JOHANNESBURG—“The expansion of BRICS has made it clear that the de-dollarization of the international finance system is inevitable.”
This view, from economist William Gumede—who’s also executive chairperson of the Democracy Works Foundation in South Africa—has been echoed around the world since BRICS leaders announced the expansion of the bloc on Aug. 24 at a summit in Johannesburg.
Current BRICS members are Brazil, Russia, India, China and South Africa.
In January, BRICS—originally established in 2009 to represent the world’s strongest emerging market economies—will add Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates (UAE) to its ranks.
Mr. Gumede, one of South Africa’s leading academics and thought-leaders, has been researching the potential impacts of de-dollarization since 2014.
He told The Epoch Times the average per capita GDP of the G7 economies was currently six times that of BRICS economies. But, the unexpectedly swift expansion of BRICS would increase the trade bloc’s share of the global economy much faster than earlier predictions.
“These forecasts did not take into account that BRICS would expand its membership very quickly. A larger BRICS will mean the world will increasingly use U.S. dollars less,” he said.
Mr. Gumede said the bigger BRICS alliance would eventually rival the Group of Seven (G7) large industrial economies of the United States, European Union, United Kingdom, France, Japan, Italy, and Canada, which together are home to 16 percent of the world’s population and account for 62 percent of the global economy.
Welcoming the new members in Johannesburg last week, Brazil’s President Lula da Silva said their addition would mean BRICS would represent 46 percent of the global population and 37 percent of the world GDP.
The expansion means BRICS now consists of some of the globe’s largest oil producers: Russia, Saudi Arabia, UAE, and Egypt. Nigeria, another major oil exporter, is set to join when the bloc gets even bigger, probably at its next summit in Russia in 2024.
“BRICS is going to dominate the world’s energy supply,” said Mr. Gumede. “The strength of the U.S. dollar is also partially based on the currency as underpinning oil trade—the so-called petrodollar—and members of OPEC (Organisation of the Petroleum Exporting Countries) settle their accounts in U.S. dollars.
“Therefore, enlarging BRICS to also include the oil producers and persuading them to use a new BRICS currency, rather than the U.S. dollar, to settle their accounts, will be a game-changer. It is likely to accelerate the de-dollarization of the world.”
Jakkie Cilliers, Head of the African Futures and Innovation program at the Institute for Security Studies in Pretoria, attributed the unexpectedly rapid expansion of BRICS, and its moves towards de-dollarization, to Russia’s invasion of Ukraine and its consequences.
“BRICS has seen the West hit Russia with all kinds of financial sanctions, and threaten sanctions against South Africa for supposedly supporting Russia, and as a result it wants to end, or at least ease, its dependence on the dollar,” he told The Epoch Times.
“De-dollarization, first mooted by [Russian President Vladimir] Putin, is a potent symbol of a shift away from a Western-led global order towards a new era of more uncertain and fluid multipolar connections. Change is in the air, and the next three decades will see the steady unfolding of this trend.”
Mr. Cilliers said BRICS was “cloaking itself in resentment” against the West.
“It’s quite easy for Russia and China to take advantage of the ill-feeling that still exists across much of the developing world because of colonialism, imperialism and sanctions by leading Western countries.
“Never mind the fact that Russia and China show similar imperialistic tendencies,” he commented.
He said the Global South was “particularly unhappy” with international finance institutions, and with the U.S. Federal Reserve Bank.
“When the Fed hikes interest rates, it sometimes sends smaller economies into turmoil. They’re subjected to shocks for no domestic reason. So they see the dollar as providing the United States with a very powerful weapon to use in its interests,” said Mr. Cilliers.
“This is what unites BRICS in its desire to move away from the dollar-backed international financial system.”
But, he added, de-dollarization was going to be a slow process.
“Trade among BRICS countries is too small to sustain a common currency, and it only makes sense to trade in national currencies if the trade balance between the countries is more or less equal, which it most definitely is not likely to be in the near future,” said Mr. Cilliers.
Mr. Gumede pointed to a recent example of Russia selling a lot of oil to India.
“They dealt in rupees. But because India exports much less to Russia than it imports, Moscow now sits with rupees it cannot spend or convert, except to buy goods from India.”
Mr. Cilliers said China’s renminbi also wasn’t sufficiently convertible and lacked deep capital markets, market transparency, independent central banks and supporting financial institutions of Western banks.
He said there were also “perceptions of risk” associated with China’s future.
“It is, after all, a repressive autocracy. It’ll battle to maintain stability in the face of slower economic growth. I’d also be very surprised if India supported a common BRICS currency, given its concerns about China as a regional and potential global competitor.”
Mr. Gumede added: “The euro, a common currency, is stable because it’s underpinned by stable political regimes in a stable part of the world. Wherever you look in BRICS, there’s instability, like in Russia because of the Ukraine war. What would happen to the BRICS currency if China invades Taiwan?”
Mr. Cilliers predicted that rather than a single alternative to the dollar, “new currency blocs” would emerge.
“These will be based on bilateral and multilateral trade among the Middle East and China, South America, West Africa and elsewhere. And so we’ll see the power of the dollar slowly wane,” he said.
Mr. Cilliers said the most important shift in the power of the greenback would happen once oil and gas prices were no longer set in U.S. dollars.
“This is probably the motivation behind the inclusion of Saudi Arabia and the UAE in the expanded BRICS,” he postulated.
Mr. Gumede said demand for U.S. dollars would remain high as long as U.S. GDP was close to 25 percent of the global economy.
He said President Putin—supported by China’s leader Xi Jinping—was pushing so hard for de-dollarization “because it’s key to the economic survival of Russia” following Western sanctions.
The West froze $300 billion of Russia’s foreign trade reserves after it invaded Ukraine in February 2022 and its foreign trade transactions, including those with some emerging markets, have been blocked.
Seven of Russia’s banks have been excluded from the world’s leading international payment messaging system, SWIFT. The ban means Russian banks cannot do digital cross-border transactions.
However, Russian banks doing transactions connected to oil and gas are exempt from the SWIFT ban, and this is preventing the Russian economy from collapsing, said Mr. Gumede.
Russia is the world’s third-largest oil producer, but its the largest exporter of oil.
“BRICS countries have been buying oil and gas from Moscow, insulating Russia against isolation by the United States and the EU,” Mr. Gumede explained.
For example, Indian imports of Russian oil in May 2023 reached record levels of about 1.95 million barrels per day.
According to the International Energy Agency, China and India bought 80 percent of Russia’s oil in May 2023, with China buying 2.2 million barrels per day.
Leslie Maasdorp, Chief Financial Officer of the BRICS financial mechanism, the New Development Bank, told The Epoch Times BRICS countries were prepared to conduct business with one another in domestic currencies.
But, he added, they were not yet ready to issue a common currency that could challenge the dollar.
“The creation of a global alternative currency to the dollar is a medium-to-long-term ambition, rather than an immediate possibility,” said Maasdorp.
“Even the Chinese renminbi is very far from becoming a global reserve currency.”
Mr. Cilliers said it was also likely that intensifying rivalry between China and India would slow de-dollarization.
“India has already said it wants to focus on strengthening its own currency ahead of anything else,” he said.
Mr. Cilliers suggested that the expansion of BRICS, now and in the future, should not be seen as an “automatic sign” that developing countries were uniting behind a “simplistic, common vision” of overthrowing the West.
“Many people have this view that if Russia and China, in particular, snap their fingers and say, ‘de-dollarize now,’ that other BRICS countries are just going to listen to the master’s voice.
“Believe me, there is deep resentment within BRICS and within the wider Global South about Russia’s invasion of Ukraine and the harm it continues to sow in developing countries, causing inflation spikes, for example, and even grain shortages.
“Countries’ motivations for wanting to join BRICS differ but what stays the same is that few, if any, Global South nations will exchange one hegemon with another.”
