BRIC Countries Seek to Break Out of Trap at First Ever Meeting

Coming of Age

The term BRIC (Brazil, Russia, India, China) has received wide currency since it was coined in the early 2000s, and yesterday's meeting in Russia's Yekaterinburg finally gave it some economic and political shape. The presidents of host Russia, Dmitry Medvedev, Brazil, Luiz Inácio Lula da Silva, China, Hu Jintao and India's Prime Minister Manmohan Singh spent yesterday in quadrilateral and bilateral talks discussing essentially one topic: how can BRIC states augment their economic and political weight without breaking current international arrangements?

The Predicament

The BRIC countries' predicament is that they need to square their aspirations for world's leadership with the currently existing international instruments and frameworks. It is true that the four countries currently account for some 15% of the world's US$60.7-trillion economy, and the current economic crisis is only likely to spur the growth of their share in the world's economy, moving the predictions for their eclipsing the current leaders G7 from 2050 to 2027. It is also true that they find the current dominance of the U.S. dollar as the principal currency for international trade accounts and reserves uncomfortable and damaging, and their own weight according to international currency regulators IMF and World Bank direly outdated (Belgium has more power in the World Bank than China, for example).

Yet challenging the U.S. dollar and the U.S. leading role in the world economy is not straightforward and is in some respects biting the hand that feeds BRIC. The BRIC countries' own reserves are still kept in U.S. dollars; China in particular is said to be the U.S. biggest creditor, with US$1.3 trillion in currency reserves; while Russia keeps one-third of its own US$400 billion in the U.S. currency. Any clearly anti-dollar moves would thus undermine these countries' own currency reserves. Moreover, growth in China and the rest of Asia is still heavily skewed to net exports, with the United States and Europe remaining the main sources of final-stage demand. The rapid transmission of the collapse in U.S. consumer growth through the global economy is a stark reminder of this fact. Hence the very subdued rhetoric of the BRIC leaders both ahead of and during the summit. Even Medvedev downplayed the U.S. dollar dominance discussions ahead of the summit, despite being one of the staunchest proponents of finding an alternative to it.

Searching for Currency Alternatives

The BRIC countries realise they are not spoilt for choice with economic options. The much-discussed recent move of some US$70-billion worth of currency reserves by Brazil, China and Russia in to the Special Drawing Rights (SDRs) of the International Monetary Fund (IMF) is not a liberation from the U.S. economic dominance in the least, as the United states holds a veto power over both the IMF and the World Bank and there are limits to how much the IMF itself can satisfy BRIC demands for currency reserves. The U.S. promptly downed talk of a global supranational currency raised by China and Russia ahead of the G20 summit in London in April 2009, an indication of the sway it holds. At the same time, no other country can realistically offer its currency an alternative to U.S. dollar to be politically and economically recognised. As Kazakhstan's President Nursultan Nazarbayev put it at the meeting of Shanghai Cooperation Organisation (SCO) held prior to the BRIC summit, "any one nation's currency being world's reserve currency is a historic artefact that benefits only the issuer". Medvedev had suggested earlier to expand the basket of the SDRs to the Chinese yuan, Russian rouble, Australian and Canadian dollars and gold, but the proposal is still unviable given the governance structure of the IMF. The creation of a global currency needs much economic and political co-ordination that may not yet be available to BRIC and agreeable to the U.S. and G7 economies. Hence the BRIC leaders refrained from making loud proposals about reserve currencies just yet, but nevertheless ordered their finance ministries and central banks to investigate the topic of new reserve currencies without much advertising. Remarkably, a potentially plausible and simple solution to the seemingly dead-end situation with regard to currencies came recently from the private sector in the United Kingdom in a form of a world currency equivalent, "wocu", based on a mathematical algorithm accounting for 20 currencies' contribution into the world economy rather than political or economic negotiation, which could make it universally appealing.

Gaining Political Weight

The BRIC countries' political predicament is identical to that of the economic one. They want more weight and more say, without appearing to be international trouble-makers or challenging the international political order per se. After all, it is a proof of maturity as global players to be able to manage their ascent without causing new international conflicts and tensions. Russia in particular is at pains to present its leadership aspirations within the framework of existing political institutions. The political aspect is also heavy on Brazil's agenda, whose president is particularly keen to promote the country as a global player. For both Brazil and India, receiving a permanent seat in the United Nations Security Council (UNSC) is a much aspired sign of recognition, and the BRIC partners Russia and China have pledged their assistance on the matter in Yekaterinburg. China, in the meantime, also wants to be seen as a responsible stakeholder in the international community while less nobly using its formidable resources to secure strategically vital resources and transport and communication lines; it pledged US$10 billion for projects in the SCO countries at the summit. On the political front, therefore, the BRIC summit proved unoriginal, sticking to familiar safe points of calls for "more democratic and just multipolar order based on the rule of international law... and collective decision-making of all states", while also calling for diversification of energy resources and energy transit routes, and curbing trade protectionism.

Outlook and Implications