The group of emerging-market countries known as the “BRICS” – which currently includes Brazil, Russia, India, China and South Africa – expanded its membership for the first time since 2010.

On the final day of the BRICS annual summit in Johannesburg on Thursday, BRICS leaders announced that Saudi Arabia, Iran, Egypt, Argentina, Ethiopia and the United Arab Emirates (UAE) would join their ranks from 1 January.

South Africa’s President Cyril Ramaphosa said of the move: “The BRICS countries have opened a new chapter in their efforts to build a fair, just, inclusive and prosperous world, noting that this is “the expansion of Phase one and others of the process will follow. “

The BRICS countries have long sought to increase the geopolitical power of their bloc to counter the West on economic and political issues, and the inclusion of some of the world’s largest energy exporters such as Saudi Arabia, Iran and the United Arab Emirates will undoubtedly help resolve this issue. a question. that goal.BRICS also has a waiting list dozens of countries Dissatisfied with the current world order, often dominated by the United States, they are ready and willing to join the group.

But Gregory Daco, chief economist at EY-Parthenon, a global strategy consultancy, questioned whether the BRICS could truly compete on the global stage in the short term, given the different priorities of its members. Compete with Western countries.

“It’s a nice acronym, but it’s not really something comparable to the G7 in the next 15, 20 years, it’s more of a long-term consideration,” he told us wealth After the BRICS summit on Thursday, referring to the rival bloc of Western countries including Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

When it comes to the BRICS’ ambitions to de-dollarize, or their goal of reducing their reliance on the dollar, Darko is even more incredible.

“The problem at the moment is lack of trust, lack of coherence and prioritization of national strategic plans,” he said. “That means we’re in an environment where these large emerging markets are not a viable alternative to the dollar.”

don’t expect a common currency

The idea of ​​creating a BRICS common currency to rival the dollar has long been on the agenda of the bloc’s emerging market nations. But interest in the proposal has grown since Brazilian President Luiz Inácio Lula da Silva questioned the dollar’s role in global trade in April.

“Who decides that the dollar will be the (world) currency?” Lula da Silva asked at a conference ceremony in Shanghai. “Why can’t a bank like BRICS have a currency to finance trade between Brazil and China, between Brazil and other BRICS countries?”

Leslie Maasdorp, vice president and chief financial officer of the BRICS New Development Bank, the financial institution created by the BRICS, followed up those comments in July, noting that while there are currently no plans to create a common currency , but it remains a “medium to long-term” aspiration. “

But South African Finance Minister Enoch Godungwana pushed back on the idea at this week’s BRICS summit. “Nobody raised the issue of BRICS currencies, even in informal meetings,” he said in an interview. Every Bloomberg. “A common currency presupposes the establishment of a central bank, which in turn presupposes the loss of independence of monetary policy, and I don’t think any country is ready for that.”

Veteran economist Jim O’Neill coined the term BRIC (the group originally excluded South Africa) while working at Goldman Sachs in 2001, and earlier this month He also called the common currency proposal a “ridiculous idea”. He cited the tumultuous relationship between emerging superpowers India and China as making a deal on the matter impossible.

Neil Shearing, Group Chief Economist at Capital Economics, backed that view in a note on Thursday – even after the latest BRICS summit, China and India Agreed to “quick disengagement and de-escalation” of the two countries’ years-old Himalayan border standoff.

“Tensions between India and China are a key reason why it has been difficult to create a strong and cohesive counterbalance to the G7 with clear policy priorities,” Schilling wrote.

The senior economist believes that BRICS will “continue to pursue common goals” and try to expand membership, but “competing interests and priorities” will hinder the creation of a real alternative to the dollar.

RMB challenger?

While most experts see the possibility of creating a common BRICS currency as still remote, the bloc’s leadership is undoubtedly trying to slowly wean itself off the dollar.

in an article outlining some Target At the BRICS summit, released last week, the group pledged to “reduce reliance on the U.S. dollar and promote the use of national currencies in international trade.” At the event, Russian President Vladimir Putin told attendees via video that “the objective, irreversible process of de-dollarization of our economic relations is gaining momentum.”

South Africa’s Finance Minister Godunwana also acknowledged on Thursday that central bankers were discussing how to “facilitate payments between countries” in local currencies rather than dollars, adding that China even “want the renminbi to be recognized as a reserve currency”.

Capital Economics’ Schelling noted that China is looking to use the BRICS bloc to expand the yuan’s role in international trade. “However, such hopes may clash with economic and political realities. The geopolitical priorities of member states are vastly different,” he explained. “While Russia tends to align with China on most issues, other countries are more careful not to upset the US and Europe.”

Despite a recent push to replace the greenback, the greenback will still account for nearly 90% of global foreign exchange transactions by 2022, according to the central bank. bank for international settlements. About 59 percent of official foreign exchange reserves were also held in dollars in the first quarter of this year, according to the State Administration of Foreign Exchange. International Monetary Fund. That’s down from more than 70 percent in 2000, but well above the figure for the yuan, which accounted for just 2.5 percent of foreign exchange reserves.

For Schelling, all of this means that “the renminbi is unlikely to pose a serious challenge to the dollar on the world stage — and the idea of ​​a BRICS currency is a much bigger fantasy.”


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