BRIC: A Step Towards Multi-Polar World

I’ve lost count of the number of times I have heard the expression, “The economy is in dynamic and it changes constantly”. More often than not, the economy changes reflect upon the situation of world politics and positions of countries vis-à-vis one another. So I have decided to write this article on how the business and financial situation of the global economy is altering the roles that different countries play in the world. There can be no denying the fact that economics impacts politics and vice versa. The importance being attached to the BRIC meetings is a proof of the same. An association between the four main emerging economies of the world, (Brazil, Russia, India and China); BRIC stands for the acceptance of the multi-polar character of the present-day world. From the bi-polar state of the Soviet days to the uni-polar world of the pre-recession days, we are slowly moving towards an order that is controlled by not just one, but many countries, all of whom can influence the world economy. BRIC is a term coined by the chief economist of Goldman Sachs in 2001, of course, we are not exactly hanging on the words of these erstwhile “financial wizards” in other matters, but their prophecy of BRIC having greater wealth than the G8 by 2050 does make sense if you consider the young working population that inhabits India and China and the mineral rich lands of Brazil and Russia. It is being estimated that while India and China are going to become the biggest producers of “products” in the future, Russia and Brazil are likely to be the providers of minerals.

In the first BRIC meeting, held recently, the heads of the four states, among other things, talked of the need to “diversify the monetary system”. This is what aroused the most interest. By diversification, they meant they were looking at the possibility of dislodging the dollar as the sole medium of payment. The four countries discussed the possibility of keeping stocks of one another’s currency, of using the SDRs (Special Drawing Rights, which are issued by the IMF to all the countries) and the like. The proposal makes a lot of sense. The dollar having been the most acceptable medium of payment in international transactions for a long time, all countries have a large part of their money holdings in the form of dollars. In the current market situation of the shaky American economy and the falling dollar, this situation becomes highly inconvenient. Secondly, it is always more convenient for a country to make payments in its own currency rather than a foreign currency.

However, this proposal will certainly not see a hurried implementation. And not just because of the symbolic meaning of refusing to use the American currency as an international medium of payment. It’s something difficult to implement because of the nature of the currency market. All the international currencies are traded like stocks. Also, like the shares of different companies, they are valued largely on the basis of expectations. If these developing countries are to let go of even a percentage of their dollar holdings, the sentiment will be picked up by other countries. If every country starts to sell their dollar holdings, the value of the dollar will drop drastically and thus, all the holdings of countries, largely in dollars, will be highly undervalued, hence the apprehension of all the countries in committing to the renunciation of the dollar. As Brazil’s finance minister said, “We are not likely to let go of the dollar just yet. All the countries of the association have huge stocks of wealth in the form of dollars.”

But whether or not the renunciation happens, the very formation of the BRIC (or other associations of emerging economies for that matter) states one thing loud and clear. The world is fast becoming a level playing field for all the countries. In the coming thirty years, the resources are going to favour the emerging economies around the world, whether or not they grab the opportunity and make it work for them or not, depends entirely on them. But if the readiness to interact with one another is a sign to measure their eagerness, we sure seem to be on the right track.

Deeksha Khanna

[Image courtesy:]