Understanding BRICS
We hear lots of speculation and misunderstandings about BRICS. We thought we could help explain what it is, and what it is not, and so explore some of the implications of its rise.
Commercial Summary: BRICS aims to permit bilateral trade and to bypass American and European sanctions, without imposing any universal rules. It is less than a free trade area. It is very unlikely to develop an independent currency: its main purpose is trade and monetary autonomy, and a unified currency undermines that. BRICS is intended to prevent the US, and its allies in Brussels, from imposing sanctions or other restrictions that affect third countries. BRICS is not a military alliance, but has important military implications, in that it allows countries to hedge their bet on the US-led system and to continue building ties to China. Astute statesmen will choose to balance their ties with the West and with China by keeping a leg in both camps. BRICS permits nations to maintain their neutrality in the event of a US-China conflict over Taiwan. It reflects a major decline in Western power, driven largely by Western policies.
The countries involved in BRICS are operating based on self-interest, not on any universal principles. BRICS will not produce a set of predictable rules, as the WTO did. Rather, its main purpose is to make sure that countries are NOT constrained by supranational bodies or rules that conflict with their interests. This is not unusual, nor is it a criticism. What is unusual is the West’s idealism in setting up frameworks like the WTO or the UN. (That too is not a criticism, but merely a comment on the West’s universalist tendencies, stemming largely from liberal idealism, which in turn draw on Christianity).
The expansion of BRICS
On the one hand, China, Russia and Iran want to draw together as many regional powers as they can, in a bid to boost their diplomatic influence and expand their trade relations in the teeth of Western sanctions.
On the other hand, some new joiners, such as Saudi Arabia, the UAE, or Egypt, are at least nominally allies of the West. Their inclusion in BRICS will make collective action harder: the leaders of the UAE, or Saudi Arabia, may prioritise relations with the West over those with BRICS countries.
This is not a problem, however, so long as BRICS is understood as a venue to improve bilateral ties and to trade independently of the West. The appeal of BRICS to smaller states is to create options and reduce dependence on the West, not to build a new UN or to provide a military alliance.
Currency and trade
A single alternative to SWIFT will not emerge. Rather, there will be a hodgepodge of autonomous systems.
BRICS countries are working on alternatives to SWIFT, called BRICS Pay. They are trying to find mechanisms that permit them to conduct banking transactions without relying on the Western financial system.
However, each of Brazil, India, China and Russia, has independently set up a financial messaging system to compete with SWIFT. There is talk of a BRICS Pay system to replace SWIFT, but it is not yet operational. It is unclear why these nation states would adopt a system that they cannot control. It makes more sense for the larger players to invest in their own systems and make them interoperable, maintaining a balance between independence and connectivity. While this may add complexity and cost, it is a small price to pay for autonomy. The current discussions on BRICS Pay claim that it will be decentralised and prevent anyone from excluding any other parties. That is lovely in theory, but it ignores the fact that SWIFT was set up as an autonomous alternative to US hegemony, then became a US policymaking tool. Given the lack of trust between Russia, China, India and Brazil (and the near-failed state status of South Africa), a unified approach is highly unlikely.
Expectations of a BRICS currency reflect a misunderstanding of both BRICS and the euro.
BRICS collectively is not able to offer an alternative to the dollar, nor is it likely to establish a separate currency like the euro. Expecting BRICS currency reflects a misunderstanding of the euro and of BRICS: the euro is intended to reduce European nations’ autonomy, in line with the broader ambitions of the European Union, and gives power to the European bureaucracy and the European Central Bank at the expense of national governments. BRICS serves the opposite purpose: to enhance national autonomy by reducing reliance on the West and reducing the ability of the West to impose its regulations. There is no reason, therefore, to expect a BRICS currency, no matter what public statements are made.
Barter, the renminbi and currencies pegged to the dollar are likely to gain importance.
To avoid Western sanctions, BRICS countries need to trade in non-dollar and non-euro currencies. But that leaves them with a host of national currencies that are less than predictable. Various BRICS members, such as South Africa, Brazil, Egypt and others are struggling with unstable currencies. No one wants to hold billions of dollars in rands, reals, roubles, or rupees.
As such, barter may become the preferred option for trading. Indeed, President Putin’s latest proposal, that BRICS introduce some kind of grain exchange, reflects that. Commodities are increasingly likely to be used as currency.
That said, Saudi Riyals or Emirati Dirhams are also highly favoured, as they are pegged to the dollar but can be used while bypassing the American financial system, therefore avoiding sanctions. However, that arrangement is dependent on American goodwill: the US may try to coerce these countries into ending their sanctions evasion activities or risk losing US protection. That, however, may lead to currency chaos for all, as these countries price their oil exports in currencies other than the dollar. Other commodity exporters may follow suit.
Moreover, since all BRICS countries want to import manufactured goods from China, and may want Chinese companies to build their infrastructure, the use of renminbi to settle some trades between BRICS countries makes sense. Many claim that this possibility is limited by the renminbi’s lack of convertibility, compared to the free-floating US dollar. China now permits certain institutions, including central banks, to hold Chinese debt, making it easier to keep reserves in renminbi. Moreover, just as the world accepts that the US has a disproportionate role in setting economic and financial rules, BRICS members may grow accustomed to China, their biggest trading partner, having a disproportionate say in setting trade terms. They may wish to use this to balance the US and China, and to keep themselves from being dominated by either.
Military aspects
There is no BRICS military alliance.
BRICS is not a military bloc in any meaningful sense. Rather, China and India are often on the verge of armed conflict in the Himalayas and Tibet. Pakistan has applied to join BRICS, and it is a mortal enemy of India. Brazil and South Africa, for their part, are not in any way parties to Asian or European wars, nor would they want alliances that draw them into such conflicts. And the new joiners (such as Saudi Arabia, Iran, Turkey), are sometimes mortal enemies.
There is an alliance of convenience, imposed by American policy, between China, Russia and Iran.
Within BRICS, however, there is a military alliance of sorts, and that is between Russia, China and Iran. Due to reckless American policy that threatens all three countries at once, these Asian powers have been cornered together, encouraging them to cooperate militarily, even though each of them may well welcome a separate deal with the US.
Gulf Arab states are looking for security options after the US’ failure as a security guarantor.
Moreover, the US has failed as a security guarantor for Gulf Arab states, and failed to protect their interests, as we argued here. As such, these countries are looking for new, diplomatic guarantees to protect them against Iran. Tighter relations with Russia and China may provide them with these protections. Incidentally, this is part of what makes the current Israel - Resistance Axis war so important: anything less than a total Israeli victory will drive Gulf Arab states further away from the US.
Southeast Asian countries have no interest in taking a side between China and the US. They will want to keep trading with China in a conflict over Taiwan.
Finally, for southeast Asian BRICS partner members such as Malaysia, Indonesia, Vietnam, Laos and Thailand, joining BRICS ensures that they can maintain trade ties with China in the event of a US-China escalation over Taiwan. It does not represent their willingness to side with China fully, but their intent to maintain neutrality and to reject any US impositions. A similar dynamic operates for GCC countries, whose main oil purchaser is China.
Clash of civilisations
Samuel Huntington predicted a “Clash of Civilisations” between Islam, China, Russia and the West, driven in large part by liberalism’s universal claims. We note that the history of humanity largely consists of clashes of civilisations, that much of Western history consists of its conflict with Islam, that conflict between hegemons and aspiring hegemons, such as that between the US and China, is nothing new, and that we are now seeing Huntington’s predictions be realised in part through the rise of BRICS. Russia and China, for their part, are playing their hand deftly. Both are fully siding with Muslims against Israel. This further inflames Muslim public opinion and limits the ability of Muslim elites to side with Israel and its Western backers.
Commercial Implications
The rise of BRICS does not lead to the replacement of the dollar. American sanctions do. There is still no alternative to the dollar, but US policy is forcing the creation of one.
That said, sanctions reflect the growing divergence between the increasingly assertive “liberal order” and the rest of the world. This divergence will expand, as countries assert their autonomy and reject the West’s positions.
Given the economic rise of China, enabled by free trade zealotry, we are seeing the collapse of the post-World War II system, due to the falling relative power of the United States. At the same time, the West is growing more assertive, not less, and is willing to confront any combination of states regardless of strategic logic. As such, BRICS is a classic balance of power move, with the BRICS countries banding together to balance against an overbearing West, without in any way wishing to surrender autonomy to each other.
The shock from BRICS may come when, either during the ongoing Middle East war or in a future China-Taiwan war, the Islamic world and much of the developing world politically side with China, Russia and Iran and against the West.
This would facilitate Chinese access to natural resources and render Western sanctions ineffective - except against Western industries and consumers that lose access to cheap Chinese goods. That in turn would have severe military implications for the West in any shooting war with China or Russia and would weaken the West politically during conflict.
Another complicating factor is currency: if it becomes obvious to the US that Huntington’s predictions are coming true, and that Middle Eastern oil producers are preferring China - their biggest client and trading partner - over the US, the US reaction against hydrocarbon producers may lead to oil no longer being priced exclusively in dollars. That may then lead to a host of commodities being priced in other currencies. And that would severely undermine the dollar.
The ability of BRICS to provide a more Westphalian model than liberalism - a model that respects national sovereignty within a balance of power - is what makes it such a threat to the West, and what makes it appealing to smaller countries and powers. Conversely, greater Western respect for the independence of other countries and for their core interests may reduce the appeal of BRICS.