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1、Maria Vassalou,PhD Pictet Research InstituteChris Alden,PhDLondon School of EconomicsBRICS+and contested global leadership in an era of great power competition pIctet group March 2025Implications for investment managementDivisive bilateral disputes between BRICS+members and the fearsome rhetoric of

2、nationalist politics do not mean its leaders will not find a way to cooperate to achieve their common objectives.The BRICS+countries have more than enough incentive to extend mutual cooperation in their overriding imperative to reform the existing international system,sideline the West,gain a firmer

3、 hold on international institutions and build up a strong base for strategic autonomy.This underlines the importance of understanding their motivations for forming and developing the coalition,with a view to discerning how its rise affects the investment universe.3Executive SummaryOur approach to in

4、vesting over the last three decades has relied on assumptions about three key dynamics that have underpinned the global order in the post-Cold War era:unfet-tered free trade,globalisation,and world peace being assured under the Western-led international system.These dynamics have been synonymous wit

5、h the free movement of goods,cap-ital,people and information,and the absence of systemic con-flict between rival powers.All these three premises can no longer be taken for grant-ed and are now in fact being challenged at a time of profound change in the global geopolitical and economic order.This is

6、 the context in which the BRICS+coalition has emerged.In an increasingly polarised world,BRICS+is devel-oping as a counterweight to the G7 by giving agency and in-fluence to countries in the Global South that are dissatisfied with the existing international system.Moreover,the coali-tion is gaining

7、momentum as an entity by organising its col-lective resources and markets to challenge and disrupt the Western-led international system.The rise of BRICS+is therefore grounds to pause and reflect on the asset management practice,particularly as our analysis suggests this evolving coalition of nation

8、s and the increasingly fractured world order will have profound effects on the way we approach investing,and the way we categorise asset classes.We are accustomed to dividing assets into those from de-veloped and emerging markets.Developed markets are wide-ly seen as enjoying high liquidity,low poli

9、tical risk,high GDP per capita,advanced technologies and exports from a variety of sectors.Emerging markets are usually seen as offering high potential growth but lower liquidity and a narrower scope of investment opportunities,while carrying greater political risk and potential volatility.However,t

10、odays increasingly fractured world is marked by growing barriers to trade,the increased segmentation of mar-kets and a changing set of growth drivers.This calls for rethink-ing how investment opportunities are sourced in a world that is becoming increasingly thematically driven,and where the themes

11、are no longer the exclusive privilege of either developed or emerging markets.In this new reality,investment opportunities are bound to revolve around the key determinants of future growth:technology,energy supply,commodities/resources and productivity advantages.While these drivers have always 4bee

12、n important,their nature is changing.Growth in technol-ogy is increasingly chip-and AI-related,energy supply spans fossil fuels,various green energy sources and nuclear power,and commodities/resources include the highly prized rare earths and minerals needed to support technology and the green trans

13、ition.Productivity advantages are now primarily driven by AI advancements and robotics.This means the mix of the growth drivers and their importance in growth dynam-ics are changing.As the drivers of growth change,the economic pecking or-der of countries and their industries is being reshuffled.This

14、 requires that we think thematically about a countrys expo-sures to the drivers of future growth.Some G7 and BRICS+members have compelling advantages in these areas,includ-ing natural resource endowments that set them apart from other countries.China,with its strong grip on the production of the cri

15、tical minerals and rare earths needed for the green transition,possesses many advantages.BRICS+levers of po-tential global influence also extend to maritime trade routes,energy resources and military capabilities.At the same time,not all developed markets will be able to hold on to the sourc-es of g

16、rowth that got them where they are today.The result is a competition between economic powers concurrent with the rise of the BRICS+coalition to harness the commodities and resources that will be core ingredients for economic growth in the years to come.President Trumps renewed interest in acquiring

17、Greenland can be understood in this context.The rich natural resource endowment of BRICS+puts the alliance in a good position to harness these future sources of growth,which will be highly prized in a frag-mented world marked by divided economic clusters.Similarly,control of trade routes will carry

18、extra weight in a polarised world,explaining the Trump administrations keen interest in the Panama Canal one of the few major maritime trade chokepoints that BRICS+countries and China in particular do not have a strong grip on yet.If the coalition manages to effectively leverage the full ar-ray of t

19、ools and influence at its disposal,the gains in growth that the alliance has already helped some of its members As the drivers of growth change,the economic pecking order of countries and their industries is being reshuffled.5achieve could spill over to a wider group of developing nations,accentuati

20、ng the associated pivot away from Western-centric trade patterns.BRICS+has tried to develop institutional structures to support the coalitions development.These include the New Development Bank(NDB)the multilateralist development bank established by the BRICS states to support infrastruc-ture buildi

21、ng and development in the member states as well as payments systems that bypass existing,primarily US dol-lar-based,settlement processes.These have allowed coalition members to evade crippling sanctions imposed by the United States and European Union on some of its members.What BRICS+lacks,and which

22、 will prove to be ultimately an impediment in its growth,is its own reference currency.We view the development of such an alternative to the dominant Western currencies(USD,EUR,GBP,CHF,JPY)to be at least a decade away.In the meantime,Western efforts to counter the rise of BRICS+have centred on tarif

23、fs.These,however,have re-sulted in a substitution effect,by which BRICS+countries have started trading much more among themselves than previously.Investment ImplIcatIonsThe upshot of the above shifting economic dynamics is a need to fundamentally rethink how we approach investing and how we define a

24、nd categorise assets in asset classes.The increasing polarisation and fragmentation of the world eco-nomic order implies higher volatility and lower liquidity go-ing forward.This may also result in higher inflation as the competing poles try to build capabilities independently of each other,likely r

25、eplicating the same processes and expertise within both alliances.This fragmentation may raise the cost of capital in the two blocs and potentially reduce its availabil-ity.It is not difficult to imagine that going forward,capital may circulate primarily within each bloc rather than freely across th

26、e globe.The upshot of shifting economic dynamics is a need to fundamentally rethink how we approach investing and how we define and categorise assets in asset classes.6With the drivers of growth becoming more and more the-matic and divisions between the poles growing,the need for companies to go pub

27、lic may decrease as they seek to protect their intellectual property.With public and private compa-nies each offering access to different segments of the market,a multi-asset approach to investing across public and private markets may be more conducive to effectively capturing growth opportunities t

28、han each one of them considered separately.All these developments suggest that to effectively harvest investment opportunities investors need to be more thematic and active in their investment process,rather than passive.This is changing the playbook of investing as we know it.ContentsExecutive summ

29、ary 31.Introduction 82.BRICS:the evolution as an alternative to the West 113.The international relations theory behind the formation of coalitions 194.The role of the New Development Bank 315.Strengths and weaknesses of BRICS+336.Western efforts to slow BRICS+expansion and their consequences 517.Inv

30、estment implications 588.Concluding thoughts 63781.IntroductionAlmost everything that has informed our approach to investing in the last three decades has been based on assumptions about the validity of three dynamics in the post-Cold War global economy:unfettered free trade,globalisation,and world

31、peace being assured under the Western-led international system.These dynamics have been synonymous with the free movement of goods,capital,people and information,and the absence of sys-temic conflict between rival powers.They have also underpinned the world order for the past 30 years,providing the

32、political stability and eco-nomic framework for an explosion of the wealth and asset management industries,whose practices evolved under these three premises.However,during the post-Cold War era,countries have experienced a learning process about the status quo.Some have grown to feel inadequately r

33、epresented by what they view as a unipolar,US-dominated interna-tional system,while others have determined that they can gain an advantage by deviating from it.We now see that free trade,globalisation and peace can no longer be taken for granted.In fact,all three premises are being challenged,as the

34、 world goes through a period of fundamental change in the geopolitical and economic order.This is the context in which the BRICS+coalition has emerged.The alliance,initially just an acronym,has passed the concept and minimum viability stages and is gaining momentum as an entity by organising its col

35、lec-tive resources and markets to challenge and disrupt the Western-led international system.The rise of BRICS+is therefore grounds to pause and reflect on the asset management process,particularly as our analysis suggests the coalition and the evolving geo-political fragmentation will have profound

36、 effects on the way we approach investing and categorise securities into asset classes.As an initial categorisation,it is customary to think of our investment universe in terms of developed and emerging markets.Developed markets are widely seen as enjoying high liquidity,low political risk,high GDP

37、per capita,advanced technologies and exports from a We now see that free trade,globalisation and peace can no longer be taken for granted.9We need to rethink how we approach portfolio construction,define asset classes and parse investment opportunities.variety of sectors.Emerging markets are usually

38、 seen as offering high potential growth but lower liquidity and a narrower scope of investment opportunities,while carrying greater political risk and potential volatility.However,todays increasingly fractured world is marked by growing barriers to trade,the increased segmentation of markets,and an

39、evolving set of growth drivers that are not unique to either of the two groups of markets.This warrants a rethinking of how we approach portfolio construction,define asset classes and parse in-vestment opportunities.In particular,investment opportunities are likely to continue to revolve around the

40、key determinants of future growth:technology,energy supply,commodities/resources and productivity advantages.While these drivers have always been important,their nature and intensity are changing.Growth in technology is predom-inately semiconductor-and AI-driven,while energy encompasses not only fos

41、sil fuels but also increasingly green and nuclear energy in much larger quantities than previously needed due to the electricity-intensity of the new technologies that drive growth.Commodities and other resources now also include highly sought after rare earths and minerals.Productivity advantages n

42、ow take the form of increased use of AI and robotics.The re-sult is a mix of growth drivers with different intensities and composition than before.Some G7 and BRICS+members have compelling advantages in these areas,including natural resource en-dowments that distinguish them from other countries.Chi

43、na,with its strong grip on the production of the criti-cal minerals and rare earths needed for the green transi-tion,suddenly presents many advantages.BRICS+levers of potential global influence also extend to maritime trade routes,energy resources and military capabilities.At the same time,not all d

44、eveloped markets may be able to hold on to the sources of growth that got them where they are today.A widely talked about example is Europe.The BRICS+coalition has already proven useful to its members in its infancy,allowing Russia to protect its economy from Western sanctions by exporting natural r

45、esources to BRICS+peers and bypassing Western sanc-tions,and China to mitigate the effects of tariffs by 10increasing trade within the alliance.In addition,the New Development Bank(NDB)the multilateralist develop-ment bank established by the BRICS states is support-ing newer members in developing an

46、d expanding their infrastructure and economies.The regime change in the global geopolitical and economic landscape suggests that BRICS+economies are likely to gain further momentum given that the current drivers of growth favour the coalition and are less concen-trated in the Western-led world.The r

47、esult is an invest-ment opportunity set that is more thematic and less rep-resented by traditional asset-class classifications or the bifurcation between developed and emerging markets.This paper aims to explain these evolutions and their implications for wealth and asset management in the years to

48、come.Our analysis is broken down as follows.Section 2 looks at the history of the BRICS+coalition,its formation and evolution into what we believe has the potential to be a system disruptor of the Western-led geopolitical order.Section 3 places BRICS+in a broader context,looking at why international

49、 coalitions form and the experi-ence of other alliances,as well as the respective moti-vations of BRICS+members for joining the alliance.Section 4 discusses the New Development Bank the most important institution established by the BRICS states and the role it plays for its members.Section 5 examine

50、s the coalitions strengths and weak-nesses,and how they can affect or threaten the global geoeconomic balance of powers.Section 6 looks at Western strategies used to stunt the development of BRICS+,as well as the implications of these efforts.Section 7 discusses the investment implications of the ex

51、panding BRICS+coalition.In particular,we identi-fy implications of parsing the investment universe,sourcing investment opportunities and constructing portfolios,as well as the effects those are likely to have on liquidity,volatility and diversification.Section 8 concludes with some final thoughts.11

52、2.BRICS:the evolution as an alternative to the WestThe BRICS+coalition exhibits some important key metrics that will affect its growth potential,as Table 1 shows.The BRICS+economies are projected to grow by about 3.8%on average over the next five years,signifi-cantly outpacing the 1.74%estimated for

53、 the G7 and EU combined(which we refer to as G7/EU in this paper).GDP per capita in BRICS+countries is 13%that of the G7/EU average,with their population being almost four times that of the G7/EU and much younger,with an elderly dependency ratio of 14.72%compared to the G7/EUs 32.85%.It also remains

54、 behind in urbanisation.These disparities highlight the potential for consump-tion growth and increased trade between BRICS+coun-tries in the coming years.brIcs+g7/euPopulation(bn)3.90 1.03Gross exports of goods in 2023,total(USD bn)5,135 11,199Gross imports of goods in 2023,total(USD bn)4,38112,140

55、Gross imports of goods in 2023,intra(USD bn)1,1687,429GDP per capita 7,431 55,902 Average GDP growth(projection for next 5 years)3.83%1.74%Average GDP growth(last 5 years)5.10%3.75%Elderly dependency ratio in 2023(ratio of 65+to 15-64 population)14.72%32.85%Elderly dependency ratio in 2060(ratio of

56、65+to 15-64 population)38.26%50.37%Elderly dependency ratio in 2080(ratio of 65+to 15-64 population)50.01%54.31%Life expectancy at birth(years)74.2781.26Urbanisation(percentage of population living in urban areas)53.94%81.06%Trade openness(sum of imports and exports of goods and services as pct of G

57、DP)42.45%57.72%Table 11Economic and demographic comparison of brIcs+and g7/eu 1Forecastsorprojectionsarenotreliable indicatorsorguaranteesoffutureresults,thereforetherecanbenoassurancethat theseresultswillbeachieved.Sources:wpp,Comtrade,imf,WorldBank,unctad122.1.background to the brIcs+coalItIon and

58、 Its levers of InfluenceThe acronym BRIC was initially coined in 2001 to re-fer to Brazil,Russia,India and China in a paper2 arguing that they would reshape the global economy and that the G7 should be adjusted to incorporate representatives from the burgeoning nations(ONeill,2001).Thereafter,shifti

59、ng international relations fed politi-cal and ideological pressures that eventually defeated the economic rationale for including the bloc in the Western-led governance.In 2005,Russia and China reconciled differences by resolving a long-standing territorial dispute and further solidified their partn

60、ership when the BRIC foreign min-isters met at the United Nations(UN)the following year.The global financial crisis of 2008 shook Western com-placency.The G20 hastily convened in October to coordi-nate emergency global responses3.Viewed by some pun-dits as signalling the start of a peaceful transfer

61、 of power by the West,this was reinforced by the spectacle of G7 countries scrambling for financial bailouts from interna-tional sources including China(Held,2010,p.204).On the heels of these developments,the first BRIC summit was held in Yekaterinburg,Russia,in 2009.The four countries used the summ

62、it to form the BRIC coali-tion with the goal of being a problem-solving,consensus-based group,similar in spirit to the G7 but focused on the interests and needs of the developing world and its major actors.After the summit,media attention cast a spotlight on the group and its aspirations to power.Be

63、hind the scenes,BRICS leaders came to see their group as the emerging countries counterweight to the Group of Seven(G7)economic powers by offering agency and influence to countries in the Global South dissatis-fied with the existing international system,which they perceived to be Western-led.This se

64、lf-characterisation was reflected in the coali-tions expansion in 2010 to add South Africa,Africas only member of the G20,giving the coalition a stronger BRICS leaders came to see their group as the emerging countries counterweight to the Group of Seven(G7)economic powers by offering agency and infl

65、uence to countries in the Global South dissatisfied with the existing international system,which they perceived to be Western-led.2ByJimONeillin2001,thenmanaging directoratGoldmanSachs,inhispaperBuilding Better Global Economic BRICs.3AtthetimetheG20comprisedtheG7,theBRic states,Argentina,Australia,I

66、ndonesia,Mexico,SouthAfrica,SaudiArabia,SouthKorea,TurkeyandtheEu.TheG20waslaterexpandedtoin-cludetheAfricanUnionandaSEan.13Together,the BRICS+member nations represent almost half the worlds population.Their economies are projected to grow faster than those of the G7 and EU over the next five years,

67、and they have younger populations.geopolitical flavour.Egypt,Ethiopia,Iran and the United Arab Emirates then joined in 2024,and Indonesia in 2025.While Argentina declined an invitation to join,Saudi Arabia is still considering membership.In October 2024,an additional 13 countries were invited to par

68、tici-pate as partner countries:Algeria,Belarus,Bolivia,Cuba,Indonesia,Kazakhstan,Malaysia,Nigeria,Thailand,Turkey,Uganda,Uzbekistan and Vietnam.Together,the BRICS+member nations represent al-most half the worlds population.Their economies are projected to grow faster than those of the G7 and EU over

69、 the next five years,and they have younger popula-tions.The coalition hosts two of the worlds largest econ-omies(China and India),two major energy producers(Russia and Brazil)and maintains close ties and collabo-ration with Saudi Arabia the worlds second largest oil producer in the world after the U

70、nited States and a po-tential future member.It counts among its members re-gional leaders in Latin America,sub-Saharan Africa,the Middle East,North Africa and Southeast Asia.While BRICS may not have set out with the intention of becoming a counterweight to the G7,it certainly came to be perceived as

71、 such and function as one over time(Rewizorski,2016).The bloc has since grown into an in-formal,multilateral international coalition with the re-sources and geopolitical influence to potentially shift power from the Western-led world order to the Global South.And some are willing and eager to take t

72、he stage.The impetus to the rise of BRICS+is the collective growth of its members economies and their common frustration that the Western-led international order embedded in institutions such as the United Nations(UN),the International Monetary Fund(IMF)and the World Bank does not adequately represe

73、nt or serve their interests.Often referred to by scholars as the Liberal Interna-tional Order,this system was founded after World War II and installed by the Anglo-American wartime allies.It drew on liberal ideas on the positive effects of adopt-ing capitalism and free trade for national development

74、,while integrating systemic management to ensure overall stability.It also drew inspiration from enlightenment-era thinkers on human rights and equitable representation 14through democracy as enshrined in the UN Charter(1945)and the Universal Declaration of Human Rights(1948).In this paper,we refer

75、to this order as the Western-led international system.The New Development Bank(NDB)the multilater-alist development bank established by the BRICS states is the coalitions principal institution for offering a nas-cent vision of an alternative to the existing Western-led international system.The other

76、 main assets of BRICS+are younger demographics than the G7 and EU coun-tries,significant economic levers,military clout and ma-jor geopolitical influence,including over supply chains.Individually,some BRICS+countries are particularly well-positioned to profit from an evolving global econo-my in whic

77、h technological leadership and access to key raw materials are becoming the leading drivers of growth and will have corresponding implications for investing.Collectively,the BRICS+alliance is already showing that it can help turbo charge the growth prospects of some of its members.We discuss the exp

78、ansion of intra-BRICS+trade and the Middle East to Asia pivot in Section 6.If the coalition manages to effectively lever-age the full array of tools and influence at its disposal,these gains could spill over to the wider group too.On the downside,the BRICS+coalition lacks its own currency and unifie

79、d capital markets.Several attempts in that direction have been hindered by the coalitions direct or indirect reliance on the US dollar.We will elab-orate on this in Section 5.The distinction between BRICS and the West was hardened when the United States formally designated Russia and China as strate

80、gic competitors in its 2017 National Security Strategy,followed by the EU later de-claring the two countries as systemic rivals.4 Moreover,the growing anti-Western sentiment at the core of the coalition was definitively underlined in 2021 when China and Russia announced a partnership without limits.

81、This essentially led to the BRICS countries in general not opposing Russias invasion of Ukraine in February 2022.BRICS nations were then put in direct opposition to the G7 when the West imposed sanctions against Russia and the coalition countries were willing to help Moscow 4https:/trumpwhitehouse.a

82、rchives.gov/wp-content/uploads/2017/12/NSS-Final-12-18-2017-0905.pdfThe New Development Bank(NDB)the multilateralist development bank established by the BRICS states is the coalitions principal institution for offering a nascent vision of an alternative to the existing Western-led international syst

83、em.15The US decision to freeze Russian foreign exchange reserves following Moscows invasion of Ukraine strengthened the resolve of BRICS nations to form alternative institutions and international transaction settlement mechanisms that could help them bypass the use of the US dollar and its weaponisa

84、tion when their countries oppose the will of US foreign policy.BRICS determination was further solidified when the EU and the UK froze or confiscated Russian assets.China then perceived the way the G7 had been treating Russia as its own potential future if Beijing were to directly oppose the US or b

85、roader G7 interests.dodge them.Furthermore,the US decision to freeze Rus-sian foreign exchange reserves following Moscows inva-sion of Ukraine strengthened the resolve of BRICS na-tions to form alternative institutions and international transaction settlement mechanisms that could help them bypass t

86、he use of the US dollar and its weaponisa-tion when their countries oppose the will of US foreign policy.BRICS determination was further solidified when the EU and the UK froze or confiscated Russian assets.China then perceived the way the G7 had been treating Russia as its own potential future if B

87、eijing were to directly oppose the US or broader G7 interests.Beyond the punitive measures that the G7 took against Russia,the war in Ukraine on the heels of the Covid-19 pandemic led to soaring energy prices,food supply-chain disruptions and spillover effects that exac-erbated Global South countrie

88、s direct conflict with Western interests.These developments effectively eclipsed the economic case for including BRICS in Western-led global govern-ance structures,given that Russias and Chinas interests lie in subverting that same order.Moreover,the difficul-ties of existing Western-led internation

89、al institutions in coping with a cascade of economic challenges and securi-ty issues further spurred on the coalition to bind togeth-er in order to mitigate any negative knock-on effects on its economies and the restrictions faced by some of them(e.g.,China)to access G7 markets.16“The days when glob

90、al decisions were dictated by a small group of countries are long gone.We always believe that countries,big or small,strong or weak,poor or rich,are equals,and that world affairs should be handled through consultation by all countries”(bbC,2021).2.2.brIcs+as a system dIsruptorDuring the G7 Summit he

91、ld in the United Kingdom in June 2021,the Chinese embassy issued a telling statement:For its proponents,including a large portion of the Global South,BRICS+serves as an alternative and a welcome one at that to decades of world affairs being dominated by the US,the G7 and NATO.For Western critics,BRI

92、CS+is an emerging parallel structure that seeks to displace existing,democratically an-chored multilateral norms and institutions with more au-thoritarian ones under the leadership of China and Russia.They point to everything from the efforts by BRICS+to reduce its dependency on the US by de-dollari

93、sing its trad-ing activities,to its resistance to enforcing Western-led sanctions against violators of international law,and the group promoting ethnic nationalism framed as traditional values over inclusivity in its domestic affairs.We argue that a pragmatic way to view the BRICS+coalition going fo

94、rward is as a system disruptor,a diplomatic challenger to Western values and institutional hegemony,as well as a potentially formidable economic challenger to the G7s global economic dominance.As such,it can reshape the growth and investment opportu-nity engines of the global economy and necessitate

95、 a drastic rethinking of the prevailing investment approach.We discuss our thoughts on the investment implications of these geopolitical and economic developments in Section 7.2.3.tensIons between brIcs+countrIesThe BRICS+coalition is not without its internal ten-sions.These often lead pundits to di

96、smiss the coalition as unsustainable and ephemeral.Most notably,the ten-sions are focused between the authoritarian core and the democracies within the coalition.The projected gap in the ideological unity of the coalition raises doubts as to whether it represents primarily a regional development 17c

97、hampion,a leader of the Global South,or a potent de-dollarisation force and economic disruptor to the West.It is only natural that an international group based on aspirations to wield global influence is characterised by strong competition among members,at least in its early stages.Even after the hi

98、storic reconciliation be-tween China and Russia and the important role China has played in helping Russia prosecute the war in Ukraine by providing and financing economic coopera-tion,diplomatic backing and military support,there are still serious points of contention involving Chinese claims on its

99、 borders and the easternmost territories of the Russian state.Russia has clearly become the junior partner in its relationship with China as Moscows power and prestige have continued to wane since the fall of the Soviet Union,and again since 2022.So far this has yet to spark further conflicts.Seriou

100、s policy disagreements are likely to be forestalled by the commitment of the countries leaders to joint diplomatic cooperation,deepening inte-gration of their economies and even through joint mili-tary exercises.On a different front,Chinas disputes with India are profound and,up until recently,the s

101、ource of heighten-ing tensions between the two countries.The unresolved territorial disputes in the Himalayan mountains,dating back to the 1962 border war,were reignited in 2020 by Beijings efforts to extend its control by building infra-structure and deploying troops in the region.Chinese diplomacy

102、 has made inroads into the India-dependent Nepal and Bhutan while Chinas close bilateral relationship with Indias rival,Pakistan,remains a key sticking point as well.In addition to the land-based con-flict,there are maritime disagreements over the surge in Chinese warships in the Indian Ocean and wh

103、at are sometimes characterised as Chinas string of pearls the network of ports and dual-use infrastructure run-ning from Myanmar in the east to Djibouti on the Horn of Africa.Indeed,Indian analysts coined the phrase We argue that a pragmatic way to view the BRICS+coalition going forward is as a syst

104、em disruptor,a diplomatic challenger to Western values and institutional hegemony,as well as a potentially formidable economic challenger to the G7s global economic dominance.18debt trap diplomacy to describe what they saw the Chi-nese were doing in lending for port construction to the Sri Lankan go

105、vernment and then acquiring this same strategic asset from Colombo.Suspicions run deeper still,with India continuing to close off Chinese foreign direct investment(FDI)from entering its domestic economy,including the vital infra-structure and tech sectors,to avoid the kind of entangle-ment that West

106、ern governments have experienced with China.A Sino-Indian agreement to withdraw their troops from their mutual border and reduce tensions was brokered through Russian mediation.However,remaining differences of outlook between the two rivals remain evident as India envisions a multipolar Asia whereas

107、 China promotes a multipolar world where it is the clear Asian hegemon(Mukherji&Sood,2024).Bringing the new cohort of member states into BRICS in August 2023 introduced a whole set of regional controversies that would potentially have an impact on the groups functioning.For instance,the reconciliati

108、on of Iran and Saudi Arabia,for which Beijing took much of the credit,served as the precursor to their invitation to join BRICS in 2024.Nevertheless,the underlying conflict between revolutionary Shia rule in Iran,with its support for regional destabilisers such as Hezbollah and the Houthis,and conse

109、rvative Sunnis in charge of Saudi Arabia,the keeper of the holy site of Mecca and ally to the embattled Yemen government,remains intensely rooted and the subject of periodic local clashes around the Middle East.These tensions between BRICS+nations amount to fault lines the West could strategically u

110、se to try to frac-ture,or at least weaken,the coalition.However,that may be harder than it might sound.Just because BRICS+members have territorial or ideological differences does not preclude them from enduring as a coalition.A com-parison of BRICS+with other intergovernmental coali-tions shows it i

111、s not uncommon for these alliances to ex-perience teething problems in their infancy but for them to nonetheless prevail thanks to the common goals and focus of their leaders.193.The international relations theory behind the formation of coalitionsThe motivations behind forming international coali-t

112、ions such as BRICS+vary and may even diverge be-tween members.They need not necessarily all join for the same reason.Such coalitions are drawn and bound together by common interests,or values.So long as they share a common denominator and work towards a col-lective purpose,international coalitions c

113、an overcome their differences in pursuit of a greater goal,or goals,as the experience of the EU has proven.Focusing on a com-mon goal may result in the formation of what initially,or superficially,appear to be unlikely alliances that deepen over time as trust between members grows and their goals ev

114、olve.International relations theory provides a classifica-tion of the foreign policy approaches countries take and the motivations that lead them to form intergovernmen-tal coalitions.This classification includes three broad drivers of coalitions,which may overlap as FiGUre 1 illustrates.3.1 post-ww

115、II evolutIon of InternatIonal relatIonsMuch of the post-WWII period was defined by the building of international institutions,such as the UN,aimed at promoting peace and prosperity through Western-led economic policies and ideals.While the earlier part of the post-war period was also characterised F

116、iGUre 1Approaches to international relationsfunctIonalIsmIdealIsmrealIsmrealIsm Realism in international relations focuses on the pursuit of national interests over principles or values,viewing global inter-actions as a competitive struggle for power and positioning.States often project pow-er by im

117、posing rules across sectors like trade,finance,or security,using interna-tional institutions to enforce compliance and maintain their dominant interests.IdealIsm Idealism in international rela-tions emphasises that moral and ethical principles,rather than self-interest or power,should guide interact

118、ions be-tween countries,advocating for cooperation to achieve peace,justice,human rights,and poverty reduction.functIonalIsm Functionalism uses the coali-tion to solve a problem or set of problems.An example of this approach is the G7,formed to coordinate policies in response to the oil shock.Though

119、 more idealist by design,such allianc-es may mature to become more realist in nature.20by the competition for power and influence between the two superpowers of the time the United States and the Soviet Union the end of the Cold War in 1989 changed the narrative.The collapse of the Soviet Union and

120、its command economy brought about an unprecedented global systemic transformation.Rather than two super-powers contesting for dominance of the international system,there is now just one single hegemon the Unit-ed States.3.1.1.The new era of the realist approachWith the US as primus inter paras(first

121、 among equals)in the UN system,states sought to respond to US power in three ways,all anchored in the realist approach to international relations:Balancing:This involves states using coalition-building strategies to bring together like-minded states that are concerned about the pursuit of power by t

122、he dominant hegemon,whether over a specific issue that affects their interests or more generally.These coali-tions make it more likely that these states will be able to achieve collective aims that they might not other-wise if operating alone.Hedging:This arises as a reaction to the rise of compe-ti

123、tion between states as other great powers emerge within the international system,rather than a re-sponse to larger systemic conditions posed by unipo-larity(Korolev,2016).In this case,states seek to tacti-cally align their foreign policies to one of the great powers without severing ties with the ot

124、her great power(sometimes also called soft balancing).In the current setting,classic hedging strategies can be seen in Southeast Asia,where states are anxious to pursue close economic ties with China while still relying on the US security alliances to offset concerns about Bei-jings expansion in the

125、 region.Bandwagoning:This is a choice to align directly with the dominant power and its interests.Here,the smaller state expects it will be better able to secure its own interests by aligning its own foreign policy di-rectly with that of the superpower.3.2.motIvatIons of countrIes for joInIng brIcs+

126、In the case of BRICS+,the motivations for states to join the coalition vary and can be multiple.They tend to fall in the category of realism,with some countries pursu-ing balancing and hedging strategies to align with China and Russia while also keeping ties with the US.Broadly speaking,economic or

127、security interests and the quest for international influence are,to varying degrees,the goals of both the original and new members of the coalition.21Chinas motivation to maintain,strengthen and expand the BRICS+coalition is twofold:1)to mitigate the negative effects on its economy from the market e

128、ntry barriers it faces in the US and EU by developing its penetration of the BRICS+markets and the broader Global South;and 2)to hedge against the eventuality of facing a similar fate to Russia should it have a future dispute with the US (most likely around Taiwan)that may result in the West freezin

129、g or confiscating its assets.The efforts to develop alternative payment systems that bypass those of the US dollar can be understood in that context.22China and Russia form the dominant core of the BRICS+alliance,thanks to their combined economic and military strength and their status as permanent m

130、embers of the UN Security Council.Their objectives,however,are not the same.Chinas initial motivation in establishing the coali-tion was mostly about building support among key emerging and developing states in the G20.Over time,its motivations have changed as a result of its intensifying competitio

131、n with the US and the broader geopolitical developments.Currently,Chinas motivation to main-tain,strengthen and expand the BRICS+coalition is twofold:1)to mitigate the negative effects on its econo-my from the market entry barriers it faces in the US and EU by developing its penetration of the BRICS

132、+markets and the broader Global South;and 2)to hedge against the eventuality of facing a similar fate to Russia should it have a future dispute with the US(most likely around Taiwan)that may result in the West freezing or confiscat-ing its assets.The efforts to develop alternative payment systems th

133、at bypass those of the US dollar can be under-stood in that context.For its part,Russias motivation for being part of the BRICS+coalition is its need to find new markets for its energy exports,assert its influence in a multipolar world,challenge Western dominance and counter Western sanctions.In thi

134、s regard,BRICS+and the markets that the coalition provides,along with some of the payment systems it has developed,have largely enabled Russia to circumvent sanctions.3.3 evolutIon of the g7 and the eu a comparIson wIth brIcs+BRICS+bears more than a passing resemblance to the G7 in terms of its evol

135、ution over time,its annual leadership summit and its focus on developing shared positions on global issues.Moreover,BRICS+leaders In the case of BRICS+,the motivations for states to join the coalition vary and can be multiple.Broadly speaking,economic or security interests and the quest for internat

136、ional influence are,to varying degrees,the goals of both the original and new members of the coalition.23portray their group as the emerging countries counter-weight to the G7.An examination of the G7 sheds light on the trajectory that BRICS+is following and the inter-national significance it hopes

137、to achieve.The G7 is the leading informal intergovernmental group representing the top industrialised economies of the West.It was formed in 1975 in response to the oil shock and subsequent economic crisis.Within a few years it had its current membership of Canada,France,Germany,Italy,Japan,the Unit

138、ed Kingdom and the United States.The G7 is widely seen as an informal site for stra-tegic initiatives and group coordination on major global issues,as well as providing G7 leaders and ministers opportunities to exchange views.There is no permanent secretariat,and coordination is carried out by membe

139、r states foreign ministries on a rotating basis.The G7 hosts typically invite key emerging and developing economies to meet on the sidelines of summits,as well as development bodies such as the World Bank,the Organisation for Economic Cooperation and Develop-ment(OECD)and regional development banks.

140、By way of comparison,BRICS+is also an informal intergovernmental organisation composed of ten full members with prospective members such as Saudi Arabia taking the laddered steps to full membership.Others,such as Turkey,act as observers to the summit process.It has a formal intergovernmental institu

141、tion linked to it the NDB incorporated as a regional development bank Deep divisions and fierce competition are not necessarily a barrier to building cooperation.Barely a decade after the destruction of World War II,European economic cooperation required overcoming the open wounds of ongoing dispute

142、s over territory,retribution and reparations.These were addressed by visionary Western European leaders through a laser-like focus on sectors of common concern where the imperatives of cooperation overrode local objections.Called functionalism,these confidence-building initiatives had spillover effe

143、cts in other sectors and paved the way for the gradual alignment of interests towards closer cooperation.24since 2014 with overlapping membership with BRICS+countries(except Iran,Ethiopia and Indonesia)though Bangladesh is part of the NDB but not BRICS+.Like the G7,BRICS+has evolved over time into a

144、 leadership summit that provides a platform for informal discussion and coordination on global issues.Through its summit declarations,BRICS+offers support for members for-eign policy positions,such as Russias invasion of Ukraine,while promoting policies such as de-dollarisa-tion that are taken up by

145、 the NDB.Since 2024,it has tried to strengthen its public profile as a leader of the Global South.Lastly,deep divisions and fierce competition are not necessarily a barrier to building cooperation.Scholarship of the EU points out that initial economic cooperation in the 1950s,barely a decade after t

146、he destruction of World War II and Nazi occupation of a large swathe of Northern France and the Benelux countries,required overcoming the open wounds of the recent past,charac-terised as ongoing disputes over territory,retribution and reparations.These were addressed by visionary Western European le

147、aders through a laser-like focus on sectors of common concern where the imperatives of co-operation overrode local objections(e.g.consolidating coal and steel production to meet economies of scale).Called functionalism,these confidence-building initia-tives had spillover effects in other sectors inc

148、luding among national politics and societies and paved the way for the gradual alignment of interests towards closer cooperation.But it still took more than three decades,between 1957 to 1993,for the European Economic Com-munity to be recast as the European Union through trea-ty agreements.While BRI

149、CS+does not share these ambitions,the comparison shows that divisive bilateral disputes between BRICS+members and the fearsome rhetoric of nationalist politics do not mean its leaders will not find a way to co-operate to achieve their common objectives.The BRICS+countries have more than enough incen

150、tive to extend mu-tual cooperation in their overriding imperative to reform BRICS+advocates a more transparent and collective decision-making process in the institutions it aims to build.It does not aim to intervene in the political systems of the member states or force compliance on topics outside

151、the scope of collaboration.25general Issues wIth the brIhost country perceptIonsbrIcs+as a solutIon to mItIgate frIctIonsEconomic impact Debt trap diplomacy:Concerns over unsustainable debt burdens due to large-scale infrastructure loans,often criticised as“debt traps”Overreliance on Chinese contrac

152、-tors:Infrastructure projects are heavily implemented by Chinese firms,limiting local capacity-building and job creation Many countries,especially in Africa and South Asia,perceive bri loans as economically risky Host nations often express dissatis-faction with limited local involve-ment in project

153、execution and lack of technology transfer briCS+emphasises multilateral cooperation,allowing for shared investments and governance among members Encourages knowledge-sharing and collaborative development projects,ensuring broader ownership and benefitsGeopolitical tensions Perceived as a geopolitica

154、l tool:Critics argue that the bri serves Chi-nas strategic interests,such as se-curing critical trade routes(e.g.,the Indian Ocean)and political influence Regional imbalances:Countries such as India criticise the bri for im-pinging on their sovereignty(e.g.,China-Pakistan Economic Corridor)Host coun

155、tries recognise the strate-gic motivations behind the bri,leading to mixed reactions:smaller nations welcome investments,while regional powers such as India resist initiatives perceived as encroachments on sovereignty briCS+projects China as part of a collective leadership rather than a dominant act

156、or Provides smaller nations with a plat-form to voice concerns and balance power dynamics,fostering trust and multilateral decision-makingSocial&envi-ronmental Environmental degradation:Infra-structure projects often lead to deforestation,habitat loss,and increased carbon emissions Social displaceme

157、nt:Large-scale projects displace communities without adequate compensation mechanisms Host countries with strong civil soci-eties(e.g.,Malaysia)have paused or cancelled projects due to environ-mental or social concerns Negative public sentiment against the bri in regions where displacement and ecolo

158、gical harm are significant briCS+has the potential to inte-grate environmental and social goals through initiatives such as the NDbs focus on green financing Encourages members to establish shared environmental standards for projectsTransparency&governance Lack of transparency:Deals and agreements a

159、re often opaque,leading to corruption concerns Governance issues:Host nations face challenges negotiating favourable terms,often accepting agreements skewed toward Chinese interests Governments and civil society groups in host countries criticise the bri for fostering corruption and prioritising Chi

160、nese interests over fair partnerships briCS+promotes transparency through collective decision-making processes and multilateral govern-ance structures Encourages member countries to negotiate collectively,reducing asymmetric dependencies on any single powerEconomic sustainability Project viability c

161、oncerns:Some infrastructure projects under the bri lack long-term economic sus-tainability(e.g.,underutilised ports or highways)Host countries with limited fiscal resources question the utility of costly infrastructure projects that fail to generate expected eco-nomic returns(e.g.,Sri Lankas Hambant

162、ota port)briCS+focuses on smaller,diversi-fied economic partnerships that bal-ance infrastructure projects with broader development goals Facilitates investments in diverse sectors such as technology,educa-tion and healthcareCultural&political Cultural friction:Perceived cultural insensitivity and l

163、ack of local en-gagement alienate host communi-ties Authoritarian bias:bris alignment with autocratic regimes creates global image challenges Democratic nations are vigilant of the bris association with authori-tarian regimes,questioning Chinas intent and values Local communities often feel ex-clude

164、d from the benefits and deci-sion-making processes of projects briCS+includes democracies such as India,South Africa and Brazil,helping counter the narrative of authoritarian alignment One focus is also on cultural ex-change and inclusivity,creating broader acceptance and legitimacy in host nationsS

165、trategic shift us and eu backlash:Growing push-back from Western countries,such as sanctions and counter-initiatives(e.g.,the eUs Global Gateway)Increased scrutiny:The bri faces criticism as Chinas dominant role raises questions about fair competi-tion and market access Host countries are increasing

166、ly cautious about aligning solely with China,given geopolitical risks and economic overdependence Western pressure amplifies hesita-tion among middle-income and strategically-located nations briCS+diversifies leadership by in-volving other regional powers(India,Brazil),reducing dependence on any one

167、 country Leverages political alliances to neu-tralise Western pushback while pre-senting a balanced and cooperative alternativeTable 2A comparison of brIcs+and the Belt and Road Initiative(brI)26the existing international system,sideline the West,gain a firmer hold on international institutions and

168、build up a strong base for strategic autonomy.This underlines the importance of understanding their motivations for form-ing and developing the coalition,with a view to discerning how its rise affects the investment universe.3.4 brIcs+vs the belt and road InItIatIveIn the case of China,the BRICS+coa

169、lition offers a means to mitigate frictions caused by its Belt and Road Initiative(BRI),the global infrastructure strategy pur-sued by Beijing.The BRI has proven controversial,rais-ing concerns in host countries about unsustainable debt burdens accrued from large-scale infrastructure projects.Critic

170、s also view the BRI as an opaque,geopolitical tool used by China to promote its strategic interests,such as securing critical trade routes,while some host countries have paused or cancelled projects due to environmental or social concerns.These issues have combined to pose barriers to the BRIs accep

171、tance.BRICS+,by contrast,advocates a more transparent and collective decision-making process in the institu-tions it aims to build,such as the NDB.It does not aim to intervene in the political systems of the member states or force compliance on topics outside the scope of collaboration.With large de

172、mocracies among its members,BRICS+appears less authoritarian than the China-led BRI.By positioning itself as a multilateral platform,BRICS+offers a more inclusive,diplomatic alternative to the BRI.Its collective approach and focus on smaller,diversified economic partnerships that balance infrastruct

173、ure projects with development goals strengthen its global legitimacy and increase the coali-tions appeal among developing nations.Table 2(p.25)provides an overview of how BRICS+differs from the BRI in mitigating the frictions between states caused by the BRI.Brazil,an original member and a key BRICS

174、 democracy,views the coalition as a means to support and defend the interests of the Global South.It is not focused on stopping the West from projecting its power,as Russia is,but rather views the coalition as ushering in benign multipolarity that will help it maintain balanced rela-tions between th

175、e West and the Global South,while acting as a bridge between BRICS+and Africa.New members have different motivations for joining.Egypt wants to enhance its regional influence.Ethiopia wants to accelerate its economic expansion.Iran wants to counterbalance Western influence and reduce its internation

176、al isolation.And the UAE wants to diversify its economy beyond oil and to access BRICS+markets.27countryobjectIveseconomIc goalsgeopolItIcal goalschallengesstrategIc ImportanceChinaMaintain leadership in briCS,reduce dependency on USD,increase renminbi usageExpand trade within briCS,promote CiPS as

177、an alterna-tive to SWiFTCounterbalance US influence,support anti-Western briCS membersLimited adoption of renminbi,regional disputes in South China Sea,scepti-cism from aSeaNDominant economic power in briCS,key trading partnerRussiaCounter Western sanctions,assert influence in a multipolar worldFind

178、 new markets for energy exports,strengthen economic ties within briCSPosition the coalition as a leader of the Global South,challenge Western dominanceEconomic depend-ence on China,inter-national isolation,geopolitical tensionsKey energy supplier,strong military ties with briCS membersIndiaBalance i

179、nfluence of China and Russia,act as a bridge to Western powersSecure stable energy imports,promote ru-pee in regional tradeCounter Chinas influence in Indo-Pacific,assert leader-ship in Global SouthBorder disputes with China,trade policy disagreements,currency policy differencesMajor emerging econom

180、y,strategic location in Indo-PacificBrazilChampion interests of the Global South,enhance voice in global institutionsDeepen trade ties within briCS,lever-age NDb for infra-structure fundingMaintain balanced relations with West-ern and briCS na-tions,promote multipolarityTrade imbalance with China,ec

181、onomic dependency on commodity exportsLargest economy in South America,advo-cate for Global SouthSouth AfricaStrengthen economic ties with briCS,position the coalition as a bridge between briCS and AfricaAttract investment,boost trade with briCS membersPromote multipolar world order,increase African

182、 representa-tion in global affairsTrade imbalance,in-ternal political dy-namics,ensuring tan-gible economic benefitsGateway to Africa,key player in African diplomacyEgyptBroaden diplomatic avenues,enhance regional influenceMitigate financial difficulties,attract investment for infra-structureManage

183、regional con-flicts,reduce reliance on Western powersRegional tensions(e.g.,Nile water dis-pute with Ethiopia),economic challengesStrategic location controlling Suez Canal,largest Arab nationEthiopiaAccelerate economic expansion,strength-en ties with briCS membersAttract investment,secure financing

184、for infrastructure projectsAdvocate for new global economic or-der,increase African representationRegional conflicts(e.g.,Nile dam dispute with Egypt),high inflation,sub-stantial national debtStrategic location near Red Sea,host of African Union headquartersIndonesiaStrengthen ties with briCS+member

185、s(China and India are its major trading partners)Seek investments for big infrastructure projectsStrengthen its impor-tance on the world stage and maintain good relations with China and the USHistorical tradition of neutrality might become difficult to maintain due to briCS+membershipLargest nickel

186、export-er,large coal and palm oil exports,most populous aSeaN country(4th in the world),location along the Strait of MalaccaIranCounterbalance Western influence,reduce international isolationAttract investment,diversify economy,strengthen energy sectorStrengthen military ties with briCS members,mana

187、ge regional rivalriesWestern sanctions,regional tensions(e.g.,with Saudi Arabia),influence in regional conflictsKey regional power,significant energy resourcesUaeDiversify economy beyond oil,access briCS marketsBenefit from de-dol-larisation,attract in-vestment,modernise infrastructureBalance relati

188、ons with Western nations and briCS,manage regional conflictsEconomic dependen-cy on Western mar-kets,regional insta-bility(e.g.,Yemen conflict)Financial capacity,strategic location in Middle EastSaudi ArabiaDiversify economy,reduce reliance on oil,enhance regional influenceOpen new trade ave-nues,at

189、tract invest-ment,support Vision 2030 agendaStrengthen geopoliti-cal position,manage regional rivalries(e.g.,Iran),assert leader-ship in Arab worldDependency on US,regional tensions,balancing traditional alliances with new briCS relationshipsLeading oil exporter,key player in Middle East,Vision 2030

190、 modernisation planTable 3The differing allure of brIcs+for its members and prospectsSources:Braveboy-Wagner(2024),Cooper&Cannon(2024),EPRS(2024),Megre&Ribiero(2024),Papa&Verma(2021),Ross(2023),Verma&Papa(2021)Original MembersNew MembersInvited Member28Invited member state Saudi Arabia is firmly in

191、the process of diversifying beyond oil,and views BRICS+as a conduit for strengthening its geopolitical position and managing regional rivalries.A detailed overview of the individual objectives of each BRICS+member can be found in Table 3(p.27)Broadly,the unified goals of this loose alliance of emerg

192、-ing economies aiming to increase their influence in the global order can be summarised as follows:Develop an alternative to Western dominance of international institutions Foster deeper trade ties between members and reduce reliance on the US dollar Engage in development projects and act as a leade

193、r of the Global South FiGUre 2 underscores the diversity of BRICS+members goals and agendas,which shape the blocs co-hesion and dynamics.The diversity of interests expands further with prospective members from vastly different regions and economic conditions.Countries such as Turkey and Saudi Arabia

194、 could bring their own geopolitical con-cerns that do not always align with existing members goals.Smaller economies,such as Laos and Mongolia,could primarily seek financial and developmental support rather than pursuing broader geopolitical aims.unIfIed goalseCoNomiC DiverSiFiCaTioNaNTi-WeSTerN STr

195、aTeGyTrade expansionDevelopment fundingInfrastructure financingUSD alternativesGeopolitical counterbalanceSanction navigationBrazilEgyptEthiopiaChinaIranRussiaIndiaIndonesiaS.AfricaUaeArmeniaAzerbaijanBahrainBelarusCubaNicaraguaBangladeshBoliviaCongo,Rep.TurkmenistanKazakhstanKyrgyzstanLaosMalaysiaM

196、auritaniaMexicoMongoliaSaudi ArabiaSri LankaTajikistanThailandTurkeyUzbekistanVietnamFiGUre 2A classification of brIcs+members and prospects by objectivesbrIcs+membersProspective brIcs+membersSource:PictetResearchInstitute29Despite this wide array of interests and objectives among BRICS+members,the

197、dominant core members China and Russia have thus far held the coalition together by skilfully managing the other BRICS+members and shaping the accompanying narrative of an inevitable transfer of power by a West seemingly in decline.In doing so,they shape the outlook and policies of the alliance,as w

198、ell as much of the Global South.3.5 crIterIa for joInIng brIcs+China and Russia called for closer cooperation in their Comprehensive Strategic Partnership for a New Era,launched jointly by the countries two leaders in 2019(Xinhuanet,2019).Pushing to project the coali-tions power,the two powers persi

199、stently called on expanding BRICS after 2018 in order to better realise the groups potential.From 2018 onward,BRICS engaged with those coun-tries it had identified as prospective applicants for future inclusion in the coalition.However,while Russia and China were out front in promoting the idea of e

200、nlarging BRICS,concerns remained among the BRICS democra-cies as to how expansion would affect their own interests(Sen,2024).The absence of formal criteria for membership creat-ed unease among the BRICS democracies,as it raised concerns about maintaining ideological balances and protecting their ind

201、ividual strategic interests.As Indian Foreign Minister Subrahmanyam Jaishankar observed:As host of the 2023 BRICS summit,the South African government put forward a list of criteria for membership that included convergence with BRICS ideals,commit-ment to comprehensive UN reform(including the Secu-ri

202、ty Council)and a willingness not to impose non-UN Security Council sanctions(BRICS Information Centre,2023).Given that every BRICS summit declaration since 2014 expressed a preference for Brazil,India and South Africa to“play a greater role in the UN”due to their “We obviously believe that there are

203、 supposed to be some criteria and standards for(BRICS)membership There must be some measurements,a yardstick by which we can judge potential applicants”(aNTara NeWS,2023)30“status and role in international affairs”,it is no surprise that this sentiment eventually translated into support for these th

204、ree countries to become permanent members of the UN Security Council.5Reflecting this,Indian and South African sources in-dicated that an agreement was struck during the 2023 membership expansion process that any new member brought into the group would be obliged to support In-dia,Brazil and South A

205、fricas claims for a permanent seat on the UN Security Council as part of a criteria for join-ing(Sen,2024).Potential members were put through a graduated status from interested country,prospective member state,invited member state,BRICS partner6 and finally BRICS member state(BRICS Information Centr

206、e,2023).5However,BRicSexpansionmighthavebroughtameasureoftensionanddisagreementaroundthisissue.AlthoughrumouredthattheinvitationtojoinBRicSwaspredicatedonsupportforthecan-didacyofBrazil,IndiaandSouthAfricaasperma-nentmembersoftheunScinareformedCouncil,ithasbeenreportedsincethatEgyptandEthiopiadonots

207、upportthecandidaciesofthesecountries,perceivingofthemselvesasalsolegitimateaspir-ants(Sen,2024).6ThecategoryofBRicSPartnerwascreated undertheRussianchairingoftheKazanSummitinOctober2024.314.The role of the New Development BankThe New Development Bank(NDB)is the most signif-icant institution formed b

208、y the group to date and has brought its most significant set of policy outputs.The NDBs purpose is to mobilise“resources for infrastructure and sustainable development projects in emerging mar-kets and developing countries(EMDCs)”(New Develop-ment Bank,2025).As such,it may serve as a vehicle for rei

209、nforcing the geopolitical fragmentation that is evolving across the world and which we expect to have profound effects on the way we approach investing.The NDBs cap-ital base and governance is structured as an equal part-nership:USD 50 billion from each of the founding mem-bers(USD 10 billion paid i

210、n shares and USD 40 billion in callable shares),all of it equally shared between them.Members were initially designated as the only recipients of loans while non-members must have the approval of the NDBs Board of Directors to engage in borrowing(New Development Bank,2016).International organisa-tio

211、ns were added to the list of officially recognised recipients in 2019.In line with the ethos of South-South cooperation,the NDB works with the national standards of its borrower countries rather than imposing criteria on borrowers.Co-financing with other multilateral de-velopment banks is increasing

212、ly a feature of NDB prac-tice and helps to promote peer recognition for the bank.A gradual approach has characterised the NDBs evo-lution over the last decade,demonstrating caution as the bank refines its aims and scales its ambitions accordingly.Proposed by India at the fourth BRICS summit in New D

213、elhi and formally approved at the sixth BRICS summit in Fortaleza two years later,the NDB was not launched and capitalised until 2016.For its next move,the NDB began opening regional branch offices starting with the Africa Regional Centre in Johannesburg in 2017,the Americas Regional Centre in So Pa

214、ulo in 2018,the Eura-sian Regional Centre in Moscow in 2021 and the India The NDBs purpose is to mobilise“resources for infrastructure and sustainable development projects in emerging markets and developing countries.”As such,it may serve as a vehicle for reinforcing the geopolitical fragmentation t

215、hat is evolving across the world.32Regional Office in Gujarat in 2022.Building on those foundations,and distinct from BRICS membership (often confused by the media as being one and the same),Bangladesh,Egypt,the UAE and Uruguay(full approval still pending)joined the NDB in 2022.7One of the key secto

216、rs for the NDB is green finance,where it aims to become a global leader.BRICS and China are vocal champions of the UNs Sustainable De-velopment Goals(SDGs)and point to the tepid support given by Western governments in meeting these interna-tional targets.A cynical view of the push for green finance

217、can be motivated by the industrial superiority of China in producing electric vehicles,solar panels and other products linked to decarbonisation,including producing most of the critical minerals and rare earths needed for the green transition.7Interestingly,India,BrazilandSouthAfricahadalreadyformed

218、agroup,iBSa,backin2003aspartoftheirbidtobeselectedaspermanentmembersinareformedunSecurityCouncil.TheywentontocreateadevelopmentvehicletheiBSaFundhostedbytheundptosupportsmallgrantprojectsacrosstheGlobalSouth.Alden andLePere(2024)observethattheiBSalegacyfactorsintotheBRicSdevelopmentagenda.“Theattent

219、ionondevelopmentalfinanceasone ofthetwomainfociforintra-BRicSinternational cooperation(theotherbeinghardcurrency reservepooling,thatledtotheBRicS“ContingentReserveArrangement”)reflectstheinfluence oftheiBSanationswithintheBRicSgrouping,representingalineofcontinuitybetweenthe iBSaFundandthendB”(Alden

220、&LePere,2024).335.Strengths and weaknesses of BRICS+Understanding the strengths and weaknesses of BRICS+helps us assess the trajectory of the global geoeconomic order and,therefore,the impact those developments may have on the practice of portfolio management.5.1.strengthsBRICS+countries have multip

221、le levers of potential global influence at their disposal.They range from com-modities and energy resources to maritime trade routes and military capabilities.However,these sources of strength within the coalition have yet to be mobilised collectively to exert influence over the West(although China

222、has selectively used them).How extensively they will be used in the future,if the political need arises,remains to be seen.5.1.1.Commodities and the green transition Supplies of vital mineral resources such as rare earths,where China holds upwards of 60%of all known sources and processes 90%of them,

223、are an obvious area where China and BRICS+can exercise their global advantage.In fact,they have already done so to some extent.For example,a few years ago China withheld exports to Japan and the US,and more recently Beijing banned sales of technology on processing rare earths(Baskaran,2024).The stre

224、ngth of BRICS+in the production of rare earths led by China and South Africa puts the coalition in a pivotal position in the global green transition as these raw materials are crucial in the manufacture of compo-nents for clean technologies including wind turbines,electric cars and scooters.This lea

225、ves the EU,in particu-lar,in an awkward position as it tries to meet climate targets without jeopardising its geopolitical autonomy while fostering its economic competitiveness.China recognised the importance of rare earths decades ago and began building up its production capabilities,leaving others

226、 dependent on Chinese supply.This reality may eventually lead the West to become China recognised the importance of rare earths decades ago and began building up its production capabilities,leaving others dependent on Chinese supply.34reluctant to fully embrace and adopt green energy sources that re

227、ly on such inputs.In the case of the EU,a preferable option may seem to be the construction of small nuclear power plants that can be operated safely without a carbon footprint.The US,on the other hand,especially under the current Trump administration,is bound to rely increasingly on fossil fuels of

228、 which it is more than self-sufficient,allowing it also to export.FiGUre 3 compares the share of world production in various commodity groups by BRICS+countries and the G7/EU(including Switzerland and Norway)from 2018 to 2022.Segmented bars show the contributions from the individual BRICS+nations an

229、d the G7/EU.BRICS+is in a very strong position in commodities,led by Chinas dominant role in production.For example,China pro-duces close to 95%of the worlds magnesium,which is crucial for making lightweight aluminium alloys used in cars and packaging.It also leads the world in the produc-tion of in

230、dustrial metals including aluminium and anti-mony,which is used in automotive parts.Antimony is also crucial to the military-industrial supply chain and is used in the manufacture of ammunition,including armour-piercing bullets,as well as in other equipment such as night vision goggles.Underlining t

231、he leverage afforded to Beijing by its grip on the production of rare earths,China has an-nounced a ban on exports to the US of items related to antimony,gallium,germanium and super-hard materials that have potential military applications(Reuters,2024).The ban was in response to Washingtons crackdow

232、n on Chinas chip sector and highlighted the capacity of BRICS+to retaliate against trade tariffs with measures that can hit key sectors in the West.Gallium is used in the electronics industry to produce heat-resistant semi-conductor wafers,while germanium is used in fibre-op-tic cables and is essent

233、ial in the defence and renewable energy sectors.While G7/EU countries export more than BRICS+,the BRICS+coalition has enough of a foothold in high-value markets to increase its footprint.These high-value markets encompass complex products in critical categories,such as semiconductors,integrated circ

234、uits,chemicals and heavy machinery,with China being the driving force behind them.358StartingfromFigure3,IndonesiaisnotincludedintheBRicS+coalitionbecausetheanalysiswasconductedpriortoitsinclusioninBRicS+.FiGUre 38brIcs+share vs.g7/eu share in commodity groups(based on total production 20182022)Braz

235、ilRussiaIndiaChinaSouth AfricaEgyptUnited Arab EmiratesIranEthiopiaG7/EU95.175.769.568.459.754.751.248.147.542.539.532.531.422.817.00.711.00.011.210.734.216.52.34.528.129.933.727.013.012.6MagnesiumAluminiumAntimonyCoalOther industrial metalsIndustrial minerals&chemicalsGrains,food and fiberCoffee&to

236、baccoRare earth and specialty metalsLivestock and meatDairyGasOilPrecious metalsOtherWorld production share,%020406080100Sources:FoodandAgricultureOrganisation,InternationalEnergyAgency,BritishGeologicalSurvey,uSGeologicalSurvey36With demand for ammunition increasing due to wars and heightened geopo

237、litical tensions,Chinas squeezing of the antimony supply creates a pressure point in BRICS+relations with the West.More broadly,the increasing dom-inance of BRICS+in global commodity production chal-lenges the traditional dominance of G7/EU countries and could shift global trade dynamics and geopoli

238、tical power.The BRICS+countries sizeable overall share of commodi-ties production including in the livestock,meat and dairy sectors puts the coalition in good shape for sourc-ing energy,food and the raw materials needed for key stra-tegic industries.This adds up to a position of economic re-silience

239、 for BRICS+,which may even give it a comparative advantage over the G7/EU.We look at the investment im-plications of the shifting importance of natural resources in the face of geopolitical tensions between the West-led coalition and the Global South in Section 7.5.1.2 The growth drivers of brIcs+Wh

240、ile G7/EU countries export more than BRICS+,the BRICS+coalition has enough of a foothold in high-value markets to increase its footprint.These high-value markets encompass complex products in critical categories,such as semiconductors,integrated circuits,chemicals and heavy machinery,with China bein

241、g the driving force be-hind them.The export growth of these products between 2017 and 2022 was much stronger for BRICS+countries than the G7/EU,as seen in FiGUre 4(electronic integrat-ed circuits on the left and semiconductors on the right).This figure sheds light on the concept of product com-plexi

242、ty,which is a measure that ranks the diversity and sophistication of the productive know-how necessary to produce a product(Harvards Growth Lab,2024).For example,Taiwan is still the export leader in inte-grated circuits but Chinas export growth in that category has surpassed Taiwans lately.Although

243、BRICS+coun-tries typically export less complex products than G7/EU countries,their overall export growth is higher than that of the G7/EU.The rising complexity of BRICS+exports,particularly in electronics and machinery,suggests a shift towards higher-value-added production,which could enhance econom

244、ic resilience and global competitiveness.Although BRICS+countries typically export less complex products than G7/EU countries,their overall export growth is higher than that of the G7/EU.The rising complexity of BRICS+exports,particularly in electronics and machinery,suggests a shift towards higher-

245、value-added production.37BRICS+ChinaUSG7/EUEUJapanTaiwan20.151050-51.00.80.60.4Growth over last 5 years(CAGR,%)Product complexity1.21.61.82.01.40.450.250.350.150.05Market shareSources:TheGrowthLabatHarvardUniversity,PictetResearchInstituteThese observations are derived from FiGUre 5(p.38)which depic

246、ts the product complexity,export growth and export volumes for BRICS+and G7/EU per broad product category.5.1.3.brIcs+military capabilities The combined forces of China and Russia are formi-dable,and joint exercises as well as collaboration to resupply Russia in the Ukraine war demonstrate a will-in

247、gness to cooperate.Beijings growing commitment to expand its nuclear weapons from 200 in 2020(on par with the UK and France)to 500 in 2024 offers another possible source of influence,especially if the intimida-tion tactics employed by Russia in the Ukraine war against NATO intervention are utilised

248、by the two top nuclear powers in BRICS+(Robertson,2024).BRICS+has a comparative advantage over the G7/EU when it comes to active personnel,available manpower and land forces.By contrast,the US defence complex,leading the G7/EU military capabilities,excels in air superiority,higher defence spending a

249、nd power projec-tion underpinned by technological advancements and FiGUre 4Semiconductors(left)and electronic integrated circuits(right)exports:product complexity,growth and market share(2022)38rapid-response strategies.FiGUre 6 summarises the relative military capabilities of BRICS+and the G7/EU ac

250、ross six major categories:manpower,land forces,air forces,naval forces,logistics and infrastructure,and financial resources.In terms of deploying its resources,the US-led West is so far better set up for larger-scale conflicts than the BRICS nations,although recent Chinese air force and submarine mi

251、litary advancements may be closing this gap.Nevertheless,a proliferation of smaller-scale,geo-graphically-scattered conflicts,coupled with grey-zones hybrid warfare,would not play to the comparative ad-vantage of the US.Strategically,it could therefore play to the advantage of BRICS+to create,facili

252、tate or tolerate multiple hotspots around the world.Through the prolif-eration of conflicts(already under way in Ukraine and the Middle East),BRICS+could,in principle,disperse the attention and resources of the West,although this is not within their declared intentions at this stage.Beyond the geost

253、rategic chessboard,the military picture is further complicated by the dynamics of the rela-tionships between the rival G7/EU and BRICS+blocs,FiGUre 5Export complexity per broad category for brIcs+and g7/eu(2022)AgricultureChemicalsElectronicsMachineryMetalsMineralsOtherStoneTextilesVehiclesrepresent

254、s BRICS+represents G7/EU500100015002000Export value(USD bn)26242220181614121086420-2-4-6-8-10-1Growth over last 5 years(CAGR,%)Product complexityAverage G7/EU export growthAverage G7/EU product complexity Average BRICS+product complexity Average BRICS+export growth01Sources:TheGrowthLabatHarvardUniv

255、ersity,PictetResearchInstitute39FiGUre 6Target diagram:military categories (brIcs+vs.g7/eu)BRICS+G7/EUNaval forcesManpowerAir forcesLand forcesFinancial resourcesLogistics&infrastructureparticularly given frosty bilateral relations between some of the key constituents in the respective blocs,amounti

256、ng effectively to a Cold War 2.0.The US and China agreed in 2023 to restore some military-to-military communica-tions,which had been severed by Beijing after then-House of Representatives Speaker Nancy Pelosi visited self-ruled Taiwan in August 2022.This partial rapprochement mitigated some risk.How

257、ever,unlike the previous Cold War between the United States and the Soviet Union,an overall deterioration in relations particularly between Washington and Moscow in recent years means diplomatic backchannelling and an understood code of behaviour between the key players are less apparent this time a

258、round.This creates instabili-ty and raises the risk of accidents.What is more,todays Cold War 2.0 between BRICS+and the West is not ideology-driven.It is not geared to prove that one political system is superior to the other.Rather,it is driven by economic competition,centred around a race for assum

259、ing,in the case of China,or main-taining,in the case of the US,leadership in the develop-ment and control of cutting-edge technology and innova-tion.In the context of this competition,BRICS+members are largely unencumbered by concerns about human rights or each others internal affairs and are focuse

260、d on their common goals,as discussed earlier,making it easier for them to find common ground on security issues.Moreover,unlike the nuclear standoff in Cold War 1.0,the world now lives under the spectre of hybrid warfare,with cyberattacks,assaults on infrastructure and trade Sources:GlobalFirepower,

261、PictetResearchInstitute40 While we do not argue that there will be an expanded military conflict between the West-led coalition and BRICS+beyond the hotspots that are already present today,it is important to note that the military capabilities of the coalition are substantial,especially in sustainin

262、g multiple smaller regional conflicts that go against the military advantages of the West.As such,BRICS+possesses a significant geopolitical lever.41routes,and the risk of bioweapons being deployed posing real and constant threats.This military context,marked by proxy wars fought in a systemic confl

263、ict between rival powers,changes the calculus for the way risks are assessed and foreign conflicts dealt with,and it requires different thinking about how to prosecute wars going forward.While we do not argue that there will be an expanded military conflict between the West-led coalition and BRICS+b

264、eyond the hotspots that are already present to-day,it is important to note that the military capabilities of the coalition are substantial,especially in sustaining multiple smaller regional conflicts that go against the military advantages of the West.As such,BRICS+pos-sesses a significant geopoliti

265、cal lever that it may choose to utilise if future geostrategic developments warrant it.5.1.4.Trading routesA related consideration is the concentration of mili-tary bases that BRICS+has in the Indian Ocean,the subcontinent and the central Asian region essentially along the old Silk Road network of E

266、urasian trade routes.This presence effectively cuts the world in two,with the G7 dominant on either side of the corridor designated by these BRICS+bases,as depicted in FiGUre 7.FiGUre 7Military expenditures as percentage of gdp(2020)and foreign military basesBRICS+G7Prospective BRICS+partnersForeign

267、 military basesMilitary expenditures as percentage of GDP7.55.02.5Sources:WorldBank,WorldBEYOndWar429TheTrumpadministrationhasrecentlyproposedmeasurestocounterChinasmaritimedominance,includingimposingfeesonChineseships(uS TradeRepresentative(uStR),February21,2025).Theeffectivenessoftheseproposalsist

268、obeseenasmostofthemaritimechokepointsarecontrolledbyBRicS+members,whichmaybereluctantto cooperatewithuSdirectiveswithoutotherincen-tives.Theseproposals,however,areindicativeofthesuddenrealisationinWashingtonofthefar-reachinginfluenceChinacanexertonglobaltradeandsupplychains.The wide and expanding ge

269、ographic reach of BRICS+countries gives them access to key points along trading routes(see FiGUre 8)and potential leverage over the West(or others).9 Member nations and partners span the globe and effectively control,or have authority over,many of the major maritime chokepoints:the Suez Ca-nal,the S

270、trait of Malacca,the Strait of Hormuz,the Cape of Good Hope,the Turkish Straights and Bab-el-Mandeb(also called the Gate of Grief).Should the geopolitical need arise,they could elect to deny certain nations access to vital trade routes.Iran has already frustrated the smooth passage of ships in the S

271、trait of Hormuz.In the event of a conflict,these chokepoints could enable BRICS+to frustrate,delay or limit the ability of Western powers to supply equip-ment to theatres of war.And they could certainly disrupt supply chains.Again,whether the level of coordination among BRICS+members needed to achie

272、ve and exercise such control is possible remains to be seen but the risks of such developments should not be outright dismissed.5.1.4.DemographicsBRICS+demographics are a source of relative eco-nomic vitality giving the bloc a comparative advantage over the G7/EU for now.Like the developed world,Chi

273、na and Russia are on track to face demographic chal-lenges from their elderly population.On the other hand,the populations of India and Africa continue to grow.FiGUre 9 shows the trend of the age pyramids of FiGUre 8Major maritime trading routes for oil and food,and associated chokepointsBRICS+G7/EU

274、Grains(in 2015)Petroleum and other liquids(in 2023)Proportion of global trade passing through chokepointsTurkish Straits12%3%Suez Canal(Egypt)9%9%Strait of Hormuz(Iran,UAE,Oman)4%21%Bab el-Mandeb(Djibouti,Eritrea,Yemen)8%9%Strait of Malacca(Indonesia,Malaysia,Singapore,Thailand)18%23%Strait of Gibra

275、ltar10%Dover Strait4%Danish Straits5%Cape of Good Hope(South Africa)6%Panama canal15%2%Sources:ChathamHouse,u.S.EnergyInformationAdministration4310Forecastsorprojectionsarenotreliableindicatorsorguaranteesoffutureoutcomes,thereforetherecanbenoassurancethatthesefigureswillmaterialise.FiGUre 910Demogr

276、aphic comparison between g7/eu and brIcs+Age pyramids of briCS+and G7/eU 2023Age pyramids of briCS+and G7/eU 2060BRICS+2023 G7/EU 2023 95908580757065605550454035302520151050Age groupPopulation per age group(%of total population)011BRICS+2060 G7/EU 2060 95908580757065605550454035302520151050Age group

277、011.510.50.5Population per age group(%of total population)Sources:unWorldPopulationProspects,PictetResearchInstituteBRICS+and the G7/EU between 2023 and 2060(forecast-ed).It suggests that the BRICS+coalition has a good 30 years to capitalise on its comparative population ad-vantage before its demogr

278、aphics are close to those of the developed world.In the meantime,apart from a growing population,BRICS+will also have the benefit of rapidly evolving technologies to help it in due course.The ratio of the population over the age 65 to the working-age population 44currency2013In%2016In%2019In%2022In%

279、usd1,172.3043.51,118.3843.81,467.6644.21,672.98 44.2eur450.0716.7400.9315.7536.5416.1577.70 15.3jpy310.2111.5276.1910.8279.348.4315.828.3gbp159.015.9163.556.4212.616.4243.976.4cny30.241.150.902.071.832.2132.613.5aud116.424.387.703.4112.523.4120.603.2cad61.482.365.522.683.682.5117.383.1chf69.302.661.

280、242.482.412.598.202.6Other324.0712.0329.1112.9477.5414.4503.77 13.3Table 4Annualised volume of major currencies in global transactions(usd trn)Sources:BiSTriennialReports2013,2016,2019,2022between 15-64(called the elderly dependency ratio)was 14.72%in BRICS+countries in 2023,compared to 32.85%in the

281、 G7/EU.In 2060 the respective ratios are projected to grow to 38.26%(BRICS+)and 50.37%(G7/EU)before reaching 50.01%(BRICS+)and 54.31%(G7/EU)in 2080.While BRICS+now has a much younger demo-graphic structure than the G7/EU,it will age faster than the G7/EU,as seen by comparing both panels of FiGUre 9(

282、p.43).5.2.weaknessesSection 2 highlighted the cohesiveness issues within the BRICS+group,which are ongoing despite efforts to overcome them.Even if these issues become less promi-nent over time,the coalition will still have a major weak-ness in freeing itself from the US-led Western coalition:its la

283、ck of a common reference currency and its inability to create one in the foreseeable future.5.2.1.Building the brIcs+financial architectureThe biggest weakness of the BRICS+coalition is the absence of its own,independent euro-style currency.Without a common financial system and a well-devel-oped cap

284、ital markets structure,BRICS+attempts at setting up parallel economic and financial systems are hindered by the coalitions reliance,directly or indirectly,on the US dollar.Table 4 summarises the annualised foreign exchange trading volumes for major currencies and their shares of total trading from 2

285、013 to 2022,based on data from the Bank for International Settlements(BIS)Triennial Report.The US dollar comfortably remains the worlds most-used currency,enjoying a stable share of around 44%in foreign exchange market volumes.This underscores its role as the primary global reserve and trade currenc

286、y,45ahead of the euro and Japanese yen.A slight increase in the Chinese renminbis share of market volume from 1.1%in 2013 to 3.5%in 2022 reflects Chinas increasing role in global trade,its efforts to internationalise the renminbi and increased trade with BRICS+countries.But the increase is too small

287、 and done in fact at the expense of the euro and yen not the USD to pose any direct threat to the US dollars dominance.5.2.2.Efforts to move away from the us dollar payment systemIn recent years,BRICS+has embarked on numerous currency and payment system projects,most of them with competing and overl

288、apping purposes.They all follow slightly different approaches with none of them amounting to de-dollarisation as of yet.The underlying issue with all of these efforts is that they do not circum-vent the use of the US dollar.What they do allow though is for BRICS+countries to circumvent the US dollar

289、 clearing system.As such,they provide an effective means of dodging Western sanctions against BRICS+members.The use of stablecoins is one way BRICS+,and especially Russia,has sought to bypass the US dollar.These are cryptocurrencies11 whose prices are determined by price peg mechanisms using a baske

290、t of currencies or other assets such as gold or other commodities.The idea is to create a stable asset that is not subject to large fluc-tuations,hence its name.Table 5(p.46)shows stablecoins ranked by market capitalisation as of 31 December 2024,their peg(mostly US dollar)and their transaction volu

291、me in 2024.It also shows each stablecoins volume as a percentage of total US dollar transactions based on 2022 BIS data.Tether dominates the stablecoin market with an annualised vol-ume of USD 18,264.2 bn,accounting for 1.092%of total US dollar volume.Like eight of the other nine stablecoins in BRIC

292、S+has embarked on numerous currency and payment system projects.The underlying issue with all of these efforts is that they do not circumvent the use of the US dollar.What they do allow though is for BRICS+countries to circumvent the US dollar clearing system.As such,they provide an effective means

293、of dodging Western sanctions against BRICS+members.11Forinformationandillustrationpurposesonly.Thispagemaycontaininformationaboutcrypto-currencies,butdoesnotsetoutanydirectorim-pliedrecommendationwhatsoever(eithergeneralorpersonalised).Investmentincryptocurrencyisconsideredtobeaveryhighriskinvestmen

294、twithextremevolatility.46rank by marketcapassetpegged to:volume 2024(usd)as%of usd volume1TetherUSD18,264.2 bn1.0922USDCUSD3,081.5 bn0.1843Sky DollarUSD544.3 m0.0004Ethena USDeUSD22.3 bn0.0015DaiUSD43.1 bn0.0036EthenaUSD66.8 bn0.0047First Digital USDUSD2,138.5 bn0.1288USDDUSD735.2 m0.0009Tether Gold

295、Gold2.1 bn0.00010TrueUSDUSD16.8 bn0.001Total23,636.6 bn1.413Table 5Volume of top 10 stablecoins as of 2024Source:Messarithe top 10,Tether is pegged to the US dollar(the other to gold).The need to hold US dollars in reserve to defend the peg of nine of these cryptocurrencies does not help BRICS+de-do

296、llarise.For BRICS+to de-dollarise,China,the economic engine at the heart of the coalition,will need to open its capital markets and make the institutional changes needed to render the renminbi a more broadly traded and free-floating convertible currency unincumbered by the capital controls it is now

297、 subject to.Until then,the coalition will focus its efforts primarily on bypassing the US dollar clearing system,which also allows it to circum-vent any sanctions imposed on its members.This may be sufficient for now.BRICS Pay is another payment innovation from the coalition.This is a blockchain-bas

298、ed payment system designed for direct transactions among BRICS nations.It is focused on enabling local currency transactions and fostering economic independence.Together with the use of stablecoins,BRICS Pay has the potential to foster eco-nomic independence,promote trade within and beyond BRICS+and

299、 challenge the dominance of Western finan-cial systems.However,its success hugely depends on over-coming operational,geopolitical and regulatory challenges and,fundamentally,its dollar dependency.Russias stablecoin initiative complements BRICS Pay in creating alternative financial systems that reduc

300、e dollar reliance.Table 6 provides an overview of these two payment systems.The Cross-Border Interbank Payment System(CIPS)is a financial market infrastructure launched by China in 2015.Its primary purpose is to clear and settle cross-border renminbi transactions.CIPS functions 47russIan stablecoInb

301、rIcs payPurpose Facilitates international trade using stablecoins backed by fiat curren-cies such as the rouble or renminbi Geared towards global trade partners,not limited to briCS A blockchain-based payment sys-tem designed for direct transac-tions among briCS nations Focused on enabling local cur

302、rency transactions and fostering economic independenceTechnology Utilises blockchain and Distributed Ledger Technology(DlT)for trans-parency,security and efficiency Integrates stablecoins as a medium of exchange Utilises blockchain and DlT for transparency,security and efficiency Uses national curre

303、ncies and potentially Central Bank Digital Currencies(CbDC)Complementary roles Could be integrated into briCS Pay to facilitate broader adoption and support transactions beyond the briCS bloc Provides the overarching infrastruc-ture for seamless cross-border trans-actions within briCS economiesRegul

304、atory framework Russia has legalised the use of cryptocurrencies for international trade(effective September 2024),paving the way for the adoption of stablecoins The regulatory insights from Russias stablecoin could inform briCS Pays governance model,enhancing its robustnessPotential integration May

305、 serve as a testing ground for briCS Pays technological and regulatory advancements Could benefit from the integration of Russias stablecoin for enhanced functionality and broader reachTable 612Overview of Russian stablecoin and brIcs PaySources:BiScpmi(2023),Cointelegraph(2024),Intellinews(2024),Le

306、dgerInsights(2024),LowyInstitute(2024)similarly to other settlement systems by matching orders for renminbi between participants(clearing function)and effectuating payments(settlement function).It is modelled on the US dollars Clearing House Interbank Payment System(CHIPS)and facilitates renminbi tr

307、ansactions globally,bypassing the traditional reliance on intermediary offshore clearing centres(CIPS,n.d.).CIPS and SWIFT serve different purposes but can complement each other.While SWIFT is a global messag-ing system for financial transactions,CIPS is a settlement system specifically designed for

308、 renminbi transactions(Cipriani et al.,2023).Both use the ISO20022 messaging standard to ensure compatibility.However,CIPS aims to enhance the autonomy of Chinas financial system and reduce dependency on SWIFT for renminbi transactions.SWIFT facilitates global communication for all currencies,while

309、CIPS focuses exclusively on the renminbi and aims to strengthen Chinas financial sovereignty(Eichengreen,2022).12Forinformationandillustrationpurposesonly.Thispagemaycontaininformationaboutcrypto-currencies,butdoesnotsetoutanydirectorim-pliedrecommendationwhatsoever(eithergeneralorpersonalised).Inve

310、stmentincryptocurrencyisconsideredtobeaveryhighriskinvestmentwithextremevolatility.48Technically,CIPS could operate independently of SWIFT because it has adopted international standards such as ISO20022.However,its practical independence is constrained by the integration of SWIFT in global finan-cia

311、l operations.Most transactions processed through CIPS still rely on SWIFT messaging,and full detach-ment would require greater adoption of CIPS-specific standards by global financial institutions(Murphy,2022).To achieve full independence from SWIFT,CIPS would need to:Expand its network of direct for

312、eign participants to reduce reliance on intermediaries Encourage global financial institutions to use CIPS-specific messaging standards instead of SWIFT.So far,the CIPS payment volume is about 0.3%of the size of SWIFT(Cipriani et al.,2023)Lift or ease Chinas capital controls,allowing freer movement

313、of onshore and offshore renminbi Strengthen the global appeal of the renminbi as a reserve currency,making it more competitive internationally Project mBridge is an initiative that started off as Project Inthanon-Lion Rock and a collaboration between the Bank of Thailand and the Hong Kong Monetary A

314、uthority.Later,the BIS and the central banks of China and the UAE joined the initiative,and it was renamed project mBridge.In June 2024,Saudi Arabia joined the initiative as it had reached the Minimum Viable Product stage.The official goals of the initiative are the following(BIS Innovation Hub,2023

315、):Tackle key pain points of cross-border payments (high costs,settlement risk and low speed)Advance cross-border settlement in central bank money Support the use of local currencies in cross-border transactions Create opportunities for new and innovative payment products and services Besides the abo

316、ve-listed founding members,mBridge also comprises observing members,including the IMF,the ECB and the World Bank.In October 2024,the BIS decided to withdraw from the project,the official reason being that mBridge“has been so successful that we can declare that we have graduated out”of the project(Th

317、e Economist,2024).However,the current geopolitical tensions indicate that the mBridge initiative could potentially be diverted from its original goals,as a way for BRICS+countries(particu-larly Russia)to create a BRICS bridge system to avoid international sanctions.Many observers noticed the tim-ing

318、 of the BIS withdrawal from mBridge only one week 49The idea of creating a BRICS+currency based on a basket of BRICS+currencies independent of the dollar or other major reference currencies is also unlikely in the near future.We estimate the risk of a BRICS currency able to challenge the US dollar t

319、o be about a decade away,or longer.13BasedoninformationprovidedbylocalChina developers.AsimilarlevelofpricedeclineisalsomentionedinarelatedcnBcarticleandattributedtoananalystatNomura.(https:/ the BRICS+summit in Kazan.By withdrawing,the BIS cannot veto which countries can access the platform.An impo

320、rtant Western concern is that the technology and know-how that the BIS has invested into mBridge are now in Chinas hands,and this could be a catalyst to create a BRICS bridge platform.While BRICS+has yet to de-dollarise,its experiments with stablecoins,BRICS Pay,CIPS and Project mBridge demonstrate

321、its resolve to create alternative payments means and circumvent existing international payment systems(and sanctions),highlighting the coalitions step-by-step and multi-pronged approach to advancing its de-dollarisation cause.Typical of the Chinese approach to new strategic initiatives,the coalition

322、 backs multiple projects to see which one would ultimately gain traction,all the while distracting attention from any particular one,flying under the radar of mainstream Western observa-tion and slowly eroding the existing international order.5.3.ImplIcatIons of de-dollarIsatIonAs mentioned earlier,

323、while the worldwide use of renminbi has increased as of late,the currency still only accounts for 3.5%of global transactions.Increasing its uptake will require China to open up its capital markets and lift any capital controls.But that is unlikely to hap-pen in the foreseeable future given Chinas ec

324、onomic slowdown in recent years,the fall in consumer and busi-ness confidence and the mounting concerns over the health of the property market.In particular,the residential real estate sector in China is currently experiencing a significant downturn,with prices falling by 25%or more over time on a c

325、umulative basis.13 At the same time,inventory levels have risen to two to three times their normal levels.Despite the central governments efforts to support the economy and loosen monetary policy,these measures have not been enough to solve the problems in the property sector.To effectively 50addres

326、s these issues,the government may need to imple-ment a bailout for the sector.This could involve lending money to local governments,which are already heavily indebted,so they can buy back developed properties and undeveloped land they previously sold to developers.Alternatively,the central governmen

327、t or the Peoples Bank of China(PBOC)might need to provide direct support.However,such interventions could create a moral hazard,a situation that governments generally try to avoid.At the time of writing,the Chinese central govern-ment does not seem inclined to veer in that direction.Expecting to res

328、olve the problem through higher eco-nomic growth also seems improbable in the near term,given the geopolitical tensions the country faces and its confrontation with the US.Regardless of the approach it takes to deal with the issue,it is unlikely to resolve it and restore confidence in the Chinese ec

329、onomy and its fiscal state in the next 10 years or so.Similarly,the other BRICS+countries have their own structural and institutional issues that will take time to address,making their currencies unsuitable to be used extensively as reference currencies,even by other BRICS+members,without immediate

330、convertibility to the dollar or another hard currency.Therefore,the idea of creating a BRICS+currency based on a basket of BRICS+currencies independent of the dollar or other major reference currencies is also unlikely in the near future.We estimate the risk of a BRICS+currency able to challenge the

331、 US dollar to be about a decade away,or longer.This time framework is of course highly dependent on the relative economic policy initiatives and growth prospects of the US and China/BRICS+in the coming years and as such,it needs to be periodically reevaluated.The discussions above underline the diff

332、iculty that BRICS+faces and will continue to face in disentangling itself from its dependency on the US dollar.As a result,it will have to continue supporting it reluctantly while it tries to weaponise other levers in its arsenal,such as the strengths of the coalition identified earlier in Section 5

333、.1.In the meantime,the various efforts and initiatives of BRICS+discussed above have enabled it to effectively bypass the US-controlled clearing system and the US-led sanctions imposed on some of its members.For now,that may be good enough for at least some of its members.516.Western efforts to slow BRICS+expansion and their consequencesThe rapid economic ascent of China and the expand-ing BRICS+c