The BRICS alliance has risen to prominence in recent times, particularly amid China’s continuous growth as an international powerhouse, and some even see it as a welcome balancing weight against the hegemony of the US dollar.

However, during DiEM25’s recent livestream ‘Africa and BRICS assert themselves. What should Europe do?’ Yanis Varoufakis explained the little-known backstory of BRICS, as well as how its BRICS Development Bank will function as a lender. He warned that this is far from some ‘socialist international’ for the benefit of the people, and that Chinese and Russian capitalists are not keen to replace the dollar, as that is the currency in which they hold much of their wealth.

Who came up with BRICS?

“Who came up with the acronym BRICS? A guy called Jim O’Neill. What was Jim O’Neill? The chief economist of Goldman Sachs. He came up with the idea of the BRICS.

“He was making the point that if you are investing money, you forget about the West, you should invest it in countries like Brazil, in Russia, in China. And in order to make it snazzy, to give it a marketing edge, I asked him, ‘why did you put South Africa in there?’ The ‘S’ of BRICS once I met Jim O’Neill, do you know what he said to me?

‘Because BRIC, one BRIC didn’t sound good. And I wanted an S’. So, he added South Africa in there. So, this is the degree of Anglo-European American dominance. All the developing world is looking at the BRICS as their saviour and the BRICS is an acronym concocted by the chief economist of Goldman Sachs.”

How lending from BRICS will work

“Now, it’s not insignificant, it’s not insignificant because an increasing amount of international trade is not going to be in dollars. And I think the most interesting event of the last few weeks is when we heard that Argentina repaid a few billion dollars that it owed to the International Monetary Fund using the Chinese yuan. If you couple that with the news that the new development bank, which is the BRICS bank, where Dilma [Rousseff] is the president, the former Brazilian president, is going to be lending in local currencies. And also there’s another outfit of the BRICS, a separate outfit, that is going to try to replace the IMF.

“So, when one country, which is associated with BRICS, let’s say South Africa, have a problem with the balance of payments, when they can’t repay their bankers in Germany, their bankers in England, their bankers in France, in America, then this BRICS IMF will come in and lend them in local currencies.

“Now, what does this mean? What does it mean to be lent in local currencies? Well, when Argentina repaid its IMF instalment – which was something like four or five billion dollars using yuan – what that means is this: the Chinese repaid it using their own dollar stock. If this new development bank and Dilma lends to Argentina or South Africa or to Zambia, if they lend money in local currency (South African rand), to the South African government, what does it mean? I mean, the BRICS Bank does not have rand to give. What it has is dollars, or yuan. It can give them yuan, or it can give them dollars. Now, for that loan to South Africa to be useful to South Africa, the South African government that takes on this loan must be able to buy stuff from America, from Europe, from India. They will have to pay in dollars. So essentially they get dollars from the BRICS Bank, but they have to repay in the future with interest the dollars that it cost initially to give the rand. What does this mean? It means that if the rand devalues 50 percent in the next 10 years, when the loan has to be repaid, this is a good thing for South Africa because South Africa will have inflation. The same quantity of rand in 10 years time will be worth half as much. So effectively they will have to repay to the BRICS Bank half the money. So it’s negative interest rates for the BRICS Bank. Who is going to suffer for this? The Chinese. Because they are the only ones amongst the BRICS that have a big wad of dollars. So essentially the BRICS Bank means that the Chinese are using their stock of dollars in order to lend the countries that take loans from the BRICS Bank and take on itself, Beijing will take on its shoulders, the devaluation risk, which now when an African country borrows, the devaluation risk is its own. It will have to pay for it.”

BRICS is essentially China

“Now, why would the Chinese do that? Well, one reason is because they have too many dollars. In the sense that because they have a very large current account surplus, they keep, with every lump of aluminium or car or whatever it is, or clothes that they sell to the Americans, Or the Europeans, they get dollars back. Right? What do they do with these dollars? They have to take them to Wall Street. Now they’ve seen what happened after the Ukraine War that the Central Bank of the United States, the Fed, confiscated 350 billion Russian dollars. So they think they may do this to us. We might as well use our dollars through the BRICS Network to gain more influence over South Africa, over Saudi Arabia.

“So they are socialising amongst the third world their dollar holdings. BRICS is China. Let’s not beat about the bush here. The BRICS is China, with India trying to find a kind of middle road, with the United Arab Emirates playing the West against the BRICS in order to gain advantages, like Saudi Arabia wants to negotiate deals, they don’t want to get out of the dollar zone, but they want to enhance their relationship with China, with the BRICS in order to leverage their own bargaining with the United States.”

“This is all very interesting, but leftists, I’m really appalled.

“Leftists have a tendency to look at the BRICS and say [mimics excitedness]. You know, we are orphans. We on the Left, since 1991, when the Soviet Union collapsed, we’ve been orphaned. We’ve been looking at a large power internationally that will look after us, that we will be able to dream that they are our people, that they will defeat the capitalist mammoth, right?

“Don’t make this mistake. That’s not what the BRICS is. It’s significant. I explained why it is significant. But it is not the new ‘communist international’, the new ‘socialist international’, the new ‘humanist international’. That’s not what it is.”

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