BRICS challenge dollar hegemony

Country leaders at the first BRIC summit in Russia, June, 2009.
Photo by the Kremlin under a CC Licence.

A decision made by the group of emerging economic powers known as BRICS (Brazil, Russia, India, China and South Africa) to extend credit to each other in their own currencies could have important implications for developing countries and the Western-dominated global economy.

At a five-nation summit concluded in New Delhi at the end of March, the group signed two landmark banking agreements aimed at eventually replacing the dollar with their own currencies for trade among themselves.

The five world leaders also agreed to explore the possibility of creating a ‘BRICS Bank’ that would provide funding for infrastructure and development projects, thereby reducing dependence on Western-led financial institutions such as the IMF and World Bank.

‘The euro and dollar are no longer seen as unquestionable monopolies in the role of reserve currencies. Clearly the world needs more reserve currencies,’ Russia Today reported the chief economist of Deutsche Bank, Yaroslav Lissovolik as saying. The Russian news service added that Russia and China have been trading in the rouble and yuan for several years, and now Russia plans to expand local currency settlement with India.

BRICS is a relatively new coalition of countries that collectively represents 40 per cent of the world’s population and 20 per cent of its GDP. Its ambitious plans offer hope to developing countries that the inherently exploitative North-South relationships dominating world trade could change.

States like Sri Lanka, for instance, that were hit by a ripple effect of US oil sanctions against Iran, can appreciate where these reforms are heading. Sri Lanka became a ‘third party’ victim, when the US banned from its financial system any financial institutions that paid (in dollars) for Iranian crude oil. India decided to ignore the US sanctions and is reportedly paying in gold for Iranian crude.

Although BRICS does not have an overtly political agenda, it is interesting that the summit’s joint declaration (the ‘Delhi Declaration’) expressed views on political developments in some of the world’s trouble spots.

On Iran, for instance, it expressed concern about the nuclear issue, while recognizing Iran’s right to peaceful uses of nuclear energy ‘consistent with its international obligations,’ and ‘supporting the resolution of the issues through political and diplomatic means.’

Welcoming the UN-Arab League peace effort in Syria, the Declaration called for ‘an immediate end to all violence and violations of human rights in that country,’ while advocating ‘broad  national dialogues that reflect the legitimate aspirations of all sections of Syrian society and respect Syrian independence, territorial integrity and sovereignty.’

By implication this suggests that BRICS does not support the ‘regime change’ agenda of some Western states, signalling its intentions to assert a stance on global issues that is independent of the West.

The Delhi Declaration made an indirect reference to India’s bid to become a permanent member of a reformed UN Security Council, when it said ‘China and Russia reiterate the importance they attach to the status of Brazil, India and South Africa in international affairs and support their aspiration to play a greater role in the UN.’

The Chinese news agency Xinhua quoted the spokesman for the Chinese delegation Qin Gang saying the summit was a success. But in spite of the show of unity, differences persist.

For instance, regarding the idea of a BRICS Development Bank, a Times of India report said Indian finance officials saw it ‘primarily as a way of legitimizing the use of Chinese currency overseas.’

They feel that ‘any BRICS bank would essentially be a Chinese bank, because none of the other countries have the financial depth to fuel such an institution.’ India wanted the global financial architecture to change but at a much slower pace, it said.

It will take some years before the newly signed credit agreements and the ‘BRICS Bank’ idea are translated into action. But these seem to be the boldest initiatives yet, aimed at changing an iniquitous global system in a context of global economic downturn where India and China are fast emerging as the world’s new economic power centres.