The forum of emerging economies, Brazil, Russia, India, China, and South Africa (BRICS), is very much in the news. There is much global interest in the economic developments in this group, especially as it relates to creating an alternative economic order which includes a new reserve currency to replace the US dollar. This has been a stated goal.
According to Investopedia, “A reserve currency is a large quantity of foreign currency maintained by central banks and other major financial institutions to prepare for investments, transactions, and international debt obligations, or to influence their domestic exchange rate. A large percentage of commodities, such as gold and oil, are priced in the reserve currency, causing other countries to hold this currency to pay for these goods.”
The US dollar is the world’s principal reserve currency and it is used by Jamaica. Jamaica’s foreign exchange reserves, held by the Bank of Jamaica at the end of March, was US$4.2 billion.
The further impetus for use of an alternative reserve currency has been provided by US sanctions against Russia in the war with Ukraine.
Initially, Brazil, Russia, India and China, seen as rapidly emerging economies, formed this group and their first summit was held in 2009. In 2010, South Africa was admitted and they became BRICS. Their New Development Bank, headquartered in China, was created in 2015. The current Bank President is Dilma Rousseff, former President of Brazil. The bank’s purpose is mobilising resources for infrastructure and sustainable development projects in emerging markets and developing countries.
MAJOR PRODUCERS AND EXPORTERS
The BRICS are some of the world’s largest countries both in land area and population, which is estimated at 3.2 billion. Collectively, they contribute about 32 per cent of global GDP and are estimating that they will account for about 50 per cent by 2030. However, with the exception of China and India, the rate of growth of Brazil, South Africa, and Russia was not maintained in the last decade.
The BRICS’s major producers and exporters are China and India. Of course, there is room for increasing trade. Brazil and China recently entered into a trading arrangement which will allow them to use their own currency and not the US dollar. India and other BRICS members are moving to trade in their own currencies and to facilitate trade with other countries. They are also exploring creating their own reserve currency. It appears that South Africa needs to seriously consider this currency issue, given its own economic situation and African obligations.
The major trading partners of the BRICS countries are the USA, European Union (EU) and Asian countries, such as Japan. In 2021, US goods imports from Brazil were valued at US$33 billion; Russia – US$31 billion; India – US$77 billion; China – US$540 billion; and South Africa – US$16 billion. The USA has a trade deficit with all the countries except Brazil. In 2021, the US exported US$47 billion to Brazil. The economic policy positions of the BRICS, therefore, could likely have trade implications. One can see why the US would want to relocate some production.
On the matter of the sustainability of the BRICS alliance, one also has to assess the intra-BRICS political relationships. For example, China and India have not always had a warm relationship, having military standoffs on their common border, and China has been viewed with suspicion by South Africans.
In terms of expanding membership of the BRICS, at their summit in August in Durban, South Africa, it will be seen which countries will join the other five. The South African foreign minister is reported as saying she has 21 letters indicating interest in membership. It seems the list includes Argentina, Iran, Saudi Arabia, United Arab Emirates, Egypt, Algeria, Mexico, Nigeria, Syria, Tunisia, Afghanistan, Nicaragua, Senegal, Thailand, Turkey and Kazakhstan. Even Canada and Japan have been said to be interested. There does not appear to be set criteria for joining the BRICS, except, it seems, that the new members must be approved by the current five and have a sizable population. At this point, the most likely new members seem to be Argentina and Saudi Arabia.
New members of the New Development Bank, since 2021, are Bangladesh, the United Arab Emirates, Uruguay, and Egypt. Membership is open to members of the United Nations.
It seems the BRICS would need new members for credibility and viability. CARICOM countries have been interested in the BRICS from the outset and have been invited to summits. From CARICOM, I looked at Jamaica’s trade with the BRICS which, in 2021, is as follow:
• Brazil – US$ 514.3 million (oil)
• Russia – US$3.1 million
• India – US$82.1 million
• China – US$464 million
• South Africa – US$5.1 million
• Brazil – US$28,000
• Russia – US$44.2 million (bauxite/alumina)
• India – US$366,000
• China – US$14 million
• South Africa – US$14, 000
Tourist arrivals from these countries are low. The major trading partner for Jamaica in goods and services is the USA. The majority of the diaspora are in the USA. In terms of commodity imports, Jamaica’s oil comes from Colombia, Brazil, Ecuador and CARICOM countries; and petroleum gas from the USA, Nigeria and CARICOM countries. External debt is mainly to multilateral organisations. Does Jamaica, as a priority, now need to consider the use of an alternate BRICS reserve currency? Although there is slippage that is causing concern, the US dollar currently remains the dominant reserve currency.
With talk of reforming the global financial system and a new economic order via the BRICS, we in Jamaica and other CARICOM countries, I assume, are closely following the economic developments and assessing the likely economic implications for the region.
The G7 Summit in May in Japan and the June Summit for a New Global Financial Pact in Paris, to which BRICS members are invited, should be very interesting.
By Elizabeth Morgan
Elizabeth Morgan is a specialist in international trade policy and international politics.