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ECONOMY | 01-06-2023 12:30

BRICS strive to counter US with expansion, shared currency

The BRICS group is ramping up its bid for greater global influence and to challenge the US, sensing a moment to capitalise on a splintering world order to build out its ranks.

The BRICS group of emerging markets is ramping up its bid for greater global influence and to challenge the United States, sensing a moment to capitalise on a splintering world order to build out its ranks beyond Brazil, Russia, India, China and South Africa.

Foreign ministers from BRICS nations meeting over two days in Cape Town starting Thursday will be joined by counterparts from countries including Saudi Arabia, the United Arab Emirates, Egypt and Kazakhstan. On the agenda is expansion, with as many as 19 countries aspiring to join, and the potential establishment of a common currency. 

The gathering, a precursor to an August 22 to 24 summit of BRICS heads of state currently scheduled for Johannesburg, will showcase the bloc’s goals to establish itself as a serious economic and political force. Coming at a time of heightened tensions between Washington and Beijing, the talks are also likely to fan western concerns the group is moving to become a counterweight to the United States and the European Union.

Already, members have refused to join the likes of the Group of Seven in blaming — and sanctioning — fellow BRICS nation Russia over President Vladimir Putin’s full-scale invasion of Ukraine. South Africa is considering switching the venue of the upcoming leaders’ summit to another country, according to people familiar with the matter, a move that would resolve its dilemma over whether to execute an International Criminal Court arrest warrant for Putin.

“BRICS has acquired a very important stature in the world, with many countries across various continents of our world seeking to be part of it,” South African President Cyril Ramaphosa told lawmakers in Cape Town on Wednesday. Naledi Pandor, the foreign minister and meeting host, said last month the bloc could be “transformative,” representing those nations “that wish to play a role in world affairs, ensuring benefit to the Global South.”

Brazilian President Luiz Inácio Lula da Silva is a vocal supporter of a shared currency, dispatching his Finance Minister Fernando Haddad to attend a meeting of the New Development Bank, the Shanghai-based lender created by BRICS nations, to lobby for assistance for beleaguered neighbor Argentina, whose foreign minister is due to attend the BRICS meeting remotely.

But Jim O’Neill, who coined the acronym BRIC in 2001 when chief economist of Goldman Sachs Group Inc, said in an interview published by London-based IC Intelligence that a common currency isn’t feasible and China’s renminbi and the Indian rupee would more likely gain more global importance.

His scepticism was shared by South African central bank Governor Lesetja Kganyago, who cautioned last month that the creation of a form of legal tender would likely have to be accompanied by the founding of a single central bank.

BRICS, which invited South Africa to join in 2010, has failed to punch its weight as a group. That’s despite its members representing more than 42 percent of the world’s population and accounting for 23 percent of global gross domestic product and 18 percent of trade, giving credence to demands for more sway.

The prospect of adding more members was first raised at last year’s summit in China and 13 nations have formally asked to join, with at least six others expressing interest. 

Saudi Arabia’s potential accession to BRICS would bolster Crown Prince Mohammed bin Salman’s attempts to diversify his nation’s economy, an effort that has bought it much closer to Russia and China in recent years. China is the kingdom’s most important oil customer, while it relies on relations with Russia to help prop up crude prices through OPEC+.

For the Gulf region, joining major trade blocks makes sense as countries seek to expand trade ties and develop as global transit hubs, a person familiar with Gulf thinking said. Plans to join have been in the works for a while and momentum has been building toward this point, the person said.

Still, while all the current members have backed expansion, India wants an agreement to be reached on the process to ensure it isn’t sidelined by China and its allies, according to people familiar with matter who spoke on condition of anonymity. O’Neill, who favors expanding the group, has called for strict criteria on membership. 

For Robert Schrire, a politics professor at the University of Cape Town, the composition of the group makes no political or economic sense, with China and India destined to be geopolitical rivals and the Brazilian, Russian and South African economies all reliant on commodity exports, making them likely competitors. 

That reality “precludes effective collective action based upon common interests, and an expansion in membership will only make these basic contradictions more unmanageable,” he said.

by Mike Cohen & S'thembile Cele, Bloomberg

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