Introduction
Postulated as a framework by Jim O’Neil for the emerging
economies, originally BRIC in 2006, metamorphosed into BRICS with the
China-sponsored membership of South Africa in 2009, despite it not fulfilling
any criteria for an emerging economy. While an absence of coherent ideological
and governance commonalities is evident from the mere composition of the group,
it has consistently grown in its international stature over the decades. With
an ascendant economic growth trajectory, the group is slowly evolving into a
counter to the G7 countries. The BRICS+ countries, making up 45.2% of the
world's population and accounting for 36.7% of global GDP in PPP, 23.3% in
global exports, are expected to surpass the G7 as per EY by 2026.
The global merchandise exports of the BRIC plus countries
increased by 12.6% points from 2000 to 2023, around the same time the G7
exports fell by 16.2% points. The rise of BRICS has eventually narrowed down
the global economic landscape into G7, BRICS and others. Indeed, the global
exports of the rest of the world marginally increased during the same period.
Within the BRICS+, India and China have emerged as prominent players both in
terms of their growing economic size and population. Instructively, as per the
GDP ranking based on Purchasing Power Parity (PPP), China is pegged as the
number one economy, with India projected to clinch the second position by 2028
1. Other BRICS countries like Brazil,
Russia, and the UAE are expected to make a giant leap in terms of global
exports. Concomitantly, the economic role of each of these countries is bound
to expand. Saudi Arabia remains ambivalent about BRICS and has been hedging its
bets.
Washington Consensus and the Bretton Woods
Institutions
The Bretton Woods System was instituted in the aftermath
of World War II, which pegged the fixed exchange rates backed by USD or the US
gold reserves (22,000 tons).
This enabled the US government to convert USD into gold
reserves when requested by foreign central banks. This arrangement allowed the
US Central Bank to print US dollars depending on the world’s demand without
worrying about the inflationary consequences. Soon, growing imbalances in the
US economy eroded confidence in the dollar’s stability. Unable to withstand the
US inflationary pressures, the Bretton Woods System collapsed and in 1971, then
US President Nixon suspended the convertibility of the USD into gold. Ever
since, the USD has continued to remain as the global reserve currency, though
it wasn’t backed by any formal treaty. There is no international treaty
obligating nations to use USD, as the so-called Washington Consensus has
withered away.
To reduce reliance on the USD, the IMF has introduced
Special Drawing Rights (SDR) as a supplementary reserve asset. However,
following the sudden escalation of prices following the Yom-Kippur war in 1973,
SDRs failed to finance global trade. Economists attribute various reasons for
the USD’s dominance. Prominent among them are the size of the US economy, full
convertibility, a full-fledged financial system to back it, capital mobility, a
strong banking system and an independent central bank. Although China has a
large economy, it falls short of other requirements. In the case of the Euro,
the monetary union is not backed by a fiscal union. For any currency to have
wider acceptance, it must have the above-mentioned factors.
The emerging global economic trendlines are accompanied
by a swift decline in the share of the US dollar as the international currency
for global trade from 71.5% in 2000 to 58.2% in 2024 2. Given the increasing
share of the BRICS countries, the economic policies of individual countries and
the group collectively are going to have an impactful influence on the global
economic landscape. It is notable that despite the uncertain US economic policy
and dollar weaponisation post Russian invasion of Ukraine, the dollar share has
remained unchanged.
US Unilateral Measures
However, driven by geopolitical factors, Trump’s trade
tariff war, to insulate their economies, BRICS+ is attempting to coordinate
their policies. A coherent approach would eventually translate into downsizing
the dominance of the US dollar as the choice of global payments and
transactions. Pertinently, BRICS might even want to circumvent the SWIFT
trading helmed by clearance from US Bank and might be interested in creating
new financial instruments.
After Trump unilaterally withdrew from Iran’s nuclear
peace plan, JCPOA (Joint Comprehensive Plan of Action) and reimposed punitive
sanctions on Iran, they proved to be very effective as Iran was shunted out
from the SWIFT system. The other European countries that still wanted to honour
the agreement announced plans to create an alternate system to continue
payments. However, they couldn’t get far ahead with their efforts for fear of
America’s weaponisation of the dollar. This decline in usage of the dollar,
increasingly seen as de-dollarisation, has triggered fears of a shift in the
balance of power, eventually reshaping the global economy and markets. Luis
Oganes at J.P. Morgan said, “The concept of de-dollarisation relates to changes
in the structural demand for the dollar that would relate to its status as a
reserve currency. This encompasses areas that relate to the longer-term use of
the dollar, such as transactional dominance in FX volumes or commodities trade,
denomination of liabilities and share in central bank FX reserves,” 4. But as
of now, the US dollar makes up for 88% of global traded forex volumes as
opposed to 7% of the Chinese yuan.
Though China has unseated the US as the topmost global
exporter, the US dollar continues to maintain its overall dominance. Its share
in global markets is five times the United States’ share of global imports.
Indeed, owing to its extensive use, emerging economies, which by far have
increased global activity, are currently subjected to the turbulence stemming
from the volatile US markets.
Alluding to the US dollar’s entitled status that can
create a ripple effect across the globe, French Finance Minister Valery Giscard
d’Estaing, in the 1960s, termed it as an “exorbitant privilege”, and it
continues to wield a disproportionate control over global trade. Mark Carney,
currently the Prime Minister of Canada, in his role as the governor of the Bank
of England, in 2019, suggested that emerging countries must join to create
their own replacement reserve currency to circumvent the ‘destabilising role”
of the US dollar 5.
Indeed, leveraging this ‘exorbitant privilege’, US trade
advisor to Trump, Peter Navarro issued summary threats to India and warned it
to “act like a strategic partner of the US” 6.
BRICS Currency: To be or not to be!
Except for sizeable combined economic activity, BRICS+
doesn’t have anything in its favour to launch a common currency. Geographically
flung apart, with dissimilar economic sizes and monetary policies, achieving
fiscal and monetary integration of the BRICS nations is extremely difficult.
The EU is a striking example of issues that countries must face when the
economies are not equal and comparable. Absence of ideological coherence,
strong political institutions and different levels of development and their capacity
to take on debt further render unrealism to the idea of a common currency. A
single currency needs a common interest rate. Given the existence of different
price levels in BRICS currencies, stitching a cohesive monetary policy is very
difficult. For the first time at the 14th BRICS Summit, in the shadow of the
Ukraine war, Russian President Putin announced the BRICS plan to issue a “new
global reserve currency” 7.
BRICS New Development Bank (NDB) President Dilma Rousseff
indicated that there is an agreement in principle to use a new settlement
currency called the Unit, which will be backed 40 per cent by gold and 60 per
cent by local currencies in the BRICS bloc. The idea initially received some
traction at the 2023 Johannesburg Summit. Ahead of the summit, Brazilian
President Lula, expressing support, queried, “Who decided that the dollar was
the (trade) currency after the end of gold parity?” 8.
Drawing wisdom perhaps from the struggles faced by the
European Union countries post-2008 financial crisis to maintain fiscal balance,
BRICS has junked the idea of a common currency. Setting the record clear, Yury
Ushakov, adviser to Putin, stated that BRICS countries are focusing on
increasing cross-border trade and settlements in local currencies and indicated
Russia’s intention to create an independent BRICS payment system based on
digital technologies and blockchain. Subsequently, at the 2024 Kazan BRICS
Summit, Putin clarified that they are not fighting the dollar but deterring the
weaponisation of the SWIFT platform 9.
Indian Response to the Idea of BRICS Currency
From the beginning, India has consistently stayed away
from the idea of BRICS currency. Reiterating India’s stand, EAM Jaishankar has
clarified that India would back out of creating a new currency. The root of
BRICS' frustration with the dollar is the loss of autonomy over economic
policy. The euro was launched 50 years after France and Germany set aside their
hostilities. Unfortunately, old and new members of BRICS have long-standing
rivalries, viz, India Vs China, UAE Vs Iran, which will preclude the idea of
fiscal convergence. But the idea of BRICS currency can potentially unsettle the
US, as the BRICS nations are part of large trade blocs, and together these
trade blocs include 64 countries. Though the concept is a non-starter, any
alternate payment mechanism adopted by BRICS can have an impact on the
dominance of the US dollar.
Trump’s America First Policy, driven by the
discriminatory tariff war and secondary sanctions, has substantially increased
the financial volatility. Amid heightened fears of weaponisation of the dollar
as a geopolitical tool, to mitigate vulnerabilities of dollar exposure and US
monetary policy, BRICS countries are rapidly increasing trade in local
currencies, which has surged to 90% from 65% two years ago 11.
At the heart of India’s approach to BRICS currency is to
uphold economic sovereignty, which aligns with its quintessential policy of
strategic autonomy. Central to its foreign policy is the advocacy of a
multipolar, inclusive and equitable world. A world where power is diffused
among several power centres and not concentrated in one or two powerful states,
with a range of middle powers contesting for influence. Such a diverse world
comprising nations with greater autonomy would foster greater international stability,
security and prosperity. Centred on this principle, India promotes
‘multi-alignment’, stitching diversified partnerships with different countries.
India believes that a critical rebalance of power would prevent a unipolar or
bipolar world.
Given its principled approach for a multipolar world
order, India firmly stands with the BRICS countries, which is a diverse group
of countries with common interests seeking to navigate the global challenges
through collaboration and cooperation. This is also reflected in its committed
stand to develop an alternate financial system that is more inclusive and less
vulnerable to geopolitical coercions. India is not interested in replacing the
US dollar and its dominance. For that matter, India is not in favour of a
common BRICS currency. However, it is keen on exploring parallel mechanisms
where countries are sufficiently insulated from the looming threats of
‘economic warfare’. Diversification is the mantra that India seeks to strongly
promote to evade the wanton weaponisation of trade and financial structures by
powerful nations.
India and China are the powerful economic weights within
BRICS+. Making 60% of BRICS GDP and as a major trade partner of all BRICS
nations, they wield immense heft. Beijing has markedly benefited from the surge
in the intra-BRICS trade in recent years. The expansion of BRICS has augured
well for its trading prowess, with the balance within BRICS increasingly
shifting towards Beijing. An increase in intra-BRICS trade is helping China to
counterbalance the impact of the trade war with the US. Steadily buttressing
its economic position, Beijing is evolving as a dominant player and might gain
more mileage with a common BRICS currency.
Dollar Hegemony versus Yuan Hegemony
China would use the proposed BRICS currency to gain
financial hegemony. As the Euro experience suggests, Germany, which has been
the economic heavyweight in the European Union, has driven the entire exercise
of creating the new currency and made it the intervening currency. Being a
dominant economy, China would likely emulate the same and call the shots12. All
other nations would have to oblige to Chinese dictates. Yuan is a minor
international currency and part of the SDR currency basket; a common BRICS currency
will boost its dreams of internationalising the yuan and even challenge the
hegemony of the US Dollar. Though China is the largest exporting market and an
economic superpower, the dream of making Renminbi a global reserve currency has
been rather wishful despite efforts by China since 2009 onwards. A BRICS
currency can lead to the dominance of the Yuan and China’s monetary policies.
Central to the idea of BRICS currency is to reduce
dependence on the US dollar and bestow economic policy autonomy for countries.
But by effectively integrating the monetary policies under China’s overbearing
influence in BRICS would replicate the same process that BRICS countries want
to avoid.
BRICS currency would, in fact, make China more powerful,
lending it the power to veto to stall or allow plans to suit its economic
interests. BRICS has been formed to reduce reliance on any powerful bloc and
attempts to change the Western-led world order into a multipolar system where
developing countries can wield a proportional influence commensurate with their
global economic activity.
China’s Geoeconomic Trap
India and China have contrasting visions for BRICS, which
is evident from Beijing’s enthusiasm for expanding the group to turn into a
support organisation for its geopolitical agenda, including promoting its Belt
and Road Initiative and Global Development Initiative. It was an attempt to
strengthen its influence among the developed countries. Nations seeking an
opportunity to get economically closer to China reposed great interest in
joining BRICS. Watchful of Beijing’s geopolitical agenda for BRICS, India has
been cautiously supportive of the process. China silently harboured the
ambitions of turning BRICS into a China-centric group and was inclined to
position BRICS as another venue for “anti-US political activism”13.
Beijing harbours a vision to dethrone the US as the sole
hegemon, while India is desirous of a world order where a wider range of
voices, particularly from the developed world and the Global South, are
objectively considered for decision-making processes.
In fact, India’s discussions at BRICS have been
development-oriented with a focus on South-South economic and financial
cooperation. With an economic potential to evolve into a counterpart of the G7
countries, India wanted to promote engagement between both groups. The 2025 Rio
Declaration explicitly called for a comprehensive reform of multilateral
institutions such as the International Monetary Fund (IMF), World Bank, World
Trade Organisation (WTO) and the UNSC to make it more inclusive, credible and representative
of contemporary global realities14. India’s approach underscores a more
equitable participation, advocating for the right of development within the
global system.
China nurtures an ambition of a unipolar Asia and a
bipolar world. Being a revisionist power, China is inherently hegemonistic with
a tendency to utilise every intergovernmental organisation to promote its
initiatives.
Historically and culturally, India is hard-wired to
strategic autonomy and resists a subservient relationship. It refuses
monopolisation of organisations or institutions and believes in building
partnerships and fostering cooperation for shared developmental goals. India’s
solutions for reducing reliance on the US dollar stem from the domestic success
of the digital payment infrastructure, Unified Payment Interface (UPI), that
revolutionised India’s efforts towards financial inclusion and seamless financial
integration.
Having firmly rejected the idea of a common BRICS
currency, with tech-driven innovation, India is now working on an alternative
to the SWIFT system through UPI. India is exploring connecting with other
alternative payment mechanisms like the BRICS Pay System and others. India is
prioritising internationalisation of the rupee by bringing through
transformative cross-border payments with UPI and making it globally
interoperable. Bolstering the BRICS call for trade in national currencies, the
RBI is now allowing foreign banks to open Special Rupee Vostro Accounts (SRVAs)
to facilitate trade settlements in rupees. As of now, India is expanding its
rupee trade with 18 countries. Alongside, RBI is piloting a digital rupee to
eventually use for cross-border projects like mBridge, a multilateral central
bank digital currency initiative (CBDC) 15.
In the process of reducing dollar dependence, India has
never sought to replace it with any other currency. On the contrary, it is
actively pursuing alternative globally operable payment mechanisms for trade
and financial transactions. In other words, “India is not anti-dollar. It is
anti-weaponisation of the dollar”.
Trump’s aggressive sanctions, tariffs and penalties have
sparked a reassessment among nations and galvanised their efforts to reduce
reliance on the US dollar. The double whammy of being subjected to the
vulnerability of the US dollar and a systemic risk of sanctions is pushing
nations to explore alternatives. As a dominating trading partner within BRICS,
any common currency arrangement will be dominated by Beijing. Being an
authoritarian state with questionable transparency, weak institutional checks and
limited commitment to the rule of law, India will never agree to a common BRICS
currency.
With a comparable demographic and diplomatic heft,
ordaining consensus-based functioning, India pushed back calls for a common
BRICS currency. The overarching goal of Chinese foreign policy is to turn BRICS
into a counterbalance to the US. Besides, China’s plot of keeping the border
issue alive and its efforts to encircle India and its strategy to challenge
India’s status as the regional security power have brought things to a nought.
Beijing’s constant needling of India’s external security interests with military
and diplomatic support to Pakistan has constantly fed into New Delhi’s
suspicions.
The festering, unsettled border dispute has long
foreclosed the chances of a Sino-India entente. Additionally, China’s
belligerent, muscular expansion has always been a constant source of
instability and peace in the region. China’s utter disregard of India’s three
Ms- mutual sensitivity, mutual respect and mutual interest has pushed India
into circumspection. While the lack of trust and rivalry can be a source of
dissension, in the long term would sufficiently safeguard the BRICS platform
from turning into a Sino-centric organisation and lay the foundations for a
pragmatic multipolar world order.
Conclusion
Trump’s economic coercion in his second term will further
force nations to further diversify their relation, undermining the
organisational foundations of the Western-led world. Emerging countries are now
increasingly coopting advanced technology to bolster their foreign policy to
navigate through the geopolitical uncertainties. Blockchain-backed bitcoins
were used by countries in the aftermath of the 2008 financial crisis to avoid
central bank surveillance. In the face of burgeoning punitive sanctions, nations
are taking a fresh recourse to technology for creating a new parallel financial
architecture to carry out transactions without a hitch.
@ Copyrights reserved.
No comments:
Post a Comment