2023 World: BRICS – De-dollarization Summit

The International Institute for Middle East and Balkan Studies (IFIMES)[1] from Ljubljana, Slovenia, regularly analyzes developments in the Middle East, the Balkans and around the world.  Following the recently held BRICS summit, IFIMES made an analysis of its repercussions to the world. We bring the most important and interesting parts of the extensive analysis “2023 World: BRICS – De-dollarization Summit.”

2023 World:


BRICS – De-dollarization Summit


From 22 August to 24 August 2023 South Africa hosted the 15th BRICS summit in an attempt to define the BRICS’s role in the global economic system. Namely, at the summit numerous documents were discussed in the presence of more than 40 heads of states and governments, in addition to the leaders of the BRICS countries, which include Brazil, India, China and South Africa and the minister of foreign affairs of Russia. As usual, this 15th summit in the history of the group also addressed the global management system and the necessity to reform the current (in the words of the participants) unjust and unequal system with a special emphasis on the need for major structural reforms of the global financial system, which has been dominated by the United States since the Bretton Woods Agreement[2] of July 1944 and the Nixon shock[3], which has been present to date.

The Johannesburg Summit was not ordinary by any means, as its agenda included many major issues in the light of global tensions stemming from the conflict in Ukraine, escalation of tensions in South-East Asia, and the possible war in the Sahel region in Africa after the coup d’état in Nigeria. The African continent is currently a diplomatic battlefield between the West, China and Russia, as they strive to increase their influence in Africa in the context of competition for the raw materials and resources. 

The BRICS group publicly emerged in 2006, while its first meeting took place in 2009 in the Russian city of Yekaterinburg. Today the group includes Brazil, Russia, India, China and South Africa, whereas the name BRICS consists of the first letters of the names of member countries in English. BRICS currently makes for 23% of the global GDP, 42% of the global population (3.2 billion) and more than 16% of global trade. The latest data have shown for the first-time superiority of the BRICS group over the group of industrially most develop countries in the world, the so-called G7. Namely, according to the data the BRICS bloc currently accounts for 31.5 percent of global GDP, surpassing the G7, which currently accounts for just 30.7%.[4]

The BRICS states are located on three continents with major differences in history, anthropogeography, culture, social and political heritage and organization, as well as policies. The group has connected the gigantic economy of China with the geographically vast country of Russia, both of which are nuclear and military powers and have the right of veto in the United Nations Security Council. India, whose population has already exceeded the size of the population of China, is also the fifth largest economy in the world and a nuclear power. Brazil ranks twelfth on the list of largest economies in the world. Furthermore, Brazil is the biggest state in South America, as it accounts for one half of the population and the land surface of the continent. While South Africa is not the largest economy in Africa, it is a very economically developed country. Moreover, it has significant large political heritage as a democratic country that developed after internal and global fight against the former apartheid regime. 

Although the group is not a formal multilateral organization (no standing secretariat), such as the UN, World Bank (WB) or the Organization of Petrol Exporting Countries (OPEC), it has a high level of political interactions (such as annual summits and a meetings of a number of expert bodies). BRICS evolved into a forum for resolution of critical global issues, such as trade, finance, climate changes and energy security, as well as reduction of the dominance of the West over the third-world economies through the US dollar. 

In 2014 the member countries established the New Development Bank (NDB) with an initial capital of 50 billion dollars. The bank is an alternative to the World Bank and the International Monetary Fund for the funding of infrastructure and sustainable development projects. 

The BRICS countries have also established the contingency reserve arrangement (CRA)[5], a mechanism aimed at ensuring liquidity for member-states when they are confronted by short term balance of payment crises. These initiatives demonstrate the intent of the group to establish institutions that represent the interests of the rising economies and constitute an alternative to the existing global financial institutions that are dominated by the West. 

BRICS enlargement and the attempts by Russia and China to establish dominance over the group

The prevailing political discourse at the previous meetings and summits of the group was focused on “strengthening global peace and security” and “break the Western hegemony”, as well as creation of a “multipolar world”, which has become an empty phrase following the Russian intervention in Ukraine.

Russia and China actively contributed to the transformation of the group into a new geopolitical economic block. Russia, whose President Vladimir Putin was not able to attend the summit because of the international arrest warrant issued against him by the International Criminal Court (ICC) in The Hague, needs partner and allies more than ever before to deal with the economic sanctions imposed by the West. China, whose President Xi Jinping has bolstered his control over the state in an autocratic fashion, is more effective in spreading its military and political power around the world. 

At this year’s summit 43 countries have expressed an interest to join the BRICS group, while 23 states have applied for formal membership (Egypt, Algeria, Argentina, Bahrein, Bangladesh, Belarus, Bolivia, Cuba, Ethiopia, Honduras, Indonesia, Iran, Kazakhstan, Kuwait, Marocco, Nigeria, Palestine, Saudi Arabia, Senegal, Thailand, United Arab Emirates (UAE), Venezuela and Vietnam). Russia rushed to support the candidacy of three of its allies- Belarus, Iran and Venezuela, while Brazil, according to the words of its President Lula da Silva, called for focusing on the unity, rather than attempts to oppose the United States, G7 group, and the G20 group. India also expressed concerns regarding the enlargement process, considering it a method to amplify the influence of China, as the state with the largest economy in the group. 

The participants of the BRICS summit where not able to broker an agreement on individual applications of each of the states for membership. Due to the lack of consensus they invited only six states- Argentina, Egypt, Ethiopia, Iran, United Arab Emirates and Saudi Arabia to join the group. Their membership shall commence in January 2024. 

The three Arab states, specifically Saudi Arabia, United Arab Emirates and Egypt, which have become members of the BRICS group, have several economic and political reasons for such an act, which can be detrimental to their traditional relations with the United States. One, the first two countries are major oil producers, and would benefit from closer economic relations with China and India, which are the main importers of oil. Two, both countries aspire to diversify their economies away from oil, and thus see membership in the BRICS group as a way to get access to new markets and investment opportunities. From the political point of view, Saudi Arabia and the UAE wish to balance the US power in the Middle East through membership in the BRICS. 

Chinese President Xi Jinping described the enlargement of the group as “period of turbulences and transformation” in the world.

Responses by the US were very mild and did not convey serious political messages. Jake Sullivan[6] National Security Advisor in the White House said that the United States “are not looking at the BRICS as evolving into some kind of geopolitical rival to the United States.” Sullivan stressed that the United States will continue to work on “the strong positive relationships we have with Brazil, India and South Africa” and added “we shall continue to manage our relationship with China and we will continue to push back on Russia’s aggression.” 

Republic of Türkiye

Analysts questioned during the summit where does the Republic of Türkiye stand today with respect to these events? Does it really want to join the BRICS group? Would such a thing be in line with its usually pragmatic foreign policy?

Namely, Türkiye is the only country that has expressed aspiration to join this group but has still not filed an official application. Turkish President Recep Tayyip Erdogan attended the BRICS summit in Johannesburg in 2018.

There is no doubt that the Turkish policy is not what it was prior to the presidential and parliamentary elections in May 2023. Türkiye has clearly defined its position when President Erdogan said “turning towards the East or the West is not in line with our principle, as Türkiye is close to the West just as it is to the East.“  With such a statement he denied all the analysts who believed that Türkiye had turned towards the East. At the NATO summit in Vilnius in July 2023 Türkiye had even conditioned membership of Sweden in the Alliance with its membership in the European Union.  Namely, Türkiye has been in the EU “waiting room” since 1959. 

There is no doubt that the BRICS countries would like to see Türkiye join them, because of its geographic position and political weight at the international scene. However, the group has some reservations in this respect due to the difficulties affecting the Turkish economy, such as the inflation, high living costs and unemployment. Namely, this could decline the enthusiasm within the group, which is looking for rising economies. 

Membership of Türkiye in the BRICS group would be a loss for the Turkish economy, as currently Türkiye's biggest economic partners are the EU, US and Great Britain. In 2022, 26% of import into Türkiye came from the EU, whereas 41% of export of goods from the country is to the EU. The overall trade exchange between the EU and Türkiye in 2022 amounted to 198.1 billion Euros (3.6% of the overall trade of the EU with the world). The trade exchange ratio between Türkiye and China is in favor of China. Specifically, in 2022 import from China totaled 41.35 billion dollars, while export from Türkiye to China totaled 3.28 billion dollars (according to the UN COMTRADE data base on international trade). 

Economic growth of BRICS countries

Latest data revealed superiority of the BRICS group over the group of the seven most important industrial countries in the world, the G7, which includes Canada, France, Germany, Italy, Japan, United Kingdom and United States. The BRICS group possesses 50% of gold and currency reserves in the world. At the end of 2021, the group’s export of goods totaled 4.6 trillion dollars, which amounts to 20.7% of the overall global export of goods, while the import of goods for the same year totaled 3.9 trillion dollars, which is 17% of the overall global import of goods. The export of goods of the G7 was at the level of 6.3 trillion dollars, or 28.1% of the overall export of goods in the world, while the import of goods was in the area of 7.6 trillion dollars, or 33.5% of the overall import of goods in the world. 

It is expected that by 2040 the BRICS group will account for more than 50% of the global GDP, because enlargement within the BRICS Plus framework through integration of a number of large countries will facilitate achievement of the level of 50% of global production of goods and services. 

Summit on the future of US dollar 

The BRICS group is striving to create a new global (monetary) order, which relies on local currencies far away from transactions in US dollars. Namely, there is an actual trend of BRICS group members regarding adoption of some decisions aimed to reduce the share of the dollar in global transactions and to inflict serious damage to the most powerful currency in the world. This trend was instigated by the decisions of the RIC-Russia’s, India’s and China’s central banks - in the multilateral monetary system and payments in local currencies. 

In March 2022 experts of the International Monetary Fund issued a warning that strong financial sanctions imposed against Russia could threaten to gradually weaken the dominance of the US dollar, lead to a more multilateral international monetary system and encourage emergence of small currency blocks based on trade among a certain group of countries.[7].

Despite the constant talk about “de-dollarization“ and the relative decrease of its share, almost 60% of global foreign currency reserves are in US dollars, and 88% international transactions were made in dollars by the end of 2022, according to the IMF data. 

The dominance of the US dollar in the global financial system is a major challenge for the BRICS group, when it comes to introduction of its own currency as dollar is still the main currency in global trade and the leading currency in global financial institutions. The US dollar is also the dominant currency in the context of global stock markets, markets of goods, bank deposits, funding of development projects and loans. 

China and India strived to encourage their trade with Russia, which is under sanctions, using three local currencies- Juan, Rupee and Ruble. In such a way, to some extent they managed to symbolically reduce dependence on the US dollars in international exchange, at least among their member countries, particularly bearing in mind that, except for Russia, the BRICS countries still have close economic relations with the Western countries. Therefore, it will be difficult to abandon the use of dollar and rely only on the local currencies of the BRICS countries. There are small chances that other countries that could join the organization will have the capability to abandon the US dollar and replace it with other currencies. 

Although China is the biggest exporter and has enormous trade surplus with the world, the Juan cannot compete with the dollar because it is not available on global markets. Despite the power of China in global trade, according to SWIFT data, Juan accounts for less than 2.5% of global transactions. This is a very small share in comparison to the share of dollar, which is at the level of 40% and Euro, which is at the level of 36%.

The other obstacle for the plan of creation of some common “BRICS currency” is the necessity to connect all the economies of the member countries with a new single currency and a common monetary policy, because there has to be an economy or the basic system which reflects the interest rates and liquidity. In this period that is impossible because of the opposition by India and Brazil. 

From the historic perspective, when a group of countries wants to establish a currency block, they connect with the economically strongest country with a low inflation rate, which in this specific case would be China. The same happened when the European Central Bank (ECB) was established in 1998 and the Euro currency introduced in 1999, after the model of Bundesbank, where Germany was the center of power in Europe. This meant that 20 members of the Eurozone, which use Euro as their currency. This meant that 20 members of the Eurozone, which use Euro, had to comply with the policy of the European Central Bank. 

This created serious problems between Germany and several countries in the Eurozone, because of the “softening” of the monetary policy of the European Central Bank in order to support weaker member countries on the account of richer economies, or when Greece was in need of major assistance in the 2010-2012 period. 

Without the United States and international institutions dependent on Washington, such as the International Monetary Fund (IMF) and the World Bank (WB), the Eurozone would not be able to save Greece from bankruptcy.

Furthermore, within the BRICS group there is an imbalance between Russia, which is exhausted by the Ukraine war and under the pressure of sanctions, and China, which has enormous economic power. There are also doubts regarding cohesion and harmony within the group, particularly between India and China, which are two historical rivals. In example, India is a BRICS member with the strongest relations with the United States, as is strategically antagonistic towards China and economically competes with it. India is also in constant confrontation with the Chinese expansion in South-East Asia and the Pacific area. It is important to underline that the official New Delhi opposes the enlargement of the BRICS group, unlike Beijing, which want to improve its “silk roads”. 

Challenges and opportunities

The BRICS group is faced with numerous challenges. It has a limited right of vote in some international financial institutions. It is also faced with unstable geopolitical and economic circumstances in the world. However, there are numerous opportunities that allow BRICS to contribute to the changes in the global system, such as offering an economic model that motivates other countries to join it. Likewise, establishment of a single currency or use of local currencies in trade exchange among BRICS countries is an effective way to oppose the monopoly of the US dollar and address its consequences and limitations. 

In this context, the report published by the British UnHerd[8]  expresses the concerns of the West that “What we may be seeing emerge, however, is a largely technocratic trading and economic bloc modelled on the post-1945 Bretton Woods system that would signal the start of a new epoch.” 

More realistically, while the BRICS block can have significant influence, it will not be sufficient to make a revolution in the existing international relations. It is rather unlikely that the BRICS will shake the globalization trend or the US control in the current balance of power. Nevertheless, one must admit that the BRICS block is a first serious attempt in that direction. 

Ljubljana/Johannesburg/Brussels/Washington, 13 September 2023          

[1] IFIMES - The International Institute for Middle East and Balkan Studies (IFIMES) from Ljubljana, Slovenia, has a special consultative status with the Economic and Social Council (ECOSOC)/UN since 2018. It is also the publisher of the international scientific journal European Perspectives.

[2] The Bretton Woods system of monetary management established the rules for commercial relations between the United States, Canada, West Europe countries and Australia, as well as 44 other countries after the brokering of the Bretton Woods Agreement of 1944, link: www.federalreservehistory.org/essays/bretton-woods-created

[3] The decision of US President Richard Nixon, publicized on 15 August 1971, which suspended the hitherto dollar’s convertibility into gold. It put out of force the Bretton Woods System, which fixed the exchange rate of all major global currencies within restricted parameters. Namely it allowed for “floating” exchange rates, which have become a characteristics of the global economy to this day. Furthermore, it practically opened the doors to speculations and conjectures that the US dollar is actually fiat money, link: www.presidency.ucsb.edu/documents/address-the-nation-outlining-new-economic-policy-the-challenge-peace

[4] BRICS to discuss dollar alternatives at August summit: Russia, link:  www.globaltimes.cn/page/202307/1294900.shtml

[5]  The BRICS Contingent Reserve Arrangement (CRA) is a framework for the provision of support through liquidity and precautionary instruments in response to actual or potential short-term balance of payments pressures,   link:   https://web.archive.org/web/20150925234418/http://brics.itamaraty.gov.br/media2/press-releases/220-treaty-for-the-establishment-of-a-brics-contingent-reserve-arrangement-fortaleza-july-15

[6] White House: United States are not looking at BRICS countries as evolving into some kind of geopolitical rival, link:   www.whitehouse.gov/briefing-room/press-briefings/2023/08/22/press-gaggle-by-national-security-advisor-jake-sullivan-2/ .

[7] Russia sanctions threaten to erode dominance of US dollar, says IMF, link:  www.ft.com/content/3e0760d4-8127-41db-9546-e62b6f8f5773

[8] A new BRICS currency is a threat to the West, link:  https://12ft.io/proxy?q=https%3A%2F%2Funherd.com%2Fthepost%2Fa-new-brics-currency-is-a-threat-to-the-west%2F