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The recent BRICS summit, held in Kazan, Russia, last week brought together leaders from Brazil, Russia, India, China, and South Africa, with the goal of charting a future for the group’s expansion, economic collaboration, and influence in global financial systems. This summit highlighted the bloc’s efforts to challenge the dollar’s dominance, including a proposal for a potential BRICS currency that could serve as an alternative for global trade, reducing dependency on the US dollar and the geopolitical risks that come with it. However, the summit also exposed some issues within the BRICS bloc, such as Argentina’s withdrawal from its anticipated membership and delays in officially integrating other countries, raising questions about the cohesion and future trajectory of the organisation. ABSI this week will cover the latest BRICS Summit. 

Hosted by Russia, the summit was significant in showcasing the range of aspirations held by member states, from challenging the economic power of Western-aligned systems to strengthening South-South cooperation in finance, energy, and technology. The biggest focus centred on de-dollarisation and the launch of a BRICS currency.

The US dollar, as the world’s primary reserve currency, grants the US significant control over global finance, an advantage that BRICS countries see as both a potential risk and a barrier to fairer financial systems. Moreover, the increasing weaponisation of the dollar by the US is driving BRICS member states to seek to reduce dependency on the dollar and bypass Western-dominated financial systems, like SWIFT.

US Government Debt

Source: Trading Economics

Another important factor driving the discussion of the BRICS currency is the US national debt, which is almost US$36 trillion, with annual interest payments now exceeding US$1.2 trillion. This growing cost of debt service has many worried about the future stability of the fiat currency. Given that ~60% of foreign currency reserves are held in US dollars, the global economy becomes more vulnerable to fluctuations in American fiscal policy and interest rates, which could destabilise economies unless diversification is enacted. 

But where can central banks turn to reduce their dollar dependence? 

Gold is one answer and has regained popularity in 2024. As an alternative, a BRICS currency would be designed as a reserve currency for trade within the bloc. However, there are notable challenges to establishing a new, widely accepted currency. Firstly, BRICS members have diverse economies and interests and balancing these interests within a unified currency system could be difficult, as each country has its own currency stability, economic goals, and monetary policies.

Moreover, a BRICS currency would require robust financial infrastructure and cooperation. The member countries would need to establish mechanisms for currency swaps, develop regulations to govern transactions and build trust in the currency's value. Trust is crucial: a BRICS currency would need to demonstrate stability, broad acceptability, and security to compete with the well-established dollar.

The launch of a new currency is an overwhelmingly difficult project and will take some time to achieve, if at all. Outside of this, another critical challenge for BRICS is the speed of expansion and internal disagreements about strategic priorities.

BRICS Currency Proposal

Source: Watcher Guru

Last year, invitations were extended to six other nations, including Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE, with an official start date of January 1, 2024. However, recent political developments in Argentina have led to its withdrawal from the bloc, as President-elect Javier Milei’s administration has shown a strong preference for strengthening relations with the US. This highlights a dilemma for BRICS, as countries that lean towards Western economies may find it challenging to align fully with the bloc’s objectives.

Furthermore, the other five countries invited to join have seen delays in membership integration reflect logistical and diplomatic challenges. Differences within the group, especially between India and China, have slowed decision-making and hampered rapid expansion. India, in particular, has been cautious about expanding too quickly, partly out of concern that the bloc could become overly China-centric, which could shift BRICS away from India’s vision of a balanced coalition of emerging economies.

The Kazan summit brought both progress and setbacks to BRICS’ journey toward creating a multipolar world order and reducing reliance on the US dollar. With new countries on the brink of joining, BRICS faces the challenge of overcoming internal divisions and addressing the practicalities of creating a shared currency. However, the mounting US debt and its associated risks, along with the weaponisation of the dollar through sanctions, continue to lend credibility to BRICS’ efforts.

Copper and other base metals declined after a slump in Chinese industrial profits added to evidence of softening demand. A report on Sunday showed industrial profits shrank last month at the steepest rate since the pandemic.

Iron ore rallied amid reports of traders betting on further stimulus measures from Beijing as the economy splitters.

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