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| BRICS increases intra-bloc trade, uses local currencies to reduce dependence on the US dollar. (Source: SAN.com) |
BRICS has become quite important in the global economic dynamics thanks to the combined strength of its five member economies. With a large population, abundant natural resources, and rapid economic growth, the group has become the engine of world economic growth and plays a role in shaping global policy.
One of the key initiatives the group is undertaking is to increase intra-bloc trade, using local currencies to reduce dependence on the US dollar.
Huge economic potential
BRICS offers enormous economic potential. For example, in 2022, the group’s gross domestic product (GDP) will reach about $18.6 trillion, nearly a quarter of the global total. China, the world’s second-largest economy, accounts for more than 70% of the group’s GDP growth.
Rapid economic growth, large infrastructure investments, strong exports and high domestic consumption are key factors that give Beijing the basis to contribute to BRICS economic growth.
In addition, China is also one of the countries with the largest consumer market in the world. The country has a significant impact on the export targets and economic growth of the countries in the group.
On the other hand, Russia is one of the world's largest energy producers and has abundant natural resource reserves, especially oil and gas. This contribution is important in supporting global energy needs and is a key factor in energy cooperation among BRICS members.
Moscow also plays a role in technological and industrial development, especially in the fields of defense, aerospace and nuclear technology. Russia has expertise and potential in these areas and can make a major contribution to the high-tech development of the BRICS countries.
In addition, Russia has increased trade cooperation among BRICS countries, including efforts to reduce dependence on the US dollar in international trade. Moscow has recently promoted currency diversification in bilateral trade with BRICS countries. This is an important step in the de-dollarization process.
Along with China and Russia, India also maintains a steady growth rate. New Delhi has become one of the world's largest markets, with a large population and rapid economic growth.
At the 15th BRICS Summit, the group announced that from January 1, 2024, six more countries, including Argentina, Ethiopia, Iran, Saudi Arabia, the United Arab Emirates (UAE) and Egypt, will officially become members of the bloc.
Experts say that expanding BRICS membership is like "giving wings to a tiger", helping to raise the bloc's position and influence in the international arena.
The expanded BRICS will account for nearly 40% of the global economy. The BRICS’ GDP already exceeds that of the Group of Seven (G7) leading industrialized nations, and the gap will widen as six new members join BRICS next year.
The expanded BRICS GDP in purchasing power parity (PPP) terms would be around $65 trillion, taking the bloc’s share of global GDP to 37% from the current 31.5%. The G7’s share of global GDP currently stands at around 29.9%.
In addition, with the addition of new members, BRICS countries will account for nearly half of the world's food production. In 2021, the group's wheat harvest reached 49% of the global total. The G7's share was 19.1%. The expanded BRICS will account for about 38.3% of global industrial output, compared to 30.5% for the G7.
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| The US dollar is facing increasing challenges from the BRICS countries. (Source: iStock) |
Join forces to "overthrow" the USD
In recent years, through economic strength and influence, BRICS has proposed many solutions for international trade and finance. From there, directly reducing dependence on the US dollar.
The group has promoted the use of local currencies of respective countries in trade, reducing dependence on foreign currencies and enhancing economic integration.
One of the most important steps was the BRICS establishment of the New Development Bank (NDB) in 2014. The NDB was established to provide loans for infrastructure development projects in BRICS member countries as well as outside, using national currencies instead of the greenback.
According to data from the World Bank (WB), intra-BRICS trade will reach more than 500 billion USD in 2022. Although this figure is still far behind global trade, the steady growth rate shows that the trend of reducing dependence on foreign currencies, especially the USD, is developing.
South African Vice President Paul Mashatile once said that the world is paying attention to BRICS because the bloc is leading global discussions to reduce dependence on the US dollar. He stressed: "We are not competing with the West. We want our space in global business."
The group even signaled the possibility of introducing a common bloc trade currency at the BRICS Summit in August 2023.
Although such a currency is still in development, Joe Sullivan, former special adviser to the White House Council of Economic Advisers, said that an expanded BRICS has the potential to "overthrow" the dominance of the US dollar, even without a common currency.
"The US dollar is facing increasing challenges from the BRICS countries due to the bloc's expansion plans and efforts to promote the use of national currencies in trade between member countries," Mr. Joe Sullivan affirmed.
There is no denying that reducing dependence on the US dollar would have a significant impact on the global economy. This could reduce the impact of exchange rate fluctuations on trade and economic stability. However, by using local currencies in trade, BRICS can protect themselves from fluctuations that may arise from US monetary policy or global market instability.
Changing the dominance of the US dollar cannot happen overnight, but the steps taken by BRICS have contributed greatly to reforming the international financial structure that is dependent on the greenback.
Modern Diplomacy also recognizes that, in the long run, the move away from the dollar could be a driver for a more stable and balanced global financial system.
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