The BRICS: A bunch of fluff

Tue 29 Aug 2023 ▪ 16 min of reading ▪ by Satosh
Getting informed Trading

There’s a growing chorus insinuating that the American hegemon is threatened by the BRICS. But what’s really going on?

China on the verge of collapse

BRICS: China in the driver’s seat

China is seeking to gradually institutionalize its leadership of the world by creating, expanding and financing a series of groupings of countries led by… China.

The aims of this strategy are essentially twofold: to ensure that a large part of the world remains open to Chinese trade and investment, and to use the voting rights of developing countries at the United Nations and other forums to bolster the power and values of the Chinese Communist Party.

Even as the Chinese economy enters what is likely to be a long-term economic slowdown, the country is trying harder than ever to increase its influence through the new international organizations it controls.

Goldman Sachs created the BRIC concept

The most important organization is the BRICS. Goldman Sachs banker Jim O’Neill created the concept 22 years ago. It was in fact a grouping of large developing countries that he believed would experience rapid growth.

BRIC” was the acronym for this list of countries: Brazil, Russia, India, China. Later, the four countries came together and decided to transform the Goldman Sachs acronym into a true economic forum, where they would meet periodically to discuss how to accelerate economic development, create new financial institutions and increase the overall influence of developing countries in the world. In 2010, South Africa joined the group, and the BRICs became the BRICS.

Meetings, but little concrete action

The BRICS have never stopped meeting and proposing economic initiatives, but none have come to fruition.

In 2009, the BRICS began to meet regularly and to think about how to create their own economic institutions: a new development bank to compete with the World Bank, a reserve agreement to lend each other money in the event of a currency crisis (which is what the IMF usually does), a system of undersea fiber-optic cables…etc. These initiatives produced few concrete results.

These initiatives have produced few concrete results. The New Development Bank issued almost no loans, prompting Jim O’Neill to declare it a disappointment. When Russia invaded Ukraine in 2022, the NDB cut ties with it. And the “BRICS cables” never saw the light of day.

Yet people continue to believe that the BRICS are an organization of global importance.

New members in 2023

At the recent BRICS summit in South Africa, the group accepted six new members: Saudi Arabia, Iran, the United Arab Emirates, Argentina, Egypt and Ethiopia.

These six members were chosen from the 19 who had initially submitted applications earlier this year. It is unclear whether the organization will have a two-tiered composition and whether some countries will only be partners, but given that the BRICS do nothing in terms of economic policy, this is probably of little importance.

An overestimated power

So why have the BRICS received so much media attention?

One reason is that some believe they are an emerging geopolitical or even military bloc. An anti-NATO that will put an end to American and Western hegemony.

But this is nonsense.

China and Russia are indeed in a quasi-alliance against the developed democracies, and India still has somewhat friendly relations with Russia, dating back to their Cold War partnership.

But India and China are strategic rivals, not allies. They have a sometimes bloody border conflict, which periodic talk of “de-escalation” has failed to defuse.

The India-China rivalry

India bans many Chinese applications and is preparing to restrict imports of Chinese products, even as it deepens its economic and strategic partnership with the United States.

Tensions between India and China are highly visible in Indian public opinion, which, like that of many countries in Asia and elsewhere, has evolved strongly against China in recent years.

Similarly, Brazil has also become less favorable to China.

This is the most obvious reason why the BRICS will not become an anti-NATO organization. Saudi Arabia remains an ally of the USA, and countries like Brazil, South Africa, Ethiopia, Egypt and Argentina have little desire to get involved in great-power confrontations.

Russia and Iran may want to ally themselves with China against the developed democracies, but the others are simply not interested.

Nor do the BRICS agree on fundamental values. India and Brazil attach great importance to democracy, while China, Russia and Iran are its main detractors. This is one of the many reasons why frequent comparisons between the BRICS and the G7, which promotes a shared set of democratic ideals, are inappropriate.

These differences in values have led to tensions within the BRICS. It was China that pushed for the group’s expansion, while India and Brazil tried to resist.

China steps up to challenge the US

India and Brazil are opposed to China’s desire to rapidly expand the BRICS group of emerging markets. China, for its part, is seeking to increase its political clout and counter the United States. This is why the country has repeatedly lobbied for expansion during these summits.

India has put forward the idea that BRICS nations should look to emerging economies and democracies like Argentina if they want to expand the group, rather than to Saudi Arabia, which has a dynastic and autocratic regime.

Brazil is quietly trying to avoid direct confrontation within the BRICS bloc, and to resist pressure from China to turn it into an antagonistic body that challenges the G7.

In this way, the BRICS look a little like another China-led organization, once thought to be an anti-NATO.

The Shanghai Cooperation Organization also includes China, Russia, India and Iran, as well as Saudi Arabia and Egypt. In the end, this organization had no power, and was not the source of any concrete initiatives, notably due to tensions between India and China.

In geostrategic terms, the BRICS risk finding themselves in exactly the same situation as the SCO.

BRICS currency won’t happen

Tensions between member countries are one of the reasons why the BRICS will never do what Russia has proposed: establish a common currency to replace the US dollar.

If India won’t even let Chinese applications into the country, it’s simply impossible to unite the rupee and the RMB. And given China’s far greater economic weight than the other BRICS members, the establishment of a common currency system would deprive Brazil, India, Saudi Arabia, Argentina, Egypt and other countries of their independence in terms of monetary policy.

Russia and Iran, whose economies and financial systems are heavily sanctioned, might find it in their interests to yuanize their currencies, but none of the others will. A BRICS currency, to put it bluntly, will probably never happen.

Is an alternative IMF possible?

What about replacing US financial domination more generally, even without a common currency?

Even if the BRICS were to succeed in setting up their conditional reserve arrangement as an alternative to the IMF and World Bank, it would make little difference to the global financial system as it already stands.

In practice, the loans granted by such a facility would be politically determined in Beijing, and would have much the same results as China’s, i.e. not very good.

India and Brazil probably don’t want to incur the wrath of a group of poor countries for engaging in “debt trap diplomacy”, so they are likely to push for limits on IMF- or World Bank-type lending by the BRICS.

What about SWIFT?

Another important element is the global payment infrastructure, and in particular the SWIFT system. The USA and Europe showed that they could pull their weight in limiting access to this infrastructure when they imposed financial sanctions on Russia following the invasion of Ukraine.

But the effect of these financial sanctions lasted only a year or so, as Russia eventually found other ways to pay and be paid. This was the most formidable financial weapon in the Western financial arsenal.

The USA’s leading role in the SWIFT system exists primarily for reasons of convenience, not hegemony. For proof of this, just look at how the New BRICS Development Bank does most of its borrowing in dollars. It’s not because the US forces them to do so; it’s simply easier, more convenient.

China ready to take over developing countries?

China’s strategy of strengthening its influence in the South is a strategic one. This is the fastest-growing part of the world.

“China will always be a member of the family of developing countries,” declared Xi Jinping in 2021. “We will continue to do everything in our power to increase the representation and voice of developing nations in the global governance system,” he added.

Clearly, China believes that, given its deteriorating image and stagnant exports in the developed world, it can become the leader of an economic bloc in the developing world.

But if you look at the BRICS countries, including the newcomers, you’ll see that very few of them are developing rapidly. They are essentially resource exporters, whose economies have plateaued at variable income levels. Apart from China itself, only India and Ethiopia have experienced significant growth over the past decade.

The most promising countries are outside the BRICS

Most of the world’s growth potential is currently to be found in the countries of South and Southeast Asia: India, Bangladesh, Indonesia, the Philippines, Vietnam, etc. But with the exception of India, these countries are not part of the BRICS. But with the exception of India, these countries are not part of the BRICS.

And the opinions of most of these countries towards China range from mildly hostile to openly hostile. As China’s territorial and hegemonic ambitions in Asia grow, these countries are moving closer to India, Japan, the USA and Europe.

Some will still welcome Chinese investment and goods, but will try to counterbalance them with investment and trade relations with China’s democratic rivals. And China’s economic slowdown is likely to reduce much of its market share in developing countries, as is already the case in Brazil.

BRICS: a battle of ideas over currency

The BRICS summit, held in Johannesburg, South Africa, is expected to result in agreement on a first step towards the establishment of an alternative international trade settlement system based on commodities, which would certainly include gold.

Dozens of non-Western and even some Western-affiliated countries are attending the conference and observing it with great interest.

Although the coming change may be characterized as a conflict between the Western democracies and the BRICS nations, the real battle is a battle of ideas.

Contrary to the central banks’ claims, it has never been proven that gold is inferior to fiat currency. The gold standard has not been replaced by a better monetary system. It was abolished step by step to satisfy the state’s insatiable need for money, first to fight the war, then to distribute welfare benefits after 1945.

The result, of course, was endless wars, rampant expansion of the welfare state, unsustainable public deficits and accelerated currency depreciation.

The challenge to the dollar began with its depreciation, which has reduced its purchasing power against gold by 98% since 1971, and accelerated with the introduction of so-called Russian sanctions, which froze Russian assets in the West and denied Russia access to the international messaging system for the settlement of dollar transactions, known as SWIFT.

A challenge to Keynesian economics?

The introduction of gold into the trading system will highlight the main error of Keynesian economics: the emphasis placed on aggregate demand in a country’s economy rather than on production, which is the only way to satisfy demand in the first place. Yet Jean-Baptiste Say showed that supply was necessary to reap the benefits of consumption.

On the face of it, it’s hard to believe that production isn’t necessary for consumption, or that it magically appears. Yet this upside-down theory seduced politicians for obvious reasons: it gave them carte blanche to spend, all with money created out of thin air by the central bank.

Rather than saving and prioritizing spending that was absolutely necessary for the good of the nation as a whole, politicians were told by Keynes that it was their duty to spend, if only to pay people to dig holes and others to fill them in.

Principles of the future international settlement system

A new international trade settlement system will require settlement in gold or BTC to be truly stable.

The advantages of the new system would become obvious to all countries, not just the current BRICS members. The political advantage is that no nation can control or manipulate the system to gain undue advantage. The economic advantage lies in the fact that public spending will be reduced to a minimum, so that resources can be allocated to production rather than state growth.

A member can only increase its imports by increasing its exports. Member governments are therefore subject to market pressure to reform their domestic economies in order to increase production.

Artificially increasing demand, in line with Keynesian orthodoxy, would be counter-productive, as the stock of gold or BTC would empty and imports would be suspended.

Consequently, such a system would encourage sound economic practices within the individual economies of its members. Money printing, excessive and unnecessary regulation, excessive taxation and government spending do nothing to help a member’s ability to engage in trade.

From BTC to the end of fiat currency

An important point is that, over time, the gold or BTC settlement system for international trade will extend to members’ internal monetary systems. In other words, fiat currencies, which can be manipulated or devalued by governments, will be thrown onto the ash heap of history.

In short, it would appear that the BRICS are more a colossus with feet of clay than a real competitor to Western hegemony. Even if Russian-Chinese propaganda would have us believe that an alternative to the American system is about to be born, we are in fact very far from it. Most likely, this organization will end up like the others: just another acronym. However, even if this organization will probably not represent a NATO-bis, the fact remains that the evocation of monetary subjects and the return of gold in the debates can only be positive for the whole world.

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Satosh avatar

Chaque jour, j’essaie d’enrichir mes connaissances sur cette révolution qui permettra à l’humanité d’avancer dans sa conquête de liberté.


The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.