The Chinese name for the emerging Brics economies – Brazil, Russia, India, China and South Africa – means ‘golden brick’. As there is no translation of ‘Brics’, the Chinese chose this pleasant-sounding approximation, as they do for many western terms. The moniker is a suitable metaphor for how these countries want to operate in the world’s financial architecture, by building new elements for, rather than replacing, the present structure.
During last month’s annual Brics summit hosted in the Chinese city Xiamen, leaders reiterated their willingness to work with the existing global framework. They paid close attention to improving global economic governance, making mention of institutions including the International Monetary Fund, World Trade Organisation and the G20. The summit’s official communiqué raised issues with each organisation, foremost the IMF.
The Brics called for a review of their IMF quotas, which affect countries’ financial commitments to the Fund, their voting powers and access to financing. They put forward the 2019 Spring meetings of the IMF and World Bank as a strict deadline. They will no doubt have ideas about promoting Brics’ figures to senior posts at the top of these institutions.
They stress, too, closer co-operation between the IMF and the Brics’ contingent reserve arrangement, designed to provide liquidity in case of balance of payments pressures. The arrangement is seen by some as an alternative to the IMF, with its own and newly established system of exchange in macroeconomic information. In the short term, however, this is likely to rely heavily on support from Fund surveillance mechanisms. Emerging markets have had the same experience with initiatives such as the Chiang Mai safeguard and Asean+3 macroeconomic and research office, both of which are intended to complement, rather than supplant, IMF support in Asia.
Complementarity with existing structures is a strong feature of Brics leaders’ precepts for dealing with destabilising capital flows. The Xiamen communique highlighted the need to strengthen bond market connectivity between Brics, local currency settlement systems and interbank credit lines, but these are not novel proposals; the Bank for International Settlements propagated wider local currency bond markets a decade ago. The reality is that these Brics-led ideas have not flourished in mainstream market finance, and it will take more than political declarations for them to grow.
With regard to the WTO, the Brics support the full enforcement of existing rules and continue firmly to oppose trade protectionism. Give the importance of their relations with non-Brics economies, especially the US and Europe, they have a vested interest in promoting WTO principles, rather than setting up their own preferential trading system. The Brics’ support for greater financial regulatory reforms such as the finalisation of the Basel III accords, a key element of the G20 summits in Hangzhou and Hamburg, again highlights their wish to integrate with the present international framework.
Lobbying together for change to the existing framework is important, but falls a long way short of attempting to supplant the western-dominated international hierarchy.
This will remain the case for as long as the Brics countries continue to value their relationships outside the group more than their internal ties.
Herbert Poenisch is a Member of the International Committee of the International Monetary Institute at Renmin University of China, and former Senior Economist at the Bank for International Settlements.