Photograph Source: Prime Minister’s Office – GODL-India
In recent years, the rightful rejection of the policies promoted by the traditional imperialist powers (North America, Western Europe and Japan), followed by the announcements made by the BRICS (Brazil, Russia, India, China and South Africa), have aroused great interest and expectations of major changes, including the creation of a common currency to challenge the US dollar as the dominant currency. But what has actually happened? What has been achieved by the New Development Bank and the BRICS Contingent Reserve Arrangement (CRA)?
How big are the BRICS in a few figures?
The five founding member countries of the BRICS, [1] created in 2011, are Brazil, Russia, India, China and South Africa. They account for 27% of global GDP, 20% of global exports, 20% of global oil production and 41% of the world’s population.
Furthermore, at the summit in August 2023, it was announced that the BRICS group would be enlarged, and the acronym of the enlarged group changed to BRICS+. Six more countries were to join: Egypt, Saudi Arabia, the United Arab Emirates, Ethiopia, Iran and Argentina. Finally, following the election of Javier Milei in November 2023, Argentina withdrew. If we add the five new members to calculate the weight of the BRICS+, the big change compared with the previous situation concerns oil production. The BRICS+ accounts for 42% of world oil production and 51% of greenhouse gas emissions. A few more figures: the BRICS+ account for 29% of world GDP, 25% of world exports and 45% of the world’s population.
There has been talk for years about the possibility of the BRICS launching a new currency. What’s the latest?
Despite hopes that such a measure will be on the agenda of the next BRICS summit, to be held in 2024 in Kazan (capital of the Republic of Tatarstan, part of the Russian Federation) under the Russian presidency of Vladimir Putin, the creation of a common BRICS currency was not included in the final declaration adopted at the BRICS summit held in August 2023 in South Africa. [2] It is true that in his closing speech at the summit, the Brazilian President announced that the BRICS had spoken in favour of a “working group to study a reference currency for BRICS.” [3] He also declared, “the creation of a currency for trade and investment transactions between BRICS members increases our payment options and reduces our vulnerabilities.” [4]
The Brazilian economist Paulo Nogueira Batista, who represented Brazil at the IMF from 2007 to 2015 under President Lula, and who was then vice-president of the New Development Bank (created by the BRICS) from 2015 to 2017, is among those hoping that the creation of a BRICS currency will be on the agenda at the 16th BRICS summit. In a communication dated October 2023, Paulo Nogueira Batista said:
“President Putin himself, as well as President Lula, have often spoken of de-dollarization and the possible creation of a common or reference currency for the BRICS. Since at least 2022, Russian experts have been working on the topic. The reason Russia is the originator of the idea is quite clear”. [5]
Of course, Nogueira alludes to the sanctions Russia has been under since the annexation of Crimea in 2014 and especially since the invasion of Ukraine in 2022.
Paulo Nogueira Batista goes on to summarise some of the progress made and the many obstacles encountered and concludes :
“It is our good luck to have Russia presiding over the BRICS in 2024 and Brazil, in 2025 – precisely the two countries that seem to be most interested in moving towards the creation of a common or reference currency. If everything runs smoothly, the BRICS may be able to decide to create a currency at the Summit in Russia next year. By the Summit in Brazil, in 2025, the BRICS will perhaps be able to announce the first steps towards its establishment.” [6]
But there are other voices. Neoliberal economist, Lesetja Kganyago, Governor of the South African Reserve Bank, is far less optimistic than Paulo Nogueira. Here is what William Gumede wrote in Business Day newspaper on 21 August 2023, at the time of the BRICS summit:
“Kganyago has cautioned over the practicality of establishing a common currency in a trade bloc in which the members are spread over vastly different geographical locations. The success of the euro, the common currency of the EU, has been partially based on geographical proximity, similarity in economic and political institutions and regimes, and individual economies giving up their national currencies.
A BRICS currency will also require a BRICS central bank, commonality in monetary policy, alignment of fiscal policies, and synergy between political regimes across the trade bloc. Yet as things stand the BRICS currencies have mismatched central banking regimes and are not easily convertible — unlike the EU when the euro was established. China and Russia’s central banks are also state-controlled, whereas SA, India and Brazil have independent central banks. A big question is whether China or Russia would surrender sovereignty over their national currencies, which would be crucial to the success of a common currency. “ [7]
We might add that it is hard to imagine India under Narendra Modi, who is likely to win the elections in May 2024, coming into conflict with the United States by endorsing the roll-out of a common currency, especially since Sino-Indian economic and military confrontations continue. Confronted with China, India is strengthening its relations with Israel, Washington, Australia and Japan, while supporting Russia in selling its oil and remaining a member of the BRICS. As Kganyago pointed out, India is keen to retain sovereignty over its currency. The same is true of Brazil, as monetary sovereignty enables both countries to maintain or strengthen their influence in their traditional areas of economic influence — Brazil with its neighbouring economies: Paraguay, Peru, Bolivia, Ecuador, Venezuela, etc. and India with Bangladesh, Nepal, Sri Lanka, etc.
I feel it is more crucial to assess what is currently in place than to speculate on the likelihood of a common BRICS currency materialising someday. What is certain is that, beyond the rhetoric of the Russian and Brazilian representatives, in practice, there has been no progress to date in setting up a common currency.
In a nutshell, what is the New Development Bank? What is the share of each BRICS country in the New Development Bank and how does it work?
The NDB was officially created on 15 July 2014 on the occasion of the 6th BRICS Summit held in Fortaleza, Brazil. The NDB granted its first loans at the end of 2016. The five founding countries each have an equal share of the Bank’s capital, and none has veto rights. In addition to the five founding countries, Bangladesh, the United Arab Emirates and Egypt are also members of the NDB. [8] Uruguay is in the process of making its membership effective. The NDB has a capital of 50 billion dollars, which should be increased to 100 billion dollars in the future. The position of Chairman of the NDB is rotated. Each country has the right to hold the presidency in turn for a 5-year term. Dilma Rousseff, the current president, is Brazilian, and the next president will be Russian and will be appointed in 2025 by Vladimir Putin, who has just been re-elected president of the Russian Federation until 2030. The New Development Bank has announced that it will focus primarily on financing infrastructure projects, including water distribution systems and renewable energy production systems. It insists on the “green” nature of the projects it finances, although this is highly debatable.
What does Paulo Nogueira say about the New Development Bank?
The Shanghai-based New Development Bank, in which Moscow is a shareholder, is complying with the sanctions against Russia and has not granted any loans to the country since 2021
In view of his responsibilities as Brazil’s representative at the IMF and subsequently as vice-president of the New Development Bank (NDB), it is worth publishing a large extract from Paulo Nogueira Batista’s comments on the new bank created by the BRICS:
“The Bank has yet to make a difference. One reason is, frankly, the type of people we have sent to Shanghai since 2015 as Presidents and Vice Presidents of the institution. Brazil, for instance, during the Bolsonaro administration, sent a weak person to become President from mid-2020 to early 2023 – technically weak, Western-oriented, with no leadership, and without a clue as to how to conduct a geopolitical initiative. Russia is also no exception, unfortunately – the Russian Vice President is remarkably unfit for the job. As the saying goes, rot begins at the top. Weak Management has often led to poor hiring of staff.These internal problems of the Bank were compounded by broader political hurdles, among which tense relations between China and India, the sanctions imposed on Russia since 2014 and, especially, since 2022, as well as the political crises in Brazil and South Africa. These macropolitical issues within and among the founding members have also hurt the NDB.Brazil has now sent Dilma Rousseff, a former President of Brazil, to become President of the institution. She has, however, less than two years to turn around the Bank. Not enough time. Thus, the future of the NDB lies largely in the hands of Russia. This is because Russia will have the opportunity to appoint a new president for 5 years, starting July 2025. I hope Russia will this time be able to send a strong person for the job, someone of high political standing, technically sound, and with a clear view of the geopolitical purposes that led the BRICS to create the NDB.” [9]
- Paulo Nogueira’s hopes that Russia will give the NDB much greater strength from 2025 onwards need to be qualified by two major factors. Firstly, developments in the war in Ukraine and the international sanctions imposed on Russia by North America, Western Europe and Japan. Secondly, the NDB’s decision on 4 March 2022 to stop granting loans to Russia. The NDB has chosen to respect the sanctions by Washington’s partners and has refrained from granting new loans to Russia due to fears of a credit rating downgrade, since nearly 7% of NDB liabilities are in Russia (the downgrade by New York rating agencies did indeed transpire in mid-2022). This can be verified on the NDB website under the section, All Projects and in particular under all projects in Russia where it can be seen that the last project financed by the NDB in Russia dates back to 2021.
What other disappointments did Paulo Nogueira express about the New Development Bank?
Getting back to Paulo Nogueira’s assessment of the NDB’s weakness:
“Why can it be said that the NDB was disappointing so far? Here are some of the reasons why. Disbursements have been strikingly slow, projects are approved but are not transformed into contracts. When contracts are signed, actual project implementation is slow. Results on the ground are meager. Operations – funding and lending – are done mainly in US dollars, the currency which also serves as the Bank’s unit of account.”
The New Development Bank lends mainly in dollars
How can we, as BRICS, credibly talk about de-dollarization if our main financial initiative remains predominantly dollarized? Don’t tell me that operations in national currencies cannot be done in our countries. The Interamerican Development Bank, the IDB, for instance, has had for many years considerable experience in operating in Brazilian currency. Why the NDB has not tapped into that experience beats me. One can expect Dilma Rousseff to start solving these problems.The NDB is also far from being the global bank we envisaged at the time of its creation. Only three new countries have joined the Bank after more than eight years of existence – Compared with the Asian Infrastructure Investment Bank, the AIIB, led by China, was established more or less at the same time as the NDB, which has had more than 100 countries members for some time. Furthermore, governance in the NDB is poor, rules are not respected by the management. The Board is ineffective. Transparency is not observed, the Bank is opaque, and little information about loans and projects is made public. HR is weak. Many important positions in the Bank remain unfilled, discouragement among employees is rife leading to staff departures, and thus the total number of staff is falling.” [10]
This highly critical observation does not come from an enemy of the BRICS, but from a committed supporter of the vital need to bolster BRICS initiatives.
It is worth noting that in April 2023, the NDB’s most recent borrowing on the financial markets took the form of US dollar bonds [11] rather than the renminbi as was the case at the very start of the bank’s activities. This is further proof that the NDB’s practices and the BRICS strategy are not in line with the stated aim of resolutely reducing the role of the dollar in international trade. For the years 2020-2021, 75% of the NDB’s borrowings were in US dollars. The NDB management has announced that it will reduce its dollar borrowing and lending in the future, to 70% of assets and liabilities by 2030 (an unambitious target). This remains to be seen.
What conclusion can be drawn from the fact that the NDB borrows on the financial markets and in dollars?
That’s a very important question. The first conclusion is that there is a huge inconsistency between the BRICS leaders’ assertion that they want to reduce the role of the dollar and the fact that they are borrowing in dollars from the financial markets. If they wish to be consistent, they should develop a common currency or trade increasingly in a common basket of their currencies. And if they still have to use the US dollar, why should they borrow on the financial markets when China has a huge amount of dollars in its reserves, over 3,000 billion US dollars
(US$3,307,000,000,000 on 31 December 2022 according to the World Bank). India and Brazil also have sizeable dollar reserves. According to the World Bank, Brazil’s foreign exchange reserves stood at US$325 billion at the end of 2022, India’s at US$563 billion and Russia’s at US$582 billion. We might also ask why Russia left almost 300 billion euros of reserves in Western Europe, mainly at Euroclear in Brussels, which were eventually blocked as part of the sanctions that followed the 2022 invasion of Ukraine. The conclusion that can be drawn is that, far from having built together powerful common tools to finance trade and investment, the BRICS remain anchored in relations based on the supremacy of the dollar and are reproducing the lending model adopted by the major international financial institutions such as the IMF and the World Bank. There is, of course, one major difference: the New Development Bank does not make its loans conditional on the application of structural adjustment policies (although the World Bank does not either, given that the loans are mostly project-based and micro-economic, so have to be justified as bankable independent of a country’s macro-economic policies). This difference, which has been emphasised many times by several authors, is addressed in my series of questions and answers devoted to China as a creditor power.
New Development Bank map
- What types of projects are financed by the New Development Bank?
It is indeed important to look at the types of projects financed by the NDB. South African economist Patrick Bond’s rigorous analysis of the projects financed by the NDB in South Africa shows that these projects reinforce the neo-colonial extraction of raw materials and the combustion of fossil fuels, often to borrowers which are demonstrably corrupt and oppressive(Read BRICS New Development Bank Corruption in South Africa, published on 5 September 2022).
In this article, Patrick Bond concludes:
“The NDB does not yet appear as an alternative to a system of Washington-centric development finance that is rife with problems. Instead, it appears from the South African case that the ingredients exist for the NDB to amplify uneven development through financing some of the country’s most notoriously corrupt institutions, for projects which are themselves highly dubious.”
The NDB does not appear to be an alternative to a development financing system centered on Washington and riddled with problems – Patrick Bond
In a recent paper presented by Patrick Bond at the World Social Forum in Nepal in February 2024, entitled The BRICS New Development Bank & Sub-Imperialism: Working within, not against, global financial power, the author shows that the policies of the BRICS, and in particular those of the NDB, do not constitute an alternative to the imperialist model dominated by the United States. They do not break with the domination of the dollar and reproduce the same extractivist export model.
We can reasonably share Samir Amin’s opinion, also taken up by Patrick Bond, on the BRICS, whose policies do not fundamentally break with neoliberal capitalist globalisation. Samir Amin wrote:
“The ongoing offensive of the United States/Europe/Japan collective imperialism against all the peoples of the South walks on two legs: the economic leg—globalized neoliberalism forced as the exclusive possible economic policy; and the political leg —continuous interventions including preemptive wars against those who reject imperialist interventions. In response, some countries of the South, such as the BRICS, at best walk on only one leg: they reject the geopolitics of imperialism but accept economic neoliberalism”. [12]
As Samir Amin wrote, the BRICS reject the geopolitics of imperialism [13] but accept economic neoliberalism.
What is the status of the BRICS Monetary Fund, known by its acronym CRA?
The BRICS reject the geopolitics of imperialism but accept economic neoliberalism – Samir Amin
Let’s return to the opinion expressed by Paulo Nogueira Batista about the BRICS and their Common Monetary Fund:
“The BRICS are undoubtedly a major force in the world and have been so since the beginning, in 2008. We can indeed be a crucial factor in the consolidation of a post- Western and multipolar planet. This is what is expected of our countries.One can ask, however, whether the BRICS have lived up to this kind of expectation. How have we fared since we first started working together in 2008, at the initiative of Russia? What can we achieve going forward? In trying to answer the first question I will be frank and sometimes even a bit harsh. Please do not see my words as arrogant or pretentious. They will be the expression of an expert opinion, fallible as all opinions. I hope my remarks will not be completely off the mark. Is it not true that self-criticism, although painful, may be beneficial in the end?I will speak not as an academic researcher but as a practitioner, having been involved in the BRICS process since the beginning in 2008, from Washington DC, and up to 2017, when I left the post of Vice President of the BRICS bank in Shanghai.Beyond speeches, declarations, and communiqués, we have achieved so far two practical and potentially very important things: 1) a monetary fund of the BRICS, named the Contingent Reserve Arrangement – the CRA; and, more significantly, 2) a multilateral development bank, called the New Development Bank (NDB), better known as the BRICS bank, headquartered in Shanghai.”“The two existing BRICS financing mechanisms were established in mid-2015, more than 8 years ago. Let me assure you that when we started out with the CRA and the NDB, there was considerable concern with what the BRICS were doing in this area in Washington, DC., in the IMF and the World Bank. I can testify to that because I lived there at the time, as Executive Director for Brazil and other countries in the Board of the IMF. As time went by, however, people in Washington relaxed, sensing perhaps that we were going nowhere with the CRA and the NDB .”
Paulo Nogueira Batista argues that the slow implementation of the CRA and NDB by the BRICS has meant that the leaders of the IMF and WB, who had previously expressed great concern about the potential for competition, have come to feel reassured.
Why has the Common Monetary Fund project not moved forward?
According to Paulo Nogueira, who discusses the slow progress in setting up the Common Monetary Fund that the BRICS were to create under the name CRA, Contingent Reserve Arrangement:
“The CRA has been frozen by our five central banks. It remains small, only has five members, its working is hampered by numerous restrictions and safeguards, the surveillance unit we foresaw has not been established, and no balance of payments support operations have been carried out, only test runs. Now, suppose the BRICS are serious about offering an alternative to the Western-dominated IMF. In that case, the CRA must be expanded in total size of resources, new countries must be allowed to join, the flexibility of the CRA must be increased, and a sound surveillance unit ( similar to the one the Chiang Mai Initiative has in Singapore) needs to be established as soon as possible, and the link to the IMF needs to be gradually relaxed.All this is easier said than done. Having participated intensely in the two years of negotiations that led to the CRA, I can tell you that the main reason for the lack of progress is the fierce resistance of our central banks, except the Chinese central bank. The Brazilian central bank is probably the worst. The South African central bank was not far behind in making the CRA inflexible – very strange given that South Africa is the only BRICS country that could conceivably need balance of payments support in the foreseeable future. What about Russia? Can the Russian central bank be made to understand that the CRA is now potentially even more important than when we conceived it, given the changes in the geopolitical context?Don’t tell me, by the way, that the CRA suffers from the same problems of all other monetary funds created as alternatives or complements to the IMF. For example, the small FLAR – Latin American Reserve Fund [14] and the Arab Monetary Fund (AMF) [15] have more members than the CRA and are active institutions that have carried out many operations for balance of payment support. Meanwhile, our CRA is dormant”.
It is striking that while South Africa in mid-2020, during Covid-19, decided to borrow $4.3 billion to ensure a stable balance of payments, instead of being able to borrow from the CRA, it had to turn to the IMF. The inconsistencies reinforced by the contradictions (notably between China and India) between the BRICS countries have so far prevented them from creating the common monetary fund that they promised to set up ten years ago. An additional factor has come into play: apart from South Africa, the BRICS members do not lack foreign exchange reserves (and even Pretoria controls more than $54 billion in forex and $9 billion in gold). That said, if they had wanted to constitute a major pole of attraction to weaker countries, they would have had everything to gain from creating this monetary fund and distinguishing it from the IMF. Unfortunately, even if the CRA did exist, its articles of agreement confirm that after taking 30% of its quota (in South Africa’s case, $3 billion), then the borrowing country must go to the IMF for a structural adjustment programme before it can access the remaining 70% of the quota. This is a diabolical empowerment of the IMF because it increases its leverage over BRICS borrowers.
What elements of the final declaration of the 2023 BRICS summit show that they do not represent an alternative to the economic model applied by Washington and its allies?
The following extracts from the final declaration [16] of the BRICS Summit in August 2023 show very clearly that the policies advocated there are in line with the neoliberal capitalist globalisation promoted by the traditional imperialist powers, institutions such as the World Bank, the IMF, the WTO, the G7, the G20 and the big private companies.
“8. We reaffirm our support for the open, transparent, fair, predictable, inclusive, equitable, non-discriminatory and rules-based multilateral trading system with the World Trade Organisation (WTO) at its core…
9. We call for the need to make progress towards the achievement of a fair and market-oriented agricultural trading system…
10. We support a robust Global Financial Safety Net with a quota-based and adequately resourced International Monetary Fund (IMF) at its centre.
29. We note that high debt levels in some countries reduce the fiscal space needed to address ongoing development challenges aggravated by spillover effects from external shocks, particularly from sharp monetary tightening in advanced economies. Rising interest rates and tighter financing conditions worsen debt vulnerabilities in many countries. (…) One of the instruments, amongst others, to collectively address debt vulnerabilities is through the predictable, orderly, timely and coordinated implementation of the G20 Common Framework for Debt Treatment…
30. We reaffirm the importance of the G20 to continue playing the role of the premier multilateral forum in the field of international economic and financial cooperation that comprises both developed and emerging markets and developing countries where major economies jointly seek solutions to global challenges. We look forward to the successful hosting of the 18th G20 Summit [17] in New Delhi under the Indian G20 Presidency.”
As these extracts indicate, the BRICS accept the global capitalist framework structured around a series of institutional pillars which they say must continue to play a central role.
Not only are they not proposing an alternative institutional framework to the one put in place after the Second World War or after the 2008 crisis when the G20 was called into being, but the one they are building themselves is based on the same financing model. They are adopting a model of economic development centred on exploiting the natural resources of the countries of the Global South and their highly competitive workforce to trade as many products and services as possible on a world market dominated by large private companies and major economic and military powers. Nowhere in the BRICS declarations is there any criticism of the capitalist system, its mode of production, its property relations, or its exploitation of peoples and Nature. The reason is simple: the BRICS are themselves countries that have adopted the capitalist system, with certain specific characteristics, as in the case of China, where state enterprises and the central state play a key role.
This is a long way from building the new international architecture that people need.
The author would like to thank Patrick Bond, whose extensive work on the BRICS was useful in writing this article. He would also like to thank Patrick Bond and Maxime Perriot for their re-reading and Claude Quémar for his help in retrieving documents.
Translated by Sushovan Dhar in collaboration with Snake Arbusto
Footnotes
[1] The BRICs, created in 2009, were enlarged to include South Africa in 2011 and became the BRICS. With the addition of new members, the BRICS will become BRICS+ from 2024.
[2] XV BRICS Summit Johannesburg II Declaration, BRICS and Africa: Partnership for Mutually Accelerated Growth, Sustainable Development and Inclusive Multilateralism, Sandton, Gauteng, South Africa, 23 August 2023 accessed on 30th March 2024.
[6] Ibid.
[7] William Gumede, Brics and the bars to dedollarising the world.
[8] Bangladesh and the United Arab Emirates became members in 2021, Egypt in 2023.
[9] BRICS financial and monetary initiatives – NDB, CRA, and a possible new currency. By Paulo Nogueira Batista Jr.
[10] Ibid.
[11] In April 2023, the NDB sold green bonds worth $1.25 billion. See the Fitch rating agency report: Fitch Revises New Development Bank’s Outlook to Stable; Affirms at ’AA’, consulted on 1 April 2024.
[12] Samir Amin, Contemporary Imperialism, Monthly Review, July 2015, accessed on 30th March 2024.
[13] Matters are complicated because in the case of support for Israel’s genocidal policies, it is clear that five BRICS+ regimes – Riyadh, Abu Dhabi, Cairo, New Delhi and Addis Ababa – consistently support the imperialist standpoint; while two – Beijing and Moscow – are hedging their bets, for example by silence at the International Court of Justice trials faced by Israel; while three are clearly opposed: Pretoria, Brasilia and especially Tehran.
[14] The Latin American Reserve Fund (FLAR), formerly known as the Andean Reserve Fund, is an international financial organisation formed by Bolivia, Colombia, Costa Rica, Ecuador, Paraguay, Peru, Uruguay, Chile and Venezuela. The FLAR is part of the Andean integration system and is based in Bogotá, Colombia.
[15] The Arab Monetary Fund is an Arab regional organisation founded in 1976 and which began operations in 1977. The 22 member countries are Jordan, United Arab Emirates, Bahrain, Tunisia, Algeria, Djibouti, Saudi Arabia, Sudan, Syria, Somalia, Iraq, Oman, Palestine, Qatar, Kuwait, Lebanon, Libya, Egypt, Morocco, Mauritania, Yemen, Comoros. The official website is in English and Arabic.
[16] XV BRICS Summit, Johannesburg II Declaration, BRICS and Africa: Partnership for Mutually Accelerated Growth, Sustainable Development and Inclusive Multilateralism, Sandton, Gauteng, South Africa, Wednesday 23 August 2023.
[17] Held between 9-10 September 2023.
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