Taken fromAsialyst. Photo caption: Chinese President Xi Jinping and his Russian counterpart Vladimir Putin during the BRICS summit in Kazan, Russia, October 22, 2024. (Source: HGT)
The 16th BRICS summit took place in Kazan from October 22 to 24. It brought together the five founding members of the organization (Brazil, Russia, India, China and South Africa), the five new members who joined them since January 1, 2024 (Iran, Egypt, Saudi Arabia, Ethiopia, Arab Emirates United), and twenty-five other countries as well as several representatives of international organizations, with the notable participation of United Nations Secretary General Antonio Guterres.
Asia at the heart of BRICS expansion
Beyond the ten current members, thirteen countries, including six Asian states, have acquired the status of “partners”: Algeria, Belarus, Bolivia, Cuba, Indonesia, Kazakhstan, Malaysia, Nigeria, Uganda, Uzbekistan, Thailand, Turkey and Vietnam . In this group of partner countries, Asean weighs heavily with four of its main members, and Central Asia also makes an appearance.
Partner status allows the countries concerned to be associated with some of the organization’s activities and above all constitutes a preliminary step to membership. This accession is not guaranteed because it presupposes a consensus among the current members, but it seems likely in the more or less short term for almost all of the partner countries. Applications are rejected before reaching partner country status, as was the case for Venezuela, blocked by Brazil. Around ten non-partner countries have also indicated their interest in joining the organization.
In the relatively short term, the BRICS could therefore surpass the G20 in number, with a fairly balanced distribution by continent: eight Asian countries, three countries from the Near and Middle East, three Europeans (if we include Turkey), six Africans. and three countries in Latin or Central America.
Asia is not the majority in number in the group of 10 members and 13 partners, but it represents both three-quarters of the population and three-quarters of the GDP of the BRICS + partners group.
BRICS begins to address all major international issues
The Kazan Declaration is a long document of 134 paragraphs covering all current international issues with three main pillars: international politics and security, economic and financial issues, culture and cooperation between peoples. Beyond purely diplomatic positions – which include rave commitments on the peaceful resolution of conflicts, the protection of human rights or the fight against the dissemination of fake news – this document lists a series of initiatives to variable importance.
It includes, among other things, the protection of felines in the world (India’s initiative), the facilitation of international transactions and financing in local currencies, the creation of a platform for the exchange of agricultural raw materials (at the initiative of Russia), the creation of a partnership for a new industrial revolution, the establishment of a joint study group on artificial intelligence, the development of cooperation on the identification of geological resources of metals criticism, the creation of a working group on nuclear medicine, fiscal cooperation, the development of joint scientific research programs.
The rapid enlargement of the BRICS will not facilitate the cohesion of the Group, and the coexistence of the Organization with a multitude of other multilateral or regional bodies covering the same subjects does not guarantee the success of the multiple initiatives cited in the Kazan declaration .
However, in addition to its economic weight, the Group has strong points on which it will attempt to capitalize. When it comes to energy, the organization’s ten current members already represent 36% of crude oil exports and 34% of refined oil exports worldwide. They also occupy a major place in the international trade of soya (51%) or rice (44%) as well as various critical metals (rare earths, magnesium, graphite).
The thirteen partner countries also include major exporters of energy products (Algeria, Indonesia, Malaysia, Kazakhstan, Nigeria), agricultural products (Thailand), and critical metals (Bolivia, Indonesia). Collectively the BRICS + partners group therefore has the means to influence the evolution of exchanges of energy, raw materials and critical metals in the world, with undoubtedly a major axis of work not duplicating what exists already, which is that of the end of the hegemony of the dollar.
The dollar question
Russia is particularly motivated to find alternative financing methods to the dollar since it is subject to a wide range of Western sanctions covering in particular the participation of Russian banks in the SWIFT system or the assets of its Central Bank. China is also gradually imposing the yuan as an international currency competing with the dollar. India took advantage of Russia’s difficulties to use the Indian rupee in its purchases of Russian petroleum products. Other members of the BRICS+ group have less strong incentives to avoid dollar settlements, and Vladimir Putin remained cautious in his comments on the prospects of dedollarization at the closing press conference of the Kazan summit.
The idea of a common BRICS currency clearly remains a communication tool more than a project, and its chances of becoming a reality are zero. There remain five complementary areas of work: the diversification of foreign exchange reserves, bilateral transactions in local currencies, international assets in local currencies, the progressive dedollarization of energy and raw materials markets and the internationalization of the yuan.
Regarding foreign exchange reserves, Russia, China, India and Turkey are the four countries whose gold reserves have increased the most over the past ten years, with a significant acceleration since the start of the war in Ukraine . This attraction of gold goes hand in hand with a gradual erosion of the share of the dollar in the foreign exchange reserves of all the world’s central banks, which went from 71% in the year 2000 to 58% in 2024. But the other major international currencies – euro, yen and pound sterling – have maintained a stable share of around 30%, and among the “alternative” currencies, the yuan remains struggling with a share limited to 2.1% at the end of June 2024. , declining over the year 2023.
Progress on bilateral transactions is uneven. Trade between China and Russia denominated in yuan or rubles represents 90 to 95% of total bilateral trade, according to Russian and Chinese sources. Trade in local currencies with India is much less advanced.
Russia has three problems with India: it is a net exporter for significant amounts, and it accumulates Indian rupees which remain in India and are invested in low-yielding bonds, transactions between the two currencies go through third currencies in due to the non-convertibility of the Indian rupee, which is expensive (an agreement is in sight to resolve this problem), and Russian money cannot easily leave India due to careful exchange controls of the Indian Central Bank. One of the solutions found by Russian operators was to exchange Indian rupees for cryptocurrencies (stable coins), which can be exchanged again for other currencies in the United Arab Emirates.
Bilateral exchanges in local currencies are relatively simple with China, whose currency is already international and which has implemented technical solutions for transactions in yuan through the creation of a system competing with SWIFT which is the CPIS. This is not the case for most other BRICS+ currencies.
Overall, we still see a clear increase in the share of these currencies in transactions recorded in SWIFT (6.4% in 2024, a good half of which concerns the yuan) and on the foreign exchange derivatives markets (6.8% in 2024). %).
Regarding international assets in local currencies, an ING Bank study of the ten current BRICS members shows that BRICS assets or debts in alternative currencies are increasing, without dethroning the dollar.
The dedollarization of energy or agricultural raw materials markets is still at a preliminary stage. China has bilateral agreements with Saudi Arabia, the United Arab Emirates and Iran to expand oil purchases in partner countries’ currencies and is likely to do the same with other countries such as Algeria. However, the difficulties of paying in local currency remain the same. Renouncing the dollar involves increased exchange risks (the dollar exchange guarantee system is without equivalent), bilateral trade is rarely balanced and one of the two partners ends up with assets in the partner country’s currency which are not not easy to place or recycle. Apart from countries subject to a sanctions regime like Russia or Iran, the others have a more diplomatic motivation than a practical one, and the BRICS as a group cannot really set up a multilateral compensation system in alternative currencies. dollar.
The future of dedollarization therefore rests on the international rise of alternative currencies like the yuan. However, the recent period, marked by a weakness of the Chinese currency against the dollar and by a tightening of Chinese exchange controls to avoid possible capital flight, is not a prosperous period for the internationalization of the yuan. The classic markers (weight in foreign exchange reserves, trade, SWIFT system transactions, financial assets) are stagnating or only progressing marginally. We are still seeing the start of commercial transactions in yuan between third countries. Russia, for example, carries out 5% of its trade in yuan with countries other than China.
On the Indian side, difficulties with Russia have prompted the government to launch a plan to internationalize the rupee which is still in its infancy. The dedollarization of relations between the BRICS remains generally a long-term objective which will be linked to the success of the internationalization of the yuan today and the Indian rupee in a few decades.
By Hubert Testard
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