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BRICS Nations Set New Course for World Trade and Development

Despite Barack Obama’s “Asia Pivot,” the leading Eurasian countries met in Brazil this month to plot a new development course and a potential currency arrangement that bypasses the US dollar—all without the United States participation. This arrangement has a potential for a substantial wave of development and opportunities for the Middle East, Africa and Asia. From July 15-16, the heads of state of the five BRICS nations—Brazil, Russia, India, China and South Africa—met in Brazil to launch a new development bank and currency stabilization fund outside of the direct controls of the International Monetary Fund and the World Bank.
In addition to the BRICS initiative, China has taken the lead in forming a new Asian Infrastructure Investment Bank (AIIB) to invest long-term in the New Silk Road projects, linking Asia with Europe and Africa through transportation and development corridors spanning the entire Eurasian landmass. So far, an estimated 30 nations have expressed interest in participating in the AIIB. Chinese President Xi Jinping has emphasized high-speed rail projects into the Middle East are a high priority of both the BRICS New Development Bank (which will be headquartered in Shanghai, with the first bank president from India) and the AIIB.
On the sidelines of the meeting, leaders of many of the countries of South America and the Caribbean also met separately with both Russian President Vladimir Putin and Chinese President Xi Jinping to sign large-scale development contracts in the energy field, including plans for construction of new nuclear power plants and the development of massive proven oil and gas reserves in Cuba and Argentina. China has pledged to invest in a South American trans-continental high-speed rail line and other large infrastructure projects.
Plans for the BRICS New Development Bank with initial capitalization of $50 billion and the currency stabilization fund of $100 billion have been on the drawing board for the past several years. But it was the failure of the United States Congress to ratify the IMF reform treaty that would have given significant greater voting rights to the largest developing nations, including all of the BRICS members, that was one factor driving the leaders to finalize the deal this month in their third annual summit.
The BRICS countries represent nearly a majority of world population, landmass and GDP. Yet their combined voting weight at the IMF was 11 percent.
The implications of the new arrangements for the nations of the Middle East are potentially significant. Increasingly, the Asian market has been the largest market for Gulf oil, and this will grow. The recent 30-year $400 billion Russia-China gas deal will be denominated in local currencies—the Russian ruble and the Chinese yuan. London has already established the first exchange for yuan denominated trade outside of Asia. At the BRICS summit the participating countries agreed to work on establishing mechanisms for multilateral trade in local currencies. This would, in effect, re-establish fixed exchange rates among participating countries for their trading.
Ambassador Chas Freeman, former US Ambassador to Saudi Arabia and a former Assistant Secretary of Defense, emphasized another crucial aspect of the new BRICS arrangements at a July 21, 2014 Capitol Hill seminar sponsored by the Middle East Policy Council. After citing the overall significance of the new level of cooperation among the five economic power-houses, he suggested that the new currency arrangements could lead to the creation of a new clearinghouse system bypassing the US Dollar. Today, under the system of US Dollar dominance, almost all financial transactions clear through the SWIFT system (Society for Worldwide Interbank Financial Telecommunications) and the New York Clearinghouse Association. Most world trade is denominated in US Dollars, which are cleared through New York.
Ambassador Freeman noted that the emergence of a new system outside the control of the US Dollar could mean that the economic sanctions that have been a preferred tool of the United States and the European Union to pressure nations to bend to Western demands can no longer be enforced. If alternative trade agreements, cleared outside the US Dollar become a dominant mode of trade, particularly with the vast Asian market, sanctions imposed on countries like Iran could eventually be unenforceable. Ambassador Freeman described the implications of the new BRICS bank and clearinghouse as “imponderables.”
The BRICS heads of state have made clear that they will seek additional participation in the new arrangements. Argentina, which has been under attack by “vulture funds” attempting to overturn the debt restructuring agreements reached between Argentina and 92 percent of its creditors, has already made clear that it will participate in the New Development Bank. The implications of this meeting are vast and their true significance will be manifest in the next several months

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