We have valid reasons to be wary of BRICS expansion

The Johannesburg summit of BRICS leaders, which ended on 23 August 2023, agreed to induct six new members: the United Arab Emirates (UAE), Saudi Arabia, Argentina, Iran, Egypt and Ethiopia. Along with the existing five members—Brazil, Russia, India, China and South Africa—the expanded grouping of 11 members now presents an interesting alchemy of geo-political and geo-economic interests. There are two surprises: the omission of Indonesia and the inclusion of Saudi Arabia. The membership of the UAE and Egypt was not in doubt because both had become members of the BRICS multilateral development bank, the Shanghai-based New Development Bank (NDB). Even Bangladesh, which joined the NDB recently, was considered a certainty, but it might have to wait some more.

Moving beyond the politics of expanding membership, BRICS-Plus provides an interesting image of the grouping’s desire to present a non-Western, alternative development model. In terms of its geographical footprint, the grouping now has three members in Africa, five in Asia, two in South America and one in Europe, providing BRICS-Plus with strengthened Global South credentials. Looking at some of the other nations queuing up outside the door further reinforces the identity of BRICS-Plus as an emerging, powerful and influential non-Western bloc.

Other consequential outcomes arise from expanded membership. After the addition of Saudi Arabia, Iran and the UAE, BRICS-Plus now represents close to 45% of the world’s oil production capacity. And though dark clouds surround the future of fossil fuels, the coming together of four large producers (including Russia) is likely to animate global energy markets in the near future. The alignment of interests is unlikely to influence pricing or production decisions—that dynamic may remain restricted to OPEC-Plus for the moment—but is likely to manifest itself in the currency selected to invoice global oil and gas sales. A beginning might be made by Saudi Arabia invoicing its oil sales to China and India (accounting for 35% of Saudi’s total oil sales) in yuan and rupees, respectively, which would then have the potential to revitalize the debate on de-dollarization, something that has been viewed only as a theoretical construct so far.

The declaration at the end of the 15th BRICS summit last week provided clues on how BRICS-Plus would pursue the de-dollarization goal: “We stress the importance of encouraging the use of local currencies in international trade and financial transactions between BRICS as well as their trading partners. We also encourage strengthening of correspondent banking networks between the BRICS countries and enabling settlements in the local currencies. We task our Finance Ministers and/or Central Bank Governors, as appropriate, to consider the issue of local currencies, payment instruments and platforms and report back to us by the next Summit."

This puts in the shade, at least for the time being, all speculation over a BRICS currency. Any unit of money must fulfil three key functions—as a unit of account, medium of exchange and store of value —and dislodging the US dollar’s dominant position in any of these functions seems like a long-term project. In the meantime, the use of local currencies for trade and financial deals between BRICS-Plus members will require finance ministers to come up with a common payments platform, which is no less tricky.

Any form of de-dollarization presents a quandary for India as well. India’s balance of trade with BRICS-Plus has it at a distinct disadvantage. At the end of financial year 2022-23, India’s merchandise trade with BRICS-Plus nations had a negative balance of over $177 billion, with China and Russia alone accounting for over $126 billion. Even discounting for the unusual 2022-23 spike in Russian imports, China’s $83-billion trade gap is unlikely to disappear any time soon. Such large trade gaps, even with BRICS-Plus trade conducted in local currencies, has a direct bearing on the rupee’s value. The other option is to secure higher inflows of BRICS-Plus currencies through portfolio investments and foreign direct investment.

Any form of de-dollarization—whether through a separate currency or local currency invoicing—benefits China primarily, as it runs a trade surplus with almost all BRICS-Plus members and accounts for a large chunk of BRICS-Plus GDP.

However, India’s anxieties are not limited to geo-economics. For one, BRICS-Plus seems to be moving away from its original geo-economic focus and inching towards an anti-West configuration which could potentially put India in an embarrassing situation. Two, the current mix has only four democracies—India, Brazil, Argentina and South Africa—and that invests BRICS-Plus with a changed geo-political complexion. Finally, China seems to have an outsized say in membership expansion, despite New Delhi’s feeble protests, and this could eventually prove inimical to India’s economic and strategic security.