Reading the articles on the BRICS summit, it seems that the new alliance of 11 emerging and developing countries has now surpassed the advanced countries economically and is preparing to create its own development bank and common currency to replace the dollar. Putin spoke of an end to the dominant role of the dollar and others spoke of a common BRICS currency.
However, if you read the conclusions of the summit, there is only talk of greater use of BRICS currencies in trade between members, money and favors are asked from advanced countries, such as the continuation of exceptions to the rules of international trade for developing countries among which China is ranked in the WTO, but is it not the country that would have overtaken the USA? It also insists that the financial endowments of the New Development Bank in Shanghai will have to be increased, not just ask for loans. And claims more weight in the IMF, World Bank, but for whom? The economic and financial weight of the member countries is reflected in the voting capacity of the two Bretton Woods institutions and therefore will be updated by the next revision of the quotas without needing to expect it. Or maybe the numbers touted aren't exactly the relevant ones? Here I leave aside the cross-country comparisons based on PPP, which favors China, rather than on current prices, to understand how the flag of independence from the dollar waved in preparation for the summit ended in whispers of using BRICS currencies in trade between members of the group.
Let's look at the data:
Composition of world foreign exchange reserves 2000-2021
Update I quarter 2023. World foreign exchange reserves
As can be seen from the two graphs, the dollar continues to be the world's reserve currency, just slightly undermined by the euro. Because it has the necessary characteristics: the depth of the US financial market, combined with adequate fiscal support, explains why in 2009, with the financial crisis having its epicenter in the US, the dollar soared in value to a decade high, pulled by demand from the rest of the world that required it as a store of value. Ditto 2 months after Russia's invasion of Ukraine, the dollar hit a multi-year high. Another feature, the dollar is the accepted means of payment all over the world. The same oil producers present in the Brics + or enlarged to Saudi Arabia, the United Arab Emirates, Iran - together with Argentina, Egypt and Ethiopia - establish the price of oil in dollars and their exports are paid in this currency.
It is true that the dominance of the dollar has declined over the past twenty years: the share of the US dollar in foreign exchange reserves falls from over 70% in 2000 to just 59% at the end of 2021.
But neither the euro, which is the best-equipped competitor nor the yuan, which is not even fully convertible, can replace it. This underscores the importance of deep financial markets and adequate fiscal support, but not only that: only a quarter of the most recent shift away from the dollar went to the Chinese yuan. Three-quarters were invested in the currencies of smaller economies such as Canada, Australia, Sweden, South Korea. Technological innovations that have reduced trading costs together with low bond yields of major countries help explain this trend. But the hallmark of all major reserve currency issuers is democratic governance, with controls over executive power.
Finally, the BRICS are confronted with internal geopolitical strife. As of 2022, there have been more than 300 clashes between China and India on the eastern borders of the Indian subcontinent. Xi's provocations towards Taiwan are on the front pages of our newspapers. But most serious of all, Russia's aggression against Ukraine and its consequences on food trade with Africa. History has never known a multilateral agreement for trade and development in a climate of aggression and threats. The success of the IMF and the World Bank at the end of the Second World War stems precisely from the sincere and widespread support for a multilateral approach that wanted to overcome the national selfishness on which the war was built. Already at the end of the 60s, with the end of the convertibility of the dollar into gold, the necessary consensus for a structural reform of the IMF was no longer found.
It is therefore not just bad taste to dedicate the summit with Putin to upholding international law and the UN charter. It means not seeing the irreconcilability of any multilateral initiative with a war going on in Europe and threatened in Asia. Other than "inclusive multilateralism", the BRICS are part of a logic of opposing blocks however many Modi and Lula caveats. The latter has recently achieved an increase in soybean exports to China thus reducing its dependence on the US for soybeans. Rising soybean production in Brazil means new fires in the Amazon that will cost Brazil its environmental credibility, which also comes at a price for foreign investors. Xi's priorities for the IMF, World Bank and WTO are the only concrete proposals in the final summit statement. Also thanks to the lure of the New Development Bank in Shanghai, it is China that has prevailed in the conclusions and in the communication. That there may be more is a matter of bets.
