Eve is here. I am late in posting about BRICS these days and why enthusiasts have vastly underestimated the hurdles that member states must overcome for BRICS to be effective as more than the United Nations. I did.
Let me mention one. Multipolarity is interpreted to mean the expansion of national sovereignty of states that is subject to too much intervention by the US/EU/“rules-based order.” However, effective multinational organizations require some relinquishment of sovereignty, such as dispute resolution institutions (such as courts or arbitration panels) that sit above nation-states and can make decisions that are binding on participants. is. Look at how the UN looks like a joke due to the fact that the ICC warrant is being ignored by countries that have not opted out of the ICC, like Mongolia (obviously a political stunt against Putin and The ICC therefore asked that its authority be challenged). Similarly, if the ICJ finds that Israel is involved in genocide and refuses to cease and desist, does anyone expect any consequential action? Sure, this would pave the way for UN sanctions, but what if the US and some EU countries don’t comply?
The following post provides an additional reality check on the much-touted de-dollarization plan. But here, BRICS advocates have done themselves a disservice by exaggerating what they need to accomplish to escape the risk of US sanctions. Most importantly, trade bilaterally using the currencies of the trading partners’ pairs. This is troublesome because traders and their banks (and central banks) need to trade more currencies. However, this is a much more achievable goal than a new monetary system.
The big hurdle in the medium term will be that some countries will run chronic trade deficits with other countries (think Turkiye vs. Russia), and exporting countries will accumulate on that trade (perhaps with a decline in I am not satisfied with all of the currencies (currently available). partner. That’s why Keynes proposed bancor, a way to force countries to have fairly balanced trade over time.
Now, as everyone knows, for China, which is a big exporter to the United States, even though it started setting up bilateral payment agreements in 2015, the threat of increased sanctions from the United States has forced Chinese banks to It is certain that trade with Russia has been significantly reduced. August. As a reminder, the main approach was to improve payment laundering, including clipping detection. This causes friction and increases costs, but it doesn’t seem to have been a deal breaker in the end, except for the small fry. From Reuters:
Some Russian companies are facing payment delays and rising costs with Chinese trading partners, leaving tens of billions of yuan worth of deals stalled.
Russian companies and officials have been complaining for months of delays in transactions as Chinese banks tightened compliance in response to threats of secondary sanctions from the West on trade with Russia. .
China’s state-run banks have suspended transactions with Russia “en masse”, leaving billions of yuan worth of payments behind…
China is Russia’s largest trading partner, accounting for a third of Russia’s foreign trade last year and supplying critical industrial equipment, consumer goods and other items to help Russia weather Western sanctions. There is. It also provides lucrative markets for many Russian exports that China relies on, from oil and gas to agricultural products.
One possible solution was to buy the gold, move it to Hong Kong, sell it there and deposit the cash into local bank accounts, the people said.
Some Russian companies use third-country intermediary chains to process transactions and circumvent compliance checks carried out by Chinese banks, sources told Reuters. As a result, the cost of processing a transaction, which was previously near zero, has increased to 6% of the transaction payment.
This also suggests that US influence, at least with respect to China, comes not only from the dollar, but also from China’s desire to continue to export heavily to the US. To reap the rewards, China needs to keep its banking channels open with the United States.
Written by David P. Goldman. It was first published in asia timescross posted by ; InfoBRICS
Russian President Vladimir Putin has admitted that member countries “have not and will not build” payment systems to compete with the US dollar-based global banking system, prompting anti-colonialism enthusiasts and the West to It disappointed both alarmists.
The leaders of the two largest economies attending the BRICS summit, China’s Xi Jinping and India’s Narendra Modi, did not mention alternative payment schemes in their respective statements.
The technical requirements of alternative payment systems are not an issue. The SWIFT system, which manages interbank payments in dollars and other major Western currencies, simply sends secure messages. Rather, the challenge is an economic one. U.S. import demand drives a large portion of the economic growth of the Global South. Although China’s exports to the United States account for only 2.3% of its GDP, about half of the sharp increase in exports to the Global South since 2020 relies on re-exports to the United States. China’s exports to the Global South have more than doubled in the past four years, from about $60 billion per month to $140 billion per month, while U.S. imports from the Global South have more than doubled in the past four years, from about $60 billion per month to $140 billion per month. It increased from about $60 billion to $100 billion per month.
Dependence on the U.S. market varies widely across developing countries. Vietnam and Mexico are two countries favored for so-called “friendshoring,” or moving production from China to countries that are perceived to be friendlier, with the share of exports to the United States in GDP increasing significantly. did.
Vietnam’s exports to the US in 2023 amounted to about 27% of GDP, compared to only 10% in 2020, while Mexico’s exports to the US increased from 20% in 2010 to 27% in 2023. %. In Singapore and Malaysia, by contrast, US exports as a share of GDP have barely increased. Indonesia and Brazil export relatively little to the United States.
Some Asian countries, especially Malaysia and Thailand, export more than 60% of their GDP, mainly to other Asian countries. Brazil, Indonesia and China are much less dependent on exports.
Currently, China’s exports account for only 19% of GDP, compared to 27% in 2010. This means that domestic consumption and investment account for an increasing share of GDP growth.
What makes the United States such an important factor in the economies of the Global South is its large current account deficit. The table below ranks the current account surpluses and deficits of the 20 largest economies from largest deficit to largest surplus. The United States, which has a current account deficit of $80 billion a month and $1 trillion a year, has an appetite for imports that exceeds that of any other country in the world.
China is either the world’s largest or second-largest economy, depending on whether you measure GDP in U.S. dollars or adjust for purchasing power parity, but China’s imports from the Global South have been stagnant for three years.
China is unlikely to replace much of America’s import demand for the foreseeable future, as the Chinese government focuses on high-tech investment rather than consumer demand. At that limit, the Global South will become even more dependent on the United States.
Projecting current trends into the future suggests steady growth in consumer spending in the Global South, particularly East Asia, the emergence of robust domestic markets, and reduced dependence on exports.
Below is a graph released last year by the Brookings Institution think tank that predicts that the East Asian consumer market as a whole will overtake the US consumer market by 2028.
However, developing countries are not paying their bills based on projections. Arranging payment for goods in international trade is a trivial matter. Even more difficult is covering long-term deficits.
For example, India once had an annual trade deficit with Russia of less than $3 billion. Discounts on Russian oil sales to India after the start of the Ukraine war increased this amount to more than $60 billion.
What will Russia do with $60 billion worth of Indian rupees? It would be much better to use another currency, such as the UAE dirham, which can be used to purchase goods in third markets.
The Global South does not yet have the capital markets or monetary stability to allow countries with trade surpluses to hold the assets of deficit countries in exchange for goods.
That’s what America is good at. The $18 trillion negative net foreign asset position is equivalent to the cumulative current account deficit over the past 30 years.
America sells assets to foreigners in exchange for goods. The Global South has no assets to sell, or at least not in a way that the rest of the world would want to own.
This helps explain why the final declaration of the BRICS summit made the issue of payment systems the subject of a feasibility study.
We reiterate our commitment to strengthening financial cooperation within the BRICS. We are committed to the broad benefits of faster, lower cost, more efficient, transparent, secure and inclusive cross-border payment instruments built on the principles of minimizing trade barriers and non-discriminatory access. I am aware of this.
We welcome the use of local currencies in financial transactions between BRICS countries and their trading partners. We encourage the strengthening of correspondent banking networks within BRICS and the enablement of payments in local currencies in line with the voluntary and non-binding BRICS Cross-Border Payments Initiative (BCBPI), including the BRICS Payments Task. We look forward to further discussion in this area. force.
BRICS central banks do not hold each other’s currencies as reserve assets, with limited exceptions. Just 2.3% of the world’s central bank reserves are held in Chinese yuan, up from 1.1% in 2016 but down from a peak of 2.8% in 2022. Most of them are buying gold. If the US currency legend says, “In God we trust,” gold says, “We trust in no one.”
Making national currencies an attractive reserve instrument will require fundamental changes across the Global South, including in capital market transparency and risk management, the development of local middle classes, infrastructure, and education.
Much of this is happening in stages in many developing countries, but progress has been gradual and uneven. We can now foresee situations in which the Global South might declare independence from the dollar system. But we are not there yet, and under no foreseeable circumstances will not be there for many years.
