Prime Minister Narendra Modi, Chinese President Xi Jinping, South African President Cyril Ramaphosa, Russia's President Vladimir Putin and Brazil's President Michel Temer at the BRICS summit in Johannesburg, South Africa, on July 26, 2018.
The 10th summit of the BRICS hosted by South Africa (25-27 July) in its posh Johannesburg corporate suburb of Sandton marked about as fitting a point for reflecting on the Brazil-Russia-India-China-South Africa club as any - given the current international backdrop of geopolitical chaos and economic warfare. Indeed, the United States going rough validates what motivated the launching of the BRIC quartet in 2009 at Yekaterinburg in the first place. That year memorably got underway with both China and Russia lamenting the hegemonic dollar as the premier global reserve currency amid the G8’s failure, as a result of German opposition, to incorporating its Outreach 5 – Brazil, China, India, Mexico and South Africa – into what would have become G13. Thus, does 2009 go down as a watershed year of what might have been as well as what was. This was not only at a time when the global economy was regrouping from the financial shock of 2007-8 ushering in the Great Recession, but at a time when the west found itself forced to begin sharing the power of economic governance with the non-west. BRIC, which was to become BRICS in 2011, with the addition of South Africa, meant that since the G8 couldn’t accommodate an O5, why bother? It would, henceforth have to contend with its alternative among the world’s leading emerging markets (plus Russia) and become a caucus along with BRICS in the G20. 2009 could well go down as the year marking when the accelerated relative decline of the west got underway.
But let’s refocus on the reserve currency issue and see where we have come in almost a decade as the BRICS Sandton summit got underway. One of the first initiatives undertaken by BRICS was establishment of the BRICS Interbank Cooperation Mechanism to facilitate trade and investment transactions in local currencies, thereby bypassing the US dollar, while setting in train a process of lessening dependency on it. This trend will accelerate under the Trump administration’s drum-beat of sanctions and tariffs coercion. The re-imposition of sanctions on Iran (for allegedly violating the Iran Nuclear Deal), amid scrambling by the European Union to institute damage-control in keeping the Joint Comprehensive Plan of Action (JCPOA) intact, has, if nothing else, highlighted how urgent and strategically critical to the smooth functioning of the global economy, loosening the grip of the US dollar on global financial transactions has become. Within the BRICS context, Russia and China, as JCPOA signatories, are in pole position to accommodate Iran in local currency transactions in a manner dovetailing, geopolitically, with Iran’s eventual integration into the Shanghai Cooperation Organization (SCO) as a full member as the SCO emerges as the increasingly influential Eurasian suborder within the transitioning multi-polar system.
Indeed, the case of Iran raises some interesting prospects about future international currency developments given BRICS and China’s championing of ‘BRICS Plus.’ As the EU confronts the urgency of carving out meaningful strategic autonomy from Washington in the economic realm, there is no reason why the BRICS Interbank Cooperation Mechanism (ICM) might not accommodate the euro within local currency transactional equations. Clearly, one of the consequences of US-EU tensions under Trump will be Europe’s geo-economic gravitation toward an expanding transcontinental Eurasian reconfiguring of the strategic landscape. At the 2017 BRICS summit in Xiamen, the BRICS-ICM was further elaborated into including the Interbank Local Currency Credit Line Agreement and Cooperation Memorandum. India’s Cabinet approved the signing off on this agreement and cooperation memorandum which relates to Credit Ratings by India’s EXIM bank with member banks within the ICM.
According to The Economic Times, the significance of this development was seen as promoting “multilateral interaction within area of mutual interest which will deepen political and economic relations with BRICS nations.” Whether this will extend to nations within ‘BRICS Plus’ remains an open question but one eagerly awaiting answer at the next or subsequent BRICS summits given current Washington-instigated disruptions in international financial flows stemming from Trump’s sanctions and tariffs binge. In transitioning toward local currency transactions, this has implications for the evolving role of the New Development Bank (NDB) and its regional centres (the first having been established in Africa to be followed by Latin America). “With loans increasingly being issued by the New Development Bank in local currencies, this represents a threat, albeit symbolically at this stage, to the dominance of the US dollar,” speculated Sunday Independent Group Foreign Editor, Shannon Ebrahim.
However, within the ambit of the Interbank Cooperation Mechanism, the communiqué emanating from Sandton noted “with satisfaction the progress achieved on establishing the BRICS Local Currency Bond Fund, and looks forward to starting its operation.” Such a Fund was first broached at the 2017 summit in Xiamen which articulated the intention of establishing BRICS local currency bond markets aimed at avoiding “dollar and euro international transactions.” Though, if the current geopolitical trend is sustained, increasing possibilities of geostrategic realigning of forces in dialectical reaction to Trump over the next two to six years could well see the euro aligning with BRICS local currencies; or perhaps, at the very least, contributing to international currency multi-polarity. Nothing is anchored in stone at this point in time!
For all the platitudinous outpourings from BRICS summits on a range of thematic areas, from global governance and peace and security to the environment and, as featured in Sandton, the 4th Industrial Revolution, it is in the Interbank Cooperation Mechanism and local currency areas of activity that the real substance of BRICS will be tested or found wanting. And here, the evolving BRICS-ICM should be assessed in close interaction with its Contingency Reserve Arrangement (CRA) which, notably, the Sandton communiqué encourages cooperating with the International Monetary Fund (IMF). This is important in as much as BRICS is often, wrongly, perceived as anti-western, when realistically, it is a strategically pragmatic response to significant gaps in the global economic governance architecture disadvantaging a diverse range of economies falling outside the G7. Hence, the communiqué’s call for a strong Global Financial Safety Net - with an adequately resourced IMF at its centre.
Given the fact that the Sandton summit was held on African soil, perhaps the most notable tribute paid in this regard was support for the African Continental Free Trade Area (AfCFTA). This aspirational pan-African initiative and its eastern and southern African Tripartite FTA corollary carries with it profound geo-economic strategic implications in global South positioning terms, especially in relation to a potential Indian Ocean economic configuration. This potentiality makes all the more urgent consideration of a Zone of Peace and Cooperation in the Indian and Pacific Oceans to ring-fence Africa from external rivalries threatening peace and security along its African littoral. Power-jockeying in and around the northwest ocean engulfing the Red Sea is emblematic of such concerns amid positive developments emanating from Ethiopia. These must not be compromised. This points to a calculus that will have to inform South Africa’s BRICS-Africa vision and strategy in the years ahead.