BRICS Summit 2023: Who Killed The Common Currency?

At the BRICS Summit 2023 in Johannesburg, Saudi Arabia joins the bloc and the plan for an anti-dollar common currency gets dropped. What's going on? Let's connect the dots.

Nadim Siraj

BRICS Summit 2023: The Big U-turn

August 26, 2023: The noose around the dollar won’t tighten yet – at least not in the form of a BRICS common currency. That’s the message from the BRICS Summit 2023, if you look beyond the mainstream news.

‘De-dollarisation’ of the global economy will chug along, of course. But the world won’t see a shared Global South currency rise up spectacularly against the American empire’s dollar-backed hegemony.

At the needlessly flashy 15th annual BRICS summit held in upscale Sandton in Johannesburg from August 22-24, Bharat, China, Russia, Brazil, and South Africa discussed lofty goals such as inclusive multilateralism, accelerated growth, and sustainable development. But the anti-West bloc, seen as a challenger to the Anglo-American West, completely ignored the common currency debate.

The message to the world from the floor of the BRICS Summit 2023 was loud and clear: let’s stick to trading in our own national currencies. Host nation South Africa issued a 26-page summit declaration. It doesn’t mention currencies at all.

The distraction game

Notice how the PR machinery of BRICS skillfully diverted the attention away from this topic by flooding primetime headlines with something else – news about six countries invited to join the bloc. Which is the biggest news story that the world learnt from the mainstream media about the summit? The emphatic story of BRICS expanding. That Iran, Saudi Arabia, Argentina, UAE, Ethiopia, and Egypt are joining it from 2024. No other story from the event gained as much traction on primetime news as this one did.

The largely unreported U-turn on the common currency game plan surely disappointed those who look up to BRICS as a counterweight to the vast western power umbrella, which comprises Washington, its allies, and hegemonic institutions such as the G7, Pentagon, World Bank, the World Economic Forum, the World Trade Organisation, and the IMF.

Many critics of the West feel it’s high time BRICS rolled out a common currency that non-western countries could use for international trade, and therefore, dispatch the dollar to the sidelines.

Crucially, it is widely believed that an anti-dollar common currency along the lines of the euro – but an apolitical one, unlike the euro – would ensure that some other lone currency, such as the fast-rising Chinese yuan, doesn’t become the next reserve currency hegemon.

Dollar as a weapon

At the heart of America’s grip on the world economy is its skill to weaponise the dollar. During the Bretton Woods Conference at Mount Washington Hotel in New Hampshire, US, in the turbulent summer of 1944, the immensely powerful US government arm-twisted the rest of the world into accepting the greenback as the global reserve currency.

For almost 80 years since then, the White House and Corporate America have been using the reserve currency as a bargaining chip to de-shape the world order, manipulate trade, rewrite investment rules, capture key industries, corner lucrative markets, pilot multilateral institutions, militarily occupy foreign lands, fight illegal wars, intervene in other countries’ affairs, selectively ignore the UN, flout international law with impunity, commit rights abuses, and script the media narrative.

But in recent times, China’s rise as an economic empire and the revival of the old Russian empire in a new model saw the US dollar’s clout shrink to some degree as China and Russia are now influencing an increasing number of countries to delink from the dollar by trading in other currencies.

Bharat, China, Russia, UAE, and even Saudi Arabia to a limited extent – which is the cog in the wheel for America’s petrodollar system (more on this later) – now conduct some of their trade in non-dollar currencies. Indonesia, Malaysia, Singapore, Philippines, and Thailand have also made similar moves, with Brazil thinking loudly about creating a common currency for South America, to be called ‘sur’.

There are many more governments looking to avoid trading solely in US dollars, such as Kenya, Ghana, Zimbabwe, Argentina, Venezuela, Bolivia, Myanmar, Kazakhstan, Egypt – the list is growing. And they are drawing confidence from the precedence being set by China and Russia, who are trading with each other in their own currencies.

BRICS Summit 2023: Writing on the wall

For critics of the US empire romantically latching onto dreams of a common currency slaying the western Goliath, the writing was on the wall well before the BRICS Summit 2023 took off. The pipe dreams were nipped in the bud. Here’s how.

In the build-up to the Jo’burg meeting, South African officials declared that discussions about the need for a common currency were not on the cards. Bharat, too, clearly spelt out, before heading into the summit, that there were no such plans to discuss building a new currency.

At the summit itself, Russian President Vladimir Putin, joining online from Moscow, called on members to focus only on trading in national currencies for now. As for China, its lips were sealed on this issue. Brazil, which has floated the idea of the common currency for South America, was silent when it came to pitching a similar project at the BRICS summit.

Clearly, there is quiet consensus among the BRICS bigwigs about shelving plans for a common currency.

Common currency, common problems

Before we go into who gains from this U-turn at the BRICS Summit 2023, it’s worth exploring whether a BRICS-led common currency would indeed be feasible and technically workable.

Lesetja Kganyago, the South African central bank’s governor, has pointed out that for a common currency to take shape, a full-fledged “political project” is required. “If you want it, you’ll have to get a banking union, you’ll have to get a fiscal union, you’ve got to get macroeconomic convergence,” he reportedly said.

In addition, a common central bank would need to be set up. But that could precipitate into a tug of war over which country would host it. Such a tussle is likely considering Bharat, China, and Russia have never been unconditionally dedicated friends despite working together in some areas. None of them would easily concede ground.

Also, even though a common currency would drastically weaken the dollar’s grip on the world economy, it could spark trade imbalances among many countries. After all, for a majority of the BRICS nations, China is the main trading partner, and very little trade takes place among the rest of them.

The whole purpose of taking the arduous effort to bypass the greenback would be lost if the new arrangement delivers the same trade imbalances typical of the dollar era.

Saudi Arabia: A coup? For whom?

The U-turn of BRICS raises some uncomfortable questions. What prompted the inexplicable U-turn on currencies? We don’t have any official explanation yet from BRICS. So, we have to do what the lazy mainstream media won’t do for you – connect the dots.

Is the U-turn at the BRICS Summit 2023 a fallout of the fact that the BRICS nations don’t share an unconditional bonhomie among themselves? That it’s not like the G7, which is a close-knit cartel and moves like a pack of wolves?

That Bharat, China, and Russia are not the best of geopolitical partners is global diplomacy’s worst-kept secret. History tells us stories of cold tensions, between Russia and China, as well as between India and China.

But things have changed in recent times. The three Asian giants now decisively promote international trade in various national currencies. So, one cannot conclude that they are disinclined to combat the US dollar. Their collective push for trading in non-dollar currencies, despite sharing various differences, underlines their ambition to jointly take on the American empire.

Who really gains? China? US?

Next question is – which comes straight from mystery writer Agatha Christie’s playbook – who actually gains if a BRICS currency doesn’t take off? Is it China? After all, the yuan is expected to emerge as the next big thing in international trade. A rising Beijing would want its own currency – rather than a shared one – to someday replace the shrinking dollar. That’s how empires behave.

Therefore, it would be in China’s interest to torpedo plans for a common BRICS currency, so that the decks could be cleared for the yuan to become the main contender in the decades to come in the race for global reserve currency. Bottom line: yes, China potentially benefits if common currency plans are nipped in the bud.

Who else gains from this U-turn? Is there anyone from outside the BRICS fold who benefits from it? A big clue to this answer lies in these two words: Saudi Arabia.

The popular press has been reporting that the Saudi kingdom’s induction into BRICS is a coup pulled off by China. The mainstream narrative wants people to believe that Beijing now wields immense power in Riyadh’s palace, thereby, pulling it out of the West’s orbit.

That is true if seen in isolation. But if you see the larger picture, it’s a misleading half-truth. The actual and under-reported truth is that Saudi Arabia isn’t completely snapping ties with the Anglo-American West anytime soon. It can’t, because it’s a historical satellite nation and an energy-supply lapdog of the US. Its entry into the BRICS roster only shows that an expanding China has now placed its claws on Saudi territory, right next to American footprints.

No way does it mean that the US-Saudi honeymoon is over. It only means the oil-rich Arab kingdom has to now live under the shadows of both the geopolitical monsters, instead of just one, like it used to be when the West alone dominated the Persian Gulf.

In fact, with Riyadh joining the bloc at the BRICS Summit 2023, Washington – the US Federal Reserve, to be precise – sees the move as America’s major inroad into the lobby group. After all, it is Saudi Arabia that gives the US dollar all its power as a reserve currency. So, with the pro-US oil kingdom penetrating the anti-dollar grouping, it is bound to be followed by BRICS going a little soft on the US dollar.

Flashback: The petrodollar system

Why is Saudi Arabia so important in this context? Precisely what role does it play in making the US dollar a global hegemon? To understand that, we need to dial back to the 1970s – when the little-discussed petrodollar system was born.

Here’s the historical context in a nutshell. (And a more detailed article).

In July 1974, US treasury secretary William Simon and his deputy Gerry Parsky were dispatched by the Nixon White House, and with the blessings of the US Federal Reserve, to Jeddah on a quiet trip. Their mission was to formalise a major agreement with King Faisal Al Saud of Saudi Arabia.

The two parties that signed the US-Saudi deal were the US treasury department and the SAMA (Saudi Arabian Monetary Authority), the kingdom’s central bank. The agreement paved the way for the US government to dominate the crude oil economy by using the greenback as an economic and trade weapon.

The terms of the secretive deal were along these lines. The US pledged two commitments. One, it would buy guaranteed quantities of crude oil from the kingdom annually. Two, Washington would provide Riyadh perpetual military aid and military protection from regional rival, Israel.

What were Saudi Arabia’s commitments to the deal? One, it would sell its crude oil to other countries only in return for US dollars – the kingdom would accept no other currency as payment. Two, the Saudis would invest at least 50% of those earnings into the American economy by buying up US treasury bonds.

This dollars-only oil trade arrangement – which ignored all global stakeholders and didn’t consult any international body such as the UN – is called the petrodollar system. The practice of the Saudis investing their oil-sale earnings in the US economy and in buying other western assets is called petrodollar recycling.

Rise and rise of the petrodollar

In the years that followed, all the members of the OPEC (Organisation of the Petroleum Exporting Countries) were pushed to join the petrodollar system. As a result, the US currency’s demand ballooned worldwide because governments around the world desperately sought dollar reserves in order to be able to pay for crude oil purchases from oil exporters.

The petrodollar deal was a masterstroke for imperialist America, which weaponised the greenback. Also, the OPEC countries routinely began pumping the hefty petrodollars (earnings from crude oil sales) into treasury bonds, banks, investment ventures, and various other projects in the Anglo-American West.

Here’s what was happening to the petrodollars. Governments in Europe, Asia, Africa, South America, and Australasia began purchasing dollars from the US and from the international forex markets to pay the OPEC and Gulf kingdoms for oil purchases. After the money got sucked into the oil-rich nations, they travelled to the western countries, only to be reinvested in the western economies, eventually helping the West develop with that money and become prosperous.

So, there you go, back to the topic of Saudi Arabia joining BRICS. Now you know why Saudi Arabia is the cog in the wheel for the US dollar, and why the US central bank would be secretly celebrating the kingdom’s invitation to BRICS. Because the core player involved in making the dollar so powerful has just been inducted into the West’s biggest rival bloc, BRICS, which had earlier been looking to cut the greenback down to size.

Now that the dots have been connected between Saudi Arabia joining BRICS and the anti-West bloc dropping the common currency plan, it puts the spotlight on the grouping in a critical way. Will BRICS, too, quite like G7, turn into a politicised and unpredictable chameleon someday, mirroring western duplicity?

Hopefully not, but you never know. There’s no black and white in geopolitics. There’s black. And there are shades of grey.

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