’s President Abdel-Fattah Al-Sisi recently approved an agreement on the New Development Bank allowing Egypt to join it. Such a move is a major shift for Egypt and has the potential to reduce the domestic demand for US dollars. “Egypt’s joining of the BRICS Group’s New Development Bank will relieve the state budget of the pressure of finding US dollars to meet the country’s imports as members of the bank can use their national currencies for trade exchange,” Deputy Chair of the House of Representative’s Economics Committee Mohamed Abdel-Hamid has said.
This is a fundamental shift and is exactly what many nations hope to achieve. Amidst the current global economic crisis, all nations are looking to strengthen their own currencies, and the BRICS group can support them in accomplishing that goal. This is an alternative that could assist these nations in overcoming soaring prices, inflation, and acute dollar shortages.
During the 14th BRICS Summit in 2022, Russian President Vladimir Putin announced that the BRICS nations would launch a new global reserve currency made up of a basket of BRICS currencies. This would be a direct threat to the dominance of the US dollar and will help to undermine its supremacy.
From the perspective of the global monetary system, such a move could mark a significant development in the trend towards de-dollarisation, as countries try to trade in non-dollar currencies and seek to diversify their foreign-exchange reserves. If the BRICS nations’ goods and services are traded in the new reserve currency, this will become one of the foundations of a new world economy, helping to see a new world order emerge.
Various bombshells have begun to jolt the current world order. Russia is now using the Chinese Yuan in lieu of the US dollar for international payments, and the Yuan is now the most-traded currency in Russia. Brazil and China are ditching the US dollar in favour of their own currencies. Saudi Arabia is also in talks with Beijing regarding using the Yuan for payments. All this is clearly chipping away at the dominance of the US dollar.
Andy Schectman, CEO of US company Miles Franklin Precious Metals Investments, explained the magnitude of the situation. “All it would take would be for Saudi Arabia to stand up on the stage [and declare] we’re now going to consider taking up other currencies for oil. And all of a sudden, bang, all of the countries that have had to hold dollars for the last 50 years no longer have an interest in holding them,” he said.
“And if they all start to dump dollars, and I think it would happen quickly, you would have a tsunami of inflation hitting the shores of the West.”
In addition, the political arm of the BRICS group has also grown stronger with the ongoing war in Ukraine. Since the start of the war, the BRICS members have distanced themselves further from the Western perspective on the conflict. None of BRICS nations – India, Brazil, South Africa, and China – opted to sanction Russia, highlighting a distinct divide between the Western countries and Russia on this issue.
A recent article in Deutsche Welle, the German-owned broadcaster, said that “European and US policymakers worry that the BRICS may become less of an economic club of rising powers seeking to influence global growth and development and more a political one defined by their authoritarian nationalism.”
Azza Radwan Sedky is former professor of communication based in Vancouver, Canada.
Ahram
