BRICS Expansion: Malaysia’s Strategic Move and the Broader Implications for Global Trade
1. Malaysia Set to Join BRICS Following Chinese Premier’s Visit
Malaysia has announced its intention to join the BRICS consortium, marking the latest expansion of the trade federation. This development comes in the wake of Chinese Premier Li Qiang’s visit to Malaysia, aimed at strengthening bilateral ties between the two nations.
2. Malaysia’s Strategic Shift Towards BRICS
Ahead of his meeting with Chinese Premier Li Qiang in Kuala Lumpur, Malaysian Prime Minister Anwar Ibrahim disclosed Malaysia’s plans to pursue membership in the BRICS group. "We have made the decision, and we are placing the formal procedures soon," said Anwar, as cited by Nikkei Asia. Anwar also noted active collaboration with Brazilian President Luiz Inácio Lula da Silva to advance the policy.
The announcement comes as a reflection of the shifting public sentiment in Malaysia, which increasingly favors China. A recent poll by the ISEAS-Yusof Ishak Institute found that 75% of Malaysian respondents would prefer aligning with China if forced to choose between the two superpowers. This shift is attributed to China’s significant economic influence and growing anti-US sentiment due to America’s support for Israel in its conflict with Hamas.
3. BRICS: A Counterbalance to Western Dominance
Initially formed by Brazil, Russia, India, China, and South Africa, BRICS has grown into a formidable 10-member trading bloc. Recent additions include Egypt, Saudi Arabia, Ethiopia, Iran, and the United Arab Emirates (UAE), with Thailand also signaling its interest in membership.
4. The Strategic Move to Reduce US Dollar Dependence
A critical objective of the BRICS agenda is to reduce global dependence on the US Dollar, which currently dominates 90% of international transactions and 50% of global trade, according to the Bank for International Settlements. This economic leverage allows the United States to impose sanctions effectively, a tool frequently employed against countries like Russia, Iran, and China.
Bridgewater Capital CEO Ray Dalio highlighted this issue, stating, "The United States’ greatest weapon to use—apart from its military—is sanctions. Sanctions mean you freeze other assets, and those assets are often US Treasury bonds."
5. The "R5" Initiative and Gold: Alternative Strategies
One notable strategy BRICS is considering to replace the US Dollar is the "R5" initiative, which leverages the currencies of its founding members—Real, Ruble, Rupee, Renminbi, and Rand. BRICS countries have already begun trading in their local currencies. For instance, 80% of trade between Russia and China is settled in Rubles or Yuan, according to Chris Weafer of Macro-Advisory.
Additionally, BRICS is exploring the use of gold to back its currencies. Data from the World Gold Council shows that central banks, particularly the People’s Bank of China, are increasing their gold reserves, suggesting a move towards gold-backed assets.
6. Practicality and Challenges of De-Dollarization
Despite these initiatives, experts remain skeptical about the feasibility of fully replacing the US Dollar. For widespread trade, BRICS nations would need significant reserves of each other’s currencies, and these currencies lack the liquidity and universal appeal of the Dollar. Currency devaluation risks also pose a significant threat.
7. Expanding Influence and the Potential Shift in Global Economic Power
The expanding interest in BRICS membership could amplify its influence and challenge the dominance of the US Dollar. Members of BRICS are also part of major regional trade alliances, further widening their impact. For example, China is part of the Regional Comprehensive Economic Partnership, India of the South Asian Association for Regional Cooperation, and Russia of the Eurasian Economic Union, among others.
Thomas Hill of the Atlantic Council posits, "If BRICS successfully launches the R5, it could compel regional trade groupings to adopt the R5 alongside or even in place of the US Dollar."
Conclusion
Malaysia’s decision to join BRICS, coupled with the consortium’s strategic initiatives, marks a significant shift in global economic alliances and poses a potential challenge to US Dollar dominance. The implications of these developments will be closely watched as BRICS continues to expand and assert its influence on the world stage.
For more information, visit the original article on FXStreet here.
Sources:
Nikkei Asia
ISEAS-Yusof Ishak Institute
Bank for International Settlements
World Gold Council
Al Jazeera News
