The Rise of BRICS
Is it now a legitimate threat to Western Hegemony?
What is BRICS and how did it start?
Sometimes, even with all the reminders, it’s hard to recognize historic developments as they happen in real time. Over the last decade, geopolitical forecasting in the West signifying the shift to a multipolar world isn't just speculation, we have seen this reality come to fruition. Increasing security conflicts, rising powers like China, fractured economic intercourse between the West and the Global South. A world composed of multiple large military and economic powers controlling the geopolitical landscape in their respective regions is becoming a reality, not just a theory. The U.S. is still by far the most powerful country in the world and that is not changing anytime soon. What is changing, is the influence that other large nations have over global financial markets, and the effect that this growing influence has on Western hegemony.
Few developments in the world of geo-economics better exemplifies this shift than BRICS. For those that have no idea, BRICS is an economic organization, alliance, grouping, or bloc, composed of Brazil, Russia, India, China, and South Africa. It was established as a way of challenging U.S. and more generally Western hegemony. It is not as formal as multilateral organizations like the UN or the World Bank, nor is it a comprehensive economic union like the Eurasian Economic Union (EAEU) or Mercosur. It is a rather loose international organization compared to these other examples, but each year the heads of state for these nations meet to collaborate on a range of economic initiatives. Most notably, they seek to strengthen the role of the BRICS bank, their own lending institution now known as the “New Development Bank”, and its potential for (1) providing an alternative to the U.S. dollar as the World Reserve Currency (WRC), (2) competing with the U.S-friendly supranational banks like the World Bank and (3) curtailing the control of other global financial institutions like the International Monetary Fund (IMF), especially throughout the developing world.
The alliance is particularly useful for emerging market economies because BRICS creates opportunities for these nations to achieve economic prosperity outside of traditional pathways. For sovereign nations in the developing world seeking to maximize economic growth and improve their position in the realm of international politics, new pathways for trade and economic intercourse are positive.
For example, developing nations can expand trade locally by focusing on the basket of local currencies in their region, fostering economic intercourse at the regional level, highlighting the multipolar element of BRICS. Then you have the fact that up until now, developing nations could only take out USD denominated debt from the IMF or the World Bank, under conditions that are generally less favorable to them, conditions that often render the debt as virtually unpayable. This is the kind of Western control over global financial institutions that BRICS members are looking to subvert. Whilst the BRICS train begins to pick up steam as we progress through the 2020s, it is important to continually remind ourselves of these foundational ideals and ideologies which underscore its formation, even though replacement of the U.S. dollar as the WRC is far too lofty a goal, for reasons we will discuss later.
BRICS originally began as an acronym coined by Goldman-Sachs economist Jim O’Neill in his influential 2001 paper titled “Building Better Global BRICs”. In it, he analyzed the enormous economic growth that these nations were set to experience and the implications this would have for international politics and finance. The optimistic view of these nations’ industrial policies, coming from an economist at a world leading investment bank, was a clear indication of what Western financial institutions thought about the investment potential of these nations going forward. And it wasn't until 2011 when South Africa joined the bloc that the acronym was actualised.
There is a highly manufactured element to BRICS for these reasons. Even the former Greek Minister of Finance, Yanis Varoufakis, after asking Jim O’Neill personally why the ‘s’ was included in the acronym, said that O’Neill thought one BRIC simply wasn’t catchy enough. This really puts into frame the artificial nature of the bloc’s original creation, basically as a marketing campaign for leading financial institutions to focus their attention towards the cash cow that these nations could be, and the profitable investment destinations that they were becoming. It may have been inevitable, but this initial coinage in O’Neill’s paper essentially served as the impetus for the optimism surrounding these nations’ first meeting in 2006, alongside the UN General Assembly, and the more formal meeting in 2009 that lead to the instantiation of BRICS as an official organization. By no means does this origin story delegitimize BRICS as an entity, it just goes to show that the origins of this organization wasn’t exactly the calculated assault on the West that some alarmists may have you believe.
Much of the threat that BRICS poses can be characterized as symbolic due to the entrenched nature of the dollar in international trade and the all-encompassing reality of U.S. geopolitical power, but the simple fact that it exists should be an indicator of how quickly things can change in the world of international relations, particularly in the turbulent 21st century.
Even when considering the limitations and idealistic goals of the BRICS nations, understanding the animating sentiment behind its creation is essential for analyzing the future of global finance and trade, as well as the political implications this has for the multipolar world.
It is clear that a more and more fragmented financial system constituted by regional trade partnerships and overt efforts to reduce the influence of the dollar is a stark contrast to the era of globalization that we experienced over the last few decades, where economic interdependence involved a concerted effort to reduce trade barriers, markets were hyper liberalized, multilateral trade liberalization was the norm. On top of this, the absence of true superpower conflict allowed for a U.S dominated system that was largely beneficial to countries that took part, predicated on one dominant reserve currency. Moreover, a trade landscape where vital commodities like oil are primarily bought and sold through USD, although it perpetuates U.S. hegemony, is generally more stable than one based on a currency whose price is overly manipulated by a country’s government or central bank, such as China and the Renminbi (Chinese yuan).
This is one of the many reasons Western analysts have always maligned BRICS and downplayed its importance. And before outlining the legitimate threats that BRICS poses, we have to understand why the general consensus in the West is that BRICS is not a viable threat to the dollar’s dominance. For this, we must look at the various obstacles impeding a new currency from usurping the USD, and the reasons why this is considered unlikely, even as BRICS gains ground.
Why USD hegemony can not be subverted, even by BRICS
Given that the dollar is the WRC, it means that it’s used to facilitate transactions in trade, by governments, central banks, or corporations. Emerging market economies can price their debt or government bonds in dollars because it is typically more stable than their own currencies. The stability of the dollar and the geopolitical might of the US maintains the dollar’s status in our international financial systems. For BRICS to achieve its stated goal which is, as described by Mauro Vieira, the Foreign Minister of Brazil, to “advocate for building a more sustainable world order, free from hegemony, in which countries will be able to benefit from progress”; the power of the dollar has to be minimized. Unfortunately for BRICS nations, the primacy of the USD in our current financial system is unparalleled, and the goal of supplanting it with another currency, or simply diminishing its power, is improbable.
BRICS intention is to create a “common” currency, not to replace their respective national currencies, but rather to form a supranational currency, through which BRICS nations can conduct trade and avoid using USD. By doing this, their hope is that the natural order of global trade conducted primarily through USD will be subverted, and the more trade through BRICS currency, the less power the USD has, eventually leading to a decline in the hegemony of the dollar. In theory, this is logical, and we have already seen a decline in hegemony of the USD following the imprudent sanctions that the US and EU placed on Russia, as well as the freezing of over $300 billion in sovereign Russian reserves held in the West.
The sanctions were placed as a response to Russia’s invasion of Ukraine, with the intention of disrupting the Russian economy, including their energy exports which are typically traded through USD as is the norm. The sanctions ended up having the opposite effect. Many nations like India and China remained indifferent to the Russia-Ukraine situation, because unlike Europe and the West, the geopolitical ramifications of that particular conflict are inconsequential for them in many respects, so they continued buying barrels of oil from Russia, but instead trading through Chinese yuan, which is a generally alarming development for the dollar’s status. Sadly, these are the kind of inexplicable policy judgments that we have grown accustomed to with Western leaders, and unfortunately these are the types of decisions that accelerate “de-dollarization”.
Primacy of USD in global economy
However, as of right now, the USD is still king, even amongst the BRICS nations. Why? First of all, the exorbitant privilege of the USD is because of the global demand for it in international trade. If the system of international trade functions through dollar transactions, it means that capitalists all around the world from China, Indonesia, India, UAE, Saudi Arabia and anywhere else, have a significant portion of their wealth in dollars. If you are a Saudi capitalist who owns an oil company, or a Chinese capitalist who owns a steel manufacturing company, you will inevitably sell your products to the US, the world's largest importer. The goods will be purchased through USD, and you will then have a large sum of dollars at your disposal if not exchanged. Because the dollar is the WRC, there is a high demand for dollar-based assets and Treasuries; so you will go to the US to purchase real estate, invest in American companies and buy US debt securities like Treasuries. In turn, you recycle that USD back into the American financial system. The more you do this, the more of your wealth is held in American banks and financial institutions, and therefore you have an incentive to preserve the value of the US dollar.
Besides, as long as (1) investment capital flows keep coming into America, in order to buy Treasuries held by corporations, investors, and central banks, and (2) dollar-denominated transactions are the norm when it comes to the trade of crucial commodities like crude oil and gold; America will continue to be unaffected by their annual trade deficit, and the USD will be too ubiquitous to replace as the WRC.
New Development Bank can’t escape the dollar
The next problem with BRICS goals is related to the BRICS bank, or the New Development Bank as it is called, and the framework of lending that it will operate through. As we stated earlier, the NDB wants to lend money to developing nations that need capital through their own local currencies, unlike the IMF which lends through USD. The problem is that the NDB does not have large reserves of all local currencies, this is not how the system works. In reality what it has is reserves of dollars, or Chinese yuan. So if a country takes a loan from the NDB, unless they plan on exclusively purchasing goods from states that share their currency, or states that operate within the BRICS alliance, they will not be able to import from the US or European markets without USD. This reduces the utility of the loan. So instead the government that takes on the loan will receive dollars from the BRICS bank, and in the future, they will repay that amount of dollars back in their local currency with interest. So the dollar is inescapable.
Now, if their currency experiences inflation and is devalued by 10% when they have to repay the loan, say 5 years later when payment is due, they still only have to pay the amount they initially received, which would be 10% less valuable now. For example, if Ethiopia receives a loan from the NDB, they can pay back the loan in their local currency ‘birr’ when it is due. If inflation causes the birr to be devalued by 10% during that period, which could happen due to the volatility of national currencies in emerging market economies and countless geopolitical factors, they will essentially have to pay 10% less back to the NDB, because the amount they originally received is 10% less valuable than it was initially. This is a negative interest rate for the NDB.
Who bears the brunt of these diminishing returns? China does, because after decades of extensive exports to the US, China is the only nation in BRICS with large enough dollar reserves to facilitate this lending. So they can afford to take the hit. They also have a larger goal at play here, which is to reduce the power of the USD and US hegemony more generally. Rather than recycling their dollars into the US financial system, especially after Russia’s reserves there were frozen, they are instead using their dollar reserves to gain influence over nations in the developing world and to fortify political ties in the Global South. Now this is a good strategy for usurping U.S. influence, involving financial risks that China are more than wiling to endure as a means to an end. China’s role in the NDB also demonstrates how BRICS is by and large an extension of China’s foreign policy strategy, not solely a populist collaboration of nations attempting to combat US exploitation and control.
If China is the one propping up the BRICS bank with their dollar reserves, it’s clear that BRICS is spearheaded by China, and a BRICS dominated financial system is one where China has more control. This is undesirable for many nations, even those within the BRICS sphere of influence. States like Saudi Arabia don’t want a Chinese or BRICS dominated world, they are most likely collaborating with BRICS as a bargaining chip to leverage their positioning in relation to the US. Basically, they are double dipping, presumably as a way to get more out of their partnership with the US than they were before. The State Department won’t be thrilled by the incipient collaboration between their Middle Eastern allies and China, however, the idea that these nations would abandon the U.S. for the BRICS network isn’t realistic considering how the Gulf States rely on America’s security partnerships.
It is true that we live in a world where the dollar’s power is being challenged; where anti-US sentiment is growing as US imperialism sees no end in sight. Western economic initiatives have not done enough to benefit emerging market economies as was promised, and they have often led to exploitation by Western corporations and governments. Rising US interest rates have rendered the debts of African nations who borrowed in US dollars largely insurmountable. This is all true, and these are justifiable criticisms. However, the dollar remains a more viable option to underpin the global economy than Chinese yuan, or a BRICS common currency, for the same reasons it has stood as the WRC up until now. A financial system based on Chinese yuan is unrealistic because of how unstable it is.
The Chinese government consistently manipulates their currency, often devaluing it to keep their exports cheap, and even though manipulation of the US dollar exists, it is nothing like the level of China. The stability of the dollar is a big reason why it replaced the pound as the WRC in the first place. A financial system based in large part on a BRICS currency seems unlikely as well, primarily because China would be unwilling to trade it freely. Why? Because it would limit their capacity to manipulate its valuation and influence export prices as they do now. That’s a fundamental aspect of their economy. So while the strategies and goals surrounding China and BRICS are anchored by some legitimate concerns and ideals for the future of international trade, the logistics of tackling the hegemony of the USD are inauspicious to say the least.
Internal Security Conflicts in BRICS
Finally, another major reason why alarmism surrounding BRICS should be taken with a grain of salt is the internal conflicts that exist within the alliance. First and foremost, BRICS is an economic alliance. There are no security or military components tethered to the economic collaboration. Unlike NATO, which guarantees that members protect each other against foreign aggressors, or the EU, which establishes both a political and economic union between states that have formed a bond for over 70 years; BRICS is brand new in geopolitical terms, and the core nations have some legitimate animosity towards each other, with security conflicts either in progress or a future possibility.
Most notably, India and China, who have had territorial disputes for over 60 years along the Sino-Indian border, with skirmishes breaking out as recently as 2021. Russia and China, though it seems Xi Jinping and Vladimir Putin have bonded over anti-western sentiments recently, have long been at odds, with territorial disputes being a thorny issue. In August 2023, the Chinese Ministry of Natural Resources published their updated ‘National Map of China’, marking an island in the far northeast of the country as their own, even though the island had been split between them and Russia in a bilateral agreement back in 2004. Other claims to disputed territories, with states like Malaysia, India and others, were included on the new map.
These kind of moves have become typical of the Chinese government this century, especially in the South China Sea. But to challenge Russia, even in a relatively trivial way as this, underscores the tension that exists between these nations, and the imperialist tendencies of a growing superpower like China. Putin seems to have been forced into an alliance with China due to being rejected by the West over the past few decades, and Russia does not have the leverage it needs to counteract Chinese dominance, so future Chinese aggression could spell trouble for their partnership and for the stability of BRICS.
Saudi Arabia, UAE, and Iran are all recent additions to the bloc. The Saudi Arabia-Iran struggle is well documented, and before the US decided to push the Arab world closer together by supporting Israel’s genocide in Gaza, any diplomatic collaboration between these states seemed inconceivable. It still is for the most part, as the Shia-Sunni sectarian divide is only one of the countless reasons for conflict between these nations, not to mention their converging visions for the Persian gulf and the Middle East, as well as their vastly different relationships with the US.
In Africa, Ethiopia and Egypt are another key area of geopolitical conflict to watch. Ethiopia is a landlocked nation that has invested heavily in hydroelectric power and the construction of an enormous project on the Nile River called the Grand Ethiopian Renaissance Dam (GERD), which will be the largest hydroelectric plant in Africa. If the dam is filled too quickly, Egypt claims it poses an existential threat, since it relies heavily on the Nile for water. Filling the reservoir in six years as the Ethiopian government has been doing, could affect the upstream volume of the Nile especially after a period of prolonged drought. This is still an unresolved issue for the most part and tensions continue to rise there.
These internal conflicts are more than worrying, and analysts have long predicted war between many of these nations. Even if war does not break out, the viability of an economic alliance marred by serious internal security conflicts isn’t promising. At the very least, they need a unified front to take on the West. For these reasons, the ability of BRICS to make inroads against the dollar’s hegemony is questionable, and it is important to remember this. Conversely, the view that we should treat BRICS as a non-entity that poses little threat to Western financial hegemony is in the rearview mirror as well.
The criticisms I have outlined are more aligned with how analysts viewed BRICS during the last decade. But since the Russia-Ukraine war in 2022, BRICS has made more progress than most experts expected. Alarmism isn't wise, but a properly measured level of concern is important for Western powers to have, as things have changed so much just in the past 2 years. Now that we’ve contextualized BRICS according to its shortcomings and fragilities, it's time to look objectively at its success from a geopolitical perspective, and its future potential for challenging Western power.
Why BRICS will win (if the West does not adapt)
Geopolitical influence
The first thing to look at with the new BRICS, that is 2024 and beyond, is the impact it has on geopolitics. For years Western analysts have downplayed the political prowess of BRICS, claiming it’s a strictly economic alliance, filled with nations bridled by internal conflicts, incapable of making a real impact on geopolitical processes, an argument that we just outlined. This has begun to change however. The BRICS nations have used their economic ties as a pretext for geopolitical collaboration more and more.
When Israel began their assault on Gaza following the October 7th Hamas attacks, it was the Iranian Foreign Minister Hossein Amir-Abdollahian that wrote separate letters to his counterparts in the member states of BRICS, urging them to intervene in “an active, constructive, and responsible manner” to put an end to Israel’s brutal bombardment of the Palestinians. This resulted in their fellow BRICS member, South Africa, making a submission to the ICJ, alleging that Israel has violated the UN’s Genocide Convention. While an official genocide ruling will take years to be finalised, the court’s decision that at least some of the acts that South Africa alleges Israel committed, “appear to be capable of falling within the provisions of the [Genocide] Convention" was not a trivial development as many Western media outlets claimed it was. Regardless of your opinion on the ruling itself, the fact that BRICS nations could collaborate and bring about the potential prosecution of a Western ally under UN law is indicative of the geopolitical power that the organization is beginning to yield.
Outgrowing the G7. Representing the Global Majority
In addition to this, BRICS announced its expansion plans for 2024 which have been largely successful. Some countries that received invitations to join turned it down, like Argentina. They made a clear choice to engage with the West’s financial institutions and the dollar sphere instead. But the others have accepted their invitations, with more lining up to join. At the BRICS conference in August 2023, it was announced that invitations would be extended to six more countries; Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE, with only Argentina declining. After this new tranche of members joined, Dilma Rousseff, former Brazilian President and now the chair of the New Development Bank, announced while speaking at the World Governments Summit in Dubai this February, that the share of BRICS members in the global GDP will increase from 35% to 40% by 2028, while the share of G7 countries will drop to 27.8%. Overtaking the G7 countries in global economic output isn’t something to scoff at, regardless of how confident you are in the dollar.
Serious policy decisions need to be made over the next 5 years, even just the next year, for Western nations to combat this shift. It is no longer just fear mongering to speak about the threat this poses. BRICS will eventually represent, not the Global South as we like to say in the West, but rather the global majority, and their narrative or marketing campaign to encourage new members to join is simply more compelling. Developing nations looking to carve out their own lane geopolitically, who wish to establish a fairer playing field for realizing their own economic development goals and political aspirations, are more ideologically aligned with BRICS and its foundational values than with the US and the West. That’s a problem.
The more countries that join, the less influence America has over fundamental aspects of international trade. America has historically relied on the Gulf states, especially Saudi Arabia, to control and manage the price of oil. With them now a part of BRICS, the United States’ has lost any control they had over the price of oil for the foreseeable future. Western analysts have done little to properly shine a light on the gravity of these changes, instead pointing to the eventual Chinese demographic collapse or the long term instability of BRICS nations’ partnerships. Meanwhile, half the global economy is forging its own path and this is being deemed inconsequential to Western hegemony? It seems like a real blind spot, something Western policymakers are full of in recent years.
Too late to turn back. U.S. hegemony already in decline
Even if Western nations wanted to slow down this current trend, it may be too late. A potential counterbalance to BRICS’ influence would be to pull India into the G7, making it the G8, given their particularly promising economic outlook and their regional tensions with China. Economist Philip Pilkington makes the point that trying to pull India away from the BRICS orbit is unlikely, given that from a historical perspective, border disputes are less important than fruitful economic relations, which India and China certainly have through BRICS. As Pilkington points out, India’s top 5 trading partners are the USA first, but the remaining four are BRICS nations; China, UAE, Saudi Arabia, and Russia. The BRICS nations account for more than double the amount of trade India has with the US, $118.2bn (with US) to $274.6bn (other four). It appears that the nexus of BRICS trade partners has already proved its superiority, at least in the Indian context.
Instead of downplaying these kinds of developments, Western nations have to accept our new political landscape and craft adequate policies to maximize their utility in this changing world order. If geopolitics or the global economy is characterized by a ‘West vs Rest’ dynamic above all else; one where China and Russia have curried favor with the majority of the world’s emerging market economies through trade and economic relations, suddenly Western hegemony is predicated less on the dollar and more on America’s military might. Not only is it concerning to ponder the potential choices made by a United States that feels backed into a corner, but that is a fairly tenuous grasp on global hegemony in comparison to the current iteration of US predominance.
It already feels like we're seeing the US make drastic and futile foreign policy decisions as it feels its grasp on the reins of control gradually loosening. Between the choices to escalate conflicts in Ukraine and the Middle East just over the past two years, and a fair bit of brinkmanship and military posturing with China over Taiwan, this is clear. If a US-China war breaks out, something that seemed inconceivable not that long ago and still is unlikely, there is no doubt that the dollar would experience hyperinflation. And in that scenario, if China avoids complete annihilation, the US economy would be decimated, making the dismantling of US hegemony an immediate reality. These are the kind of precipices we stand on, which only reinforces the perilous financial and political possibilities that could await all citizens of the globe, if our leaders don’t move with caution.
Resurgence of Iran and Russia in global economy
Another glaring shift that BRICS has provoked is the reintroduction of Iran back into the global economy. The IMF reported last week that Iran’s GDP has reached its highest mark since 2016, increasing from 3.8% in 2022 to 5.5% in 2023 alone. The country with the world’s third highest proven oil reserves has ramped up oil sales as well, with crude oil exports rising by roughly 50% last year. China was the top buyer with around 90% of Iran’s crude oil exports going to them. The Persian state’s oil exports experienced a significant dip after the Trump administration’s 2019 sanctions (click here for graph), but now appear to be back on track.
The takeaway here should be that the ability of BRICS members, especially China, to mitigate the efficacy of US sanctions undermines US hegemony, just as it did when Russia circumvented Western sanctions by exporting oil to China and India. The stronger these nations’ economies become the less the US can do to bully or nudge them to get in line. In fact, the IMF released its projections for GDP growth in major economies last week, and their data suggests that the Russian economy is growing faster than any Western economy in 2024, after outperforming them in 2023 as well. Their growth outlook has improved as the war boosts their economy, a formula that America is familiar with.
It should be clear why these developments are so significant. If you told policy makers even 5 years ago that Iran would overcome sanctions exclusively through BRICS trade partnerships and that Russia’s economy would be the fastest growing in the West by 2024, you would have been ridiculed. Unfortunately, the U.S. State Department made this a reality. If you had informed State Department officials in 2022 that prolonging a proxy war with Russia in Ukraine would force a dramatic upscaling of Russia’s defense spending which now accounts for 7.5% of their GDP, or that they'd be producing seven times as much ammunition as the West, or that they would be outperforming most Western economies not just in terms of growth but in terms of industrial infrastructure and arms manufacturing, they probably wouldn’t have made the same policy choices as they did.
A true lack of foresight, or perhaps an overreliance on geopolitical strategy and residual Cold War mindsets instead of prudent economic policy. Regardless, we have clearly reached an inflection point, and the West cannot afford to keep shooting themselves in the foot. Yes, BRICS isn’t going to change the world today or tomorrow, but unlike ten years ago when it was deemed a complete non threat by most Western analysts, it is now a formidable foe encroaching on U.S. hegemony at a rapid pace. The longer that Western nations commit to alienating Russia and China, and the longer they prioritize outdated policy approaches over fresh strategies for this new economic landscape, the further the pendulum will swing toward the gravitational pull of the BRICS orbit.