BRICS Expands to Asia
A Quest for Greater Financial Sovereignty
Asia continues to be a major focal point of global institutional development and reform. Countries of the region continue to push forward with institutions that support multilateral development as a basis of achieving prosperity and peace.
APEC 2024 has just concluded in Lima, and comes on the heels of the BRICS summit in Kazan. While distinct, there are common themes. One of those is the desire to expand multilateral engagement and strengthen national economic sovereignty.
At the recent Kazan Summit, BRICS added a further 13 nations. These were: Turkey, Indonesia, Algeria, Belarus, Cuba, Bolivia, Malaysia, Uzbekistan, Kazakhstan, Thailand, Vietnam, Nigeria, and Uganda.
Of these, four are from South East Asia. With a combined population of over 500 million people, the addition of Indonesia, Malaysia, Thailand and Vietnam adds to the economic heft of the BRICS network, as well as contributing to the organisation’s strategic footprint. This strategic footprint doesn’t extend to those areas traditionally reserved for narrow questions of security, but there’s little doubt that the expanded footprint has longer term geopolitical implications.
Economically, their combined GDP in Purchasing Power Parity (PPP) terms is an estimated $9.527 trillion. Indonesia makes up 52.3 per cent of this followed by Thailand (17.26 per cent), Vietnam (17.12 per cent) and Malaysia (13.3 per cent). Vietnam is projected to grow the fastest at about 6 per cent, followed by Indonesia (about 5 per cent), Malaysia (4.4 per cent) and Thailand (1.9 per cent). Trading-wise, these countries have deeply integrated trading relationships with others in Asia, and in ASEAN itself.
Indeed, ASEAN is now China’s largest trading partner, having surpassed the EU in 2020. According to data from China's Ministry of Commerce (MOFCOM), as of July 2023, the accumulated two-way investment between China and ASEAN countries has exceeded US$380 billion. Investment has been growing at a strong rate. Chinese investment in ASEAN over the last decade has a compounded annual growth of 9.88 per cent between 2013 and 2022.
As BRICS moves to develop an intra-group national currency-based cross border payments system, the need to expand complementary trading relationships is key to supporting overall system liquidity. The expansion of BRICS’ membership goes a long way towards this fundamental goal. The complementarity between the four ASEAN ‘partner states’ and others in BRICS is likely to assist the overall processes of ensuring liquidity and smooth trade flows throughout the group.
Additionally, there is a strong strategic alignment between ASEAN states - including these four - and those of BRICS to expand the use of national currencies for trade settlements. This aim was agreed at the 42nd ASEAN Summit in 2023 as member states signed an agreement to develop enhanced intra-regional payments connectivity and expand the use of national currencies. BRICS’ own ambitions in relation to national currency-based trade settlements came on the back of ASEAN’s move. Russia was compelled from mid-2022 to shift to settling trade transactions without use of the USD or Euro. It's successfully done this.
These moves towards streamlining regional payments systems and reducing dependence on third party currencies for intra-regional trade settlements are part of a long history of ASEAN institution development towards greater regional financial stability. The destabilisation effects of exposure to US dollar liquidity risks during the Asian Financial Crisis (1997) left deep scars amongst regional financial institutions and regulators.
ASEAN’s intra-regional payments initiatives can bring important practical learnings to the table, as BRICS continues to design what is now called BRICS Clear. BRICS Clear is expected to support settlement of trade amongst members in national currencies, with complementary systems for reinsurance and liquidity provisioning through an expanded Contingent Reserve Arrangement to complete the overall architecture.
The four South East Asian ‘partner states’ are all members of ASEAN, a cornerstone of regional coordination and security. ASEAN Centrality is an organising principle for regional policy coordination, forming the basis of a regional network that finds strength in numbers. ASEAN’s pivotal diplomatic role over the decades has usually been missed by western observers, more accustomed to the bellicose ‘kinetic first’ approach that has dominated American foreign policy over the years.
Enhancing member states’ financial independence bolsters sovereignty in a time of heightened risks. The weaponisation of the USD-dominated SWIFT system of interbank messaging has raised the stakes and ASEAN and BRICS’ separate moves towards national currency-based trade settlements is an important step towards reduced national security risks on this front.
The U.S. has reacted angrily to the BRICS Clear announcement. A U.S. State Department spokesman claimed that the U.S. views any moves away from the so-called “dollar reserve” system as a threat to “democracy” and would resist such efforts. Donald Trump has threatened the use of tariffs against any country considering diluting its exposure to the system.
The risk for nations involved in national currency trade settlement initiatives is that the U.S. will target them in all sorts of ways, including sanctions and other punitive policies. Additionally, attempts to destabilise participating nations could intensify, via interference activities initiated, aided and abetted by the network of U.S. government-funded NGOs.
The paradox is that as efforts by the U.S. to punish nations for seeking greater financial sovereignty intensify, the case for currency independence strengthens.