On Feb. 8, 1918, the then newly formed government of the Soviet Union repudiated all bonds issued by the Czarist government, which was overthrown the previous year during the February Revolution. All debts accumulated by the Russian empire were declared null and void. A little over a century later, Russia last week again defaulted on its foreign debt, a result of US-led sanctions targeting Moscow for its invasion of Ukraine.
The jury is still out on whether the sanctions will gradually degrade Moscow’s ability to continue what it calls a “special military operation.” Reports from the front lines indicate that Russian forces were making incremental gains in eastern Ukraine. It is possible that having severely damaged Russia’s economy, the sanctions might not only fail to stop the war, but also push Moscow into a closer alliance with Beijing and hasten the formation of a powerful new strategic bloc. This would have serious implications for Taiwan, Japan and the wider Asia-Pacific region.
With NATO holding a key summit in Madrid last week, a parallel BRICS forum, hosted by Beijing, attracted less attention, and a key development from the forum — that Iran and Argentina have applied to join the economic grouping — became buried in the global news cycle. If Tehran and Buenos Aires join BRICS, enlarging it into “BRICSIA,” it would be a formidable economic alliance.
Iran has about one-quarter of the oil reserves in the Middle East, while Argentina has the world’s fourth-largest shale oil and second-largest shale gas reserves. Add to this Russia’s vast oil and gas reserves, for which there is now a supply glut, and the block, with China at its center, would have access to a cheap and plentiful supply of energy for years to come. BRICSIA would also provide a means for Russia, China and Iran to circumvent US-led Western sanctions.
However, BRICSIA promises to be more than just a resource-rich economic and trading block.
At the forum last week, Russian President Vladimir Putin announced that Moscow is getting ready to develop a new global reserve currency with China and other BRICS nations. If the plan comes to fruition, the new global reserve currency — call it “briccoin” — would mount a significant challenge to the dominance of the US dollar as the world’s reserve currency.
BRICS nations had a combined GDP of more than US$24.44 trillion last year, IMF data showed, slightly higher than the US economy. With the US Federal Reserve printing money like it is going out of fashion, a significantly debased US dollar would inevitably become less desirable as a reserve currency for central banks and exacerbate the “dedollarization” trend. IMF data showed that the US dollar makes up 59 percent of global reserves, down from 70 percent in 1999.
Enter briccoin as an alternative global currency, backed by the economic juggernauts that are China and India, which have declined to join the sanctions against Russia.
Last month, Russia’s St Petersburg Stock Exchange announced that as of June 20, it would facilitate trading of 12 Hong Kong-listed stocks, including Alibaba, Tencent and Xiaomi. Russian state media Sputnik News said that Hong Kong-listed stocks would gradually increase to more than 1,000 by next year, raising the prospect that Russia and China could merge their stock markets.
Prior to Russia’s invasion of Ukraine, policymakers in Washington and European nations talked of luring Moscow away from Beijing as part of a grand strategy to contain China.
However, the West’s stringent sanctions regime now threatens to push Russia into China’s lap.
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