O-3 BRICS EXPANSION AND THE POSSIBLE EFFECTS FOR CURACAO

This week (August 24, 2023), BRICS-countries announced the admission of 6 new members. It is an attempt to reshape the global world order and counter the dominance of the US and its allies. The question that should arise in us is: What does this mean for us, in this case the Island of Curacao? But first things first. What does BRICS stand for?

What is BRICS?

BRICS is an acronym that stands for an association of five major emerging economies: Brazil, Russia, India, China, and South Africa. These countries, which are spread across different continents, formed the BRICS grouping to enhance their cooperation and influence on global economic and political matters. The group represents a significant portion of the world’s population (40%), land area, and economic output (30% of global GDP). This group of 5, will soon be a group of 11 countries.

In short, BRICS wants to enhance their cooperation and influence on global economic and political matters. One would expect that this will influence the world order as it is right now, and that the world should prepare for “it”. What could the economic impact of BRICS be for the world?

The BRICS group has the potential to create significant economic impacts on both a regional and global scale. Here are some potential economic impacts of BRICS:

1. Economic Growth: BRICS countries collectively account for a substantial share of global economic output (about 30% of global GDP). Their combined economic growth rates can have a significant impact on global economic expansion. As these economies continue to develop and modernize, they contribute to global growth and influence the direction of the world economy.
2. Trade and Investment: BRICS nations have diverse economies with vast markets and resources. Enhanced cooperation among these countries can lead to increased trade and investment flows within the group. This can create new market opportunities for businesses and stimulate economic activity.
3. New Markets and Consumer Base: BRICS countries represent a massive consumer base due to their large populations. As their economies grow and middle-class populations expand, these countries become attractive markets for goods and services from around the world. This can lead to increased exports for both BRICS and non-BRICS countries.
4. Infrastructure Development: Many BRICS countries are investing heavily in infrastructure projects to support economic development. Collaboration among BRICS nations in infrastructure development can lead to improved connectivity and trade facilitation, benefiting not only the member countries but also their trading partners.
5. Financial Cooperation: BRICS countries have explored establishing their own financial institutions, such as the New Development Bank (NDB), to fund infrastructure and sustainable development projects. These initiatives can provide alternative sources of financing for countries outside the traditional Western-dominated financial institutions.
6. Geopolitical Influence: Economies of the BRICS nations are closely tied to their geopolitical aspirations. As these countries collectively gain economic strength, they also increase their influence in international negotiations, shaping global economic policies and trade agreements. BRICS has the potential to reduce the US’s ability to use its economic power.
7. Innovation and Technology: BRICS countries are investing in research, innovation, and technology. Collaborative efforts in these areas can lead to advancements that benefit not only the member countries but also have a broader impact on global industries and technologies.
8. Diversification of Economic Partnerships: Greater cooperation within BRICS can allow member countries to diversify their trading partners, reducing dependence on traditional economic powerhouses and providing more balanced economic relationships.
9. Challenges and Coordination: While BRICS offers potential economic benefits, it also presents challenges in terms of coordination due to the diverse economic structures and interests of its member countries. Effective cooperation requires navigating these differences to achieve common goals.

What are potential opportunities (and threats) for Curacao in this forming new world order? Let’s start with the most obvious effect for Curacao, as its own currency is pegged to the dollar.

What can the consequences of BRICS be for the dollar?

The consequences of the BRICS for the US dollar are complex and multifaceted. While the BRICS countries collectively could potentially impact the dominance of the US dollar in the global economy, the actual outcomes depend on various factors. Here are some potential consequences:

1. Reduced Dollar Dependency: One of the goals of BRICS cooperation could be to reduce their reliance on the US dollar in international trade and financial transactions. If BRICS countries develop mechanisms for conducting trade in their own currencies or establish financial instruments denominated in their currencies, it could lead to a decreased demand for the dollar in these specific transactions. A decrease in demand for the dollar can affect the dollar’s value.
2. Alternative Reserve Currency: If BRICS countries manage to create a more credible and stable alternative to the dollar for international reserves, central banks might diversify their holdings away from the dollar. This could reduce the dollar’s status as the primary global reserve currency, potentially leading to changes in global financial dynamics.
3. Impact on the Dollar’s Value: Reduced demand for the dollar could potentially lead to a depreciation of the dollar’s value relative to other currencies. However, the dollar’s value is influenced by a multitude of factors, including economic indicators, interest rates, and geopolitical developments, so any impact from BRICS would be just one among many factors.
4. Trade Agreements and Settlements: If BRICS countries increase trade among themselves and settle transactions in their own currencies, it might lead to less dollar-denominated trade in the group. This could indirectly affect the dollar’s role in global trade settlements.
5. Global Financial System Evolution: Increased cooperation among BRICS countries could lead to the development of new financial institutions, payment systems, and trade mechanisms that bypass traditional dollar-centric systems. This could reshape the global financial landscape and potentially weaken the dollar’s dominance.
6. Geopolitical Considerations: Any moves by BRICS countries to reduce dollar dependency might be influenced by geopolitical factors, including their desire to assert more independence from Western financial systems and institutions.
7. Gradual Transition: It’s important to note that any transition away from the dollar’s dominance would likely be gradual due to the deep integration of the dollar in global finance. The dollar’s role as a haven currency and its widespread use in international contracts contribute to its resilience.
8. Challenges and Barriers: Creating alternative systems to the dollar entails significant challenges, such as ensuring currency stability, addressing regulatory hurdles, and building global trust in new mechanisms. These challenges could slow down any potential shift.

So, there are opportunities and threats. Whatever happens out there will affect us here. It will be gradual, but we should still prepare.

Should dollarized countries or countries whose currencies are pegged to the dollar, formulate a BRICS policy?

Deciding whether dollarized countries should formulate a BRICS policy depends on their specific economic and geopolitical circumstances. Let’s break down the key factors to consider:

1. Economic Dependence on the Dollar: Dollarized countries use the US dollar as their official currency or have a high degree of dependency on the dollar in their economic activities. For these countries, a BRICS policy might make sense as it could potentially provide an avenue to reduce their reliance on the dollar for international trade and financial transactions.
2. Diversification of Economic Partners: Formulating a BRICS policy could allow dollarized countries to diversify their economic partners. The BRICS group (Brazil, Russia, India, China, South Africa) represents a significant portion of the global economy and covers a range of industries and sectors. Engaging with BRICS nations could help dollarized countries expand their trade relations and reduce their dependence on a single currency.
3. Geopolitical Considerations: The geopolitical alignment of a dollarized country also matters. If the country has political or diplomatic reasons to align itself with the interests and policies of the BRICS nations, then formulating a BRICS policy could be strategically beneficial. BRICS countries often come together on various global issues, so aligning with them could provide a stronger international voice.
4. Potential Challenges: However, there are potential challenges to consider as well. Formulating a BRICS policy doesn’t guarantee immediate benefits. It requires careful negotiation, trade agreements, and coordination with diverse economies, each with its own priorities and challenges. Additionally, if a dollarized country’s economy is heavily integrated with the US or other Western economies, shifting focus to BRICS could create economic disruptions.
5. Balancing Interests: Dollarized countries would need to strike a balance between their existing economic relationships and the potential benefits of a BRICS policy. They might need to maintain strong ties with the US and other Western partners while exploring opportunities with BRICS nations.

We should also consider that the expanded BRICS also includes close neighboring countries to Curacao. There is a geopolitical implication and a good opportunity for trade expansion. It might be a good idea to formulate a BRICS policy for our specific economic, geopolitical, and strategic considerations. It will not be a one-size-fits-all policy decision. A comprehensive assessment of the potential benefits, risks, and alignment with interests is crucial before embarking on such a policy shift.