As if inflation and weakness of the European economy doesn’t keep United States Treasury and the Federal Reserve officials up late at night, along comes BRICS, an economic and trade collaboration to rattle the global economic cage.
BRICS, formed in 2001 by the emerging market countries of Brazil, Russia, India, China, and South Africa, has grown to become a formidable economic and geopolitical power to rival the Group of Seven (G7) which includes the United States, France, Japan, Germany, Canada, Italy, and the United Kington.
While it may be too early for the G7 to shake in its collective economic boots, they shouldn’t dismiss BRICS outright as insignificant. Consider that the combined 2022 $27.6 trillion Gross Domestic Product (GDP) of the five BRICS nations was 27% of the 2022 global GDP of $103.9 trillion, while the $46 trillion G7 GDP was 45% of the world’s economy, a GDP gap of $18.4 trillion. The gap between the G7 and BRICS narrows to nearly $11 trillion when the GDP of the United States, the world’s largest economy at $26.9 trillion, and China, the world’s second largest economy at $19.3 trillion are not included. That’s as close to purchasing power parity as you can get in this inflationary economic climate. BRICS has its policy sights set on that purchasing-power parity and the U.S. dollar as the currency of choice for international transactions. That policy is de-dollarization, and it shouldn’t be dismissed lightly.
There is little doubt about the U.S. dollar’s supremacy. Currently, 88% of international transactions are conducted in U.S. dollars, with the dollar accounting for 58% of all global foreign reserves. Yet BRICS wishes to reduce the global economy’s reliance on the U.S. dollar for international trade and finance, a goal that has grown following the Russian invasion of Ukraine.
Consider that over the past year, Russia, China, and Brazil turned to non-dollar currencies, such as the Chinese yuan or India’s rupee, in their international transactions. Furthermore, since 2014, Russian trade with the G7 has decreased by 36% while its trade with BRICS nations grew significantly by 121%. China and India have become the largest importers of Russian oil offsetting the economic impact of the sanctions on Russian oil imposed by the United States and the European Union.
Clearly, BRICS would not have economic clout without China, and China appears more than willing to step up. China President Xi Jinping personally attended the recent BRICS summit in South Africa and the Chinese government has accused the U.S. dollar’s dominance of being “the main source on instability and uncertainty in the world economy.” Adding fuel to de-dollarization speculation is that China has blamed the Federal Reserve’s interest rate hikes for causing international financial market turmoil and falling exchange values of other currencies.
It’s not only China. More than 40 nations, including Algeria, Egypt, Thailand, and the United Arab Emirates, along with Group of 20 members Argentina, Indonesia, Mexico, and Saudi Arabia, have formally expressed their interest in joining BRICS. Additionally, Iraq, Saudi Arabia, and the United Arab Emirates are seeking alternatives to the U. S. dollar.
While de-dollarization has a long way to go, and geopolitical pressures that BRICS and nations wishing to join BRICS may be dismissed, not to be ignored is that BRICS has made the global economy more complicated.
Martin Cantor is director of the Long Island Center for Socio-Economic Policy and a former Suffolk County economic development commissioner. He can be reached at [email protected].