There Is No ‘BRICS’

This time last year, “some” analysts (where that actually means a money market specialist with delusions of geopolitical grandeur) were busy sketching the contours of a “new world monetary order.”

Bretton Woods III (as Zoltan Pozsar modestly christened his brainchild) wasn’t entirely coherent and thus eluded summation. But it revolved, in part anyway, around a larger role for the yuan and a more prominent place in international trade, finance and commerce for the BRICS bloc. In some (many) respects, the framework quite literally couldn’t work.

I was hardly alone in pointing out the shortcomings of Pozsar’s fever dream. In January, two months before Credit Suisse (Pozsar’s former employer) was forced into the arms of its rival in an emergency shotgun wedding orchestrated by the Swiss government, one strategist at a Dutch bank lampooned Bretton Woods III as “Eastern Powers,” a play on Austin Powers, the spy parody film series.

Fast forward to August and mighty China is facing what analysts and economists generally agree is the most serious crisis in recent memory. The PBoC is engaged in a daily effort to manage the pace of yuan depreciation. Russia, meanwhile, is mired in an intractable military quagmire, and the Kremlin is at odds with the central bank over how to support the flagging ruble, which is worth around a penny. Vladimir Putin’s current account surplus evaporated this year and he recently suffered the embarrassment of a coup attempt by his caterer-turned mercenary chieftain.

In the US, by contrast, the economy is running so hot that 525bps of Fed hikes in 16 months was insufficient to tame it, the dollar is holding in just fine and although Fitch was absolutely correct to fret over a deterioration in governance, the rule of law in America is still strong enough for a former president to be indicted four times in five months on charges including conspiracy and racketeering in connection with an attempt to turn the US into an authoritarian state — like Russia and China.

The promise of the petroyuan is unfulfilled, the Saudis still depend on the US for security guarantees, the renminbi is still soft-pegged to the dollar and the riyal is still hard-pegged to it. Because it can’t be otherwise in the near- to medium-term, and depending on your age, it probably won’t be otherwise in your lifetime.

I mention all of this because the BRICS summit is underway and market participants were obliged to pretend like it matters. Xi Jinping made the trip to South Africa this week. Putin didn’t. Because there’s an arrest warrant out for him.

It’s worth reiterating (because this often gets lost) that the BRICS isn’t really a thing. BRIC is just Jim O’Neill’s 22-year-old acronym. It’s not some alliance forged in combat or otherwise inaugurated and bound in shared toil and triumph. There’s a BRICS bank in Shanghai. Lula and Xi hung out there in April to celebrate Dilma Rousseff’s swearing in. Lula talked up the “BRICS coin” idea, but whether de-dollarization proponents know it or not, it’s completely unserious.

Other than the bank, you’d be hard pressed to identify a single concrete achievement attributable to cooperation between the BRICS nations. The G7 built the post-War world order. What have the BRICS done since the first summit in Russia 14 years ago? (That’s a trick question.)

When you read about how, if all aspiring BRICS entrants were allowed in, the bloc “would represent 45% of the global economy” (as the FT wrote this week), do yourself a favor: Subtract China and see what you have left. Like the broader emerging market story, BRICS is really just about China. If you strip away China’s economic achievements, there isn’t much of a story to tell.

True, India has a story, but it’s not as compelling as China’s, and besides, India isn’t going to countenance an arrangement where it’s relegated to any kind of subservience. Xi would claim he’s not angling for BRICS dominance, and I’d tell you that’s about as true as his contention that Beijing doesn’t aspire to military, economic and technological hegemony — so, a lie.

At the end of the day, it’s difficult to editorialize around the BRICS because it’s not a real thing. Nearly 15 years later, it’s still just a nebulous concept — an alliance in theory.

Ostensibly, an expanded BRICS could give voice to a collection of nations that are underrepresented or otherwise marginalized on the world stage, but China’s predatory development lending makes a mockery of that notion. Like a loan shark claiming the moral high ground because he provided credit to borrowers who were denied at the bank.

Sort through Tuesday’s soundbites from the BRICS gathering, and you’ll come away with little more than a recitation of vacuous pretensions to some undefined grand purpose. Participants’ inability to elucidate that purpose is telling.

The FT article linked above quoted Pozsar, who now runs an independent “advisory firm.” “The global east and south are renegotiating the world order,” he said.