Will the BRICS Be the End of US Hegemony?

Durban, a seaside city in South Africa, hosted the fifth BRICS Summit from March 26 to 27 of this year. The main issue on the agenda at this year’s meeting was the establishment of a BRICS development bank and a foreign exchange reserve pool.

The designation of these two institutional bodies is only in its primary phases. It is possible, however, to discuss India’s proposal regarding the creation of the BRICS development bank. The procedures within this new independent financial organization would resemble those of the World Bank: From its inception, it would not require much capital. Its mode of operation, however, must not be analogous to that of the World Bank. Its premise is to satisfy developing countries’ capital requirement for long-term projects dealing with infrastructure, and to stabilize and secure the lending practices of governments in developing nations. Nonetheless, loans offered by the development bank must have no strings attached. Developing countries have long since tired of the bundle of restrictive clauses and political conditions attached to loans provided by the World Bank. They would rather accept loans with slightly higher interest rates. As a result, China’s large quantities of foreign exchange reserves can play a significant role in the bank’s operations. People should not be concerned that China will suffer a loss of its own foreign exchange reserves.

Assuming progress on establishing the BRICS development bank is stalled, the next step would be the creation of the foreign exchange reserve pool. In recent years, developed countries have continually liberalized their monetary policies. This has caused a problem with the liquidity of global currency, which can easily impact the financial stability of BRICS projects. The purpose of establishing the foreign exchange reserve pool is to strengthen the association’s ability to defend against financial crises by providing currency circulation and stable operability. Besides Brazil, all countries within the BRICS are among the world’s top ten foreign exchange reserve-holding countries, so their strength is influential.

These two large organizations — the development bank and foreign exchange reserve pool proposed by the BRICS — have similarities to both the World Bank and the International Monetary Fund. Apparently, this is the method used by emerging countries to challenge Western-dominated financing systems since World War II. The goal is to promote the rights of these emerging countries to a more prominent voice within international economic systems. Finance is the blood of modern economy and wielding a strong voice in such affairs can deeply influence global patterns of cooperation and trade, further enhancing a country’s political power.

Over the past ten years, China, Brazil, Russia and India have become powerful engines for the expansion of the global economy. Now, this collective comprises almost 1/4 of the global gross domestic product.

Apparently, if a country enhances its economic status without increasing its political influence, it is considered a “failed” country. The U.S.’ GDP had surpassed England in those days, but only at the moment that the U.S. seized control of the financial order after World War II was it able to convert this financial influence into a political one. It is clear that political influence in those days was based on military successes, and the main method of acquiring that influence was through command of the economy.

The U.S. currently has firm jurisdiction over international economic structures, and emerging countries’ desire to increase their political impact will be no easy matter. The U.S. dominates the economy through the World Bank and the IMF under the banner of maintenance and management. Essentially, these two big financial organizations were created during the Bretton Woods Conference [of July 1944], which marked the advent of open markets and a ceremonial merging of power of the U.S. dollar. This demonstrates that in their foundational phases, these organizations were established to serve the interests of the U.S.

For the last 20 years, debt crises occurring in Asia as well as in European countries and regions of America have proven, once again, to be the result of existing defects in the global economic system designed after World War II. In this current structure, developing countries often become joint victims or targets for the shifting of burdens from one nation to another. The BRICS summit explored patterns of reform for the financial architecture now in place. It also examined ways to decrease excessive global reliance on the U.S. dollar and establish new political and fiscal arrangements to better fit the characteristics of the times. Although the countries represented under the BRICS vary greatly in language, culture and politics, there is one factor that binds them: their discontent with the current systems as they are governed by Europe and the U.S.

Over the past few decades, Americans have occupied the most important positions on the boards of these financial giants — the president of the World Bank and chairman of the IMF. This year, by convention, another American will likely assume the role of president of the World Bank, but the BRICS have raised objections. What Europe and America fear most is the BRICS’ unity. The associated countries’ current international status involves a collective vetoing power within the IMF. In other words, if they pull together, they could exercise the right to veto as powerful as that of the U.S. This will weaken the foundation of the U.S.’ power over the World Bank and the IMF.

Especially since the 2008 financial crisis, otherwise developed countries have faced slumping economies. Economic growth in emerging economies has also slowed down generally. This objectively bands developing countries together, seemingly indicating that embracing a big window of time for adjustment is the new operative rule. In such a significant moment, it is difficult for an emerging economy or a big developing country to accomplish this type of global evolution by itself. If the BRICS want to achieve anything, they must cooperatively gather the power to transform. In a sense, the BRICS’ activities will either make or break their pursuit to be politically impactful in accordance with their economic strengths.

The countries of the BRICS are the leaders in emerging economies. They are big developing countries under transformation. The most important factor is that the economies of these five countries are complementary to one another. Brazil is renowned as the “World’s Raw Material Base” and “Coffee Kingdom,” Russia is the “World’s Gasoline Station,” India is the “World’s Office” and China is the “World’s Factory.” South Africa, the newest member, has long been known as the portal to Africa. This is an excellent combination. From the point of view of these features, China is a big nation in terms of global energy and resource consumption, while Russia and Brazil are the main energy and resource suppliers. Since China’s demographic dividend has waned, its businesses have faced pressure to go overseas. South Africa and Russia, on the other hand, are in urgent need of foreign investment. China is a super-country in the manufacturing sector, whereas India is strong within the information technology industry and the sphere of human resources. India’s outsourcing of services is comparatively stronger. Precisely because of these economic advantages in recent decades, these countries’ trade scales have increased more than six-fold. China has become the largest trading partner of India, Brazil, Russia and South Africa.

The conditions above both determine and demonstrate that as an entity, the BRICS are completely qualified — even compelled — to establish their own unique international financial order. The plans to establish the BRICS development bank and foreign exchange reserve pool at this time exactly fit global historical trends of post-crisis eras.

Focusing on current international organizations, the BRICS’ main competitor is the G-7. The G-7 consists of a small group of countries: the U.S., old Europe and Japan. It is a bloc within which old Europe and Japan discuss with the U.S. how to eat its leftovers.

The G-7’s former practices are worthwhile for the BRICS to reference. From the viewpoint of current international organizations, the more countries that join the BRICS, the stronger the concerted effort. There are many countries “waiting in line” outside the door of the present BRICS club. Korea is probably the most “positive” among these countries. However, when the BRICS jointly agreed last year to expand this forum and absorb new members, everyone chose South Africa. This was not just because there were already two Asian member countries. In comparison to South Africa, Korea was less “representative.” It is not merely economics that dictates whether emerging developing countries are chosen to join the BRICS, but also the question of whether that country could really represent the current interests and expectations of developing nations.

The number of countries within the BRICS will surely increase in the future, but at present the main priority is to strengthen cooperation between the existing five. Any country that stands against this kind of cooperation should not be brought in for consideration. It has recently been said that among other “probable” countries to join are Indonesia and Mexico. In fact, what we need more is the affiliation of African countries. Pivoting back to Africa has become the strategic decision of the European Union, and it should also be the strategy for the BRICS. Seen from this perspective, would it be a problem to provide a small loan to Africa?

From the viewpoint of global governance, the collaboration of the nations under the BRICS can surmount current predicaments. Perhaps people all over the world really do expect the BRICS to assume the mission of getting rid of the old and bringing in the new — leveraging global change and creating a new, and fairer, financial world order. As long as these five countries can unify and cooperatively confront themselves and the world, this “gold brick” will sooner or later become a cornerstone for building the new economic system of the future.