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The BRICS Mirage Attracts New Devotees
But it still looks like a mirage
Like a revived fashion trend, its time has seemingly come again. That 1970s confection “The Global South” is back on a daily basis, in news stories as well as commentaries. The phrase was a partial replacement for the Third World, neither US nor Soviet, and encompassed the so-called “Developing World.”
Now the Global South seems to be a way of expressing the frustrations of those countries that have been left behind over the intervening 40 years, which is large parts of Africa and some of Asia and Latin America but excludes the many countries that have become rich, like South Korea, or despite being still relatively poor have progressed a long way in that time, such as Indonesia and Bangladesh.
But however imprecise, it may be that the Global South still means something vaguely discernible. Its current rival as a catchphrase, the BRICS, means only what members or would-be members want it to mean. As (some of) the leaders of this group head to South Africa for a summit, it is worth looking back.
This five- (originally four-) country grouping was created back in 2001 by a smart salesman at that “great vampire squid,” the Goldman Sachs investment bank. That lumping together of Brazil, Russia, India, China and (later) South Africa was supposed to reflect the world’s fastest-growing economies. It wouldn’t prove much of a buy for investors, with only Indian stocks outperforming global averages and Russia now a disaster for most foreign investors, Brazil and South Africa, have remained global also-rans, and the former leader of the pack, China, is now bogged down in ethnocentric ideology which has made its credit excesses hard to manage.
But, say its promoters, don’t worry about the facts of the existing BRICS, the problem can be solved by adding more names and goals. So countries such as Indonesia, Pakistan, Nigeria, Egypt, and Mexico need to be added to the group to make it bigger if even less meaningful than it is already so long as it can be deemed “non-Western.” Especially interested in joining are cleric-run Iran and Argentina. Iran is almost as friendless as North Korea. As for Argentina, it was once the richest country per capita in the world before 100-plus years of self-inflicted failure. It also gave Latin America the development theories of its then-famed economist Raul Prebisch, head of the Economic Commission for Latin America and then of the UNCTAD. His “structuralist” economics luckily had limited impact in Asia despite admirers in India.
But isn’t the original BRICS already important on the global stage combining China, India, and Russia? There is talk of setting up a BRICS bank to lend, one assumes, to prospective BRICS the surplus capital that none of them except China possesses. Maybe they can create their own currency and then lend that – a currency controlled not by the US Fed but by the combined wisdom of the central bankers of the five? The difficulty that a tight-knit group of European states has had in creating the euro, the idea of one including China, India, Brazil, and Russia shows the extent of fantasy.
Being upset with decades of US abuse of its power and with general western arrogance on everything from democracy to LGBTQ rights is entirely understandable, but doing anything about it is not achieved by indulging in BRICS+ delusions. For a start, the US itself is doing a good job of undermining its interest in the dollar by freezing the assets of Russia and other no-good places or persons. Naturally, others will respond by reducing the dollar’s role in their currency reserves and in trading. Europe has helped the process along by abandoning its Russian investments and trade because of the Ukraine invasion, mainly to the benefit of China.
The decline of US dollar power will happen despite, not because, of grandstanding at BRICS summits. These are more about the rivalry between BRICS members, particularly China and India, than having policy and practice to suit the common interests of five, let alone an expanded group of 10 or more. The BRICS idea (minus Russia) might have made a little more sense in the bipolar US-Soviet world as an adjunct to the Non-Aligned Movement of the 1950s to 1970s. But this is a multipolar world, so common interests are hard to define, let alone forge into policies. If there is any comparison with the US-Soviet rivalry of the past, it is a world in which China has replaced the Soviets. So much for non-alignment.
Replacing the US dollar will be more difficult than usually supposed. The yen was once seen as a viable alternative, at least for trade, but it has never taken off and now is mostly only used by Japanese companies – despite the fact that the yen is surrounded by fewer restrictions than any other significant Asian currency. More locally, the Thai baht is acceptable in some neighboring currencies.
The most obvious Asian candidate is China and for sure the use of the yuan for both trade and reserves has been rising, but that process has a long way to go and it is likely to be slow given China’s own controls and suspicions of China among its Asian neighbors, who matter rather more than a long list of African and Latin American states where Chinese largesse has won friends and influence.
Bilateral deals to avoid the dollar are fine in theory but not in practice. Ask the Russians, who sit on billions of Indian rupees acquired in exchange for oil but have difficulty spending in India and which are not much wanted in the global FX markets.
Stronger Asian currencies like the Korean won are eligible in theory but too scarce for most trade purposes. Anyway, most central banks are averse to the potential volatility of their currencies being used widely outside the country.
Generally, trade needs a plentiful supply of trade currency, such as those created by US external deficits. It may be inflationary but that is the lesser evil. In the 19th century, trade grew despite a shortage of Mexican silver dollars, once the world’s leading currency, through the expansion of banking systems for whom trade credit (not home mortgages!) was the main business.
The mid-1970s saw a dollar shortage in the wake of the quadrupling of oil prices that left oil importers with huge deficits. This proved short-lived but saw many efforts at barter trade, sometimes involving three or more countries. But it was cumbersome and ultimately costly. So, however the dollar may be at risk of decline, taking others’ foreign reserves with it, the easy availability continues to lubricate trade.
The only one of the existing BRICS which seems likely to increase its share of world trade and GDP in the coming decade is India. So, rather than being leaders of the pack, the BRICS partners are likely to be superseded by current non-BRICS such as Turkey, Iran (after the mullahs), Indonesia, Nigeria, Bangladesh or smaller middle-income states such as Morocco, Uzbekistan, and Kenya.
Their national interests are so varied that it is hard to see what they can gain from a BRICS+ setup other than not wanting to be left out. But being part of a pack chasing no edible prey is a waste of effort. Meanwhile, those seeming most keen to sign up for BRICS membership are those like Iran and Argentina with the least to offer their would-be comrades.