Forum as a challenge to the West

The abbreviation BRICS was created from the initial letters of the names of five countries - Brazil, Russia, India, China and the Republic of South Africa. The acronym was coined by banker Jim O'Neill, who in his 2001 report for Goldman Sachs predicted that the top four countries on the list by economic strength would overtake the strongest Western economies by 2039.

The first BRICS summit was held in 2009. There are currently ten countries in BRICS. In addition to the founders, Iran, Egypt, Saudi Arabia, the United Arab Emirates and Ethiopia joined. A few more countries are waiting for admission.

However, BRICS is not an organization and is often mistakenly perceived by the general public as an alliance that functions similarly to the EU or NATO, which provide economic, political or security benefits to its members. There is no centralized structure here, but everything functions as a network and a platform for cooperation and dialogue among developing countries (the so-called countries of the global South). Nevertheless, over time, BRICS turned into an important forum and began to attract countries that oppose the unipolar world created after the collapse of the Soviet Union in 1991, dominated by the United States of America and its Western allies. The BRICS grouping still has economic goals - primarily reducing the influence of the dollar as a privileged currency for trade and holding foreign reserves - but over time the issue has turned into a question of international national security.

MAIN GOALS OF BRICS

Dedollarization comes in two forms. The first is to reduce the use of the dollar in international trade. If, for example, a company from Brazil wants to buy goods from a company from the Republic of South Africa, it must first buy dollars, and only then use those dollars to buy goods from the JAR, after which the selling company must sell those dollars if it wants to use them. in his country. Often, therefore, it is necessary to perform the conversion twice, which increases the cost of the transaction and increases its time.

In countries that have already gone deeper into European integration, such as Serbia, the dominant currency is the euro, but the structure of international trade is identical. The number of currencies that businesses can trade is limited. If, for example, a company from Serbia owns a million Macedonian denars that it wants to use to buy something from North Macedonia, the easiest way to do that is to first convert them into euros and use them to buy what it wants. Even if it does not want to do anything with that currency, but only to keep it in the bank, the company must first convert denars into euros, dollars or Swiss francs.

WHY IS THE DOLLAR USED SO MUCH IN INTERNATIONAL TRADE

How did the US dollar get to this dominant position? Its spread began immediately after the 2nd World War, because at that time it was the only currency that had a gold standard. The United States had already begun increasing the trade deficit by financing military bases around the world. When the gold standard was abolished in 1971, the situation did not change. On the contrary, the USA imported more and more goods from China, Germany and Japan, flooded the world with dollars, and the trade deficit grew continuously.

Although a high trade deficit is thought to be a problem, it has never been one for America. Namely, a trade deficit always exists when a country imports more than it exports, and such an imbalance in the foreign trade account can often lead to a balance of payments crisis or a public debt crisis. However, despite the incredibly high deficit (which today exceeds $1000 billion), America has never had a balance of payments crisis or a public debt crisis since 1971.

The reason is that whenever it needed to solve a deficit problem, the US government would issue new bonds to service the old ones. Investors and other countries are happy to buy new US bonds because they assume that demand for them will not disappear in the future. Unlike the US, other countries cannot service such a high trade deficit because their currencies and bonds do not have global demand, and investors consider their bonds risky. When, for example, Argentina's foreign trade account deficit reaches enormous proportions, the Argentine government must borrow in dollars, cut wages and pensions, raise taxes, or simply announce that it does not want to repay its foreign debt. This system is described in detail by Michael Hudson in the book Super-imperialism which came out in 1972, right after the abolition of the gold standard. Yanis Varoufakis gained world fame with this topic in the book The Global Minotaur of 2012..

SWIFT

Another type of dollar dominance is reflected through the SWIFT system of international monetary transactions. Every dollar or euro transfer (whether private or business) goes through the SWIFT system used by banks for international money transfers. That system often involves intermediary banks that monitor and verify transactions. The Belgian institution that manages SWIFT has the power to block transactions based on compliance even if they do not go through an intermediary bank. Unlike using dollars, SWIFT is mandatory.

GEOPOLITICS AND GEOECONOMICS

...

Why should such an international system of financial transactions be a problem for anyone? The BRICS members themselves also trade in dollars, and their central banks also hold it as a reserve currency. The BRICS countries believe that America has started to use the dollar as a weapon in the last few decades (weaponization of the dollar) in order to maintain a privileged status in the world economy and exert economic and political pressure on countries with which it politically disagrees or which threaten its geopolitical interest. Through the dollar, America is in a position to limit access to dollar transactions, freeze assets or, through the SWIFT system, limit countries' ability to trade. This practice is increasingly being used against a number of countries (see table). The reasons for the actions, however, are geopolitical, not economic. The goal was to force those countries to change their internal arrangements, foreign and military, and not necessarily economic policies.

The countries against which the West has so far introduced such economic sanctions are mostly countries with non-democratic or hybrid political regimes and which at some point created a local or regional problem (for example, massive violation of human rights, falsification of elections, military invasion of a neighboring country, etc. ). In a large number of cases, America and allied countries reacted militarily to this practice, but in some situations they reacted economically, precisely through the dominance of the dollar in international trade because it requires that every country that uses dollars must do so through intermediary banks or through SWIFT mechanism.

The BRICS grouping, which mainly gathers non-democratic countries, was therefore born out of the need to protect countries from such economic pressures. However, even developing countries that do not have such a political pedigree may consider that the dominance of the dollar does not suit them, because over time it has been shown that the use of the dollar in international trade draws investments to more developed countries. The most effective way to protect themselves from an international system in which the dollar has a privileged position is to support the creation of an alternative system in which the dollar is only one of the currencies, be it international trade or foreign exchange reserves.

...

BRICS countries have been working for 15 years to create financial platforms where it is possible to avoid the use of the dollar. China went the farthest. Since 2013, China - which until then held the largest part of the US external debt - began to reduce the amount of US bonds (graph 1), and with some BRICS countries, such as Russia, began to trade dominantly in yuan, that is, in rubles. Today, Russia and China conduct 90 percent of their trade in their currencies, bypassing the dollar.

...

A similar trend is noticeable in the price of gold on the world market. As a consequence of de-dollarization, the price of gold rose significantly, because central banks began to use gold more often instead of dollars as foreign exchange reserves (Graph 2).

An alternative solution for SWIFT is also being worked on. At the recently concluded BRICS summit, the Russian Central Bank prepared a document entitled "Improving the International Monetary and Financial System", in which it outlines plans to create an alternative to SWIFT. This proposal aims to establish a new payment system among BRICS member countries. Instead of converting the local currency into euros or dollars and then using SWIFT to buy something in another country, such an alternative system would allow the local currency to be converted into digital currency at the central bank, and then pay the recipient in another country at its central bank with that money. banks.

It is clear why Russia is the main promoter of such an alternative system. After the invasion of Ukraine in February 2022, Russia was kicked out of the SWIFT system, making it difficult for it to carry out many financial transactions. After the end of the summit, it seems that the time for the adoption of such a platform among the BRICS members is not yet ripe.

BIPOLAR AND UNIPOLAR WORLD

These international economic and financial institutions were created immediately after the 2nd World War, but they did not create dissatisfaction among the states for a long time. Their character started to change when in 1990-1991. Communism collapsed in 27 countries of Eastern Europe and Asia. The world then moved from a bipolar structure to a unipolar one. This tectonic change brought the USA and its allies to the top of the international stage and enabled the USA to play the role of world hegemon, the country that defines international political and economic rules, which enable it to have a dominant status and privileges in the international order.

This development of events after 1991 motivated the USA to become even more actively involved in world events, but with a special form of liberal hegemony, i.e. aims to help the development of institutions of liberal democracy in as many countries as possible, which enables free elections and the change of government, and brings to power political elites who respect human rights, lead a neoliberal reform policy and accept the capitalist way of production.

World and regional institutions such as the IMF, the World Bank, NATO, the World Trade Organization, and the European Union mostly had similar goals. In some cases, the introduction of democratic institutions was done by force. For example, when the Americans intervened militarily in Afghanistan (2001), Iraq (2003) or Libya (2011), the goal was not only to overthrow an undemocratic regime, but to establish a liberal-democratic order within those countries; in all three cases the attempt failed. Where it was not reasonable to react militarily, international financial institutions began to be used - America and its allies began to introduce economic sanctions, including the freezing of funds in Western banks, expulsion from the banking system, etc.

The export of democratic institutions mostly failed in those places where it was preceded by military intervention. The export of capitalist values ​​was in some cases counterproductive for the West itself. For example, the Clinton administration tried its best to help China build a capitalist system, especially through joining the World Trade Organization (WTO), which happened in 2001. Clinton saw China's accession to the WTO as a way to integrate China into the global economy, promote economic reforms, and open the vast Chinese market to American companies. Many multinational corporations supported the move, hoping to benefit from greater access to China's growing economy. It was also believed that this economic integration would gradually generate political changes within China and lead to a new generation of people and politicians who would demand that China become a democracy, and that it would then be easier for China to become an ally of the West, like many other former communist countries. However, the opposite happened. After joining the WTO, China rapidly expanded its global trade, becoming a manufacturing giant that twenty years later began to threaten the American and European markets. In 2012, a new generation of politicians arrived, led by Xi Jinping, who have no intention of democratizing China or cooperating with the West. On the contrary.

The BRICS grouping is now increasingly a geopolitical and not just a geoeconomic platform and network for cooperation. It allows the assembled countries to solve geopolitical problems and bilateral conflicts that do not have to be strictly economic. The biggest geopolitical benefit from this year's summit was Russia. The goal of the USA and the West is to isolate Russia diplomatically and economically. This summit has shown that it is practically impossible. At the same time, during the breaks of the summit, the Prime Ministers of China and India agreed in direct talks on how to resolve the long-standing border dispute in which several soldiers died in 2020. These benefits and solutions might be more difficult to achieve without BRICS, thus showing that the very existence of BRICS motivates partners to (even temporarily) stop mutual conflicts in order to unite against a common enemy.

SHOULD SERBIA JOIN BRICS??

In September, Vladimir Putin directly invited Aleksandar Vučić to attend this year's BRICS summit. How would Serbia benefit from BRICS membership? As a country that has been in European integration for a long time and has good relations with the USA, the question arises, what could Serbia be looking for in BRICS, which has an increasingly pronounced anti-Western character?

Serbia conducts most of its trade with the EU in euros. The European Union is Serbia's key economic partner and trade with the EU accounts for about 60 percent of Serbia's total trade. China and Russia together account for around 17-18 percent. Closer cooperation or membership in BRICS could damage trade and political ties with the EU, where trade is predominantly done in euros and through the SWIFT system. If it were to accede, Serbia could face increased political pressure, economic sanctions and reduced EU and US support for infrastructure and security projects.

The Central Bank of Serbia keeps part of its foreign exchange reserves in accounts abroad. These funds, as in the case of other countries, can become inaccessible to Serbia overnight, as a form of sanctions. Ironically, the very thing for which BRICS was created - the reduction of the use of the dollar as an economic weapon of the US - could affect Serbia in a negative sense, which would significantly worsen its economic and political position. Unless it intends to soon start behaving like Serbia under Milosevic in the nineties, Serbia currently has no strategic interest in being more than a passive observer of what is happening in the BRICS.

The author is Professor FPN