In today’s Finshots, we tell you how the expanding BRICS coalition could shake up global power dynamics and reshape markets.
Before we begin, if you’re someone who loves to keep tabs on what’s happening in the world of business and finance, then hit subscribe if you haven’t already. We strip stories off the jargon and deliver crisp financial insights straight to your inbox. Just one mail every morning. Promise!
If you’re already a subscriber or you’re reading this on the app, you can just go ahead and read the story.
The Story
Back in 2001, Jim O’Neill, an economist at Goldman Sachs, coined the term “BRIC”. It was a catchy acronym for Brazil, Russia, India and China, and it quickly became a buzzword for anyone talking about the next big thing in the global economy. These countries were seen as rising stars that might just shake things up. And it didn’t take long for BRIC to gain traction. By 2010, South Africa joined the club, turning BRIC into BRICS, with one clear goal: to represent emerging economies and counterbalance Western power.
But ambition is one thing, and reality is another. BRICS’ journey has been marked by hurdles, with only China growing rapidly, while others, like Brazil and South Africa, struggled. Internal squabbles often stalled progress too, leaving BRICS more about discussions than any real action.
But things have taken a turn lately.
At the recent BRICS summit in Kazan, Russia, the original members, now joined by nations like Iran, the UAE, Ethiopia and Egypt, made a bold proclamation. In a sweeping 32-page Kazan Declaration, BRICS reaffirmed its commitment to shift global power dynamics.1 With 36 countries represented at this gathering, their intent was unmistakable ― BRICS was no longer just a coalition; it was becoming a force.
So, what’s their plan, you ask?
Well, they’re starting by loosening the US dollar’s grip.
You see, the dollar has long been the main currency for trade, especially oil, giving the US significant power. Until recently, almost all oil transactions happened in dollars. But now, with oil exporters like Saudi Arabia, Iran and the UAE on board, BRICS is pushing for alternatives. Already in 2023, nearly 20% of oil trades were made using non-dollar currencies.2 And they’re only taking more steps to aim for freedom from the dollar’s shadow.
To begin with, it has set up the New Development Bank (NDB). Think of it as BRICS’ answer to the World Bank or the IMF (International Monetary Fund), institutions often seen as being steered by Western interests. When these banks lend money, it usually comes with strings attached or conditions that might not always help a country’s growth.
But the NDB is different. It offers loans to developing nations without those Western-imposed conditions. Plus, it’s promoting loans in local currencies instead of the dollar, anticipating that 30% of its loans could soon be issued in non-dollar currencies. This could mean that countries could start trading oil in yuan or rupees — a move that might just shake up the petrodollar system which is a key pillar of US influence. In fact, Saudi Arabia is already hinting that it could accept yuan for oil.
But trading in non-dollar currencies isn’t enough on its own. To really make this work, BRICS needs a messaging system to help move money between member countries. Think of something like SWIFT (Society for Worldwide Interbank Financial Telecommunication), which securely handles money transfer requests between banks. The problem is, BRICS nations don’t want to be too reliant on SWIFT, as it’s controlled by the G-10 countries or the West, including the US, Canada, Europe and Japan. Central banks in these nations can cut a country off from the SWIFT system whenever they choose.
Remember how Russia was banned from SWIFT, making it tough for it to trade with others? That’s why Russia proposed creating a BRICS payment messaging system to easily trade resources without relying entirely on the SWIFT or the dollar.
But BRICS’ de-dollarisation ambitions go beyond just using alternative currencies. It’s even flirting with some old-school ideas, like trading through the barter system! Yup, you heard that right.
If you’re wondering why, here’s the thing. BRICS isn’t just a counter to Western dominance; it also unites countries rich in natural resources. For instance, Russia is a powerhouse in natural gas and metals, China rules the rare earth elements market, and Brazil is a leading exporter of agricultural goods like soybeans.
And with BRICS gaining traction, their collective economic weight matters. Together, they account for about 35% of the global economy, with China alone contributing nearly half of that. They also represent 45% of the world’s population, with China and India making up three-quarters of it. This growing influence is prompting BRICS nations to propose direct bartering of agricultural commodities, allowing them to sidestep the dollar and dodge Western sanctions. In fact, there’s already some chatter about a Russian firm recently trading 20,000 tonnes of chickpeas to Pakistan in exchange for the same amount of rice!3
And although Pakistan isn’t part of BRICS yet, it’s clear that workarounds like this are boosting the group’s confidence. This is likely why they’re exploring the idea of a potential gold-backed currency, dubbed the “Unit”, as an alternative to the US dollar.
Their logic is simple. Many central banks are turning to gold as a safety net against the potential decline of the dollar. And countries within BRICS are stockpiling gold at record levels, aiming to protect themselves from fluctuations. So, if BRICS countries keep increasing their gold reserves, demand for gold could rise, driving prices up and pushing BRICS closer to their de-dollarisation goals.
And an expansion like that could lead to significant economic and geopolitical changes.
That’s because for a long time, countries like the US have enjoyed low inflation due to cheap imports from China.
This kept things affordable for American consumers. But since BRICS nations, including China and Russia, are rethinking how they use resources, deciding to stop selling cheap goods or trade in alternative currencies could lead to price rises in the US and elsewhere too. We could see higher inflation as import costs rise, supply chains get disrupted and countries adapt to new trading norms. So, it’s not just about rising prices. It’s about a shift in the global economy, which could get bumpy for a while.
Countries thriving under the current system dominated by the West might also rethink their alliances since aligning with BRICS could mean cheaper resources and better trade deals. But distancing from the West carries its own risks, especially for nations dependent on Western tech and investment.
That said, moving away from the US dollar won’t be a cakewalk. It’s still the most widely accepted currency globally, playing a crucial role in oil markets. And let’s not forget that most foreign reserves are held in dollars, and that the US boasts the deepest, most flexible financial markets.
On top of that, ongoing tensions between India and China — the two largest nations in BRICS, could complicate meaningful progress.
So yeah, we’ll only have to wait and see if the world is ready for this new era, or it will be left scrambling as the balance of power shifts once again.
Until then…
Don’t forget to share this story on WhatsApp, LinkedIn and X.
📢 Ready for even more simplified updates? Dive into Finshots TV, our YouTube channel, where we break down the latest in business and finance into easy-to-understand videos — just like our newsletter, but with visuals!
Don’t miss out. Click here to hit that subscribe button and join the Finshots community today!
Story Sources: BRICS [1], Nasdaq [2], TRT World [3]
A whopping 2/3rd of Indians pay for medical expenses from their savings!
Unfortunately, too many Indians have no health insurance or depend on their corporate plans which can often be inadequate.
This is why Ditto Insurance always tells people to secure a personal comprehensive cover.
If you’re young & healthy, a health insurance plan can be as affordable as ₹10,000 to ₹15,000 a year. Click here to book a FREE call with Ditto’s IRDAI-certified advisors and let them help you find the best plan for your needs!
