2023-08-22 06:40:18
In South Africa opens, this Tuesday, August 22, the 15th summit of the Brics, the organization bringing together Brazil, Russia, India, China and South Africa. In the midst of the war in Ukraine, and when these five countries now represent 40% of the population and 31.5% of the world’s GDP, this meeting will be particularly scrutinized.
With the exception of the Russian Vladimir Putin, targeted by an arrest warrant from the International Criminal Court and having obviously not wanted to take the risk of being arrested, all the heads of the States concerned will be present. The Brazilian Luiz Inacio Lula, the Indian Narendra Modi, the South African Cyril Ramaphosa and of course the Chinese Xi Jinping. Not to mention the leaders of the 67 emerging countries invited, twenty of whom are in the running to join the organization.
If the enlargement of the Brics will be one of the major themes of the meeting, this 15th summit will also focus on monetary issues. Because the five founding countries aim to upset the world economic order and challenge the hegemony of the dollar.
The “de-dollarization” strategy
How ? By preferring to use their own currencies for commercial transactions with foreign countries (the yuan for China for example, or the rupee for India and the rand for South Africa). A strategy called “de-dollarization” and which is not entirely new.
“As early as the 1970s, the oil-producing countries of the Arabian Peninsula planned to no longer systematically use the dollar for oil exports”, recalls Christopher Dembik, head of economic research at Saxo Bank. Since then, the idea has resurfaced regularly. In 2008 in particular, when the financial crisis highlighted the limits of an economic system based on the greenback.
Also the Brics do not invent anything. “But they go further, says Christopher Dembik. They take this ambition to a whole new level. » In the speeches already. For nearly a year, the leaders of these five countries have gone on the offensive. Last April, Sergei Lavrov, the Russian foreign minister, prophesied thus: “The abandonment of the American dollar is irreversible. »
At the same time, Brazilian President Lula questioned, falsely naive: “Why should all countries be obliged to carry out their trade based on the dollar? » Before going one better in June, during the Paris summit for a global financial pact. In a long monologue, he castigated the predominance of the American dollar in commercial exchanges.
The dollar as a weapon
Why such a desire to overhaul the international financial system? First for reasons of economic independence. Since the dollar is the main reserve currency of central banks around the world, the monetary policy conducted by the US Federal Reserve has consequences for the whole world.
Then for geopolitical reasons. Because the United States is increasingly using the crushing weight of the dollar as a weapon. It has become a tool for a large number of sanctions against third countries. American law makes it possible to sanction a company having carried out a transaction in dollars, even if it was carried out in another country. This is the experience of BNP Paribas in 2014, which was fined a record for having made payments in dollars to Cuba, Iran or Sudan, between 2002 and 2009, countries under American sanctions.
This use of the dollar as a weapon has increased considerably since the start of the Russian invasion of Ukraine in February 2022, when the G7 countries adopted an unprecedented sanctions program against Russia. But the weapon of the dollar did not only hit the Kremlin. At the start of 2023, more than 70 US sanctions programs affect 10,000 people and companies around the world. This has only spurred the anti-dollar policies of major emerging countries seeking to shield themselves from sanctions.
Concrete actions
The five member countries of the BRICS are not satisfied with declarations of intent. In March, China and Brazil signed an agreement to use the yuan and the real in their trade, while India and the Emirates did the same in April with the rupee and the dirham.
The Brics have also founded a common development bank, the NDB (New Development Bank), whose headquarters are in Shanghai. Intended to finance investments in infrastructure, it also aims to be a major player in this change. Last April, just inducted as director of the financial institution, former Brazilian president Dilma Rousseff announced that she wanted to create “a diversified global monetary system”. The project of a new currency, intended for exchanges between the Brics, is also beginning to emerge, and will be discussed at the Johannesburg summit.
But from there to chasing the greenback, there is still a step. Because the five founding countries would have to agree on a common strategy. However, some of them see this debate above all as an opportunity to push their own motto.
The Chinese strategy
China especially. For the world’s second largest economy, the international community’s growing distrust of the dollar could allow the yuan to appear as a credible option. So, can king yuan take the place of king dollar? Not really. “A change in the monetary regime takes a very long time, explains Christopher Dembik. The replacement of the pound sterling by the dollar as the hegemonic currency spread over the entire second half of the 19th century. »
And if the yuan is gaining an increasingly important place in international trade, it still represents only 3% of the reserves of world banks, well below the 59% held in dollars. A rate certainly increased to 70% twenty years ago, but still very high.
Above all, the yuan will find it difficult to become a competitor of the dollar as long as China makes it a point to maintain control over its currency, preventing the free circulation of the yuan outside the country. An effective method to control its monetary policy, but a handicap to make it the international reference currency. “Even if China becomes the main economic power in the world, it will not dethrone the dollar”believes Stephen Jen, director of asset manager Eurizon SLJ.
Basically, the Brics’ calls for de-dollarization aim above all to propose emancipation from the Western model. This strategy aims above all to affirm a geopolitical ambition, well beyond economic issues alone.
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Twenty candidate countries wish to join the BRICS
Twenty countries have formally requested to become members of the BRICS. In alphabetical order: Algeria, Saudi Arabia, Argentina, Bahrain, Bangladesh, Belarus, Bolivia, Cuba, Egypt, United Arab Emirates, Ethiopia, Honduras, Indonesia, Iran, Kazakhstan, Kuwait, Nigeria, Palestine, Senegal, Thailand, Venezuela and Vietnam.
Currently, the five Brics countries represent 40% of the population and 31.5% of the world’s GDP.
If the candidate countries all join the organisation, it could then increase to more than 50% of the population and 40% of the world’s GDP.
By way of comparison, the G7 countries contribute today to 45% of the world’s GDP.
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