Thursday , November 30 2023

Dollar and commodities become battlegrounds after G20 split between BRICS and the West

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(Kitco News) –
While the runup to this weekend’s G20 summit was dominated by talk of the growing divide between China and host nation India, the summit itself served to underline the growing rift between the BRICS nations and the West, which could have significant long-term impacts on the U.S. dollar and commodities in the years to come.

The first and most obvious point of dispute between the BRICS and the West was the reference to Ukraine in the G20 Leaders’ Declaration, the wrangling over which began long before the leaders arrived in New Delhi.

According to Svetlana Lukash, Russia’s G20 ‘sherpa’, this weekend was “one of the most difficult G20 summits” in the nearly 25-year-old history of the forum. “It took almost 20 days to agree on the declaration before the summit, and five days here on the spot,” Lukash told Russian news agency Interfax.

The language of the final draft ended up being softened to refer to the conflict as “the war in Ukraine” rather than “the war against Ukraine,” and said that “all states” must abide by the UN Charter and “all states” must refrain from the use of force.

BRICS cement their solidarity at G20

This was seen as a major victory for Russia, and Lukash’s comments to Interfax underlined how the BRICS nations operated collectively within the G20 to secure it.

The Russian Sherpa said, “there were very difficult negotiations on the Ukrainian issue,” but that “the collective position of the BRICS countries and partners worked,” and ultimately, “everything was reflected [in the final resolution] in a balanced form.”

Lukash also lauded their collective ability to “achieve serious results” on reform of international financial institutions, food security, climate and energy. “Each of these issues reflected primarily the interests of developing countries,” she said.

Foreign Minister Sergei Lavrov, who was the most senior Russian representative with Putin not present, called the G20 a success from his perspective and also drew attention to what he called “the consolidated position of the countries of the global south” as the key to preventing his country being singled out and isolated at the summit.

Speaking about the weekend as a whole, Lavrov said “the current summit has become, to a certain extent, a turning point,” and that “the Indian presidency has truly consolidated […] the members of the 20 from the global South.”

“Our BRICS partners have been especially active,” he added.

Climate became the other major tug-of war as the summit continued, and once again, positions were divided between the BRICS and the developed Western nations. The latter pushed a proposal to triple renewable energy capacity by 2030 and cut greenhouse gas emissions by 60% by 2035, but ran into opposition from founding BRICS members Russia, China, and India as well as new member Saudi Arabia, officials told Reuters.

Notably absent from the Leaders’ Declaration was any mention of cutting greenhouse gas emissions, even though G20 members produce 80% of them. The Declaration also made no mention of reducing the consumption of crude oil, which would counter the interests of oil-rich Russia and Saudi Arabia.

Putin and the ICC

Differences over diplomacy and international law also provided illustrations of the BRICS split from the West. On Sunday, India formally handed over the G20 presidency to Brazil, but not before proposing an additional “virtual summit” at the end of November. “In that session, we can review the topics decided during this summit,” Modi said.

It is worth noting that Russian President Vladimir Putin was accommodated virtually at the recent BRICS summit, and China’s President Xi Jinping did not attend the G20 in person either, so this virtual addition would offer a chance for the two BRICS leaders to add their voices to the summit post-facto.

Brazil’s President Luiz Inacio Lula da Silva accepted the ceremonial gavel from Modi at the conclusion of the G20 on Sunday, but he got a head start on BRICS business the day before. Lula preemptively declared on Saturday that unlike the BRICS summit where Putin faced possible arrest by South African authorities on behalf of the International Criminal Court (ICC), the Russian President would be welcome to attend the next G20 in Rio in person, with no fear of arrest.

“I believe that Putin can go easily to Brazil,” Lula said. “What I can say to you is that if I’m president of Brazil, and he comes to Brazil, there’s no way he will be arrested.”

Brazil is as much a signatory to the Rome statute, which created the ICC, as South Africa, so the statement surprised Brazilian and international media. Lula attempted to walk back his comments on Monday, saying the Brazilian judiciary would ultimately be responsible for the decision, but then questioned whether Brazil should even be bound by the ICC going forward.

When presented with a choice between support for international law or support for a BRICS member, even a committed leftist like Lula didn’t hesitate to show where his solidarity truly lay.

International finance and cross-border payments

The Leaders’ Declaration also devoted a fair amount of ink to reforming the international financial system, saying that the 21st century “requires an international development finance system that is fit for purpose, including for the scale of need and depth of the shocks facing developing countries,” and called on the international community to deliver “better, bigger and more effective MDBs [Multilateral Development Banks] by enhancing operating models, improving responsiveness and accessibility, and substantially increasing financing capacity to maximise development impact.”

It’s worth noting that the BRICS made reforming international financial institutions, including beefing up their own MDB, the New Development Bank, a major priority ahead of next year’s summit in Russia, and they are developing new payment instruments and platforms ahead of the summit.

The G20 Declaration also highlighted cross-border payments as an area of particular focus, calling on member nations to meet global targets for “faster, cheaper, more transparent and inclusive cross-border payments by 2027.”

Incoming BRICS chair Russia is very motivated to accelerate the ongoing process of de-dollarization, including a new commodity-backed currency to supplant the U.S. dollar. And incoming G20 leader Lula has been the most outspoken of all BRICS members about the need for an alternative currency. The coming year may provide an unprecedented alignment between leader relationships and national economic goals combined with direction of international organizations to make de-dollarization and a new cross-border currency a reality.

U.S. dollar dominance vs. BRICS commodity coordination

French President Emmanuel Macron can claim, as he did on Sunday, that the G20 declaration was not a diplomatic victory for Putin and that this G20 “confirms once again the isolation of Russia.” But the country’s BRICS partners showed up to support them in both word and deed.

And U.S. Treasury Secretary Janet Yellen can insist, as she did on Sunday, that the G20 “remains the dominant and premium forum for global cooperation” and that the expanded BRICS includes nations with “highly diverging interests.” But this G20 showed the BRICS nations are fully capable of coordinating within that forum, and their interests increasingly appear to be converging against the U.S. dollar and the Western-dominated world order.

With a desperate and obstinate Russia leading the BRICS, and Brazil’s Lula in the catbird seat at the G20, 2024 could pose the most formidable diplomatic challenge to U.S. political dominance since the dissolution of the Soviet Union, if not the end of World War II. And if the BRICS can begin to leverage their own dominant position in commodities like gold and oil, all while deploying new alternatives to SWIFT and the greenback, then the coming year could do the same to America’s preeminent position atop the global economy.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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