EDITORIAL: Russian President Vladimir Putin was able to defy western expectations and gather leaders from 36 countries to hold a successful BRICS summit in the historic city of Kazan. It’s now clear that Washington-led efforts to keep the bloc from expanding are not succeeding as these summits enhance its broad agenda and also provide a platform to settle bilateral problems. India and China, for example, were able to engineer an unexpected thaw in their frosty relationship with immediate results in their border areas.
The final communique of the summit touched upon almost all important international items, from geopolitics to narcotics, yet it was the cross-border banking payments system and America’s penchant for weaponising the dollar and shutting financial markets for countries that defy it that really grabbed the headlines.
It is no secret that a number of countries, especially BRICS members, have expressed serious concern at the US pushing Russia out of the international SWIFT banking system, which ensures safe cross-border transfers, since the start of the Ukraine war. In turn, this isolation fast-tracked Moscow’s plans to trade with close partners in their own currencies, like it does with Iran, China and even India, and now they’re looking to formalise this arrangement on a larger scale within the BRICS framework.
The communique clearly mentioned the “need to reform the current international financial architecture to meet the global financial challenges, including global economic governance to make the international financial architecture more inclusive and just”.
The group has also floated the BRICS Interbank Cooperation Mechanism (ICM) to facilitate and expand innovative financial services, “including finding acceptable mechanisms of financing in local currencies”. This, along with BRICS Clear, an initiative to compliment the existing financial market infrastructure, shows that these countries have not just agreed in principle to find viable alternatives to the reserve currency structure, but are moving ahead with their plans.
The initiative to dilute the dominance of the dollar is not new. It was a much more central part of the last BRICS summit in South Africa. And even though member countries have started taking the initial baby steps on this long road, a new order is not nearly on the horizon. Yet that does not mean that different blocs, like the EU, cannot have their own currencies and integrate their economic/financial policies while trading in their own currencies.
In this regard, BRICS has made an impressive start. It’s also growing into a group which features some of the world’s top energy producers and consumers. And if they keep trading out of the dollar, it’s inevitable for the greenback’s superpower reserve currency status to weaken over time.
Perhaps these developments will give a thing or two to think about to policymakers in Washington. It is true that their kneejerk, unilateral resort to sanctions to isolate countries that do not follow their script has upset quite a few world leaders. And now it’s not just its opponents, but also allies like India that choose to trade in their own currencies instead of the dollar whenever and wherever it is possible.
There’s no doubt that the dollar is and will remain the global reserve currency for a while. But it’s also true that groups like BRICS will emerge and grow stronger, slowly chipping away at its dominance. The future remains uncertain, but more diverse groupings which feature dynamic commercial arrangements, just like BRICS, are guaranteed.
Copyright Business Recorder, 2024