The BRICS bloc, a group of developing countries seen as seeking to counter the United States and the West, agreed at a summit last week to admit six new countries — Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates.
The new members will make BRICS a commodities powerhouse, accounting for a substantial portion of global exports of oil, corn, and wheat. BRICS — which stands for Brazil, Russia, India, China, and South Africa — now accounts for 40 percent of the world’s population, a share that will increase when the others join next year.
At the summit, Brazilian President Luiz Inacio Lula da Silva called for the BRICS countries to create a common currency for trade and investment as a way to reduce the dominance of the U.S. dollar. In the days that followed, Russian state media played up the idea of a common BRICS currency and what they told audiences would be the decline of the dollar and of U.S. economic influence.
While BRICS members could make progress on cutting the share of the dollar in their bilateral trade, it will be tougher to get away from it as a reserve currency due to the far greater ease of buying and selling it, Gian Maria Milesi-Ferretti, a senior fellow in the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy, told RFE/RL in an interview on August 29.
Milesi-Ferretti, who previously served as deputy director of the International Monetary Fund’s research department, said that the prospect of a BRICS common currency is scarcely credible, pointing to the wide disparities in the structure of members’ economies, in their level of development, in the openness of their financial markets, and in the management of their currencies.
If the dominance of the U.S. dollar fades substantially in the future, it will likely have more to do with poor management of the U.S. economy, such as ballooning deficits, than with any BRICS efforts to dethrone it, he said.
The following are excerpts from the interview:
RFE/RL: BRICS has been in existence for almost 13 years. How would you compare this bloc to the G7?
Gian Maria Milesi-Ferretti: In my view, the BRICS so far has been more of a talking forum for some of the largest emerging economies rather than a structured entity with a complete commonality of views on the fundamentals of economics.
I think there are clearly elements that are common to these countries. But there are very substantial differences in the structure of the economies, in the level of development, in politics, in many respects, that go way beyond the dissimilarities across the G7, which tend to be countries with a common set of overall values, a similar general structure of the economy, and a similar level of development.
Of course, some are richer than others but overall, there is clearly more homogeneity in the G7 group than there is in the BRICS.
RFE/RL: BRICS will expand to include six more countries: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates. Will this make the organization stronger?
Milesi-Ferretti: I don’t see this as making the group more homogeneous. It will add a trillion-plus dollars in overall GDP, but the differences in structure and economic challenges are massive. Think of Argentina fighting very high inflation and having a dramatic budget situation and compare that with Saudi Arabia splurging on the most expensive soccer players in the world with a level of disposable income, certainly for people born in Saudi Arabia, that is very elevated.
Even currency-wise, the Saudis have a peg to the dollar while Argentina has capital controls and a heavily managed exchange rate. And others have a float, like Brazil. It’s just a very different set of economic circumstances and even institutions and policies as well.
RFE/RL: Following the BRICS summit in Johannesburg, Russian state TV has been making bold claims about the decline of U.S. global economic influence. What is your view?
Milesi-Ferretti: If you look at the share of GDP accounted for by the U.S., I think the evidence of decline is not there. It is true that on average, emerging economies have grown faster than advanced economies. China and India played a big role in that, and hence, the share of GDP accounted for by these economies has risen, compared to the share of the G7. But that is due to China and India. Not to Russia. Its growth rate has been quite modest for a number of years. Not for South Africa. It has horrible economic woes, falling GDP per capita. And certainly not for Brazil, which also had a middling growth rate, with some good years, but then a terrible recession in 2015-16. So just a lot of differences in economic performance.
But if you look at the role played by the U.S. in global financial markets, you will certainly not say that there…
Read More: Analyst: BRICS Currency Unlikely To Undermine Dollar Dominance