What is BRICS? — short definition
BRICS is an acronym naming a group of major emerging economies: Brazil, Russia, India, China and South Africa. The label was coined in 2001 by economist Jim O’Neill of Goldman Sachs to highlight fast-growing markets that could reshape the global economy. Over time the grouping became an actual, informal international forum and in 2024 added five more full members (Ethiopia, Iran, Saudi Arabia, Egypt and the UAE), bringing total membership to ten.
Why BRICS matters — core purpose
BRICS is primarily a platform for economic cooperation among its members and for increasing their influence in global affairs. Members meet regularly (an annual summit) to coordinate on trade, development finance, and diplomatic issues. The group presents itself as a counterweight to Western-dominated institutions and policymaking, though members do not form a formal political or fiscal union like the EU.
Key facts and timeline (concise)
– Term coined: 2001 (Goldman Sachs, Jim O’Neill).
– South Africa added: 2010 (making BRICS five countries).
– First official leaders’ meeting: June 16, 2009, Yekaterinburg, Russia.
– Expansion announced: 2023; new members effective Jan 1, 2024 (Ethiopia, Iran, Saudi Arabia, Egypt, UAE).
– Structure: informal confederation; rotating chair (the head of state of the current chair country).
– Economic scale (2023): BRICS members collectively accounted for about 31.5% of world GDP vs around 30.7% for G7 countries.
How BRICS works (mechanics)
– Informal meetings and annual summits: members negotiate priorities and issue joint statements.
– Rotating chairmanship: the presidency shifts annually among members and sets the summit agenda.
– Cooperative projects: development banks, currency-swap arrangements, trade agreements and coordination on commodity or finance policy have been discussed or implemented in various forms.
– No single centralized authority: BRICS operates through consensus and bilateral/multilateral agreements rather than a supranational bureaucracy.
Main strengths and constraints
Strengths:
– Large combined market and natural-resource base.
– Attractive demographics and labor supply in several members.
– Political will among some members to build alternatives to existing Western-led institutions.
Constraints:
– Diverse political systems, strategic priorities and levels of transparency create friction.
– Economic cycles, commodity price swings and individual country weaknesses have slowed the group’s momentum in the past.
– Replacing established institutions or a dominant currency requires very broad, sustained cooperation and deep financial credibility.
Goldman Sachs’ original thesis and what happened to BRIC-focused investing
Goldman Sachs’ early reports suggested the BRIC economies could grow to dominate global output by mid-century. The idea supported investment products focused on these markets. But after the 2007–2008 global financial crisis and later shocks (including oil price declines), growth in BRIC countries slowed, and investor enthusiasm faded. Goldman later merged its BRICS-focused fund into a broader emerging-market fund after asset declines.
Is BRICS a threat to the U.S. dollar?
It is theoretically possible for a group of countries to seek alternatives to the U.S. dollar for trade or reserves. But displacing the dollar requires a currency (or currency arrangement) that offers comparable liquidity, stability and global acceptance. Creating and maintaining that level of trust and scale is a major challenge — not impossible
—but difficult. Several practical and structural hurdles make a near‑term displacement of the U.S. dollar unlikely.
Key obstacles
– Liquidity and depth: Global markets for U.S. Treasury securities and dollar‑denominated instruments are enormously large and deep. That depth lets governments and global institutions raise and park large sums quickly with low transaction costs. Building comparable markets in one or more BRICS currencies would require sustained growth of safe, liquid government bonds and interoperable capital markets across members.
– Macroeconomic stability and policy credibility: Reserve and invoicing currencies must be backed by low and predictable inflation, credible central banks and stable fiscal positions. BRICS members show wide variation in inflation control, monetary frameworks and public‑debt dynamics, which lowers collective credibility.
– Capital controls and convertibility: Many BRICS economies use capital controls or maintain limited currency convertibility to manage exchange rates or capital flows. Those measures undermine a currency’s usefulness for international investors and reserves.
– Political and legal coordination: A trusted international currency relies on consistent legal rules, contract enforcement and transparency. Political heterogeneity and strategic tensions among members complicate long‑term legal and institutional alignment.
– Network effects and path dependence: The dollar benefits from strong network effects—most trade, finance and contracts are already dollar‑based. Shifting those entrenched arrangements requires sustained incentives and time.
What BRICS have done so far
– Local‑currency trade and swaps: Members have agreed to use local currencies in bilateral trade settlements and launched currency‑swap arrangements to ease trade financing without the dollar.
– New Development Bank (NDB): The BRICS‑established multilateral bank finances infrastructure and development projects, denominated in local currencies at times, reducing reliance on Western banks.
– Payment alternatives and alliances: Proposals and pilot projects aim at cross‑border payment rails and greater use of non‑dollar systems for trade.
A simple numerical perspective
– IMF COFER data (approximate): the U.S. dollar accounted for roughly 55–60% of global allocated foreign exchange reserves in recent years. Global official reserves are on the order of $11–14 trillion. To halve the dollar’s share from 60% to 30% in a $13 trillion reserve world implies a reallocation of roughly $3.9 trillion of official assets away from dollars. That gives a sense of the scale and time needed for a material shift—flows of this magnitude require long, sustained policy action and market acceptance.
Checklist for assessing BRICS’ potential to erode dollar dominance
1. Market depth: Are BRICS bond and money markets large, liquid and accessible to non‑resident investors?
2. Policy credibility: Are inflation and fiscal policies stable and predictable across prospective reserve currencies?
3. Convertibility: Do member currencies allow unrestricted capital flows and exchangeability for trade and investment?
4. Institutional infrastructure: Are legal frameworks, settlement systems and trade invoicing standards interoperable and trusted?
5. Political alignment: Is there sustained political will and coordination to promote a shared currency or common reserve alternatives?
6. External acceptance: Are non‑BRICS central banks and private institutions willing to hold and use these currencies at scale?
Bottom line
BRICS and like‑minded partners can and do take steps to reduce dependence on the dollar—through bilateral currency use, alternative payment systems, and multilateral development financing. Those steps can increase the role of member currencies regionally and for specific sectors. However, replacing the dollar as the predominant global reserve and invoicing currency would require overcoming deep market, policy and institutional barriers and likely evolve only gradually over many years, absent a major re‑ranking of global financial preferences.
Educational disclaimer
This explanation is for educational purposes and does not constitute investment advice or a forecast. Assessments depend on evolving data and policy choices; consult a qualified professional for personalized guidance.
Sources
– International Monetary Fund (COFER): Currency Composition of Official Foreign Exchange Reserves — https://data.imf.org/regular.aspx?key=61545865
– Bank for International Settlements: Papers on currency internationalisation and market infrastructure — https://www.bis.org
– New Development Bank (NDB): Official site and publications — https://www.ndb.int
– World Bank: Global economic data and external sector analyses — https://www.worldbank.org
– Reuters: reporting on BRICS expansion and policy developments — https://www.reuters.com