01.08.2023
The BRICS countries want to create their own currency to end the hegemony of the U.S. dollar. China holds a dominant position in the alliance.
In August, after several more or less concrete announcements since 2012, the time has finally come: At its upcoming summit in South Africa, the expanding group of BRICS countries wants to concretize plans to create its own currency in order to openly challenge the global hegemony of the U.S. dollar.
Link: https://exitinenglish.com/2023/08/01/the-money-of-the-upstarts/
Founded in 2009, the alliance of the (then) emerging economies Brazil, Russia, India, China and South Africa, which takes its name from their initials, also plans to discuss admitting more countries to the loose alliance. There are now 19 applications for membership, including from regional powers such as Egypt, Saudi Arabia, Indonesia, Iran, Argentina, Thailand and Venezuela.
It seems within reach that this alliance will achieve its strategic goal of breaking the hegemony of the West and the U.S. and establishing a so-called multipolar world order. A first step in the direction of de-dollarization is to be taken by the agreements of individual BRICS countries to use their domestic currencies in trade with each other.
At first glance, a replacement of the U.S. dollar as the world’s reserve currency seems quite realistic, given that the over-indebted U.S. has been in geopolitical and economic decline for years, while the BRICS alliance is on the rise. On the surface, the numbers speak for themselves: The share of the G7 countries (the U.S., Germany, Japan, France, Great Britain, Italy and Canada) in global gross national product has fallen from 50 percent in the early 1980s to 30 percent today, while the BRICS countries have increased their economic output from around 10 percent to 31.5 percent of global economic output over the same period. Thus, even before the upcoming enlargement, the ambitious alliance already has a larger production base than the Western states.
However, this rise is largely due to China; thus, the disparities and imbalances in the potential new currency bloc would be enormous. Between 2008 and 2021, China’s per capita gross domestic product increased by 138 percent. In India, the figure was 85 percent, while Russia saw only a modest increase of 14 percent. Brazil effectively stagnated with a meager increase of four percent, and in South Africa, GDP fell by five percent.
China now accounts for 70 percent of the gross national income of the BRICS countries, while Russia’s per capita income is five times that of India. These huge disparities make even the notorious imbalances in the eurozone, as exposed during the euro crisis, pale in comparison. Moreover, the BRICS grouping has so far had a very loose structure, hardly comparable to the results of the long process of institution-building and standardization that preceded the introduction of the euro in the EU. The alliance has no executive or legislative branch; it has not even established a central secretariat.
The alliance is also marked by a strong ambivalence. It was founded with the intention of ending the hegemony of the West and the imperial practices of the hegemonic power, the U.S. Attacking the U.S. dollar as the world’s reserve currency is a central project within this strategy. But at the same time, the BRICS countries are not striving for a fundamental change in world trade, they are ultimately only seeking to inherit the West and the U.S. within the framework of the world capitalist system – and to fall into the same imperialist practices that the U.S. is accused of. This is evident not only in Russia’s imperialist war in Ukraine, but also in the conflicts within the alliance: China and India, for example, are often on the brink of war in the Himalayas over border disputes.
But the common economic interests are at least as strong as the centrifugal forces outlined above. It is not just a matter of intensifying trade relations and geopolitical cooperation in order to reduce dependence on the Western centers. The BRICS states are not only striving to create their own currency, but also their own development bank based in China. This is because the semi-peripheral states have to operate in a late capitalist world system whose structures and institutions are Western-dominated, from the leading role of the dollar to Western supremacy in the World Bank and International Monetary Fund.
What this Western supremacy leads to is illustrated by the central banks’ fight against inflation in the centers, which is leading to outright economic collapses in many poorer countries. As a result of the U.S. Federal Reserve’s interest rate hikes, a quarter of all emerging and developing countries “have effectively lost access to international bond markets,” the Financial Times warned in mid-June. The World Bank’s growth forecast for this group of countries with particularly poor access to credit was cut from 3.2 to 0.9 percent.
This credit crunch, triggered by the fight against inflation in Western countries, is an important factor in the huge rush to join the BRICS group. Many crisis-ridden countries, such as Argentina and Venezuela, which are currently seeking membership, are simply hoping to tap alternative sources of financing – especially from China. In the future, not only will trade between these countries be conducted in the future BRICS currency, but it will also become the foundation of a new financial system geared to the interests of the semi-periphery.
This all sounds great in theory. But in practice, the emerging economies will find themselves similarly financially dependent on China, which, by creating a BRICS currency and an alternative financial system, will also seek to create alternative investment opportunities to reduce its vulnerability to U.S. sanctions. The potential BRICS currency would thus only be conceivable as a monetary vehicle for a hypothetical national hegemony, like the U.S. dollar.
Still, 60 percent of the world’s foreign exchange reserves are in dollars, down only slightly from an all-time high of 70 percent at the beginning of the 21st century. Some 74 percent of international trade, 90 percent of currency transactions, and nearly 100 percent of oil trade is conducted in U.S. dollars. To take the lead, China would ultimately have to bear the hegemonic costs inevitably incurred in a crisis-ridden late capitalism choking on its productivity: Chinese trade surpluses would have to be reduced and turned into deficits, while the Chinese financial market would have to be opened up.
Since the 1980s, the dollar’s hegemony has been based in economic terms precisely on global deficit cycles, in which enormous U.S. trade deficits generate credit-financed demand, while the U.S. financial market absorbs the resulting profits in the form of securities. China still holds huge amounts of U.S. securities and was for a time the United States’ largest creditor.
China would have to become a “black hole” of the world economy, like the U.S., whose gravitational pull sucks up, by means of trade imbalance and budget deficits, the surplus production of a late capitalist world economy choking on its hyperproductivity – at the cost of deindustrialization and destabilizing speculative bubbles. And this is hardly conceivable, given that the Chinese financial sector has already been and is being shattered by severe financial and debt crises. A new world reserve currency does nothing to change the causes of the economic and ecological crisis process, in which capital is coming up against its internal and external limits.
This is also illustrated by the current trade relations between Russia and India, where the U.S. dollar has been eliminated as a payment currency. After the outbreak of the war in Ukraine, Russia became by far the largest supplier of oil to India, which is running a large trade deficit. In the first eleven months after the outbreak of the war, Russian exports to India amounted to $41.5 billion, while Indian exports to Russia reached only $2.8 billion.
In fact, this is a classic beggar thy neighbor policy, as practiced by the long-time “world export champion” Germany: By running a trade surplus, they also export debt, deindustrialization and unemployment. The difference is that Russian banks and oil companies currently have to park their trillions of rupees in Indian bank accounts because there is no way to transfer or reinvest the money.
Originally posted in jungle world on 06/22/2023