The recent BRICS summit in Kazan, Russia, brought together global leaders to address pressing geopolitical and economic challenges while charting a collaborative path forward. With its growing influence, BRICS plays a strategic role as a counterbalance to Western alliances like the G7, offering alternative approaches to global governance and economic cooperation. Here’s a comprehensive look at the main highlights and takeaways from the summit.
A Step Forward in India-China Relations
A significant moment at the summit was the meeting between Chinese President Xi Jinping and Indian Prime Minister Narendra Modi. Their discussion came just two days after New Delhi and Beijing announced a diplomatic breakthrough on a four-year military standoff along the Himalayan border. This progress is a promising step toward stabilizing relations between the two nations, bringing potential benefits to the wider region.
Putin’s Message of Resilience
Despite ongoing tensions with the West over the Ukraine conflict, Russian President Vladimir Putin used the summit as an opportunity to highlight Russia’s continued importance on the global stage. By strengthening ties within BRICS, Russia is pushing toward greater economic sovereignty and diversification, reducing reliance on Western-dominated systems—especially vital in light of sanctions. Putin welcomed nearly 20 leaders, including Chinese President Xi Jinping, Indian Prime Minister Narendra Modi, Turkish President Tayyip Erdogan, and U.N. Secretary-General Antonio Guterres, underscoring Russia’s sustained alliances amid Western efforts at isolation.
The Growing BRICS “Waiting List”
BRICS’ influence is expanding, as evidenced by the over 30 countries that have expressed interest in joining the bloc. While discussions on BRICS expansion are ongoing, the exact mechanism and timeline for new memberships remain undefined. This rising interest signals BRICS’ appeal as a counterbalance to Western-dominated global institutions like the IMF and World Bank, especially for emerging economies. For many of these nations, BRICS offers a platform free from the stringent conditionalities of traditional institutions, appealing to those seeking greater financial autonomy and flexibility.
Ukraine Conflict Discussed, but Resolutions Remain Elusive
The Ukraine conflict was inevitably raised, with BRICS leaders discussing the impact of the war and seeking insight from Putin on its future trajectory. However, no specific plans or resolutions were formulated to address the ongoing hostilities. The discussion highlighted the complexity of the situation, which remains challenging for all parties involved.
Economic Initiatives: New Frontiers in Finance and Trade
BRICS leaders unveiled plans for ambitious economic collaboration, including the establishment of a BRICS grain exchange and a cross-border payments system aimed at facilitating smoother trade. These initiatives, if successful, could strengthen BRICS’ influence in global markets, particularly by reducing dependence on Western-dominated financial systems. The push for a BRICS-centered cross-border payment system also reflects a growing interest in alternatives to USD-dominated trade. By promoting transactions in local currencies and exploring a unified BRICS currency, the alliance aims to reduce USD reliance—a shift that could grant emerging economies more flexibility and reduce exchange-rate vulnerabilities.
Middle Eastern Tensions in Focus
A key concern at the summit was the escalating tension in the Middle East. Putin warned that rising hostilities between Israel and Iran have brought the region close to a full-scale conflict. This message underscores the potential global implications of Middle Eastern instability, reminding the international community of the need for diplomatic interventions.
Let us take a look at the impact of BRICS+ in the global economic landscape but before we delve into this aspect, let us compare the exports of G7 and BRICS+ countries.
The Expanding Influence of BRICS+: Economic and Demographic Impact
The recent enlargement strengthens BRICS+, giving it substantial global economic and demographic influence. With the addition of new member countries, BRICS+ now represents nearly half of the world’s population (46%, up from BRICS’ 41%)—a stark contrast to the G7’s 10%. Economically, BRICS+ accounts for over a third of global GDP (35.6% in 2022), with China contributing more than half of this share. As emerging markets grow, BRICS+ is projected to expand its share of world GDP to 37.6% by 2027, significantly outpacing the G7’s 28.2%. The inclusion of new members has also notably bolstered the group’s share in energy commodity exports, positioning it as an even more influential economic bloc.
From an economic and trade perspective, BRICS+ holds significant shares in global exports of crude oil, food, metal ores, and essential materials. To better understand its impact on the global economy, a closer examination of export destinations by sector is essential, as it provides insight into the reach and influence of BRICS+ on the worldwide trade landscape.
With a clearer view of BRICS+ and its influence on global trade, it’s essential to explore how this bloc may further impact de-dollarization and reduce dependency on G7 economies. This shift could signal a move toward diversified trade currencies and increased financial independence among emerging markets.
De-dollarisation: The Rising Influence of BRICS+
The recent BRICS summit marks a pivotal moment, as Egypt, Ethiopia, Iran, and the UAE have joined the bloc, expanding its reach and influence. One of the key topics on the agenda is reducing dependence on the US dollar for international transactions. BRICS holds significant potential to drive its de-dollarisation efforts, particularly in foreign exchange (FX) reserves and fuel trade.
Key Insights
The BRICS+ coalition now controls approximately 42% of global central bank FX reserves, a factor that could significantly influence the global movement away from the dollar. While gold emerges as a promising alternative to the dollar for the bloc, it still comprises only 10% of their central bank reserves—half the global average. The potential for diversification into BRICS+ currencies is hampered by the limited external liabilities of member countries. Consequently, any de-dollarisation efforts in global FX reserves may primarily benefit developed markets rather than the emerging market sphere.
Moreover, BRICS+ is strengthening its regional trade networks, enhancing trade among member states and becoming an increasingly important partner for other emerging markets, particularly in fuel trade. The bloc currently represents 37% of the emerging market fuel trade, a critical area for de-dollarization initiatives.
However, the bloc’s influence is curtailed by its 30% share of global oil production, comparable to the combined output of the USA, Canada, and Mexico, where trade remains heavily dollarized. Additionally, BRICS+ accounts for a modest 20% of overall global trade, starkly contrasting with the developed markets’ dominant 60% share.
Data is the latest available for the period 2022-24. BRICS+ encompasses the current nine full member states, while BRICS refers to the original five core members. Shares of BRICS+ in financial flows have been adjusted retrospectively to account for foreign exchange revaluation effects.
Source: IMF, WB, BIS, SWIFT, Refinitiv, national sources, and ING.
BRICS+ and the Path to De-dollarisation
BRICS+ is making significant strides in de-dollarising its financial flows, as indicated by the declining share of US dollars in their cross-border bank claims, international debt securities, and overall external debt. However, the bloc’s limited global presence in these sectors constrains the potential impact of its regional de-dollarisation efforts on the US dollar’s global standing.
The Role of CBDCs
Some experts have suggested that central bank digital currencies (CBDCs) like m-Bridge could provide an avenue for BRICS to de-dollarise the global cross-border payments system. While this threat may be overestimated in the short term, it could be underestimated in the long run.
Growing Currency Usage
BRICS+ countries have successfully leveraged their increasing global influence to enhance the use of their currencies internationally. Over the past four to eight years, there has been notable growth in the share of core BRICS currencies in global payments through SWIFT (6.4% as of 2024) and in over-the-counter (OTC) FX derivatives (6.8% as of 2022). Although this growth stems from a low base and does not pose an immediate threat to the US dollar’s dominance, it indicates that BRICS+ could potentially challenge some developed market currencies in the future.
Understanding BRICS+
BRICS+ is an informal coalition that comprises five core members—Brazil, Russia, India, China, and South Africa—alongside four new entrants: Egypt, Ethiopia, Iran, and the UAE. Collectively, they represent 37% of the global GDP (by purchasing power parity) and 44% of the world’s population. Several other nations, including Azerbaijan, Bahrain, and Turkey, have also expressed interest in joining, which would add another 5% to the global GDP and 8% to the population. Notably, Saudi Arabia, which produces 11% of the world’s oil, has been invited to join BRICS+ but has yet to respond.
The Meaning of De-dollarisation
De-dollarisation refers to the decreasing reliance on the US dollar in international finance, as evidenced by shifts in its usage across various domains, including reserves, cross-border lending, and payments. These currency shares can be influenced by fluctuations in exchange rates, necessitating adjustments in historical data to align with current rates.
The Global Role of BRICS+
The upcoming BRICS summit in Kazan, hosted by Russia, is expected to focus on internal integration and trade, with a political emphasis on reducing reliance on the dollar. President Putin appears to have set aside discussions of a single BRICS currency, instead promoting the use of BRICS currencies.
Two critical areas where BRICS+ holds significant global market shares are foreign exchange reserves and fuel trade—both of which are vital for de-dollarisation efforts.
Foreign Exchange Reserves
Foreign currency reserves are central to the global de-dollarisation movement, as highlighted by IMF data. While assessing BRICS+ contributions is challenging due to the confidentiality of FX reserve compositions from key members like China and Russia, the bloc has maintained a stable share of 42-44% of global FX reserves since 2008. Thus, any significant de-dollarisation is unlikely without the bloc’s involvement.
Since the Global Financial Crisis, BRICS+ countries have increasingly favoured gold as a substitute for currency reserves. Between 2008 and 2021, BRICS+ net purchases totaled 6,600 tons of gold, outpacing a global increase of 5,500 tons, raising their share of global gold holdings from 5% to 22%. However, since 2021, overall gold holdings have remained steady, with some countries, including Brazil and Russia, selling off portions of their reserves.
Future Potential
The potential for BRICS+ to increase its global gold holdings remains substantial, as gold accounts for only 10% of their central bank reserves, compared to the 20% global average. Doubling their gold reserves could generate an additional 8,000 tons of demand, but actual increases will likely be constrained by global production capacities.
This data includes Hong Kong and Macao as well.
Source: IMF, Refinitiv, national sources, ING
The next strongest candidate to replace the US dollar in BRICS+ FX reserves is a mix of other developed market (DM) reserve currencies, which together account for 35% of global FX reserves. In contrast, non-DM currencies have made limited headway. A major hurdle for wider adoption of BRICS+ currencies as reserves is their modest external debt, representing only 6% of the global total compared to 21% for the US.
Another critical area where BRICS+ could significantly impact de-dollarisation is through international trade flows. Currently, BRICS+ members account for approximately 20-21% of global trade, equivalent to an estimated $10 trillion in annual turnover (both exports and imports) as of 2023. This share has stagnated since the financial crisis, a period marked by slowing output in China and a decline in global GDP, coupled with falling oil prices that affected trade volumes among oil-producing countries.
Despite the stagnant global share, the internal dynamics of BRICS+ trade are shifting. Member nations, particularly China, are increasingly focused on intra-bloc trade, which has risen to 28% of the bloc’s total trade turnover, up from 22% in 2008. This trend is even more pronounced at the broader emerging market level, with BRICS+’s share of trade with other emerging markets rising from 19% in 2008 to 31% today. Notably, in the emerging market fuel trade, BRICS+’s share nearly doubled from 20% to 37% in 2023, indicating substantial potential for promoting de-dollarization.
Data from the US EIA indicates that non-OECD oil demand constituted 55% of global oil consumption in 2023. This raises questions about whether consumers or producers will influence the currency used for energy invoices, presenting fertile ground for the de-dollarization narrative.
However, a lack of comprehensive data on the currency structure of trade complicates the assessment of BRICS+ de-dollarisation progress. While the ECB offers valuable insights into the invoicing currency in fuel trade, information in the emerging market context is largely anecdotal. Reports suggest that currencies like the renminbi, UAE dirham, and Indian rupee are increasingly used for energy imports, with some Indian refiners reportedly paying for Russian crude in rubles. The renminbi, in particular, has emerged as a leading candidate, having surpassed the dollar as the primary foreign currency in Russia’s international trade and domestic FX market. This transition was bolstered by the Bank of Russia’s active accumulation of renminbi, which reached 22% of its FX reserves by the end of 2021.
FX Composition of Russia’s Foreign Trade and Domestic FX Market
Despite the momentum towards global de-dollarisation, several challenges remain. Currently, BRICS+ nations account for 30% of global oil production, a figure that could rise to 41% with Saudi Arabia’s potential inclusion. In contrast, the USA, Canada, and Mexico together also hold a 30% share, and previous studies indicate that over 95% of foreign trade in the Americas is conducted in US dollars.
Additionally, while BRICS+ represents about twice the volume of the USA in global trade (11%), it still constitutes only a third of the developed markets’ share, which accounts for nearly 60% of global trade turnover.
Source: Bank of Russia, ING
BRICS+ and the Shift Towards De-Dollarisation
BRICS+ is actively pursuing de-dollarisation in its financial flows, particularly in cross-border bank claims and international debt securities. According to the Bank of International Settlements (BIS), the share of US dollar-denominated cross-border lending by core BRICS residents has decreased from 67% in 2016 to 55% by the end of the first quarter of this year, with significant declines observed over the last four years. Similarly, the share of US dollars in international debt securities fell from 83% to 75% during the same period.
A key player in this de-dollarisation effort is the New Development Bank (NDB), established by BRICS in 2015 to finance infrastructure projects in emerging markets. The NDB aims for 30% of its lending to be in local currencies; however, 70% of its loans are still issued in hard currency, reflecting investor preferences. While there has been growth in CNY-denominated Panda bond issuance, it remains limited at $25 billion compared to over $1 trillion in US dollar-denominated bonds.
Despite this progress, BRICS remains more dollarised than the global average, with US dollar usage in cross-border bank claims and international debt securities around 47%. This indicates that BRICS is de-dollarising from relatively high levels, suggesting room for further growth.
Both BRICS and other emerging market currencies stand to benefit from this de-dollarisation trend. In the last four years, the share of BRICS currencies in cross-border bank claims rose by 6 percentage points to 15%, while other emerging market currencies increased by 4 percentage points to 19%. For international debt securities, BRICS currencies gained 5 percentage points to 11%, and non-core currencies rose by 4 percentage points to 9%. Overall, BRICS currencies now represent 34% of external debt, reflecting developments in national banking sectors, financial markets, and geopolitical dynamics.
However, the modest share of BRICS in global cross-border financial flows limits the overall impact of this regional de-dollarisation. BRICS banks account for only 9% of global international claims, and the bloc’s bond issuers make up just 3% of international debt securities. If core BRICS countries fully de-dollarized their financial flows, it would impact approximately $2.0 trillion of the global $18.4 trillion in US dollar-denominated cross-border claims and $0.6 trillion of the $13.6 trillion in US dollar-denominated international debt securities.
The latest data available is for the period 2023-24. All shares and market volumes, expressed in US dollars, have been adjusted retrospectively to account for foreign exchange revaluation effects.
Source: IMF, WB, BIS, Refinitiv, national sources, ING
Will m-Bridge Facilitate BRICS De-Dollarisation?
Some analysts highlight the m-Bridge project as a potential avenue for BRICS to de-dollarise its trade and financial flows. This initiative focuses on utilizing central bank digital currencies (CBDCs) to enhance cross-border payment mechanisms and is spearheaded by the BIS Innovation Hub, alongside central banks from China, the UAE, and Thailand.
Teunis Brosens, Head of Regulatory Analysis, shared insights on CBDCs and their relevance for de-dollarisation. He emphasized the distinction between retail and wholesale CBDCs. Retail CBDCs, like the ECB’s digital euro, primarily cater to domestic transactions, thus having minimal impact on dollar transactions. Conversely, wholesale CBDCs facilitate high-value, cross-border payments and could disrupt the traditional correspondent banking network, which currently relies heavily on US banks and the dollar.
Brosens noted that while the business case for wholesale CBDCs is compelling, actual implementation faces challenges, particularly in organization and governance rather than technology. The success of the m-Bridge project, now involving over thirty central banks, indicates growing interest, but a meaningful impact may still be years away.
The Rise of Global BRICS Currencies
Another question arises: can BRICS leverage its expanding global presence and de-dollarisation efforts to elevate the status of its national currencies or even create a synthetic single currency? While speculation about a common currency is rife, we focus on the actual share of core BRICS currencies in various markets to evaluate current trends.
BRICS currencies have gained ground in derivatives and transactions. The BIS reported that the BRICS FX share in OTC FX derivatives increased to 6.8% in 2022, with significant contributions from the CNY and HKD. In exchange-traded interest rate derivatives, the BRICS share reached 2.6%, primarily driven by the Brazilian real.
In payments, BRICS currencies accounted for 6.6% of SWIFT transaction volumes, buoyed by a notable rise in the CNY’s share. This growth is linked to the People’s Bank of China’s expanding swap lines and the CIPS payment platform.
Although there is increased usage of BRICS currencies in other areas, such as cross-border lending and international debt securities, progress remains slower. For example, the amount of Panda bonds has doubled, but they only make up 0.8% of global totals.
However, BRICS currencies lag in global FX reserves, with the CNY being the only significant player at a steady 2% share. Constraints include low external liabilities among BRICS countries and China’s dominant reserve holdings, limiting alternatives to the US dollar.
The data is the latest available for the period 2023-24. All shares have been adjusted retrospectively to account for foreign exchange revaluation effects.
Source: IMF, WB, BIS, Refinitiv, SWIFT, national sources, ING
Given the current low levels of BRICS currencies across various sectors and the limitations on their potential as reserve currencies, it’s unlikely that a collection of these national currencies or a proposed synthetic currency will pose a direct challenge to the US dollar. However, they may emerge as competitors to other developed market currencies.
Mixed Progress on Global De-Dollarisation
The journey towards global de-dollarisation presents a complex picture. While BRICS nations play a crucial role, external factors, such as the upcoming US elections, may also influence the dollar’s standing in international trade.
Currently, the US dollar is experiencing a gradual decline in specific areas, particularly in central bank foreign exchange reserves and FX derivatives. This shift is primarily driven by competition from other developed market (DM) currencies, with emerging market (EM) currencies increasingly joining the fray. Despite this, the dollar remains strong in crucial domains such as international debt securities and interest rate derivatives, indicating its continued dominance in both short- and long-term scenarios.
In essence, while BRICS and other emerging market currencies are challenging the dollar, it appears that non-US dollar DM currencies are more likely to become the primary competitors in the near future. This suggests that the de-dollarisation movement may not immediately threaten the dollar’s supremacy but could reshape the landscape of international currency competition.
Long-Term Trends in the Global Role of the US Dollar, Other Developed Market Currencies, and Emerging Market Currencies
The long-term trajectory of the US dollar’s global influence, alongside that of other developed market (DM) currencies and emerging market (EM) currencies, reveals a complex and evolving landscape. While the US dollar has historically maintained a dominant position in international trade and finance, emerging market currencies are increasingly gaining traction. This shift could reshape the dynamics of global currency usage, as BRICS and other nations challenge the dollar’s supremacy, potentially favouring a more diversified currency framework in the future.
Data is the latest available for the period 2023-24. All FX pairs include the USD as one of the two currencies. The total share of FX pairs is 200%, and all shares have been adjusted retrospectively to account for foreign exchange revaluation effects.
Source: IMF, WB, BIS, SWIFT, Refinitiv, ING
Final Take on The BRICS Alliance
The 2024 BRICS summit showcased the bloc’s commitment to addressing global challenges collectively and strengthening multilateral ties outside the Western sphere. As BRICS expands its membership and embarks on new economic projects, its potential to reshape the global economic and political landscape continues to grow. With influential initiatives and ongoing dialogue, the BRICS alliance is poised to play an increasingly central role in global governance, particularly in developing trade networks less reliant on the USD.
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Bulletin De La Banque France 250/2 – January-February 2024