Deep dive: How BRICS could change the world economy

THE BRICS bloc - comprising Brazil, Russia, India, China, and South Africa - has emerged as a formidable economic alliance with the potential to reshape the global economic landscape. 

As the group gains influence, many nations are applying to join and seeking to challenge the established financial systems dominated by Western economies, particularly the US dollar and the SWIFT international payments system. 

I want to explore the potential impact of BRICS on the current economy, delve into the historical evolution of the monetary system, examine the bloc’s role in the de-dollarisation movement, and highlight how BRICS nations are exploring alternatives like cryptocurrency and new financial exchanges...

A brief history of the monetary system

1. The Gold Standard Era (1870-1914):

The gold standard was the foundation of the global monetary system during the late 19th and early 20th centuries. Countries pegged their currencies to gold, facilitating international trade by providing a stable exchange rate mechanism. This system promoted stability but was inflexible, particularly during economic stress.

2. The Bretton Woods System (1944-1971):

Post-World War II, the Bretton Woods Agreement established a new monetary order, with the U.S. dollar pegged to gold at $35 per ounce and other currencies pegged to the dollar. This system positioned the dollar as the world's primary reserve currency, fostering economic stability and centralising financial power in the United States.

3. The Era of Fiat Currency (1971-Present):

Under President Nixon, the U.S. abandoned the gold standard in 1971, transitioning the world to a fiat currency system where currencies are not backed by physical commodities but rather by the trust and credit of the issuing governments. This move led to greater monetary flexibility, allowing central banks to implement independent monetary policies, but it also introduced vulnerabilities, such as inflation and currency manipulation.

4. The Rise of Digital Currencies and Decentralisation:

The early 21st century saw the advent of digital currencies like Bitcoin, which introduced a decentralised alternative to traditional fiat currencies. Cryptocurrencies promise reduced reliance on centralised financial systems but face regulatory challenges and volatility issues.

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How BRICS could change the global economy as we know it

The BRICS nations are increasingly positioning themselves as a counterbalance to Western financial dominance. Their collective strategy could significantly reshape the global economy by challenging the US dollar's supremacy, bypassing traditional financial systems, and embracing innovative technologies like digital currencies and blockchain. Here's how these efforts might unfold.

One of the central goals of BRICS is to reduce their reliance on the US dollar in international trade - a movement known as de-dollarisation. This initiative is driven by concerns over US monetary policy, which can have global repercussions, such as inflation or financial crises that disproportionately affect emerging economies.

To achieve this, BRICS nations are exploring several alternatives:

1. Developing a BRICS Reserve Currency: Discussions have occurred about creating a new reserve currency backed by a basket of national currencies or other assets. This would reduce dependence on the US dollar and contribute to a more balanced global financial system.
2. Expanding Local Currency Trade: BRICS nations increasingly conduct trade in their local currencies. For example, India and Russia have engaged in bilateral trade using the Indian Rupee and the Russian Ruble, bypassing the dollar altogether. This approach strengthens their economic sovereignty and mitigates the impact of dollar fluctuations.

Bypassing the SWIFT system

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a global messaging network facilitating cross-border payments. However, its centrality to global finance has made it a tool for enforcing sanctions, as evidenced by the exclusion of certain Russian banks from the system in response to geopolitical tensions.

To counter this dependency, BRICS nations have been developing alternative payment systems:

• China’s Cross-Border Interbank Payment System (CIPS): Designed to process cross-border RMB payments, CIPS parallels SWIFT, facilitating trade settlement in the Chinese Yuan and enhancing its international usage.
• Russia's SPFS (System for Transfer of Financial Messages): An alternative to SWIFT, SPFS is integrated with other payment systems in BRICS countries. This allows member nations to continue trading without reliance on SWIFT, thereby mitigating the impact of Western sanctions.

The role of crypto and digital currencies

BRICS’ interest in financial alternatives extends to digital currencies, which offer a decentralised and borderless method of transaction that could align with the bloc's goals of financial independence:

• Several BRICS countries, including China with its Digital Yuan, are actively developing CBDCs. These digital versions of national currencies can facilitate faster, cheaper, and more secure international transactions, reducing reliance on the dollar and traditional banking systems.
• BRICS nations are exploring the creation of regulated cryptocurrency exchanges to facilitate cross-border trade and investment. These exchanges could provide a platform for using digital assets in international trade, furthering the bloc’s goal of reducing reliance on the dollar.
• Blockchain’s decentralised ledger technology offers a transparent and secure means of recording transactions, potentially serving as the backbone for the new BRICS financial infrastructure. This could include everything from cross-border payment systems to decentralised finance (DeFi) platforms.

The strategic push for de-dollarisation and financial sovereignty

De-dollarisation is a key strategic goal for BRICS as it seeks to reduce the influence of the US dollar on their economies. Several motivations underpin this movement:

• By reducing reliance on the dollar, BRICS nations can gain Economic Sovereignty and control over their monetary policies and protect themselves from external economic pressures, such as US sanctions or dollar-related inflation.
• BRICS countries are increasingly diversifying their foreign exchange reserves away from dollars into assets like gold, other currencies, and potentially cryptocurrencies. This diversification reduces exposure to dollar volatility and geopolitical risk.
• De-dollarisation supports and strengthens regional economic integration among BRICS nations and their allies. By trading in local currencies or a potential BRICS reserve currency, these countries can foster closer economic ties and reduce transaction costs associated with currency conversion.

The challenges ahead

While the potential impact of BRICS on the global economy is significant, there are challenges to overcome:

• Establishing a new reserve currency or unified financial system requires high levels of coordination and trust among BRICS nations, which have diverse economic interests and varying levels of development.
• For a BRICS reserve currency or alternative payment system to be successful, it must gain acceptance in the global market. This requires demonstrating stability, liquidity, and reliability comparable to existing systems.
• Adopting digital currencies and new payment systems introduces regulatory challenges, including the need for robust cybersecurity measures to protect against fraud and cyberattacks.

WWIII as financial warfare?

Modern warfare has evolved beyond traditional military conflicts into financial warfare, where economic tools and strategies become the primary weapons. A Third World War might not be fought with tanks and missiles but through currencies, sanctions, and economic leverage. In this context, the US dollar - long the cornerstone of global finance - is at the centre of this new battlefield.

As BRICS and other emerging economies push for de-dollarisation and the creation of alternative financial systems, the dollar's dominance is increasingly under threat. This strategic shift aims to undermine the financial clout of the US, which has often leveraged its control over the global financial system to impose economic sanctions and exert geopolitical influence.

The dollar's weakening could lead to significant shifts in global power dynamics, diminishing the US's economic and political impact while empowering a multipolar financial system where emerging powers like BRICS play a central role. This financial warfare could accelerate the fall of the US dollar as the world’s reserve currency, reshaping the international order and heralding a new era of economic competition and cooperation.

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Russia’s Bitcoin strategy

Russia's strategic dive into Bitcoin mining, which amassed over $3 billion in value last year, aligns seamlessly with the economic ambitions of the BRICS bloc. This move is part of a broader strategy within BRICS to reduce dependence on the US dollar, and Russia is pivotal in promoting alternative financial systems, including cryptocurrencies. 

The legalisation and regulation of cryptocurrency mining in Russia support the BRICS' initiative to develop a blockchain-based payment system. This could eventually lead to a BRICS-backed digital currency, offering protection against financial sanctions and positioning BRICS as a leader in financial technology. Russia's Bitcoin efforts might even serve as a pilot for creating an alternative to the Western-dominated financial system, potentially leading to new tools like BRICS-backed stablecoins.

By integrating Bitcoin mining into its economy, Russia strengthens its economic sovereignty and contributes to the broader BRICS goal of reshaping global financial powers. This approach bolsters Russia’s economic position and advances the collective ambitions of BRICS in creating a more multipolar and diversified financial system.

The potential development of a BRICS currency, backed by gold or other commodities, highlights the group's vision of offering an alternative to the current financial system. Russia’s involvement in cryptocurrency could lay the groundwork for more efficient and integrated trade within BRICS, reducing transaction costs and increasing transparency.

As BRICS continues to evolve, its collective efforts could significantly shift the global economic landscape. The coming years will show whether these strategies will successfully challenge the established financial order and what impact they will have on the worldwide economy.

Could this be the fall of the western nations?

The rise of BRICS and its push for de-dollarisation could signal a decline in Western dominance, particularly that of the United States. By creating alternative financial systems and currencies, BRICS challenges the US dollar’s global supremacy, potentially leading to economic and geopolitical shifts. A diminished dollar could result in economic instability in the West, higher borrowing costs, and reduced influence in global affairs.

As BRICS nations assert their power, Western countries may find themselves increasingly isolated, with limited access to emerging markets and a weakened role in international governance. However, the decline of the West is not inevitable. Western economies' resilience and adaptability allow them to navigate these challenges and maintain global influence. 

The future will depend on how effectively the West responds to BRICS and adapts to the changing global landscape. 

For more information on Lisa N Edwards https://linktr.ee/LisaNEdwards

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