By Susana Hurlich on August 30, 2023 from Havana
BRICS has now become a force that can no longer be ignored. Founded in 2006 as BRIC (Brazil, Russia, India and China), in 2010 South Africa joined to create BRICS. With a commitment to inclusive multilateralism, cooperation and the common good, BRICS aspires to offer itself and the global south a real alternative to western hegemony and the manipulative domination of the U.S. dollar.
At the recently concluded 15th BRICS Summit held in Johannesburg, South Africa from August 22nd to 24th, BRICS was expanded to include an additional six countries in what is considered a first wave of growth. Some 69 leaders were invited to the Summit including all 54 African heads of state and the leaders of major Global South bodies. This Summit was the first time that Cuba officially participated although previously it had participated, again for the first time, in a meeting of Foreign Affairs Ministers “Friends of BRICS” held in June 2023 in Cape Town, South Africa. In both cases, Cuba participated in its capacity as President pro tempore of the G-77+China, which today includes 134 countries representing two-thirds of the members of the United Nations and 80% of the world’s population.
The three key issues debated at the Summit were (1) the expansion of BRICS membership, (2) the New Development Bank, and (3) national currencies and creating alternatives to the U.S. dollar. These issues, clearly interrelated, have made the collective West, and particularly the United States, sit up and pay attention.
After the five founding BRICS countries reached consensus on the guiding principles, standards, criteria and procedures of the expansion process, they invited six countries – Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates (UAE) – to become full members of BRICS from January 1, 2024.
Considerable interest had been shown by some 40 countries of the global South in joining BRICS, of which 23 nations – among them Cuba – formally solicited membership. For BRICS, the six new members represent only a first phase of the expansion process, with further phases to follow. Towards this end, all BRICS Foreign Ministers were tasked to develop a list of prospective partner countries to present to the next Summit, to be chaired by Russia in 2024 in the Russian city of Kazan.
It’s important to take a closer look at what the six new members bring to BRICS as this relates to both the New Development Bank (NDB) and creating alternatives to the U.S. dollar. Though the decisions are collective, each of the original members of BRICS also has their own interests.
China was particularly interested in Saudi Arabia, the UAE and Iran becoming BRICS members, as they are all big oil producers, strong members of OPEC, and the first two are key players in the Persian Gulf. Along with Russia, also a strong oil producer, this provides a robust base of energy to BRICS and the new financial system it wants to create. Russia was keen on Egypt, with which it has good relations. In addition to being the largest country in the Arab world, it is very strategically placed, controlling the Suez Canal which is a major sea route. India and Russia were both keen on Iran, which also has the world’s largest natural gas reserves and a strong manufacturing base.
South Africa wanted another African country. Ethiopia is the oldest of all African countries with a history going back to the time of the Roman Empire. (Egypt, Iran, India and China also have great ancient civilizations.) Though a poor country, it’s rich in resources and with sound development, could be an agricultural powerhouse. And Brazil, which is forging close relations with Argentina – a country with enormous resources and a highly productive agricultural and industrial base – wanted to have another Latin American country on board. The big concern with Argentina, however, is that it’s going through a massive economic crisis and a potentially very unstable political situation, with presidential elections scheduled for October and both opposition candidates strongly opposed to BRICS membership and preferring to throw their dice in with the U.S.
The NDB has a unique status as an institution created by and for developing countries. Its stated objective is to support sustainable and inclusive development in the member countries of the Bank and to promote social and gender inclusion. Unlike the IMF, loans from the NDB have no conditions, except that they cannot be used for debt repayment.
In addition to the five original BRICS countries, the NDB has added Bangladesh and the UAE (both in 2021) and Egypt (in 2023) as new members who can strengthen its capital base. Not all new NDB members are included in BRICS, but all show an interest in promoting infrastructure and sustainable development and are in agreement with NDB policies. Further membership expansion, though anticipated in the future, did not occur at the Summit, nor did creating a single currency, as first BRICS wants to focus on consolidating NDB’s financial architecture. However, it is anticipated that eventual expansion will enable the NDB to promote infrastructure and sustainable development beyond its existing members. When this happens, Cuba will be one of many countries to receive the benefit.
Since its creation in 2015, the NDB has supported 98 investment projects worth $33 billion in loans. For 2023 and 2024 they already have a pipeline of 76 projects totaling $18.2 billion. The sectors covered include transport, energy and public health infrastructure to help member countries fight the COVID-19 pandemic – and other pandemics that may develop in the future. The focus in the bank’s loans is infrastructure (transport, energy, water, and waste management) and sustainable development (which encompasses environmental protection).
The NDB is moving to challenge the global dollar system by issuing bonds in local currencies, which could eventually trigger a wave of countries breaking away from dollar-dominated debts. In 2021, for example, loans in local currencies accounted for 23% of the total loans; the goal is to expand local currency operations to 30%.
This is bad news for the U.S. bond market but great for emerging market economies and developing countries, which are looking for growth without the usual foreign-exchange risk and dependency on costly swap markets that to date has been the established order. In the words of NDB president Dilma Rousseff, an economist and former president of Brazil: “Local currencies are not alternatives to the dollar. They’re alternatives to a system. So far the system has been unipolar… it’s going to be substituted by a more multipolar system.”
And in the words of Cuban president Miguel Díaz-Canel in his address to the Summit on its final day: “The establishment of mutual lines of credit in local currencies by the banks of the BRICS nations and the possibility of creating a single currency for their operations are also initiatives that could be applied in relations with other developing countries, to reduce the abusive monopoly of the U.S. currency, which reinforces and guarantees a hegemony harmful to the rest of the world.”
To fully understand this issue and the significance of the BRICS endeavor to find alternatives to the U.S. dollar, we must return to the implications of the new BRICS members.
It is widely known that the U.S. economy runs on deficit spending, and that it uses the rest of the world to finance its debt. When that doesn’t work, it simply prints more money! However, in losing Saudi Arabia to BRICS (along with China), the U.S. has lost its two principal buyers of U.S. Treasury Bonds.
The way it works is this: by the early 1970s the U.S. dollar was in a precarious position due to excessive war spending and domestic welfare programs. At the same time, the U.S. wanted to guarantee its access to Middle Eastern oil, where it was already investing a huge amount of dollars into Saudi Arabia, the top oil exporter in the region. The solution was the 1974 agreement between the U.S. and Saudi Arabia whereby Saudi oil would be sold on the global market only in U.S. dollars, and then these dollars would be recycled back into the U.S. banking system through the purchase of U.S. Treasury Bonds. Because of the Saudi’s dominance in OPEC (Organization of Petroleum Exporting Countries), this system was quickly extended to all OPEC members. The result: the U.S. gets the bucks while overseas countries get promissory notes – paper. Other countries that wanted to purchase oil had to first purchase U.S. dollars, which left them subject to fluctuating interest rates and perpetual debt and poverty.
Along with the 1944 Bretton Woods agreement that created the IMF and the World Bank, for the past eight decades there has been a “fabricated” demand for the U.S. dollar, creating a Catch-22 whereby the world finances the massive U.S. trade deficit while the U.S. maintains its hegemony and geopolitical-economic influence over the world – with the U.S. dollar being the world’s reserve currency and potentially a powerful weapon.
And this is how it’s worked for over 50 years. Until, that is, this system started developing serious cracks that became clear at the 15th BRICS Summit, as today BRICS includes the six main energy producers and energy consumers worldwide. Thus, BRICS nations can meet their energy demands from within BRICS, trading amongst themselves in local currencies without touching the U.S. dollar and without the threat of sanctions and price caps.
The West denies that the U.S. dollar can be challenged, but the situation on the ground shows that the petrodollar is already under threat. It’s starting slowly but it’ll accelerate over time. In addition, in losing its exclusive petrodollar hold over Saudi Arabia and the UAE, the U.S. is also losing part of its strategic hold over the Persian Gulf.
In 2022, among the top ten oil producers in the world, six are today BRICS members – Saudi Arabia, Russia, China, United Arab Emirates, Iran and Brazil – who together produced 40% of the world’s oil. That same year, of the ten largest oil consumers worldwide, five are today BRICS members – China, India, Russia, Saudi Arabia and Brazil – who together accounted for 30% of the world’s market. In January of this year, Saudi Arabia announced that it is willing to sell oil in currencies other than the U.S. dollar – meaning that the petrodollar would no longer be the only acceptable currency for purchasing oil. India, for example, has already bought oil and liquefied gas from the UAE in local currencies, China has suggested paying for Saudi oil in yuans, other major OPEC nations and BRICS members (the founding five) are either accepting yuan already or strongly considering it. Russia, Iran and Venezuela, who together contain some 40% of the world’s known oilfields, sell their oil for yuans. For Russia, ever since the West has sanctioned it over the Ukraine conflict, it’s the Chinese yuan that is its preferred currency for carrying out trade – and China has been steadily increasing its purchase of Russian crude. In short, as oil becomes increasingly priced outside the U.S. dollar, it has been starting to shake the foundations of the U.S. dollar system.
The global South is tired of being intimidated, not only by U.S. dollar hegemony but also by the threat of indiscriminate sanctions – another serious error committed by the U.S. again and again. Since the 1990s the U.S. has imposed two-thirds of the world’s sanctions, many of them unilateral; since 1998 alone, it has imposed economic sanctions on some 25 countries. The sanctions – more correctly, a blockade – against Cuba is the longest, while the number of sanctions against Russia – over 10,000 imposed by the U.S.-led G7 – is the largest. And countries are increasingly asking: are we next?
As the petrodollar loses its power and influence and as BRICS continues to grow with new countries, a new geopolitical and economic order will start to take shape. The more countries that join BRICS and the more they trade with each other in local currencies, the more resilient they’ll be and the more a decoupling from the U.S. dollar will accelerate. And while the U.S. dollar may well remain the world’s reserve currency for some time, its dominance will continue to slip.
At this time, we don’t know if this will mean a new reserve currency or just increasing bilateral trade, but one thing is clear: the U.S. has overreached and the global South is fighting back. Trade in commodities – and oil is perhaps the world’s most sought after and widely traded commodity – is one of the keys to taking down the dollar, and as BRICS slowly but surely trades in local currencies, it may not topple the U.S. dollar but it will definitely weaken it.
The original BRICS five have repeatedly declared that mutually beneficial commerce is the best guarantee to the common security of all and to a stable and prosperous world. In fostering trade in hard or finished products – commodities, oil and gas, foodstuffs, industrial goods, etc. – BRICS stands in sharp contrast to the approach used by the G-7, which is more focused on services and financial instruments, raw resources and markets. Through expansion, BRICS wants to bring in more countries from around the world to create a mutually beneficial global trading system; they’re also keen to pursue industrialization. By contrast, the G-7 is stuck in its traditional role of being a bloc built around the U.S. system of the 1940s.
This BRICS Summit has come under relentless pressure from the West, with many attempts to sabotage it. President Biden made a pre-Summit trip to Saudi Arabia, demanding that they sell oil only in U.S. dollars and offering them the “green light” to develop nuclear weapons. There have been constant attempts to exacerbate the tension between India and China over their border conflict, but they spoke face-to-face at the Summit and there is reason to hope that they’ll eventually resolve this issue between themselves. The MSM kept reporting that India’s President Modi wouldn’t be attending the Summit, but he did, and that he was against expansion, but he wasn’t. Saudi Arabia is realigning itself with Russia and China, and Egypt, although a key Middle Eastern ally of the U.S., is also starting to move closer to Russia and China.
Although BRICS feels is not yet ready to set up a reserve currency, they are building banking and accounting systems with the objective of creating more financial inclusion for global financial transactions and global financial trade. In doing this, they have started a momentum for a new global financial architecture where countries — not just BRICS but from the global South and Africa — will be able to trade and do business in their local currencies.
Today the eleven BRICS countries represent 37% of global GDP, 40% of global oil production, roughly one-third of global gas production, and over 46% of world population. By expanding, BRICS shows that it’s committed to creating a new economic and geopolitical world order. This is not to say that there are not internal contradictions among BRICS members, but there is more space for countries to resolve issues among themselves, such as the recent Saudi-Iran rapprochement brokered by China, without the usual Western unipolar control and meddling. It’s a gradual process.
Cuban President Miguel Díaz-Canel, in expressing satisfaction with the current expansion of BRICS in his Summit address, said: “Today no one can question the growing authority of the BRICS group on the international scene…It is not an option; it is the only alternative.”
The 15th BRICS Summit has made history and indeed has the potential to make much more.
Source: Resumen Latinoamericano – English