The future? Source: Giphy.
Clash of the summits
If the 48th G7 summit kicked off on Sunday in Germany but everybody is otherwise busy with judicial news from the US, did it even happen?
What about if the BRICS grouping of countries held its 14th annual summit the weekend before, and even fewer people noticed... did it even happen?
It turns out the answer to both questions is yes; and the BRICS meeting even threw up a few interesting takeaways.
But before we dive in, here’s a quick refresher…
BRICS is an acronym for the economic grouping of Brazil, Russia, India, China, and South Africa.
Taken together, the five countries currently make up ~25% of the world’s GDP, and have a combined population of 3.27 billion people.
None of the BRICS countries are G7 countries, although India and South Africa are attending this week's G7 Summit as specially-invited guests.
Two big economic ideas
It was China’s turn to host this year's BRICS Summit, but it was held virtually for the third year in a row due to China's 'Covid-zero' policy. Two interesting proposals came out of the meeting:
🤝 1. A BRICS free-trade agreement
China floated the idea that the five BRICS countries could negotiate a free-trade agreement to strengthen economic ties and jumpstart trade.
But according to Finance Professor Michael Pettis, a BRICS trade association would require Brazil, India, and South Africa to run huge trade deficits to absorb Russian and Chinese imports, and would require Russia and China to invest substantial amounts of their savings imbalance into Brazil, India, and South Africa.
Pettis doesn’t see that happening:
💰 2. A BRICS reserve currency
For obvious reasons, Russian President Vladimir Putin suggested the bloc develop its own reserve currency to protect the five economies from escalating geopolitical tensions.
The BRICS reserve currency would be comprised of a basket of roubles, reais, rupees, renminbi, and rand. (You're rrrrright to be wincing at the cavalcade of bad puns we'll come up with if this actually happens.)
While the idea of establishing a new reserve currency isn’t unthinkable, it’s far easier said than done. As our friends over at Lykeion noted in “What Would It Take for the USD to Lose its Reserve Status?”:
“Unseating a global reserve currency is the sort of process that happens over decades, not years, and usually has more to do with the decline of the dominant power (US) than the rise of a challenger (China).”
ING's global head of markets Chris Turner explains the thinking behind the proposal:
- “This is a move to address the perceived US-hegemony of the IMF”, which “will allow BRICS to build their own sphere of influence and unit of currency within that sphere.”
Making their case
The BRICS 2022 Summit avoided taking controversial positions on some of the most pressing global issues like Russia’s invasion of Ukraine, how to manage the South China Sea, or China's claim to Taiwan.
And the BRICS's two economic proposals are - let’s be honest - implausible, at least over the short and medium term.
But coming up with credible, workable solutions wasn't the point. Rather, the summit was a chance for China (and Russia) to outline what a non-US dominated world might look like. Now it's over to the G7 to argue the other side of the case.