De-dollarisation, China’s influence and India’s strategy: Expert take on what lies ahead for Brics

As India prepares to host the BRICS Summit in New Delhi on September 12-13, the bloc faces a credibility test amid geopolitical tensions, supply-chain disruptions and India-China rivalry. Its rapid expansion has also made consensus harder, with divisions already complicating a joint statement.

In an exclusive conversation with Firstpost, Amitendu Palit, Senior Research Fellow and Research Lead (Trade and Economics) at the Institute of South Asian Studies, National University of Singapore, says BRICS is becoming “too big to be coherent” even as its growing economic weight remains its biggest strength.

Palit warns that China’s lead in digital trade, AI and currency frameworks could deepen its influence within BRICS. He also questions the bloc’s de-dollarisation push, says a common currency remains distant, and cautions that India may be overstating the China Plus One opportunity and FTA gains without closing domestic regulatory gaps.

Edited Excerpts:

What are the biggest concerns for Brics as the grouping expands and members have conflicting interests?

If we look at the composition of Brics right now in terms of the number of countries that it has, its partner network, and the number of countries in the world which are willing to join Brics, there is no way you can actually dismiss Brics because Brics is a coalition of very strong economies.

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If one wants to take a different perspective on this, it can be called the largest grouping of the Global South, ideationally speaking. On the other hand, Brics also has covered quite a bit of the global geography within itself, though I would say that it’s still more dominated by Asia than any other continent.

Compared with the other global blocs or coalitions that we have, whether it be the G7 or the G20, I think, other than the G20, Brics in a sense, is probably the most powerful group if we look at a group in terms of its economic dimensions.

But while this is a reality, the other reality is that Brics really doesn’t enjoy credibility. That lack of credibility is arising because of what you mentioned in the beginning: within Brics there appears to be serious contestation between the members on a large number of items which are not Brics items per se, but in the world that exists outside of Brics, there are members who are into contestation with each other, and we know of some of the examples.

Historically, there are issues between India and China and a large number of other countries. Now we see issues that have surfaced between the Middle Eastern countries of the Brics and the members.

With all these contestations still being active, when we look at Brics as a sizeable entity in terms of the facts and the statistics and the numbers that we have, and we look at Brics as a group which is capable of making a difference to global governance, you are immediately also hit by this doubt: whether Brics will be able to deliver as a bloc.

And I think that is visible across all the agenda items that we are getting to see coming out in Brics, and we’ll of course talk more about that in other contexts. Within Brics, there’s also this concern: are you actually having an even balance of power, or is it getting imbalanced in many respects?

Is de-dollarisation realistic, and could a Brics common currency emerge anytime soon?

The question of de-dollarisation, I think, is at this stage being taken in a bit of a premature manner. And I think it’s connected with the fact that before Donald Trump became president a second time, he raised this as part of his campaign pitch: that the Brics countries want to attack the dollar and displace the dollar from its hegemonial significance. And he would not take it lightly. He would actually be very proactive in attacking those interests.

Now subsequently, while he has not followed up with direct threats on this account, he has also made it very clear that this is something which he is not comfortable with, and this is something which he doesn’t approve of under any conditions.

At the same time, we have seen the Brics getting charged into this mode, this narrative, in some respect. There’s talk about a Brics currency; there is talk about Brics trading much more in their own local currencies.

Technically, I think there’s one point that we should not lose sight of. The United States has a certain share in global trade, which is roughly about 15 per cent, but the share of the American dollar in global trade invoicing and financial transactions is almost four times more than that share.

Now, why has it come to this point? I think the reason for that is because, number one, the dollar is the world’s most popular reserve currency. Number two is that when we look at a currency as a medium of exchange, the dollar is the most convenient.

Let’s say, for example, if you are a trader in a non-dollar country, you don’t have any hesitation in holding on to dollars, knowing fully well that dollars can be used vis-à-vis any currency at any point.

Unfortunately, there is no Brics currency which is yet capable of giving that comfort and confidence to any trader. And that is because none of the Brics currencies have actually become global reserve currencies when we talk about traditional trade and traditional paper currency.

The yuan is trying to stage a contest in this regard, but that is through the digital form, not through the paper currency. Now, when we look at the digital space, the story is different because then we are talking about sovereign digital currencies. The US economy has not walked that line at all. Sovereign digital currency is pretty much an emerging market story. China has made a lot of progress in e-yuan, followed by India on e-rupee, but those are different spaces. We are not actually looking at global regulation.

If we look at a Brics currency, the question that arises now is, will the Brics come together and contribute to a new currency? That is something similar to what happened when the European Union became a customs union and the individual currencies got replaced by the euro.

But then there was a customs union; you had a framework, and that framework was operationalised. We don’t see the Brics having any kind of framework like that. We also see differences arising in many respects.

Subsequently, we have had the Indian commerce minister saying that we are not looking at a Brics currency per se. What we are looking at is probably more interoperability.

But the interoperability of currencies requires that framework to exist between the Brics members. I think we are nowhere close to that framework under any circumstances.

What we can at best hope to see is that some of the Brics members might start trading more between themselves in each other’s respective currencies, and there is an incentive for that because the cost of buying dollars has become very large for normal traders.

If the normal trader gets an opportunity, that trader will be very happy to trade in yuan or rupee or ruble or any other available currency, provided the volume of trade with the country of that currency is significantly large and that other currencies are willing to accept it.

Let’s say, for example, if there is an India-Russia trade that we are talking about, and if the Indian exporter and the Russian trader are both willing to accept payment in yuan, well, the yuan gets to have the rule of the turf in that regard.

But are they? And even if they want, do the mechanisms exist in that regard? I think these are questions that need to be addressed much before we actually look at the prospect of whether the Brics are actually addressing de-dollarisation.

Will India push de-dollarisation at the Brics summit, especially after Trump’s tariff threats?

I have a feeling that the Indian position on de-dollarisation at this stage is not completely aligned with the position of a few other members within the Brics and, notably, China.

China hasn’t really very clearly said what its view on de-dollarisation is, but I think what it would expect is that given that it is the second largest economy in the world and given that it is the largest economy in the Brics, it would want its own currency to be considered as a viable alternative for greater trade and acceptability within the Brics bloc.

China does have some advantages in this regard, and I think that advantage primarily arises from the fact that if you look at China’s trade relations with the rest of the Brics members, China is a large trade partner for all the Brics members.

There is perhaps an economic logic on the part of China in proposing that since all of you are dealing extensively with us, perhaps you look at yuan as a possible alternative.

But then the yuan is not necessarily in its current framework an easy currency to transact with. Let’s say, for example, it’s not an easy currency to move into the SWIFT framework of interbank settlements.

China has a separate settlement, international currency settlement. There are countries which lock on to those settlements, there are countries which don’t, and there are currencies which maintain the SWIFT and ICBS parallel.

If it is possible and the yuan has credibility at a pickup rate, it might be possible. But I think what is important at this stage to understand is that we are actually living in a bit of an abnormal world, and a lot of logic playing out here is not really rational logic.

Let’s say, for example, there are economic relationships that are coming up as a result of the conflicts that are taking place in the world. Russia-China trade and Iran’s trade with many other countries of the world. These are getting conditioned according to the existing conflicts in geopolitics, and in those situations, there could be very unexpected winners and unexpected losers as well. So the Chinese yuan could be one of them, but whether that makes it eligible for a greater block-level adoption is difficult to say.

Is China turning Brics into an instrument of its economic influence, and where does that leave India?

I think India is in a bit of an awkward position in the Brics because India, for very obvious reasons, has a strategic engagement with the United States.

There are rough sides to that engagement, as we are getting to see over the last couple of years. But having said that, there are also very deep strategic connections that India has with the US if we move out of the trade part in many other areas. And this is a relationship which has deepened over the years. It’s mutually beneficial. India can’t give up on that position.

But on the other hand, there is also this reality that, much as there is complicated geopolitics between India and China, neither of the countries can coexist without each other.

That is a reality, I think, which we have to accept. And ideally for both of them, they would want to avoid the negative externalities of their relationship. They would want to have as good of a working relationship as possible.

In this situation, I think India’s role becomes very complicated with respect to the Brics because the Brics has a strong chance of drifting into posturing, which is, if not pro-China, certainly anti-US.

In fact, if we look back at the last Brics summit that was held in Brazil, the communiqué that came out from the Brics that time and which was largely shaped by Brazil and India was actually distinctly anti-Trump 2.0.

So that line, that agenda, also has certain risks attached to it. The issue over here is that I think India’s issues with China in the Brics are very unique to India. No other country in the Brics actually has those kinds of issues with China.

And China enjoys more leverage, strategic leverage, in terms of its economic weight and in terms of its ability to step up economic support and strategically offer a large amount of support to a large number of countries. So it does have greater weight.

China’s biggest objective with respect to the Brics will be to condition the Brics into a rule-making space where it can bring in its own specific rules in a large number of areas where it knows if it gets to control the rules, it will get to have a strategic advantage over the United States.

And I think China is, in a respect, quite advanced in this regard, because if you look at the Global South, it’s very unfortunate, but large parts of the Global South have been completely abandoned by the US and also to a very large extent by the other Western OECD countries.

Let’s say, for example, Africa. The US is hardly bothered about Africa. Even the EU to a very large extent is not very engaging with Africa.

With Latin America, there are a large number of issues that the United States has. And China has been able to fill up this vacuum to some extent just by dint of its presence. That presence is not necessarily always benign. But I think the question is, where do you see a choice?

I think that’s where China has an advantage. The sheer presence makes China appear much bigger as a default option.

Does China have an advantage because it is ahead on Brics rule-making across areas such as AI, digital trade and sustainability?

Almost every aspect, sustainability and other factors. The concerns that are typically the concerns of the Global South and always highlighted by the Brics are areas where, if there are any alternative routes that are available within the domain of the Global South, they’re mostly from China.

I think that is a fact that we have to accept. But the question is whether China is acceptable to the largest bloc or the wholesome bloc as a leader.

I think on that question there is a considerable amount of difference between the groups. And there is also a question where the trust issue becomes important: how do individual members look at China’s role as a leader of the Brics?

This is also a question of friction between the leaders because one is certain that there’s an enormous amount of diplomacy and counter-diplomacy which is going on in this regard.

China would inevitably want the Brics to become a sphere of its influence, but managing that influence or living with that influence is a challenging factor, and that’s bound to create friction between the Brics.