How BRICS nations are leading push to free Global South from West’s financial system

The warm embrace Lula da Silva received in China is the latest sign of relations that could speed up moves within the BRICS countries to create a new global economic architecture, creating greater distance for the Global South from the influence of the IMF and the World Bank

Kalinga Seneviratne

Published: 3:30am, 26 Apr 2023

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During his visit to China this month, Brazilian President Luiz Inacio Lula da Silva made no secret of his desire to see the BRICS group of nations provide an alternative development funding mechanism to rival the International Monetary Fund (IMF).

The grouping includes Brazil, Russia, India, China and South Africa, with Saudi Arabia, Iran and Turkey among those believed to be interested in joining.

Lula’s visit to China included a stop in Shanghai, where he attended a ceremony to mark the appointment of former Brazilian president Dilma Rousseff – a close ally of Lula and an economist – as the head of the New Development Bank (NDB). Speaking at the event, he said the NDB “frees emerging countries from submission to traditional financial institutions, which want to govern us”.

The warm welcome Lula received in Beijing, where he met President Xi Jinping, was a sign of the increasingly close relationship between the leading economic powerhouses of South America and Asia.

This could speed up moves within the BRICS countries to create a new global economic architecture that creates greater distance for the Global South from the influence of the IMF and the World Bank – the Bretton Woods institutions – and the US dollar-based international trading system.

Brazil and China reached more than 20 bilateral agreements during the course of Lula’s four-day visit. China is Brazil’s largest trading partner, with the level of trade between the two having increased tenfold since Lula’s first visit to China as president in 2004.

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Brazil’s President Lula meets with Xi, seeks to expand trade, Chinese investments and talk Ukraine

Two-way trade between the countries reached a record US$150 billion in 2022, and both sides are setting up a clearing house that will make trade settlements in their respective currencies rather than the US dollar.

Writing in the Indian Defence Review on April 11, Indian researcher Abhyuday Saraswat noted that the attempt by BRICS member countries to trade in currencies other than the US dollar has the potential to revolutionise the global economy. He argued that this movement was accelerated when the US and its allies removed Russia’s access to the Swift financial messaging system following its invasion of Ukraine, saying it “has alarmed many governments, not only Russia”.

He also noted that efforts among BRICS members to create a new currency could pave the way towards a new global order where the US dollar might not be needed for international trade.

India, too, has been spearheading such efforts, with its push for a digital currency and the Reserve Bank of India approving special rupee accounts with corresponding banks of 18 countries to trade in the Indian rupee. India is also considering reviving the rupee-rouble trading agreement that was last used in 1953 for trade between the two countries.

Russia announced in March that it had adopted China’s yuan as one of its primary reserve and settlement currencies. According to China customs data, Chinese imports from Russia increased by about 49 per cent in yuan terms last year to 763.7 billion yuan (US$110.8 billion).

China and Russia are attempting to create an alternative to the US dollar-dominated global financial system that will let them trade in their respective currencies. Photo: Reuters

Earlier this month, Bangladesh and Russia agreed that Moscow would accept the yuan for payments on the Rooppur nuclear power plant Russia is building west of Dhaka. Bangladesh will pay the equivalent of US$318 million using its yuan reserves, with the payment channelled through China’s Cross-Border Interbank Payment System, which Beijing is developing as an alternative to the Swift system.

Meanwhile, Brazil and Argentina have had discussions on creating a common unit of account to facilitate trade.

South African President Cyril Ramaphosa wants to use his country’s hosting of the BRICS summit to advance the interests of the African continent. He is expected to invite other African nations to the summit and be part of the group’s efforts to develop Africa.

The NDB was established in 2015 with the purpose of mobilising resources for infrastructure and sustainable development projects in BRICS countries and other emerging-market economies. It has the potential to play the role of an alternative to the IMF where the interests of the Global South would be paramount.

So far, though, it has not realised this potential. A stumbling block has been the distrust between India and China, even though they appear to agree on the need to develop a new global economic architecture.

India-China ties will improve with mutual trust, starting with border talks

After a speech last August at Bangkok’s Chulalongkorn University on India’s Indo-Pacific vision, I asked India’s External Affairs Minister Subrahmanyam Jaishankar whether the NDB could come forward to bail out Sri Lanka after negotiations with the IMF had come to a stalemate. He told me it could bail out Sri Lanka as well as many other emerging countries, but he also said tensions between India and China on their Himalayan border hindered such collaboration.

While China is trying to mediate between Russia and Ukraine, Russia might have to step in to negotiate peace between India and China. Otherwise, all these talks of a new global economic architecture could come to naught.

Dr Kalinga Seneviratne is a Sri Lankan-born journalist, media analyst and international communications expert currently based in Sydney