What is BRICS?
Brazil, Russia, India, China, and South Africa (BRICS) are a group of developing nations that make up around 40% of the world's GDP and are important players in the global financial system. According to reports, the G7 nations—the United States, Canada, France, Germany, Italy, Japan, and the United Kingdom—had a smaller share of the world GDP in 2023 than the nations that make up BRICS.
In a 2001 research study that highlighted the economic potential of Brazil, Russia, India, and China, then-Goldman Sachs head economist Jim O'Neill first coined the abbreviation BRIC, which at the time did not include South Africa.
According to the summit chair of South Africa, which hosted the 2023 summit, more than 40 nations, including Iran, Saudi Arabia, the United Arab Emirates, Argentina, Algeria, Bolivia, Ecuador, Egypt, Ethiopia, Cuba, the Democratic Republic of the Congo, Comoros, Gabon, and Kazakhstan, have expressed interest in joining the forum. They see the BRICS as an alternative to international organizations that they perceive to be dominated by the old Western powers, and they believe that joining the group will make their nations more competitive internationally and attract more foreign investment and trade.
The rising interest by various countries could be said to be the result of the COVID-19 epidemic, as when life-saving vaccines were created they were believed to have been withheld by wealthy nations, this action increased the discontent with the global system among developing countries.
Leaders from BRICS countries meet on an annual basis and this year's summit which was held from August 22nd- 24th in Johannesburg, South Africa was expected to be the biggest, with 69 leaders invited.
So, does BRICS want to create a brand new currency?
BRICS countries aim to create new economic and trade systems separate from the U.S.-led Western systems.
At this year's summit, the group's main focus was the weakening of the US Dollar, in other to promote the use of national currencies in international trade.
The reason for this is due to the fact that the U.S. dollar affects the strength of other currencies. So, this simply means that as the U.S. economy strengthens, so does their currency which is of course the dollar – but that weakens other currencies. For example, last year, $1 USD could get about 110 yen. Now, $1 USD is worth 143 yen.
Russia and China are said to be especially eager to weaken America's standing in the world economy and at a June meeting of BRICS countries, South Africa's Naledi Pandor said the bloc's New Development Bank would look for alternatives "to the current internationally traded currencies,", this led to major speculation by the media that the group aims to create a whole new currency, which can be used for investment and trade.
The rationale behind a unified BRICS currency is that the currency could strengthen economic ties within member nations, offer a counterbalance to the US dollar’s global influence, and lead to a more multipolar world economy.
The group first started discussing a new currency after the U.S. imposed sanctions on Russia in the wake of that country's invasion of Ukraine. "A common currency among BRICS nations could lead to the establishment of stronger economic ties and new geopolitical alliances, further solidifying their position as a rising power de-dollarization coalition," the group said.
But while the group has considered creating its own currency as part of the solution that is not on the agenda for the summit, the group says.
Okay, okay, but what will this potentially mean for the global economy?
If BRICS is indeed successful in weakening the dollar substantially this could trigger significant implications for the global economy:
- Firstly, as many commodities are priced in US dollars, a weaker dollar can lead to higher prices for commodities like oil, gold, and agricultural products. This can impact both importing and exporting countries, depending on their roles in commodity markets.
- A significant weakening of the US dollar can lead to volatility in global financial markets. Investors might shift their investments to other currencies or assets perceived as more stable, impacting currency exchange rates and potentially causing disruptions in financial flows.
- Many emerging market economies have substantial amounts of debt denominated in US dollars. A weaker dollar can make it more challenging for these countries to service their dollar-denominated debt, potentially leading to financial stress and currency crises in some cases.
- Other countries' central banks might respond to a weaker dollar by adjusting their own monetary policies. They might need to intervene in foreign exchange markets to prevent excessive appreciation of their own currencies, which could harm their export-oriented industries.
- A weaker dollar might attract foreign investment into the US as assets become relatively cheaper for international investors. On the flip side, US investors might seek higher returns abroad due to the diminished value of the dollar.
- A weaker dollar can make the US a more attractive destination for international tourists, as their currencies would have greater purchasing power. Conversely, US citizens traveling abroad might find their trips more expensive.
On a final note it is important to remember that while a BRICS currency might challenge the US dollar’s dominance, its actual impact on the US’s global influence remains to be fully realized and will depend on various geopolitical and economic factors, as we know our world economy is incredibly complex and even the brightest economic analysts can only make educated forecasts and predictions however, the reality is that, the economies future is based on several factors such as economic policies, consumer behaviour, technological advancements, geopolitical events, natural disasters, and more. So, whatever happens to our economy let's keep our fingers crossed that the impacts won't be extreme and that it will be something we can overcome and grow from.
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The Financial Files
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