The main reason for our messed-up Ukraine strategy is that we underestimated Russia. We underestimated its resilience, the size and strength of its economy, and the alliances it was capable of building.
Of the latter, the most important has been the Brics+. The acronym stands for Brazil, Russia, India, China and South Africa. The “plus” stands for the new members: Iran, Egypt, Ethiopia and the United Arab Emirates. Saudi Arabia is to join soon. Several other countries are semi-attached too.
Together the Brics+ accounts for 35.4 per cent of the world economy. The G7 advanced industrial countries account for 29.6 per cent. The gap is even wider when we consider their respective shares of the global population. Brics+ has almost 45 per cent, while the G7 has 10 per cent.
So what makes us so sure that we can win this 21st-century cold war when they are bigger than us and, collectively, richer too?
Western economists and policy strategists cling to one idea: that the dollar dominates world trade. This is how the US can impose its will on others. The dollar dominance gives the US administration the privilege to sanction countries through the financial system. Virtually all banks in the West depend on the dollar markets in some form or another.
I often hear a straw-man argument that we don’t have to worry about the Brics+ because they will not create a joint currency that could challenge the dollar. This statement falls into the category of both true and pointless. The Brics+ will not create a single currency. The EU is a cautionary tale of how a common currency can end up increasing political divisions between its members. The Brics+ is after something else – an infrastructure that allows its members to route financial flows between one another without entering the dollar universe at any point. The so-called Brics Pay was a big star at its summit in late October in Kazan, southern Russia. Brics Pay is a blockchain-based payment system that uses the same underlying technology as Bitcoin and other cryptocurrencies.
Payment systems are the stuff you normally don’t read about in news magazines – for good reason. They are part of the plumbing of global financial systems. Normally, they are very boring. But in today’s world, they have emerged as a critical geopolitical instrument because they allow countries to defend themselves against Western sanctions.
The Brics+ accounts for some 35-40 per cent of global trade, yet those countries are at the mercy of the US because most of their trade is in dollars. This is even true for trade flows within the Brics+ region. The French economist Jacques Sapir has argued that the Brics+ are on course to shift up to 80 per cent of that portion of trade away from the US dollar, using Brics Pay, within the next five years. This will have a huge impact on the balance of global financial power. Some 60 per cent of global foreign reserves are currently held in dollars. With the new payment system, the Brics+ could be on course to overtake the dollar within five years, Sapir has calculated. I am more cautious about such projections, but he is right about the trend. The Brics+ does not need a single currency to make itself independent of the US dollar. All it needs is 21st-century technology.
Western complacency is based on the observation that the world only ever had one dominant currency. This was the pound until the middle of the 1920s, and since then has been the dollar. The dominance of a single currency has a winner-takes-all network effect. But blockchain changes the calculus. One way to think about this technology is as a secure ledger that keeps track of payments. But it is open source. Blockchain is not only the backbone of cryptocurrencies. It can also run payments between banks and central banks.
Macroeconomists, especially the ones who advise governments, hugely underestimated the impact of blockchain and cryptocurrencies. And many still do. They also underestimate the impact of Brics Pay. They did not see that this technology allows countries to wean themselves off their dependence on the US.
A Luddite attachment coupled with the delusional belief that the West is the world’s envy are the main reasons we keep underestimating our adversaries. It is why Ukraine is in danger of losing the war.
A related straw man is the observation that Brics+ is not as politically cohesive as the West. This is also simultaneously true and misleading. Member states do not need the same degree of political integration as we have in the G7, Nato or the EU. Unlike China and Russia, India and Brazil are not interested in a confrontation with the US. They want to trade with everyone and not become part of a bloc. Russia, North Korea and Iran have moved closer together. China’s Xi Jinping has formed a strategic alliance with Vladimir Putin, yet keeps a distance. Brics+ is a diverse bunch, but its strength stems from a focus on the few things those nations have in common. The most important one is their desire to reduce their dependency on the US.
This is not about the US election. American trade and sanctions policies have evolved over several administrations. The US is becoming less willing to absorb global trade surpluses, and to subsidise Europe’s defence. Neither Donald Trump nor Kamala Harris have a strategy, or even an ambition, to rein in the geopolitical ambitions of the Brics+. Global decoupling is the mega-trend of our century, and Brics+ will be the second leg of the new bipolar global order.
[See also: Georgia’s future depends on the European Union]
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This article appears in the 30 Oct 2024 issue of the New Statesman, American Horror Story