BRICS Countries: Tectonic Shift in the Global Economic Power Lines

The global economic landscape is rapidly changing, as evidenced by the long-term comparison of the size of the BRICS and Western economies. Tectonic shifts in the global economy are likely to bring about major changes in geopolitics and the global financial order.

The 10-nation BRICS+ group now accounts for more than 41 percent of the global economy in purchasing power parity terms, according to IMF data. The group’s members are mainly developing countries, with the largest economies being China and India.

Member Countries and Partner Countries of BRICS

The map below shows the countries that are full members of the community and the countries that are partner countries or have received an invitation to join (e.g. Saudi Arabia).

BRICS was officially established in 2009 and with the new members it is now called BRICS+

Last year, Iran, the United Arab Emirates, Iran and Egypt joined. This year, Indonesia, the world’s largest nickel producer by area, joined the group. Indonesia is also the world’s seventh largest economy by purchasing power parity.

Global Economy Accounted for by BRICS

The following graph shows the share of the global economy accounted for by the core BRICS countries, Brazil, Russia, India, China and South Africa. Although the overall share of the global economy accounted for by the BRICS countries has increased significantly, this growth has been driven by China and India. The share of the economies of Russia and Brazil has actually decreased somewhat. In this respect, the trend is also very significant.

G7 Countries Share of Global Economy

Now let’s look at the G7 countries’ share of the global economy. While it reached more than 50 percent in 1980, it has now fallen to 29.6 percent. The IMF predicts that the decline will continue, and by 2029 the G7 countries’ share of the global economy will be only 27.5 percent.

BRICS Vs G7

If we plot the share of the core BRICS countries in the global economy on the same graph as that of the G7 countries, we get the following graph. This perhaps best illustrates the shift in economic power lines.

This means that in about 50 years, the G7 countries have lost three times the lead over the core BRICS countries, and in just five years, they will be more than 5 percent behind the emerging market group. This is a tectonic shift in the economic balance of power, which has already led to major changes in geopolitics. The direction of the economies and economic growth suggests that geopolitical polarisation between West and East will continue and tensions will escalate further.

It is true that China’s economy is currently facing major problems and is threatened by a deflationary process similar to that of Japan. Its population is also declining, with projections that China’s population will fall from the current 1.4 billion to 800 million by the end of the century. However, any stagnation in China will likely be offset by India, which is still building its industrial potential.

Consequences for the Global Financial Order

Since the start of the war in Ukraine, geopolitical polarisation has intensified

Combined with the rise of the economic power of the BRICS countries, this has had serious economic consequences for the global financial order.

Following the seizure of Russia’s foreign exchange reserves by Western powers, many developing countries, especially China, have begun to move away from the dollar and build up their gold reserves more quickly. There are fears that the dollar could be used as a weapon against them too – for example, if China decides to attack Taiwan militarily. This is one reason why central bank gold purchases have reached all time highs.

This is well illustrated by the chart below, which shows the change in China’s holdings of US Treasury bonds and gold reserves. China is also building a cryptocurrency-based international payments system called mBridge, which is considering using gold for settlements. A list of countries that have joined the project can be found in this article.

The Dollar Will be Under Pressure in the Future

Since the end of World War II, the dollar has been the dominant currency in the world, and has also become the world’s reserve currency. About 60 percent of central banks’ foreign exchange reserves are in dollars. Nearly half of international SWIFT payments are made in US dollars, and major commodities are traded in the world in the US currency. However, the BRICS are looking for alternative ways to reduce the use of the dollar.

Several countries such as Russia, Iran, China and Brazil have already agreed to use each other’s currencies in trade

Although there is much talk of creating a BRICS+ common currency, there is currently no concrete plan in place and it is unlikely to happen in the coming years. The newly elected US President Donald Trump has warned that if the BRICS come up with their own currency, 100 percent tariffs will be imposed on all BRICS countries.

Since the corresponding systems have not been developed, it is not currently possible to significantly reduce the use of SWIFT or the dollar. However, the processes may accelerate if the mBridge project is successful, the differences between them can be largely resolved, and China and other developing countries have built up sufficient gold reserves.

The process could also be accelerated by the debt crisis in Western countries, which is already raising its head due to the increase in interest payments. This would probably significantly reduce the share of government bonds denominated in pounds, euros and dollars in countries’ reserve assets.

• The acronym BRICS refers to the first letters of the names of the countries that make up the core of the community – Brazil, Russia, India, China and South Africa. The community was officially established in 2009, when Russia organized the first BRIC summit in Yekaterinburg. In April 2010, South Africa joined the community and its name was changed to BRICS. The community began to hold summits every year. After the new accessions, the organization was renamed BRICS+.

Dissatisfaction with the World Bank and IMF

The growth of economic power has also made the BRICS countries dissatisfied with the World Bank and the International Monetary Fund, which they say are too biased towards Western countries.

The New Development Bank (NDB) was established in 2016, with the aim of financing infrastructure projects mainly in BRICS and other developing countries. In addition, the Asian Infrastructure Investment Bank (AIIB) was established by China in 2013.

According to the BRICS countries, the rules of the IMF and the World Bank are outdated and the BRICS countries do not have enough decision-making power there. Although the economies of the BRICS+ countries are collectively larger than, for example, those of the G7 countries or the European Union, they have fewer voting rights in the World Bank.

Indonesia, with a population of nearly 300 million, also joined.

BRICS+ is now actively expanding. Last year, Egypt, Ethiopia, Iran and the United Arab Emirates became full member countries. Earlier this year, Indonesia, with a population of around 285 million and the seventh largest economy in the world by purchasing power parity, joined the grouping, surpassing both the United Kingdom and France.

Indonesia is the world’s largest producer of nickel by mountain height – this is the raw material needed in large quantities for renewable energy technologies, whether batteries or solar panels.

In addition, Indonesia accounts for 56 percent of the world’s palm oil production, and the country ranks third in the world in terms of coffee and cocoa production. It ranks fifth in coal production after China, India, the US and Australia. Therefore, considering its resources, total economy and domestic market size, Indonesia is a very valuable addition to the BRICS.

Last year, an official invitation to join was also sent to Saudi Arabia, which has not yet made a decision. Bloomberg reported last September that NATO member Turkey also wants to join the organisation .

It is very likely that BRICS+ will continue to expand in the coming years. In January this year, the organisation also welcomed a number of partner countries that are seeking to eventually become full member states. These include Belarus, Bolivia, Cuba, Kazakhstan, Malaysia, Thailand, Uganda, Uzbekistan and Nigeria.