The BRICS Summit 2024 held in Kazan in southwest Russia from Tuesday to Thursday made international headlines. The bloc, which comprised Brazil, Russia, India, China and South Africa initially, has expanded to include five new full members: Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates. All of them officially became BRICS members on Jan 1. Argentina was initially set to join the bloc, but the incumbent president, Javier Milei, decided against it. Some 40 other countries, including Algeria, Indonesia and Kazakhstan, have expressed interest in joining.
This expansion can have enormous implications from a geopolitical, geostrategic and geoeconomic perspective. Not only will it allow BRICS to expand its influence, but also help promote the interests of the Global South on the world agenda. BRICS is considered the most influential union of developing economies and is also regarded as the leading geopolitical challenge to the Group of Seven (even though the ideal scenario would always be full cooperation rather than challenges and competition).
Focusing on the geoeconomic perspective, BRICS’ expansion can act as a catalyst for a deep transformation in financial and payment services.
For instance, this expansion can increase the potential for using currencies other than the US dollar, particularly by creating a network of countries that enhances the utility of their respective currencies, or even, for example, by each one of these countries launching their own central bank digital currencies (CBDCs) and then working toward their interoperability.
Some BRICS countries have expressed their concern about the dominance of the US dollar in global trade. Last year, Brazil’s president, Luiz Inacio Lula da Silva, questioned why all countries had to base their trade on the US dollar, and called at the summit held in Johannesburg for BRICS nations to create a common currency for trade and investment between each other, as a means of reducing their vulnerability to dollar exchange rate fluctuations.
BRICS’ expansion can be considered a financial game changer for several other reasons. After the expansion, BRICS countries’ combined population amounts to 3.5 billion with a $28.5 trillion economy, representing nearly half the world’s population and a significant chunk of the global economy. With approximately 44 percent of the world’s crude oil production, their influence extends deeply into global energy markets.
Furthermore, from a market diversity perspective, the expansion introduces varied financial systems, opening doors for global financial services companies to explore new markets. From a cross-border trade and investment perspective, for payment companies, this means potential growth in cross-border transaction processing, tapping into markets with significant transaction volumes. Moreover, with Saudi Arabia and the UAE as key players, there might be a shift toward oil trading in local currencies, impacting forex markets and services.
BRICS’ expansion will have implications from a geopolitical, geostrategic and geoeconomic perspective, acting as a catalyst for a deep transformation in the financial and payment services, given the importance of all the countries involved
That said, how can China leverage this? What role can China play?
Back in August 2023, China’s President Xi Jinping mentioned that “This membership expansion is historic … It shows the determination of BRICS countries for unity and cooperation with the broader developing countries.”
Geopolitically speaking, this expansion will benefit China since it will help it increase its global influence even further.
From a geoeconomic standpoint, many opportunities will arise for China because of BRICS’ combined total population and joint economic worth.
Also, as I previously mentioned, BRICS’ expansion can create the potential for using currencies other than the US dollar, for example via CBDCs. China could indeed internationalize the renminbi through the digital yuan, which will allow some US-dollar-denominated international trade transactions to convert into RMB-denominated ones.
BRICS is one of the best possible areas for China to start internationalizing its digital yuan, alongside the Belt and Road Initiative and the Regional Comprehensive Economic Partnership, without neglecting the important role that Hong Kong can play in it.
Focusing on Hong Kong’s role in the digital yuan, the special administrative region can play a key role in helping the yuan to internationalize, given its competitive advantages as the world’s largest offshore RMB business center. According to the Society for Worldwide Interbank Financial Telecommunications, more than 70 percent of global offshore RMB payments are processed in Hong Kong; Hong Kong thus will benefit from BRICS expansion.
In addition, BRICS’ expansion toward the Middle East and Africa can bring many opportunities for China. Its ties with Africa are stronger than ever: China’s trade with Africa rose from less than 100 billion yuan ($14 billion) in 2000 to 1.88 trillion yuan in 2022, posting a cumulative increase of more than 20 fold, with an average annual growth rate of 17.7 percent. China has become Africa’s largest trading partner and its fourth-biggest source of investment. In the first four months of the year, China’s new direct investment in Africa reached $1.38 billion, up 24 percent year-on-year.
To sum up, BRICS’ expansion will have implications from a geopolitical, geostrategic and geoeconomic perspective, acting as a catalyst for a deep transformation in the financial and payment services, given the importance of all the countries involved. This will undoubtedly benefit China from a trade perspective but also from an RMB internationalization perspective, given that BRICS is expanding toward regions like the Middle East and Africa, areas in which China’s interests are already relevant and will certainly become more so in years to come.
The author is a fintech adviser, researcher and former business analyst for a Hong Kong publicly listed company.
The views do not necessarily reflect those of China Daily.
