When the BRICS alliance invited six new nations in August, global discussion became dominated by how its New Development Bank (NDB) could shift geopolitical and economic power away from the Western-led International Monetary Fund (IMF) and World Bank.

What analysts are overlooking, says Yaroslav Lissovolik, founder of consultancy firm BRICS+ Analytics and former IMF Advisor to the Russian Federation in Washington, is BRICS’ capacity to co-exist alongside the World Bank and IMF – the so-called Bretton Woods Institutions.

“The NDB and IMF will soon participate together at the G20 summits and meetings dedicated to global financial stability,” Lissovolik tells Investment Monitor. “And the same will happen in reverse, at the BRICS meetings and summits.”

BRICS dominates global economy, population and natural resources

This potential bridge between IMF and NDB could be bolstered by new additions to BRICS.

At the recent Johannesburg summit, BRICS extended invitations to Argentina, Saudi Arabia, Egypt, Iran, the United Arab Emirates (UAE) and Ethiopia. Should all six nations join from the start of 2024, BRICS would represent just under half of the world’s population (3.7 billion people), more than two-thirds of economic output – and a significant chunk of the world’s mining, energy and oil reserves.

More relevant to Lissovolik’s prediction is the increase in nations belonging to BRICS and G20. All five original BRICS members send regular delegations to G20 summits – even Russia, a source of tension at September’s New Delhi summit – while pending BRICS members Saudi Arabia and Argentina are already part of G20.

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Major differences between nations in an eleven-strong ‘BRICS+’ will always limit the grouping’s geopolitical unanimity.

“BRICS don’t have that same solidarity,” said Steve Blitz, Chief US Economist at research group TS Lombard, on a recent GlobalData Instant Insights podcast episode ‘The US economy: Are the BRICS a threat?‘. “The idea that China and India, rivals on all sorts of levels beyond economic ones, are suddenly going to agree to tie their currencies together – good luck with that.”

While Blitz frames the debate as a face-off between the NDB and Bretton Woods Institutions, Lissovolik believes the co-existence of these financial bodies would benefit the global economy.

“We should be looking at the NDB as a compliment to the Bretton Woods Institutions, rather than a substitute”, says Lissovolik. “I’ve been calling for a platform that will bring together the World Bank and the regional development banks, including the NDB, to create common portfolios of green projects.”

The IMF meets in Marrakech

The Bretton Woods Institutions are unlikely to relinquish their grip on the global order of economic development without good reason.

There are, however, signs of discontent around the grouping, as well as support for BRICS- or NDB-led initiatives.

At the IMF’s annual meeting in Marrakech, which ran the week of 9 October, no joint communique was issued due to disagreement over language referring to Russia’s invasion of Ukraine. Iranian and Brazilian officials also discussed a BRICS currency on the sidelines of the Morocco summit, the Islamic Republic News Agency reported.

The Bretton Woods Institutions have received repeated criticism from the United Nations for benefitting richer nations.

UN Secretary-General Antonio Guterres described the IMF and World Bank’s response to the Covid-19 pandemic as a “glaring failure” that imposed severe debt on dozens of countries. During the pandemic, the wealthy G7 nations, with a combined population of 772 million, received $280bn from the IMF, while 1.1 billion from the least developed countries were allocated just over $8bn.

Frustration has also deepened at the harsh conditions the IMF attaches to its loans. Critics argue that the IMF’s high interest rates, trade liberalisation, privatisation, fiscal austerity and open capital markets have harmed developing economies and local populations.

Overly ambitious and intrusive IMF interventions in severely impoverished countries, especially in Latin America and Africa, have led to calls for a new international financial body.

Willingness to consider other options is particularly strong among the nations most indebted to the IMF – and it is not a coincidence that Argentina and Egypt, the IMF’s top debtors, are among the latest additions to BRICS.

Argentina’s entry to the NDB is also underway. Dilma Rousseff, President of the NDB, reportedly told Argentinian Economy Minister (and potential next president) Sergio Massa that the bank’s board of directors had approved Argentina as a member.

This was confirmed during President Alberto Fernandez’s visit to the NDB’s Shanghai headquarters.

A BRICS currency remains distant – but is dedollarisation imminent?

Much of the IMF’s influence is built on the power of the dollar. Most loans are issued in the dollar, rather than local currencies, while the US also donates the largest proportion of the IMF’s quota and dictates most policy decisions.

BRICS countries seek to counter this US-led economic order through two methods.

The first method is prioritising the use of national currencies instead of the dollar, or ‘dedollarisation’.

Rousseff aims to make the NDB an institution “made by developing countries for themselves” – a process likely to be accelerated in 2025 when Brazil assumes BRICS chairmanship.

As a former Brazilian President and long-time ally of current President Lula, a vocal advocate of dedollarisation, Rousseff has influence across Latin America. Should the incumbent Peronist Argentinian government regain office in Argentina’s second round election run-off in November, candidate Sergio Massa has promised to join the BRICS, a boost for dedollarisation.

Should anarcho-capitalist Javier Milei gain office, he has promised to terminate Argentina’s pending BRICS membership and dollarise the economy. Milei is banking on Blitz’s belief that “the dollar isn’t going anywhere – but it ebbs and flows”. The dollar still makes up 59% of global exchange reserves, down from more than 70% in 1999.

The R5

The second method is the creation of a BRICS currency, a key point of discussion at the Johannesburg summit.

The R5, named after the currencies of the five BRICS nations (the Chinese renminbi, the Brazilian real, the Russian rouble, the Indian rupee and the South African rand), is still far from implementation.

According to former NDB Vice-President Paulo Nogueira Batista, each national currency in the R5 basket will be roughly weighted in line with the economies of the respective BRICS members: 40% for the Chinese yuan, 25% for the Indian rupee, 15% for the Russian rouble and Brazilian real and 5% for the South African rand.

Given this weighting, it may require impetus from China to push R5 over the line. But Beijing’s ambitions to globalise the renminbi may hinder this process.

The NDB may have approved $30bn in projects since its inception, but it is still dwarfed by the global reach of the IMF. China has accepted this duality and is pursuing increased influence in the IMF alongside its NDB ambitions following recent calls of support by Kristalina Georgieva, Managing Director of the IMF.

Lissovolik says this move is a “win-win” for China – but not for BRICS-led visions of an economic order unmonopolised by the US and Bretton Woods Institutions.