Date : 22/08/2023

Relevance: GS Paper 2-International Relations - BRICS Summit

Keywords: UNSC, G-20, G-7, New Development Bank (NDB), Multipolar world

Context-

• As the world grapples with shifting geopolitical dynamics, India finds itself at the center of global attention, participating in crucial summits, making strategic choices, and striving for influence on the global stage. A noteworthy proposal on the table involves the introduction of a common currency for the BRICS nations. As the BRICS leaders convene in Cape Town, South Africa, from August 22-24, 2023, to enhance their influence across Asia and Africa, the common currency proposal underscores the bloc's ambition to counter sanctions and foster economic self-sufficiency.

BRICS: A Forum of Influence or Limitation?

• While BRICS' potential to reshape the global economy remains questionable, its ability to facilitate economic agreements among its members is limited, and its historical impact on global geopolitics has been debated, the forum's significance should not be underestimated. Despite its limitations, BRICS could evolve into an entity with the power to shape the world's political landscape. The events of the past year, coupled with challenges faced by established global institutions, have revitalized BRICS' role. Notably, BRICS enjoys a more diverse representation than the UN Security Council (UNSC) and the G-7, although it falls short of the G-20's inclusivity.

BRICS and the Evolving Global Governance Landscape

• Global governance's shortcomings and undemocratic nature have been widely acknowledged. While BRICS may not provide a flawless alternative, it could address the void left by traditional institutions. Over 40 countries expressing interest in joining BRICS highlights the global South's discontent with their limited influence. As the world navigates geopolitical uncertainties and power shifts, middle powers and regional players seek platforms like BRICS to shape geopolitical trends and make informed choices. Despite inherent complexities and hierarchies within these forums, they could catalyze discussions on more representative global governance.

India's Complex Position: Navigating BRICS and Beyond

• For India, the current geopolitical landscape presents intricate challenges. The question of where India fits in the global framework is complex. Western observers often question India's simultaneous engagement in the Quad, G-20, G-7, BRICS, SCO, and the global South.
• The BRICS bloc, composed of Brazil, Russia, India, China, and South Africa, is a strategic alliance that aims to counter the influence of the G7. The bloc's influence is steadily expanding, as evidenced by its consideration of expansion beyond the initial member countries.
• However, India's participation in non-western forums must be viewed as a response to the inequitable governance structures established after World War II. India's interests lie in both non-western and Western spheres, reflecting its regional, historical, and developmental identity.

Exploring Alternatives: Potential Benefits of a Common Currency

• During a meeting in Cape Town, the New Development Bank (NDB), headquartered in Shanghai, presented the concept of alternative currencies to shield the BRICS nations from sanctions. This move seeks to ensure that the bloc does not fall victim to sanctions imposed on countries not directly involved in the original conflict. Additionally, the BRICS nations released a joint statement titled 'The Cape of Good Hope,' emphasizing the use of local currencies in international trade and financial transactions. Collectively, the BRICS nations represent a significant portion of the global population, GDP, and trade, providing substantial economic weight to this endeavor.

The Genesis of the Common Currency Proposal

• Russian President Vladimir Putin initiated the idea of 'alternative transfer mechanisms' within the BRICS bloc shortly after the Ukraine invasion. Seeking to mitigate the impact of crippling sanctions imposed by Western powers, Putin highlighted the importance of trade diversification and cooperation among reliable partners like India, China, and other BRICS members.

Championing Independence: BRICS and Global Economic Realignment

• The proposal for a common currency aligns with BRICS' overarching goal to reshape global geopolitics to favor its member nations' economic, geographic, and demographic strengths. Established in 2009, the BRICS bloc introduced the New Development Bank (NDB) in 2015, aimed at mobilizing resources for infrastructure and projects in emerging markets and developing countries. By creating the NDB, BRICS aims to counterbalance the dominance of Western-driven global financial institutions like the World Bank and the International Monetary Fund.

BRICS Expansion and Economic Influence

• Numerous countries have expressed interest in joining BRICS to counter Western alliances such as G20, NATO, and the European Union. Over 40 countries have indicated interest in joining the bloc. However, expansion has been impacted by the sanctions on Russia, a founding member and significant stakeholder in the NDB. India and Brazil also express concerns over China's approach to increasing the bloc's influence.

Local Currency Push: BRICS' Strategy for Resilience

• BRICS has been actively advocating for the use of local currencies in bilateral trade to attract more countries to the bloc. The joint statement from the recent Cape Town meeting underscores this strategy, although it doesn't directly reference sanctions on Russia. Instead, it highlights the complexities caused by unilateral economic measures and calls for peaceful resolution through dialogue and diplomacy.

Challenges and Outlook for a Common Currency

• Despite the enthusiasm around a common currency, practical challenges remain. The Chief Financial Officer (CFO) of NDB, Leslie Maasdorp, has dismissed immediate plans for a BRICS common currency. He suggests that even the Chinese Renminbi is far from achieving the status of a global reserve currency. Moreover, South Africa and India have both denied any discussions regarding a common currency. These countries emphasize strengthening their national currencies and fostering trade relationships with global powers.
• The BRICS Pay project, introduced in j2018, aims to facilitate digital payments between member nations without the need for currency conversion. The mechanism combines central bank digital currencies and decentralized currencies. While support for a common currency exists among Russia and Brazil, the proposal faces mixed reactions within the BRICS bloc. While the vision is ambitious, its realization remains uncertain in the near term.

India’s concern for Common currency

• India is the only country in the bloc that is doing well in terms of GDP on its merit. As such, the country needs no support from BRICS and can survive without the new BRICS currency, it is claimed.
• India also has good relations with the U.S. and Europe with trade and military deals worth billions of dollars. The country does not want to risk its trade with Western powers, believing in the yet-to-be-released BRICS currency.

Striking a Balance: India's Geopolitical Dilemma

• India's global positioning involves delicate balancing. The rise of China, India's membership in various forums, and its commitment to multipolarity pose dilemmas. India's pursuit of multipolarity aims to promote equity and representation but risks aligning with China's ambitions. Non-western institutions may inadvertently aid China's rise, potentially weakening India's standing. India must strive to strengthen non-western institutions while safeguarding its national interests.

India's Geopolitical Crossroads: Challenges and Strategies

• India's navigation of global forums is intricate and simultaneous. As India engages in BRICS and the SCO, it must manage China's influence, safeguard its own interests, and balance its commitment to multipolarity with potential alignment with China's revisionist agenda. India must maintain a clear vision: fostering a more representative global order while safeguarding national interests. Navigating the balance between China-centric and West-centric paradigms is a formidable challenge that India faces on the global stage.

Conclusion

• The BRICS bloc's pursuit of a common currency amid sanctions highlights its determination to build economic resilience and reduce dependency on the US dollar. This ambitious endeavor aligns with BRICS' broader goal of reshaping the global economic order to benefit its member nations. However, challenges abound, and the practical implementation of a common currency remains a complex and contentious matter. As the BRICS nations convene in Cape Town to deliberate on this and other strategies, the outcome of these discussions could shape the trajectory of economic cooperation and resilience among these emerging global powers.
• The BRICS summit underscores India's complex geopolitical predicament. While engaging in multiple forums, India must ensure that its actions serve its vision for equitable global governance. Striking the right balance between engagement with China and alignment with Western norms is challenging. India's navigation of this complex landscape will not only shape its geopolitical position but also impact the evolving world order.

Source- The Hindu