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Should We Stay or Should We Go? Mexico and the BRICS

By Alfredo Nolasco Meza - SPYRAL SA


By Alfredo Nolasco-Meza | CEO - Thu, 09/14/2023 - 09:00

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In an increasingly interconnected world, economic and geopolitical dynamics play a critical role in determining the course of nations. One of the most essential developments in this regard is consolidating the group of countries known as the BRICS (Brazil, Russia, India, China, and South Africa), representing a powerful alliance of emerging economies. 

On Aug. 24, 2023, during the BRICS summit in Johannesburg, South Africa, six new countries were admitted: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates. The BRICS is still an informal international organization but with a global political punch. With its size, BRICS represents more than 30% of the world's total land area, more than 40% of the world's population, 37% of the world's GDP, and 17% of the world's gold reserves.

Some of Spyral’s clients have asked our opinion about this current phenomenon.

As a global challenge, there has been talk of this group creating a new global currency, which could have far-reaching implications. In this context, it is essential to analyze how Mexico could be affected by the integration of the BRICS and the creation of a new global currency, as well as to consider the feasibility of joining this group, considering the "closeness" of our government to other leftist nations.

On the economic front, Mexico could face significant challenges and opportunities. Greater cooperation with the BRICS could open new Mexican export markets, stimulating economic growth. However, the Mexican economy remains tied mainly to the developed world, and relations with the BRICS still tend to be more tenuous.

As for the new global currency, its adoption could change the international financial system and affect Mexico's trade relations. If this currency becomes an alternative to the US dollar, it could reduce the influence of the Mexican peso as a “safe haven” currency in developing countries and Mexico's ability to attract foreign investment. It could also increase exchange rate volatility, affecting the country's macroeconomic stability. 

The creation of a new global currency by the BRICS could affect the currencies of developed countries, especially the US dollar and the euro. If this new currency becomes a reliable store of value widely used in international trade, it could undermine the dollar's primacy as the global reserve currency. This fact could weaken US economic and financial power and reshape global geopolitical dynamics, although I doubt this will happen in my natural lifespan.

Therefore, the possibility of the "new" BRICS currency gaining traction and being adopted by formerly so-called "non-aligned" countries is a scenario that involves multiple factors. Although it is difficult to predict with certainty, several elements could influence the adoption of this currency:

1. Confidence and stability: The new currency would need to demonstrate long-term reliability and stability to gain the confidence of non-aligned countries. The perception that this currency is a solid and stable alternative to the US dollar, or the euro would be essential for its adoption.

2. Economic incentives: Non-aligned countries might consider adopting the new currency if it offered tangible economic benefits, such as reduced dependence on the dollar, mitigation of exchange rate risks, and access to larger markets in cooperation with the BRICS.

3. Political and geopolitical support: The political and geopolitical support of the BRICS, especially China and Russia, could influence the decisions of the non-aligned countries. If these countries see the new currency as part of an alternative to Western hegemony, they may be more likely to adopt it.

China would play a central role in the BRICS new currency strategy because of its economic growth and growing influence in the international arena. China is one of the world's largest economies and has large yuan reserves. Its active participation in promoting the new currency could lend credibility and support to the initiative. In addition, China's openness through its Belt and Road Initiative could facilitate the currency’s adoption by countries participating in the enterprise.

As one of the founding members of BRICS, Russia is likely to play a crucial role in the new currency strategy. Russia has always desired to reduce its dependence on the dollar due to economic sanctions and geopolitical tensions with the West, especially after the unjust war with Ukraine. Adopting the new currency could allow Russia to diversify its international reserves and strengthen its relations with other BRICS members.

And Brazil, as a major economy in Latin America and an active member of BRICS, could play an essential role in promoting and leading the new currency initiative in the region. However, it is crucial to remember that Brazil faces internal challenges and political variability that could consistently affect its ability to lead this initiative.

In summary, the likelihood of non-aligned countries adopting the "new" BRICS currency depends on several factors, including confidence in the currency, economic incentives, and geopolitical support. China would play a central role in the strategy, Russia would seek to reduce its dependence on the dollar, and Brazil could promote the initiative in Latin America.

In the corridors of the National Palace's Patios Marianos, some BRICS diplomats have induced considerations on the benefits of converging with the clan among high-ranking MoF officials. This matter is complex and should be evaluated by Mexico thoroughly, well beyond the ideological fashions of the moment. Approaching this group could offer benefits, such as access to larger markets and greater bargaining power in international affairs. However, it would also entail significant trade-offs and challenges, such as adapting to the policies and approaches shared by the BRICS and the need to reconcile the divergent interests of its members, with OECD partners that today (and in the short and medium terms) are far more substantial than those with the BRICS. Hence, why should we jeopardize relations with our trustworthy allies?

I am not saying that we should slam the door in the face of the BRICS; on the contrary, we should maintain our tradition of openness, but Mexico must carefully weigh the benefits of flirting with the BRICS against its potential impact on its sovereignty and its relations with other trade and political partners, such as the US, Canada, APEC, and the EU. In addition, it is crucial to consider whether the new global currency proposed by the BRICS would be compatible with Mexico's economic and financial objectives.

The issue is still in its infancy, and we are far from seeing a scenario of head-on competition between the West and the BRICS. However, the integration of the BRICS group of countries and the possible creation of a new global currency are developments that could profoundly impact the global economy and geopolitics, requiring planning and a preventive strategy. 

Mexico is not exempt from these effects and must deeply consider how to adapt and profit from these changes. Evaluating the pros and cons of the BRICS and the emergence of a new global currency is essential to making informed decisions, allowing Mexico to take advantage of opportunities and mitigate risks in an ever-changing international environment.

Photo by:   Alfredo Nolasco Meza

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