THE BRICS AND COLLECTIVE FINANCIAL STATECRAFT

The BRICS and

Collective Financial Statecraft

Cynthia Roberts,
Leslie Elliott Armijo,
and Saori N. Katada
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Library of Congress Cataloging-in-Publication Data

Names: Roberts, Cynthia A. (Professor of political science), author. | Armijo, Leslie Elliott, author. |
Katada, Saori N., author.
Title: The BRICS and collective financial statecraft / Cynthia Roberts, Leslie Elliott Armijo and
Saori N. Katada.
Description: New York, NY : Oxford University Press, [2018] | Includes bibliographical references
and index.
Identifiers: LCCN 2017004727 (print) | LCCN 2017022767 (ebook) | ISBN 9780190697532 (updf) |
ISBN 9780190697549 (epub) | ISBN 9780190697556 (online content) | ISBN 9780190697518
(cloth) | ISBN 9780190697525 (pbk.)
Subjects: LCSH: BRIC countries—Foreign economic relations. | BRIC countries—Foreign relations.
| Balance of power.
Classification: LCC HC59.7 (ebook) | LCC HC59.7 .R559 2018 (print) | DDC 337—dc23
LC record available at https://lccn.loc.gov/2017004727
For
Andrew, Kay, Zubin Prescott, and Chitra Marguerite
Contents

List of Figures
List of Tables
Acknowledgments
Acronyms List

1. Introduction: The BRICS as a Club

BRICS in the Aftermath of the Global Financial Crisis
Strategic Incentives in Unipolarity and Common Aversions
The BRICS and the Global Governance System
Formal Institutions and Informal Powers: The Emergence of Clubs
The BRICS as a Club
Clubs with Power Asymmetries and Dominant Powers with Outside
Options
Plan of the Book

2. Global Power Shift: The BRICS, Building Capabilities for Influence

Conceptualizing Power
Measuring the Shift in Economic Capabilities
A New, Multipolar World?
The Global Financial and Monetary Capabilities of the BRICS
Redback Rising
Conclusion

3. BRICS Collective Financial Statecraft: Four Cases

Defining Collective Financial Statecraft
Four Categories of Collective Financial Statecraft
Inside Reforms: The BRICS Quest for Greater Influence within the
IMF and World Bank (Case 1)
 Inside Reforms: Resist Manipulation of Financial Market Power for
U.S./Western Political Aims (Case 2)
Outside Options: Create Parallel Financial Institutions Controlled by
the BRICS (Case 3)
Outside Options: Diminish Dollar Dominance and Build the
Financial Market Power of the RMB (Case 4)
Future Directions and Cooperative Opportunities Not Taken
Conclusion: Mostly Successful BRICS Collective Financial Statecraft

4. Motives for BRICS Collaboration: Views from the Five Capitals

Six Propositions
The View from Beijing: In Search of Legitimacy and Unthreatening
Leadership
The View from Moscow: Russia’s Struggle for Autonomy and
International Influence
The View from New Delhi: Amplifying Voice and Anticipating
Multipolarity
The View from Brasília: Enhancing Status and Inviting Investment
The View from Pretoria: Support for Growth and Regional
Leadership
Conclusion: Explaining BRICS Collaboration

5. Conclusion: Whither the BRICS?

BRICS and World Order: Too Much Pessimism Is Unwarranted
Growth: The Essential Need to Return to the BRICS’ Roots
The Tension Between Formal and Informal Rules
Summing up: The BRICS, Collective Financial Statecraft, and the
Multipolar Future

NOTES
INDEX
List of Figures

2.1 Shares of World GDP (MER, %): BRICS, G7, EU, China, and United
States
2.2 Combined GDP (PPP): BRICS, G7, China, and US, 2000–2020
2.3 Combined GDP (MER): BRICS, G7, China, and US, 2000–2020
2.4 GDP Growth: BRICS (% Change, Year on Year) 2000–2020
3.1 Ratio of IMF Quota Shares (%) to Share of World GDP (MER, %):
BRICS, G7, and EU, 2005–2020
3.2 Ratio of IMF Quota Shares (%) to Share of World GDP (PPP, %):
BRICS, G7, and EU, 2005–2020
3.3 GDP Blend and IMF Quota Shares: BRICS, G7, and EU, 2005–2020
3.4 GDP Blend and IMF Quota Shares: Individual BRICS, 2005–2020
3.5 Ratio of IMF Quota Shares (%) to Share of World GDP (MER, %):
Individual BRICS, 2005–2020
3.6 Ratio of IMF Quota Shares (%) to Share of World GDP (PPP, %):
Individual BRICS, 2005–2020
3.7 Voting Shares in AIIB
3.8 Nominal Exchange Rate Movements against U.S. Dollar: BRICS,
2009–2015
5.1 BRICS Institutional Quality Index Versus Log GDP per Capita
List of Tables

1.1 Typology of BRICS Club Policies

2.1 Global Defense Rankings and Trends, 1993–2016
2.2 Stock Markets: G7 and BRICS
2.3 Structure and Performance of Domestic Finance: G5 and BRICS
2.4 Rankings of Domestic Financial Development: G5 and BRICS
2.5 Indicators of External Openness: G5 and BRICS
2.6 Transitions in Global Trade, Financial, and Monetary Capabilities: G5
and BRICS
2.7 Rankings of G7 and BRICS Global Financial Centers
3.1 Conceptualizing International Financial Statecraft
3.2 Varieties of Collective Financial Statecraft: Types of Actions and
Venues
Acknowledgments

A BOOK THAT spans four continents and three co-authors working in different
cities incurs a lot of debts to those who supported this project. We thank the
government officials and other informed observers from the private and
public sectors in the BRICS countries and in the United States who spoke to
us on background and wish to remain anonymous. In addition, we are
grateful to the many economists and officials at international financial
institutions and think tanks who devoted many hours to help us better
understand the intricacies of the issues explored in this study, including
Kausik Basu, Jin Zhongxia, Aleksei Mozhin, Andreas Bauer, Andrew
Baukol, Simeon Djankov, David Dollar, Indermit Gill, Sergei Guriev, Birgit
Hansl, Branko Milanovic, José Antonio Ocampo, Eswar Prasad, Markus
Rodlauer, David Rosenblatt, and Sergei Shatalov. North American and
Europe-based academics whom we thank for their help in understanding
BRICS financial statecraft and the international political economy include
Gregory Chin, Benjamin J. Cohen, Barbara Fritz, Eric Hershberg, Andrew
Hurrell, Jonathan Kirshner, Laura Carsten Maurenbach, Daniel McDowell,
Laurissa Muehlich, Mihaela Papa, Daniel C. Tirone, and Hongying Wang.
We are also grateful to many officials in Russia, members of the Russian
Academy of Sciences, and other knowledgeable observers who were
generous with their time and offered important insights, especially
Ambassadors Vadim Lukov, Aleksandr Kramarenko, and Georgii Toloraia;
Vladimir Mau, Andrei Kortunov, Leonid Grigoriev, Alexander Gabuev,
Mikhail Golovnin, Igor Yurgens, Marina Larionova, Feodor Lukyanov,
Robin Lewis, and Natalya Volchkova. We also thank scholars from or based
in China, especially Ren Xiao, Wang Jisi, Wang Yong, and Zhu Feng; and
those from or based in Japan, including Hyoung-kyu Chey, Masahiro
Kawai, Eisuke Sakakibara, Toshiya Tsugami, and Tatsuya Yoshizaki.
Our indebtedness to Brazilians and Brazilianists who contributed their
valuable time and critical insights encompasses Adriana E. Abdenur, the
Worney Amoedo family, Luis Antonio Balduino, Renato C. Baumann, Luiz
Carlos Bresser-Pereira, Sean W. Burges, Roland Clark, Carlos Cozendey,
Sulamis Dain, Pedro Dallari, Markus Fraundorfer, David Fleischer, Camila
Amorim Jardim, David Kupfer, Antônio Carlos Lessa, José Alfredo de
Graça Lima, María Antonieta del T. Lins, Walter Ness, Edson de Oliveira
Nunes, Amâncio J. de Oliveira, Janina Onuki, Alberto Pfieffer, Armando
Castelar Pinheiro, Sybil Rhodes, Feliciano de Sá Guimarães, Laura Randall,
the M. Raimunda dos Santos family, Bruno W. C. Saraiva, Miriam Saraiva,
Ben Ross Schneider, Lourdes Sola, Oliver Stuenkel, María Hermínia
Tavares, Matthew Taylor, Vera Thorstensen, Tullo Vigevani, and Kurt von
Mettenheim. Indians and South Asianists who provided extremely useful
guidance include John Echeverri-Gent, Surupa Gupta, John Harriss, and
Aseema Sinha. For invaluable assistance in understanding South Africa, we
thank Audie Klotz and Janis van de Westhuizen.
Roberts thanks President Jennifer Raab and Dean Andrew Polsky for
travel and research support, in part through the Hunter College President’s
Fund and the Presidential Fund for Faculty Advancement, and her political
science colleagues, especially Ken Erickson and Walter Volkomer. Roberts
is also grateful to Columbia University for providing an invaluable
intellectual and research environment, particularly the Saltzman Institute for
War and Peace Studies and its director, Richard Betts, and Business
Manager Ingrid Gerstmann, as well as the librarians at the Columbia
Business School. She also thanks the leaders of the Harriman Institute,
Alexander Cooley, Tim Frye, and Kimberly Marten, and many other
Columbia colleagues, especially Jack Snyder, for their encouragement and
support.
Armijo thanks the Instituto de Relações Internacionais, Universidade de
São Paulo, Brazil, where she was a visiting professor in 2015 while
conducting research for this book, and her stimulating colleagues and
students at the School for International Studies at Simon Fraser University.
Katada appreciates the School of International Relations and Center for
International Studies of University of Southern California, as well as the
East-West Center in Washington, DC, for their generous funding and
support of her research. Our heartfelt thanks go to our hardworking research
assistants over the course of two years: Brandon Cheung, Logan Childers,
Xinru Ma, Samuel D. Miller, Andrew Sherlock, Mingmin Yang, and Xinlin
Zhao.
We also thank the organizers and attendees at conferences or seminars
where portions of this book were presented, including the International
Studies Association (Baltimore, February 2017; New Orleans, February
2015), the Universidad del CEMA (Buenos Aires, April 2015), the Latin
American Studies Association (San Juan, Puerto Rico, May 2015), the
Instituto de Relações Internacionais, Universidade de São Paulo (São Paulo,
June 2015), the Gaidar Forum, Russian Presidential Academy of National
Economy and Public Administration (Moscow, January 2016); and the
Harriman Institute Conference on “Future Scenarios for Russia and the
West,” at Columbia University (New York, November 2016).
We also are deeply grateful to David McBride at Oxford University Press
for his unflagging support.
Grateful acknowledgment is made to the Academy of Political Science
and Wiley for permission to use portions of Chapter 3 that were first
published in Saori N. Katada, Cynthia Roberts, and Leslie Elliott Armijo,
“The Varieties of Collective Financial Statecraft: The BRICS and China,”
Political Science Quarterly, 132 (Fall 2017). Our thanks also go to the
anonymous reviewers for both Oxford University Press and PSQ, whose
constructive suggestions helped stimulate improvements in our work.
Finally, we thank our families, who tolerate the competing demands of
academic and family life. We dedicate this book to our children—our rising
stars in a changing world.
Responsibility for the views expressed in this book is our own.
Acronyms List

ADB Asian Development Bank

AIIB Asian Infrastructure Investment Bank
ALBA Bolivarian Alternative for the Americas
ANC African National Congress (South Africa)
APEC Asia-Pacific Economic Cooperation
BCBS Basel Committee on Banking Supervision
BIC Brazil, India, and China
BJP Bharatia Janata Party (India)
BNDES National Economic and Social Development Bank (Brazil)
BRICs Brazil, Russia, India, and China
BRICS Brazil, Russia, India, China, and South Africa
CAF Development Bank of Latin America (Corporación Andina de
Fomento)
CCP Chinese Communist Party
CDB China Development Bank
CEO chief executive officer
CIBM China Interbank Bond Market
CHIPS Clearing House Interbank Payments System
CIPS Cross-border Interbank Payment System
CMI Chiang Mai Initiative
CMIM Chiang Mai Initiative Multilaterization
CNPC China National Petroleum Corporation
CRA Contingent Reserve Arrangement
DRC Development Research Center of the State Council
ECLAC United Nations Economic Commission on Latin America and
the Caribbean
EDRB European Bank for Reconstruction and Development
ED executive director
EEU Eurasian Economic Union
EMDCs Emerging market and developing countries
EU European Union
FDI Foreign direct investment
FOCAC Forum on China-Africa Cooperation
FSB Financial Stability Board
FTA Free Trade Agreement
GATT General Agreement on Tariffs and Trade
GDP gross domestic product
GFCI Global Financial Centers’ Index
GKOs Gosudarstvennye Kratkosrochnye Obiazatel’stva
GVC global value chain
IAFS India-Africa Forum Summit
IBRD International Bank for Reconstruction and Development
IBSA India-Brazil-South Africa Dialogue Forum
ICICI Industrial Credit and Investment Corporation of India
IDA International Development Association
IFC International Finance Corporation
IFI international financial institution
IMF International Monetary Fund
INC Indian National Congress
JCB Japan Credit Bureau
LIBOR London Interbank Offered Rates
M&A mergers and acquisitions
MDB multilateral development bank
MER market exchange rate
Mercosur Common Market of the South
MGI McKinsey Global Institute
MSCI Morgan Stanley Capital International
NAB New Arrangements to Borrow
NAM Non-Aligned Movement
NATO North Atlantic Treaty Organization
NDA New Democratic Alliance (India)
NDB New Development Bank
NEPAD New Partnership for African Development
NGO nongovernmental organization
NIC National Intelligence Council (United States)
NIEO New International Economic Order
NPT Non-Proliferation Treaty
NSA National Security Agency (United States)
NWF National Wealth Fund
OBOR One Belt, One Road
OFDI outbound foreign direct investment
ODI Overseas Development Institute
OECD Organisation for Economic Co-operation and Development
PBOC People’s Bank of China
PPP purchasing power parity
PRC People’s Republic of China
PT Workers’ Party (Brazil)
QFII Qualified Foreign Institutional Investors
RBI Reserve Bank of India
RESh Russian Economic School
RIC Russia-India-China
RMB renminbi
RQFII Renminbi-Qualified Institutional Investors
SOE state-owned enterprise
S&P Standard & Poor’s
SAFE State Administration of Foreign Exchange
SAIIA South African Institute of International Affairs
SCO Shanghai Cooperation Organization
SDR Special Drawing Rights
SDRM Sovereign Debt Restructuring Mechanism
SWF sovereign wealth fund
SWIFT Society for Worldwide Interbank Financial Telecommunication
TFP total factor productivity
TPP Trans-Pacific Partnership
UN United Nations
UNASUR Union of South American Nations
UNGA United Nations General Assembly
UNSC United Nations Security Council
UPA United Progressive Alliance (India)
WDI World Development Indicators
WEF World Economic Forum
WEO World Economic Outlook
WTO World Trade Organization
THE BRICS AND COLLECTIVE FINANCIAL STATECRAFT
Introduction

THE BRICS AS A CLUB

THE EXTRAORDINARY INCREASE in the economic capabilities and political

reach of emerging powers over the past three decades has propelled rising
multipolarity in the interstate system. The most influential of these rising
powers—Brazil, Russia, India, and China—formed a multilateral club
known as the BRICs. This exclusive club began when the countries’
ministers met at Russia’s invitation on the sidelines of a U.N. General
Assembly session in September 2006, and then in May 2008 at a formal
quadripartite foreign ministers meeting.1 The relatively fast ascent (or
resurgence, in the case of Russia) of the BRICs made them the natural
challengers of the global system dominated by the major incumbent powers
constituting the Group of 7 (G7), with the United States as the hegemon.2 In
November 2008, as the world was reeling from the global financial crisis,
the BRICs’ finance ministers also started consultations on the sidelines of
meetings of the newly reconstituted Group of 20 (G20) finance ministers
and leaders. BRICS leaders subsequently upgraded their collaboration via a
formal summit as their heads of state met for the first time in Yekaterinburg,
Russia, in June 2009.
Jim O’Neill, then chief economist at the New York investment bank
Goldman Sachs, coined the BRICs acronym in 2001 to refer to a hot new
investment fund showcasing the bank’s projection that the combined gross
domestic product (GDP) of these four large, fast-growing economies would
exceed that of the advanced G7 countries by the middle of the century, a
timeline soon pushed forward to the 2020s.3 In a fantastic feat of jujitsu, the
Kremlin appropriated the idea of the BRICs from Goldman and reinvented
it as a diplomatic club for the four countries to coordinate their shared
interests in reforming global governance institutions and gaining greater
international influence. Boosting the prestige of both the investment fund
and the new political club, the BRICs went on to become what the
Financial Times called “a near ubiquitous financial term, shaping how a
generation of investors, financiers, and policymakers view the emerging
markets.”4
 The world’s interest in the BRICs continued. In the mid-2000s, O’Neill
(with Robert Hormats)5 supported the inclusion of China in an overhaul of
global governance institutions such as the G7 and the G20. O’Neill
frequently suggested that these large, non-Western governments needed to
be integrated into the top international policymakers, as they were starting
to surpass many G7 economies, whose leaders still behaved as though they
dominated the world.6
Nonetheless, the new BRICs club, almost from the outset, encountered
bewildered skepticism, even derision, from Western observers, including
both officials and academics. Each of the member-states had its detractors,
while the collective group was also frequently dismissed as an unworkable
gimmick. Most experts predicted the BRICS’ rapid demise, especially given
the heterogeneous characteristics of the group, which unites two
authoritarian regimes and three democracies (following South Africa’s
incorporation in December 2010, when it became known as BRICS), three
commodity exporters and two purchasers of raw materials, and at least one
country, Brazil, with no historic ties to any of the others. The group also
became increasingly lopsided, as China’s economic growth dwarfed the
others and it rose in 2010 to become the second-largest economy in the
world. In 2016, India began growing faster than China; but even if India’s
very rapid growth continues, it will take a few more decades before New
Delhi can expect to rival the current world leaders, even in the most
optimistic scenarios.
Despite these differences and doubts, however, the BRICS did not fold.
What attracted these disparate countries to form a new diplomatic club, and
what explains their sustained enthusiasm for expanding the scope of joint
BRICS activities? Does the ongoing global power shift signify the waning
of unipolarity and the “rise of the rest”7 in a new multipolar structure that
particularly benefits the BRICS, or is this mostly a China story? Do the
BRICS possess sufficient material means and political commitment to
achieve their stated objectives? Given its predominance within the BRICS
club, why is China interested in cooperating with the other members if it
can affect the global system just as well by acting unilaterally? Why do the
other four BRICS choose to go along with China? These are key questions
addressed in this volume.

BRICS IN THE AFTERMATH OF THE GLOBAL FINANCIAL CRISIS

The coincidence of the longer-term and structural shift in global economic
power with the world financial crisis of 2008–2009 signaled new
opportunities for the BRICS. During the crisis, the BRICs governments
were quick to voice widespread dissatisfaction with the colossal
mismanagement and poor regulation that characterized not only the U.S.
subprime mortgage markets, but also Western capitalist institutions
considered as global standards, such as Moody’s credit ratings and the
supposedly neutral London Interbank Offered Rate (LIBOR) benchmark
international interest rate.8 BRICS leaders such as then Chinese Premier
Wen Jiaobao accused American policymakers of causing the global
financial crisis and warned the United States to “maintain its good credit, . .
. honor its promises and . . . guarantee the safety of China’s assets.” In
March 2009, concerned about its massive dollar holdings, the governor of
the People’s Bank of China (PBOC), Zhou Xiaochuan, expressed his
concern over the dollar-centered monetary system and proposed a
multicurrency reserve regime based on the Special Drawing Rights (SDRs)
—while also taking careful steps toward internationalizing the Chinese
currency, the renminbi (RMB). This move was in keeping with what BRICs
elites considered the ongoing shift to a multipolar world.9 According to
Wang Jisi, one of China’s most prominent academic and policy advisers,
since 2008, “the feeling in China [is that] . . . the PRC [People’s Republic of
China] has ascended to be a first-class global power [while] . . . the United
States, despite ongoing great strength, is heading for decline.”10
Meanwhile, “emerging powers like India, Brazil, Russia, and South Africa
are increasingly challenging Western dominance and are working more
closely with each other and with China in doing so.”11 Brazilian President
Luiz Inácio Lula da Silva likewise called for emerging economies to
participate in building a “new global financial architecture.”12
Amid such tumultuous proposals for change, in June 2009, Russia hosted
the first BRICs leaders summit. Russian President Dmitri Medvedev
insisted, “We should ensure that our states, where billions of people live . . .
take part in shaping the new rules of the game.”13 There was a collective
sense of global economic power shifting in their direction, dissatisfaction
with the lack of serious efforts toward global governance reform, and calls
for a more representative world, with power decentralized from the U.S.-
centric global system. In this system, in which the Bretton Woods
institutions are dominated by the United States and some of its Western
partners, the BRICs countries’ calls for redistributive change had run into a
brick wall of institutional rigidity.14 The BRICS members, at that point,
preferred a “voice” to an “exit” option.15 Yet, although they wanted to be
included among the directors and rule-makers, the incumbent major
Western powers questioned their loyalty to existing global governance
institutions, which eventually raised the prospect that the BRICS might
experiment with competing institutional outlets. Successive communiqués
at eight annual summits (2009–2016) have called for diversifying global
reserves away from the dollar and shaming Western governments by noting
that “international governance structures designed within a different power
configuration show increasingly evident signs of losing legitimacy and
effectiveness.”16
Increasingly, the BRICS have acted jointly in international politics, to the
consternation of many, especially policymakers in the West. Instead of
symbolic “BRICS made without straw,” the group has deepened and
widened its cooperation, through time and despite leadership turnovers, for
the last ten years. The BRICS expanded their club, admitting South Africa
in late 2010 at the instigation of China. They invested in building new
institutions, notably the BRICS Development Bank (now the New
Development Bank, or NDB), a Contingent Reserve Arrangement (CRA),
and the Chinese-initiated Asian Infrastructure Investment Bank (AIIB), in
which the other BRICs are among the top shareholders. They successfully
pushed the leading international financial institutions to implement stalled
reforms that give the BRICS increased voting shares and decision-making
influence broadly commensurate with their greater weight in the world
economy. Despite pressure from Washington, the BRICS also hung together
in the face of Russia’s armed intervention against Ukraine and annexation
of Crimea, opposing the Western economic sanctions that followed, and
they have stayed together as China has acted more assertively, particularly
in the South and East China Seas. And they have survived the synchronous
economic slowdown in four of their five economies.17 Improbably, so far
the group has proven that the centripetal forces holding the BRICS in orbit
are stronger than their differences and rivalries.
Perhaps the most striking feature of BRICS collaboration has been their
ability to hang together in exercising “financial statecraft,” which this study
defines as the use of financial and monetary policies by sovereign
governments for the purpose of achieving larger foreign policy goals. While
most discussions of financial statecraft have focused exclusively on
sanctions, typically employed by the United States and other G7 countries
against lesser powers, other policies—from exchange rate choices, to
lobbying for reforms in global financial governance to utilizing the
countries’ financial capabilities to induce or pressure other governments—
also illustrate the possibilities. In the early 21st century, the BRICS
countries have cooperated to promote reforms of the Bretton Woods
institutions, encourage internationalization of China’s currency, the yuan or
RMB, and build parallel international financial institutions. They also have
stood together in opposition to financial sanctions by the major Western
incumbent powers. They have not always achieved their stated foreign
policy goals, yet they have been more successful in crafting and carrying
out common positions in financial statecraft than one might have expected.
Ten years on, this is an appropriate time to take stock of the puzzling
developments of BRICS collective financial statecraft, analyze more
systematically how and why the BRICS manage to collaborate, and offer
some insights into the theoretical implications of BRICS cooperation.
Following this introductory section, this chapter discusses three interrelated
elements of BRICS collective financial statecraft. First, the puzzle of
BRICS cooperation is closely associated with debates about the rise of
China and “the rest” and the implications for the existing international order
of power shifts that challenge incumbents’ influence in global governance
institutions.18 The BRICS engage in individual and collective strategies to
challenge the domination of the United States as the hegemon and principal
rule-maker in the contemporary international system. Their motivation in
support of collective action is strengthened by their common aversions to
the preponderant U.S. and Western positions in the global financial system
and in governance institutions, as well as the incumbent powers’ use of
statecraft, including unilateral economic and financial sanctions. Second,
within global governance institutions where the costs and benefits of
collective action are allocated and distributed as part of power
relationships,19 BRICS governments emulate mechanisms used by the
status quo powers—notably their ability to coordinate as a club—to help
them best organize to increase their voice, gain greater autonomy, and
create opportunities to influence others. Third, this book shows that the
BRICS have evolved a dual strategy that recognizes the benefits of
reforming incumbent Bretton Woods institutions from within, while
simultaneously developing outside options to create parallel institutions to
promote their collective interests. Here, China’s emergence as a major
power presents the BRICS, on the one hand, with greater bargaining power
and international opportunities than the other four possess, either
individually or collectively, in the area of financial statecraft. On the other
hand, China’s rising economic and financial power introduces the
unavoidable domination of China’s preferences that may come to
overshadow the others. This relationship raises questions about the
credibility and durability of China’s commitment to collective purposes and
the extent to which the other BRICS can harness China’s strengths to their
advantage while containing the risks of exploitation.

STRATEGIC INCENTIVES IN UNIPOLARITY AND COMMON AVERSIONS

The BRICS emerged in the unipolar era, after the collapse of the Soviet
Union in the early 1990s, when the United States possessed unparalleled
structural power in the modern international system by virtue of its
immense capabilities, from the dominance of the dollar to global military
reach.20 American leaders embraced the “triumph of liberalism” and the
unipolar system after the collapse of the Soviet Union, where a stronger,
more stable structure than regional hegemony in the Western world was
expected to coalesce around U.S. dominance.21 Although the U.S.-led
liberal order offers many advantages to emerging economies, these
countries are aware of Washington’s strategy to maintain its superior
position by actively deterring peer competitors and coopting potential
opponents. Such unipolar power incentives have encouraged the BRICS to
support a return to multipolarity. Yet each still recognizes the United States
as the world’s superpower, and all have been disincentivized by unipolarity
to form an alliance to balance against the United States.
The absence of “hard” (i.e., military) balancing against the United States
thus flows from the similar strategic incentives that the BRICS countries
face. Shared values in human rights or democracy of some BRICS members
did not make them behave differently from other members with less
common ground with the United States. In this context, as Robert Keohane
and Beth Simmons find, “states pursue their values in world politics but do
so strategically to maximize benefits to themselves … .”22 The BRICS’
incentives to support collective action come from the same logic as Erik
Voeten finds in the active collaboration among states lacking many common
interests “other than a common aversion of Western hegemony and the
principles associated with that.” Such states may constitute a “counter-
hegemonic bloc” to offset the dominance of the United States.23
Voeten’s conclusion emerges from his observation that countries with
different values and political regime types cooperate in global governance
institutions, such as the United Nations, World Trade Organization (WTO),
and G20. For example, the U.N. Security Council (UNSC) achieved
consensus on more than 93 percent of resolutions adopted between 2000
and December 15, 2013—an increase from 88.9 percent in the 1990s, when
the UNSC was very active after the end of the Cold War. This high level of
consensus reflects a decrease in China’s abstentions and a concentration of
nonconsensus resolutions on divisions pertaining to the Middle East (e.g.,
resolutions on Syria or the 2003 Iraq war) and the Balkans.24 A more
rigorous examination of UNSC voting patterns reveals a pattern that does
not uniformly reflect the democracy/nondemocracy cleavage. Although
Latin America hews closer to the West in voting patterns, Russia and the
former Soviet republics are positioned between the Western and the non-
Western worlds, similar to Turkey and South Korea. The non-Western
group includes not only the remaining communist states (China, North
Korea, Vietnam, Laos, and Cuba), but also Afghanistan, India, and
Pakistan, among others.25
These findings reinforce other work that shows the relevance of common
aversions for giving the original four BRICs a sense of purpose.26Common
aversions are conceptualized as situations in which actors seek to avoid a
particular outcome. Typically, the actors do not necessarily prefer the same
outcome, but they agree that there is at least one or more results that they all
want to avoid. Coordination may help them collaborate when they confront
common aversions.27 Communiqués from the BRICS’ early meetings and
interviews with Russian officials involved in the process suggest that
common aversions were among the first impulses to consult and coordinate
on important international governance issues.28
Their common aversions are strengthened by the fact that all the BRICS
today are sovereignty hawks, although the intensity of this preference varies
among the five.29 The BRICS’ shared aversion to U.S. hegemonic practices
and Western double standards ranges widely across many policy arenas,
from the unilateral use of force and financial sanctions to using informal
leverage, bending or skirting the formal rules of international institutions, or
guaranteeing themselves unfair exceptions and privileges. For example,
emerging powers share an antipathy to the proclivity by Western countries
to support intervention in the name of humanitarian missions in the post–
Cold War period. Even the BRICS democracies, which support human
rights and humanitarian intervention under constrained circumstances, are
wary of a principle that can be used as a pretext to meddle in their domestic
affairs. The authoritarian BRICS warn that “backwardness invites bullies,”
and of the risk of the West instigating “color revolutions” to overthrow
established regimes in their neighborhoods or against themselves.30
Although they all benefit from the current international economic order,
each of the BRICS is a major power within its own geographic region and
has a strong desire to become the dominant regional power. Such
preferences incentivize them to share a wariness of “infringements on their
autonomy and precedents that limit their freedom to set their own policy
agendas.”31 However, regional powers are inherently constrained under
conditions of international unipolarity, given the American stance that “the
world is the unipole’s neighborhood.”32 Competition between the United
States and rising regional powers involves distributional conflict,33 and the
natural preference of regional actors is to operate independent of American
power and purpose. Hence, regionalism provides a “space for a variety of
counter-hegemonic projects.”34 Among the prominent examples in the case
of BRICS are Russia’s and especially China’s promotion of their currencies
as regional substitutes for the U.S. dollar in cross-border trade and bilateral
swap agreements.
Common aversions also reflect the powerful incentive for all BRICS
states in the area of financial statecraft, where they converge on a
preference for autonomy and protecting national policy discretion from U.S.
financial leverage and structural power as exercised through the
International Monetary Fund (IMF) or by controlling access to the global
banking system.35 All the BRICS share a common aversion to the use of
sanctions, as each has been targeted by them at various times. There are
echoes of Albert Hirschman, who warned that “the power to interrupt
commercial or financial relations with any country . . . is the root cause of
the influence or power position which a country acquires in other
countries,”36 in some of the speeches of BRICS leaders (see Chapter 3).
Likewise, BRICS governments strongly object to conditionality for IMF
programs that goes beyond economic fundamentals into normative and
political requirements. Further, the BRICS have accumulated large foreign
reserves at significant cost in order to give themselves some buffer against
both financial coercion and the perils of hot money in globalized markets.
This book explores two cases of common aversions that helped motivate
the BRICS to stay together. As discussed in Chapter 3, a common aversion
to the use of economic sanctions helps explain the BRICS’ convergence
around Russia in 2014, despite discomfort with Moscow’s actions in
Ukraine. To the BRICS and other targets of sanctions, the motivation is not
merely or even principally resentment over the high-handed assertions of
international justice, where the United States assumes the role of judge and
jury. Of greater concern are the exorbitant privileges the United States reaps
from being the world’s financial hegemon, willing and able to engage in
coercive financial statecraft to cut off lesser financial actors who need
access to both U.S. capital markets and dollars to make international
transactions. Countries may avoid some types of political exploitation by
the United States in such “hold up problems” by joining international
institutions with legal protections, such as the WTO,37 but they cannot
easily escape from using the dollar and U.S. financial markets.38 Similarly
objectionable is the double standard with which the United States and other
G7 countries through the IMF seek to regulate the financial and economic
policies of emerging economies while protecting standards or creating
exemptions beneficial to themselves.39
These common aversions against U.S. self-interested behavior have
encouraged stepped-up consultations and actions among the BRICS for
diversifying away from the dollar and U.S. capital markets, including
increasing the role of the RMB as an international reserve currency and
collective efforts to shift more to trade in local currencies. Obviously, the
fact that avoidance of the dollar can be costly demonstrates that
coordination to avoid a common aversion does not necessarily specify a
particular equilibrium outcome. The logic of BRICS coordination games
usually involves a different ordering of preferences. For example, despite
pressing for a larger role for the ruble in its region after the plunge in oil
prices in 2014, Russia benefited from earning valuable dollars from
resource exports, such as oil sales priced in dollars when production costs
and the Russian budget were in devalued rubles. In sum, common aversions
provide necessary focal points for BRICS collaboration.

THE BRICS AND THE GLOBAL GOVERNANCE SYSTEM

However, aversions alone are not sufficient to explain the expansion and
deepening of BRICS cooperation over the past decade or the range of goals
of BRICS collective efforts. Existing research is divided over the next brick
in the conceptual wall—whether the BRICS in the global governance
system are best conceptualized as (a) joiners, who for the most part bury
their distributional disputes and resentments over voice and positions to the
service of the potentially greater gains that they reap from rising in the
incumbent order; (b) spoilers, hard-core revisionists who want to overturn
the incumbent institutions and replace them with new ones that better serve
their (and particularly China’s) interests; or (c) shirkers, who despite the
diffusion of power are not full-blown dissatisfied challengers and thus
prefer to free-ride, accepting the current hegemony until a new negotiated
order fitfully evolves.40
The liberal institutionalist perspective provides one influential view on
the dynamics of how the international system accommodates rising actors.
It maintains that China and other increasingly important powers are joiners
that gradually will be drawn to integrate into the existing liberal order from
which they benefit. According to G. John Ikenberry, China and other rising
powers will be sufficiently satisfied with and integrate into the well-
institutionalized American order because it is “more open, more consensual
and rule-based than past hegemonic orders,” is “easier to join and harder to
overturn,” binds the hegemon, offers “tangible material benefits” that are
widely shared through an open trading system, and creates opportunities for
voice while accommodating rising powers by redistributing authority
roles.41 Similarly, David Lake suggests that states comply with subjective
international orders because of the dual roles of authority and legitimacy in
hierarchical relationships.42
The integration of systemically important states into the liberal
international order also fits with theories grounded in hegemonic stability
and the Bretton Woods regime as essential providers of public goods.43
American leadership has helped produce the triumph of market-based
democracies, progressive openness to trade, and dramatic increases in living
standards since World War II. The United States as a liberal hegemon
promotes cooperation by providing the market of last resort; offering stable
long-term lending, including lending in crises; ensuring a deep, liquid, and
open capital market that buttresses the world’s dominant reserve currency
as a safe haven; and helping to coordinate macroeconomic policies.44 The
hegemon accomplishes such goals by mitigating distributional conflict and
enforcement problems while accepting formal rules that reduce incentives
to exploit weaker partners.45
One can find some evidence of a preference for such a global system
among the BRICS, as demonstrated by China’s “peaceful rise” strategy46
and the BRICS’ collective financial statecraft decision to contribute billions
of dollars to the IMF during the recent global financial crisis. The IMF
would better safeguard their capital than bilateral loans, but as important for
these rising powers was the signal that they are “responsible
stakeholders,”47 worthy of greater voting power and leadership positions.
According to Chinese Foreign Minister Wang Yi, China seeks “to play a
bigger role in the existing international order and system” but is “not
building a rival system.”48
The historical record shows that the United States actively facilitated
conditions for the emerging powers to behave as joiners, but only in
economic multilateral institutions and international markets, not in U.S.
alliances, and not in ways that displaced American preponderance.49 China
was an early beneficiary of the American strategy at the time of the
establishment of the Bretton Woods institutions, winning the fourth-largest
quota and number of voting shares in the IMF and World Bank, above
France, Brazil, and India, all of which had lobbied to be among the major
players. As discussed in Chapter 4, from the 1940s, in preparation for the
Bretton Woods Conference, through the Cold War, and especially after the
normalization of relations in the 1970s under President Richard Nixon and
Chairman Mao Zedong, China urgently appealed for permission to
participate in the IMF and World Bank, gain a high quota level, and sit at
the top tables. Following a careful process administered by the IMF, the
United States eventually set the terms to unseat Taiwan and give China 3.63
percent of voting power, as well as a quota allocation, which China
promptly attempted to increase.50 China also gained an executive director
(ED) position on the board when it regained its seat in 1980. More recently,
the United States has worked informally to support giving China more
senior roles and positions in the IMF and World Bank, even while Congress
delayed implementation of the agreed package of reforms of voting shares.
It is important to note that China had begun pressing for strong reforms of
the governance structures of the World Bank and IMF in 2005, a year
before Moscow initiated the BRICs consultations.51
A second example of the U.S. strategy to facilitate joiners centers on
Russia in the early 1990s, when it was reeling from economic crisis after
the collapse of the Soviet Union. Although the United States and its G7
partners were unwilling to fire a big financial bazooka in support of
Russia’s attempted reforms,52 Washington allowed the IMF technical staff,
then guesstimating Russian figures, to arrive at an artificially high quota
share in the IMF on the basis of a generous and inflated assessment of
Russia’s economic size. This was done in order to keep Moscow under the
Bretton Woods tent and broadly in the Western orbit. Russia also lobbied
hard for, and was granted, a constituency-free ED position in 1992, despite
its relatively small economy, and was invited to join the G7 political club
(albeit not the G7 finance ministers’ group). These boosts functioned as
additional side-payments to reflect Russia’s prominence as a democratizing
former superpower.53 Western governments sought to contain the Russian
political backlash against American support for Russia’s political and
economic transformation.
Unlike past historical periods, mutually beneficial cooperation has been
possible, as John Ruggie argues, because it emanates not solely from the
prevailing distribution of power, but rather rests on a foundation of
institutions and rules conceived as a “fusion of power and legitimate social
purpose.”54 A new distribution of power, in this view, may involve new
instruments but still could “reflect shared purposes,”55 such as
multilateralism and openness, rather than aiming for the utopian goal of a
“harmony of interests.” Similarly, besides the “distribution of power and the
hierarchy of prestige,” Robert Gilpin specifies “a set of rights and rules” as
being essential for global governance.56 The benefits of such rules and
multilateral cooperation could even be maintained “after hegemony.”57
Within the basic rules structure, as Ruggie suggests, new powerful actors,
such as the BRICS, can promote new instruments, including the NDB and
AIIB. Hence, despite the diffusion of international power, a benign, rules-
based system has an appeal even to modernizing, authoritarian countries
such as China and Russia, for providing stability and serving their interest
in economic investment and growth. In this context, China is characterized
as a “reform-minded status quo state” which “accepts the existing rules”58
and “isn’t interested in changing the international order but rather in
maximizing and leveraging its growing interests to shape the existing order
to further its interests.”59 Similarly, according to the director of the Russian
International Affairs Council, “There is currently no consistent,
comprehensive, and fully detailed alternative to the liberal world order.”60
The joiner thesis is most strongly countered by hard-core realists who
contend that rising powers will eventually be driven to challenge status quo
powers as spoilers and may even provoke the historical pattern of
wrenching power transitions.61 Even moderate realists recognize that shifts
in the distribution of power diminish the attractiveness and soft power of
incumbent institutions given the capacities of emerging powers such as
China allow them to act without the United States as competitors to the
World Bank and IMF.62 Other observers suggest that the BRICS have
nothing positive to offer global governance, in that they essentially behave
as free riders and as shirkers, with the likely result a G-Zero world where
there is greater fragmentation and little productive cooperation to solve
international problems.63
This book finds all three of these images—of joiners, spoilers, or
shirkers—to be only partial representations or unpersuasive. While the
BRICS, as a group, certainly are revisionists, and thus not straightforward
joiners, they are neither spoilers nor currently shirkers. Earlier concerns
about free-riding appear less compelling since the considerable cooperation
of the BRICs in the G20 and IMF to ameliorate the global financial crisis of
2008–2009 and other policy changes on currency valuation and combating
climate change. Moreover, the diffusion of power that results in shifts in
certain capabilities does not inevitably lead to violent power transitions,
which are improbable in the nuclear era.64 BRICS acting individually have
sought greater regional autonomy (and in some instances, spheres of
influence), while still avoiding major frontal challenges to the United
States. The risks from such actions are notable but manageable, as
demonstrated by Russia’s intervention in Ukraine65 and China’s
assertiveness in the East and South China Seas. At the same time, the
benefits of BRICS collaboration have so far trumped intra-BRICS regional
rivalries (notably between China and India) as domestic and geopolitical
impulses are tamped down. BRICS collaboration on security issues is
muted, primarily focused on counterterrorism, leaving defense matters to
other forums that involve subsets of the members, such as the Shanghai
Cooperation Organization (SCO).
However, integrating and keeping rising powers in the incumbent order
faces three challenges that can still derail the process. First, emerging
powers start to question the legitimacy of the existing order, given a
plethora of double standards and their perception of a system where
incumbents, particularly the hegemon, regularly use institutional levers not
solely in pursuit of collective goods but also to advance their geopolitical
and economic objectives, sometimes bypassing agreed rules.66 Both the
United States and Japan, for example, have used their influence in the IMF
and Asian Development Bank (ADB) over loan conditions and the size of
packages to win favor with developing countries.67 The United States also
regularly prevents its systemically significant allies, Japan and the
European Union, from acting as equal partners despite attempts, mostly by
Japan, to assert its leadership in Asia (for example, in a failed attempt to
create an Asian Monetary Fund to help countries hit by the liquidity crisis
in 1997).68 The same motivation informed Washington’s failed attempt to
quash the AIIB (see Chapter 3). “Rightly or wrongly, the U.S. has been
accused” of acting “less like a benevolent hegemon” as it pursues its narrow
political agenda, from the Trans-Pacific Partnership (TPP) and data
surveillance to “its financial extraterritorial reach.”69 Second, given the
demand from all participants for stability and utility, the system gets frayed
when it can no longer reliably deliver accommodative policies,
coordination, and effective market infrastructure. The global financial crisis
raised serious doubts among emerging powers about the incumbent powers’
commitment to regulate the financial system effectively, and the dollar has
become a source of concern, although the lack of good alternatives
contributes to its persistent dominance.70
Third, the rising powers may become increasingly dissatisfied with the
burden of having to succeed under the incumbents’ rules. As Randall
Schweller and David Priess argue, the dominant “dissatisfied power
believes it is outperforming its competitors despite the shackles . . . placed
on it,” and that it would rise even faster under its own rules.71 In the BRICS
case, the incumbents’ rules have largely tolerated the BRICS countries’
varieties of capitalism, including in their state-directed and crony capitalist
forms, despite the negative consequences for the advanced economies.
However, if the Trump administration (2017–) pursues extreme economic
nationalist positions on currency adjustments and trade protectionism, the
BRICS, particularly China, may reconsider their position on tolerating the
existing “shackles.”
All three factors encourage China and the BRICS to attempt to
delegitimize American preponderance—but without undermining the
incumbent order—while the group increases its bargaining power and
China prepares a new foundation of parallel governance arrangements.72 As
explored throughout this book, rising powers are pursuing “rise from
within” strategies and “inside reforms” of the IMF and other global
governance organizations, while simultaneously pursuing “outside options”
by building parallel institutions. Neither China and Russia—the most likely
hard-core revisionist members of the BRICS—nor any of the other BRIC
members has adopted a strategy of revolutionary overthrow as spoilers or
full-blown shirking in international economic and financial institutions.73
The BRICS countries are motivated to adopt a dual strategy in financial
statecraft because they remain dissatisfied with progress in the first track,
ambitious to achieve the influence that they believe is commensurate with
their rising international positions, and concerned about their vulnerabilities
to U.S. and Western institutional and market failures, as well as the
deliberate use by the West of coercion in financial and economic statecraft.
But how can the BRICS mobilize and best employ their potential bargaining
power to advance their interests?

FORMAL INSTITUTIONS AND INFORMAL POWERS: THE EMERGENCE OF CLUBS

For many decades, formal institutions such as the WTO and the IMF have
housed informal steering groups that have helped ensure that the major
global governance organizations surmount standard collective action
problems concerning information, commitment, coordination, and
implementation issues. Such groups—or so-called clubs—are also
concerned with distributional conflicts in which their stake in promoting
public goods often morphs into the pursuit of private national or collective
gains, with significant implications for other participants in these large
institutions.
Clubs in the international governance arena share many features of the
types of organizations defined by James Buchanan and other economists.
By a “club,” economists mean a voluntary group whose members derive
mutual benefits by sharing a good or characteristic. The shared goods, or
club goods, fall between private and public goods. They generate goods or
outcomes, such as valued activities or social arrangements, which are
excludable benefits: nonmembers may not share in these goods.74 The
composition of a club’s membership may be either homogeneous or
mixed,75 although membership is usually defined in exclusive terms.
Exclusivity may be determined by the group’s objectives rather than the
characteristics of its members.76 Thus, clubs may be composed of a
heterogeneous population, contrary to some political science arguments
conceptualizing clubs as usually consisting of homogeneous members.77
Yet clubs are usually nonrivalrous; members perceive a net benefit from
membership.78 Moreover, participants are likely to agree on the optimal
club size at which payoffs peak.79
In the WTO, for instance, incumbent powers have found ways to use
informal powers and mechanisms, such as back-room (“Green Room”)
agenda-setting through premier clubs like the G7, to steer institutions
toward preferred outcomes that benefit their countries. Richard Steinberg
argues that the established major powers routinely engage in forms of
“organized hypocrisy” to establish formal rules that bind other participants,
while they themselves resort to informal, behind-closed-doors bargaining
using information advantages to work out a bargaining core that is then
presented as a near fait accomplis to the institution’s larger membership.80
Consequently, incumbent countries can lock in a favorable distribution of
benefits through constrained international bargaining and restrict the ability
of weaker powers to improve their positions and change existing policies.
Thus, the daily operations of institutions will tend to generate outcomes that
replicate the status quo.81 This is the epitome of structural power, where the
preponderant actors formalize their preferences into legal regimes and in so
doing constrain or close off other weaker actors’ choices.82 Lloyd Gruber
aptly calls this process “ruling the world.”83 Former President Barack
Obama provides evidence for this argument, noting that “it was America
that largely built a system of international institutions that carried us
through the Cold War … . Instead of constraining our power, these
institutions magnified it.”84
How have emerging powers replicated this club mechanism, and can they
avoid becoming irrelevant “talking shops”? Although club theory does not
specify a particular distribution of power among members, the assumption
of relative equality is not required. Clubs may feature asymmetrical power
relationships and even “club within the club” dynamics when one or more
members possess greater power resources or membership in other possibly
more exclusive groups. States may engage in what political scientists term
“forum shopping” to gain clout to push their positions and prevent opposing
coalitions from winning.85 This chapter returns to these characteristics next,
in the context of China’s position within the BRICS and its structural
similarity to the U.S. dominance within the G7.
Two governance-related concepts of clubs are relevant to understanding
BRICS collaboration. The first focuses on how major international
institutions operate more effectively when they employ the club model. The
second examines ways that the leading powers have refined their
operationalization of the club model to work in concert and benefit
themselves.
The first aspect of the club model, introduced by Robert Keohane and
Joseph Nye, shows its benefits as an effective institutional mechanism.
With respect to public goods, Keohane and Nye argue that the club model
of governance regimes paradoxically helps to “overcome deadlock that
accompanies the diffusion of power”86 and achieve more effective
outcomes because it involves transgovernmental networks of specialized
elite players operating in nontransparent back rooms. These networks of
senior officials can break logjams and forge bargains conducive to their
priorities, while also laying the foundations for collective action. The early
decades of the Bretton Woods governance regimes provide particularly apt
evidence:
Cabinet ministers or the equivalent, working in the same issue-area, initially from a relatively
small number of relatively rich countries, got together to make rules. Trade ministers
dominated [the General Agreement on Tariffs and Trade (GATT)]; finance ministers ran the
IMF; defense and foreign ministers met at [the North Atlantic Treaty Organization (NATO)];
central bankers at the Bank for International Settlements (BIS). They negotiated in secret, then
 reported their agreements to national legislatures and publics. Until recently, they were largely
unchallenged.87

Subsequently, the major powers pioneered and increasingly substituted a

second variant of club model politics that used smaller steering groups to
preset favorable outcomes in international institutions and regimes. These
apex groups of five or seven or ten major powers have regularized the
informal mechanisms necessary to ensure that the interests of dominant
powers are advanced and protected in international regimes.88
At the same time, Keohane and Nye acknowledge that a major factor
weakening the club system of trade politics—which also applies to other
Bretton Woods regimes—are demands by developing countries for greater
participation at the high tables of policymaking. Their leaders are
“ambivalent about the regimes, suspicious about the implications of rich
country leadership, and resentful of the existence of club rules, made by the
rich, that they did not help to establish.”89 There were numerous attempts
by emerging or developing countries to reform the global economic
governance system ranging from the New International Economic Order
(NIEO) through the UN Conference on Trade and Development
(UNCTAD) in the 1970s90 to Japan’s challenge to the Washington
consensus from the late 1980s through the Asian financial crisis.91 None of
them, however, succeeded in drastically transforming the basic thrust of the
international governance structure.
The shift in international power evident in the first decades of the twenty-
first century exacerbated these tensions between incumbent Western powers
and the large emerging and developing economies.92 As their economic heft
and growth rates surged, rising powers challenged financial governance
institutions such as the IMF and World Bank, which in principle allocate
voting and quota shares broadly by economic size. Yet despite the fact that
some BRICS economies have grown more than ten times since the Bretton
Woods institutions were created and contribute to global growth at higher
rates than most advanced industrial economies, and that all the original
BRICs have risen into the top ranks of the world’s economies, they have
had to settle for a global institutional architecture that represents an earlier
distribution of economic power. Such sizable gaps revealed the extent to
which such institutions have been resistant to change, particularly by
incumbent members of the G7, who have blocked a redistribution of roles
and influence.93 In practice, the distribution of voting and quota shares
reflect a host of other obscure formal rules, such as the formulas to measure
voting power, as well as informal practices that help protect the incumbent
powers’ dominant positions and often discriminate against emerging
economies, such as those of the BRICS.
The second aspect of club theory, which focuses on the narrower
operationalization of the club model, better explains how groups of leading
powers have emerged and function. In his definitive study of club model
politics, Daniel Drezner explains why the incumbent powers created and
seek to preserve the G7. As the premier club in which incumbent powers
can bypass the formal rules of international institutions, the G7 ensures that
“decisions are made by powerful states behind closed doors” and helps
control their implementation.94 Drezner shows how the process of creating
and enforcing global financial regulation, like trade, conforms to a club
standards model where the G7 states first achieve a concert in private and
then work to have international financial institutions (such as the IMF)
serve as enforcers.95
Because the benefits of financial regulatory coordination were higher and
adjustment costs lower for the advanced powers compared to emerging
economies, it was easier to reach a consensus. Other scholars underscore
the point that clubs like the G7 have broad framing and agenda-setting
powers; advantageous positions with respect to information and expertise,
which boost their power of endorsement; and veto power, in that they can
block other initiatives by not supporting them.96 However, in some cases,
such as macroeconomic policy coordination, the G7 was often deadlocked,
as the United States and other members each tried to pass the adjustment
costs of policy coordination on to the others.97
The G7 (sometimes in slightly smaller or larger groups of the Western
leading powers) has met regularly for decades, either at the level of leaders’
summits or, more frequently, in transgovernmental networks of officials
from finance ministries, central banks, and other ministries. For example,
meeting as the G6 in 1974, the group agreed on a new regime of floating
exchange rates and changes in the IMF’s articles of agreement after the
collapse of the Bretton Woods fixed exchange rate system in 1971.98
Since 2005, the G7 also has experimented with attempts to coopt
challengers through outreach processes (e.g., the “G8+5” emerging
economies) and “special relationships”; but these efforts were resented by
emerging economies as second-best alternatives to being full members in
core decision-making bodies. Russia was the sole transitional power that
joined the G7 (in 1997, when it became known as the G8), but its special
circumstances precluded Moscow joining the G7 financial group,99 and its
G8 membership was suspended in 2014 over Western opposition to Russia’s
armed intervention in Ukraine and annexation of Crimea. Moreover, the
outdated geopolitical logic of the incumbent powers’ outreach process still
left China on the outside when Russia incongruously assumed the rotating
presidency of the G8 in 2006 (and was ecstatic about its elevated insider
status). Displaying well-oiled diplomatic aplomb in the practice of double
standards, the Russian government voiced approval of the G8,100 and just a
few months after the June summit in St. Petersburg invited three of the
“outreach” states to consult as dissatisfied BRICs on the sidelines of the
autumn U.N. session in New York. As the global financial crisis intensified,
Brazil called for disbanding the G8, an idea that French President Nicolas
Sarkozy suggested he would entertain when Paris presided over the group
in 2011. The United States, Japan, and other members of the original G7
club blocked this move, refashioning the G20 instead into a new apex club
of the twenty largest world economies while preserving the original G7/G8
group.

THE BRICS AS A CLUB

Given that rising and incumbent great powers are socialized in international
politics to emulate the successful strategies and instruments of their
competitors,101 it is not surprising that nascent coalitions of emerging
powers were evident when the BRICs emerged on the diplomatic scene.
The most important of these coalitions in terms of international impact
emerged in the WTO during the Doha Round of negotiations, as first Brazil
and India, and then also China, “moved to the front line of rule-making”
and loosely coordinated to increase their bargaining power.102 Brazil and
India had agitated for developing countries’ interests in multilateral trade
since the creation of the General Agreement on Tariffs and Trade (GATT).
However, for the first time since the expansion of their share of world trade
in the 1990s and 2000s, together with China, they faced the incumbent
powers (grouped in the traditional “Quad” of the United States, European
Union, Canada, and Japan) as formidable challengers representing the
developing world.103 In 2003, India, Brazil, and South Africa created the
IBSA Dialogue Forum on South-South Cooperation (IBSA), jointly
providing the vision and leadership core for the developing nations’ trade
G20, whose principled resistance to the U.S. “deep integration” agenda
played an important role in the eventual failure of the WTO Doha Round of
trade liberalization negotiations. Not only were these emerging powers
coalescing in ways that demonstrated learning and adaptation, as expected
by the competitive socialization process in international relations, they also
were acquiring the necessary technical and diplomatic skills to bolster their
bargaining effectiveness.104
Also notable for the coevolution of the BRICS is that the informal BIC
(Brazil, India, China) trade coalition, in its different configurations, did not
use its greater bargaining power to pursue solely distributive interests, but
also to varying degrees “a proactive agenda-moving one,” led by Brazil, to
support the system.105 As a result, new and diverse groups mixing
incumbent and rising powers have replaced the old Quad.106 But seeking to
restore their leverage, the developed countries shifted to plurilateral trade
agreements, such as the TPP during the Obama administration, and similar
exclusionary approaches, including behind-the-border measures, seeking
venues in which the United States would again possess greater leverage or
bargaining power.
Thus, it is now evident that both status quo and rising powers have
rational incentives to create clubs like “G groups” as a means to search for
common focal points, develop unified positions, and clandestinely
coordinate in the framing and pushing of policies that reflect their interests.
According to the Russian Deputy Foreign Minister and BRICS Sherpa
Sergei Ryabkov, the BRICS is a club that operates on consensus, where “no
one imposes anything on anybody else.” At the same time, he stressed that
“the more stable this association, the more tasks we resolve jointly, the
more authoritative will be the BRICS international role.”107 Chinese Vice
Minister of Finance Zhu Guangyao similarly observed in 2016 that
“cooperation between the BRICS nations is expanding and deepening” and
that “economic cooperation . . . has been built on a solid foundation,
especially in the area of . . . financial infrastructure.”108
 Recalling Russia’s prior experience in the G8, the director of policy
planning in the Russian foreign ministry who helped flesh out the initial
BRICs agendas stressed the usefulness of transgovernmental networks as
then identified by his counterpart in the U.S. State Department, Anne Marie
Slaughter, to coordinate preferences on multiple issues in a globalized
world.109 Then, thirty-four years after the G6 leaders’ summit in
Rambouillet, France, the four original BRICs met in Yekaterinburg in 2009
to officially announce their own new club and its objectives.
The BRICS have increasingly adapted their informal club into a more
extensive set of relationships, and also have created new financial
institutions paralleling and supplementing some of their Bretton Woods
counterparts. As with other clubs, there are no public transcripts or accounts
of the substantive meetings that take place among the principals at the
ministerial level, behind closed doors, to forge common bargaining
positions where deemed desirable. Nonetheless, it is possible to identify a
number of cases in which the BRICS employed collective financial
statecraft to achieve particular objectives, as well as some instances where
they might have been expected to act but did not, as elaborated in Chapter
3.
One of their first moves, in 2009, was to coordinate stances among their
finance ministers, central bankers, and foreign ministers to craft a common
bargaining position where the BRICs would commit to provide additional
funds to the IMF in the wake of the global financial crisis in return for
significantly higher voting shares. U.S. Treasury Secretary Timothy
Geithner reportedly requested permission to attend a BRICs meeting of
finance ministers to discuss this proposal, which was a step in the direction
of IMF voting reform that the White House broadly supported, at the
expense of some overrepresented (mostly European) countries. Although
the BRICs did not achieve all their voting share targets, and it took until the
end of 2015 for the U.S. Congress to approve the IMF reform package, they
successfully engaged collectively and gave the process a big shove. Their
bargaining position also shrewdly included an insistence that their fresh
contributions go into a new financial vehicle denominated as SDRs, partly
to move away from the dollar and to signal their unwillingness to fund
long-term funding needs until they won their part of the bargain.110 A
decade since the establishment of the group, the record of BRICS’
collective endeavors in financial statecraft discussed in this book is not
trivial, to the complete surprise of American and Western officials: this club
has legs.

CLUBS WITH POWER ASYMMETRIES AND DOMINANT POWERS WITH OUTSIDE

OPTIONS

A common characteristic of the BRICS and the G7 is that both feature a

skewed distribution of power among the members. Although the properties
of clubs permit heterogeneity of members in characteristics and capabilities,
clubs with hegemons are distinct in at least three ways from other clubs
where members possess roughly the same strength. First, hegemons may
contribute relatively more to the provision of collective goods and promote
regime stability when the potential costs of disruption to them are greater
than the perceived costs of maintaining the regime.111 Second, a high level
of power asymmetries increases the possibility of inner clubs within the
club for the most powerful or committed members. If remaining on the
outside is costly, the mere threat to form an inner club limits the weakest
members from gaining a veto over club policies or holding out for lowest-
common-denominator outcomes. Otherwise, unanimity in such
asymmetrical clubs would likely lead to stagnation at the level preferred by
the weakest members.112 A third scenario is when the preponderant member
of the club exercises or threatens to exercise its outside options—including
a credible threat of exit—to lock in a consensus.113
This rationalist logic also applies to dominant states when they create or
join global governance institutions. By virtue of their exit options, they are
willing to “delegate authority to international institutions, but . . . in ways
that allow them to retain substantial degrees of control.”114 In other words,
when group participants have conflicting preferences, only the most
powerful players can pursue credible outside options by virtue of their
ability and willingness to leave the bargaining table and “go it alone.” Note
that if the dominant player cannot achieve a deal close to its best
alternative, then the costs of walking away decrease.115 For example, when
the GATT Uruguay round stalled, the United States created an outside
option in the face of these multilateral negotiations by instead emphasizing
the North American Free Trade Agreement (NAFTA) and Asia-Pacific
Economic Cooperation (APEC).116 The round came to a successful
conclusion, but subsequently the United States again negotiated a possible
exit option from the WTO in the form of the proposed TPP. Similarly, as the
global financial hegemon, the United States can rely on its structural power
to employ or taper quantitative easing , irrespective of the potential negative
impact on emerging economies.
As examined in detail in Chapter 2, gaps among the BRICS economies
measured in GDP and purchasing power parity (PPP) have widened.
China’s capabilities have grown, not only in the area of trade but also in the
worlds of international money and finance, from its equity markets to
Chinese firms in the Fortune Global 500. Therefore, China’s
disproportionate power distribution within the BRICS has some similarities
to the U.S. share of G7 economic power, which has been a relatively fixed
structural feature of global governance since World War II. Thus, both
groups are presently populated by midsized actors (except South Africa)
and a single preponderant power. In line with the logic of an asymmetrical
club discussed previously, bargaining dynamics within the BRICS and
between this club and the incumbent powers also demonstrate the relevance
of the hegemons’ outside option in the following two ways.
First, China is in the dominant bargaining position among the BRICS, so
China can get its way, exercise its outside option, or both. In the years prior
to the BRICs founding, even though China’s economy and capabilities were
already rising fast, it was not yet recognized internationally as a de facto
coequal to the United States. Moreover, at that point, China’s leaders
themselves also did not seek to play the role of a great power. The move
toward more visible leadership began in 2012, as the Chinese government
started to engage in a “new type of great power relations” with the United
States.117 As explored in Chapter 4, China’s earlier strategy was
characterized by “peaceful rise” and focused on its own economic
development. Although these elements have not been jettisoned, the
difference here is that the Chinese government was focused primarily on
protecting itself from the negative use of power by others, while eschewing
the assumption of leadership roles or offensive means itself.118 The
evolving posture of China over the course of the last decade has affected the
in-club dynamics of the BRICs, as the group came together during an
earlier period and its founding principles emphasized equality and the
“democratization of international relations.” With this, the BRICS pursued
the goal of fair representation for large, emerging economies in the
architecture of global governance.
 Even after the group became more lopsided as a result of China’s
explosive economic growth and accumulation of $3 trillion in reserves, the
incorporation of South Africa, and post-2012 economic downturns in Brazil
and Russia, the first principles of equal representation were retained. This
formal rule of equality continued as the BRICS moved to develop their own
parallel financial institutions (see Chapter 3 for more details on this
subject). Having equal voting shares for the five countries in the NDB, for
example, was not China’s preference. However, Beijing saw benefits in
committing to the principle of equal representation, both to reassure its club
members and as a way of signaling to the G7 the credibility of its threat of
exit from the Bretton Woods institutions. Moreover, as discussed in Chapter
4, Beijing did not have to worry about weaker players causing the group to
stagnate or regularly gain veto power over China’s policy preferences.
Second, once acknowledged by itself and others around the world,
China’s position of strength has opened up new opportunities for
developing its own outside options to expand. Hence, it is logical to expect
that China’s dominant position in the BRICS and international ranking
would increase its bargaining power and ability to signal its willingness or
exercise additional outside options in support of China’s policy priorities.
As further examined in Chapter 3, China confidently seized such an
opportunity when it decided singlehandedly to launch the AIIB, which is an
inherent competitor to the NDB. The AIIB better reflects China’s
preferences in terms of holding the presidency, headquartering the bank in
Beijing, and specifying China as the dominant shareholder. Quite
intentionally, the other large BRICs received the next highest voting shares,
followed closely by a few dozen major Western economies.
The following chapters of this book show how the Chinese leadership
engages with the BRICS club to create a strong opportunity for China to
contest the existing global governance system without incurring fear among
the incumbent G7 powers or China’s neighbors. Particularly since 2012,
Beijing’s moves also have revealed a new Chinese leadership, more willing
than in the past to take bold steps and exercise their own outside options,
especially with active support from major Western powers such as Britain
and Germany. Their support not only boosts the AIIB’s credit rating but
also gives China international legitimacy. China’s influence is growing, and
U.S. allies are willing to withhold cooperation with the United States when
they see potential gains and manageable risks elsewhere, despite
Washington’s clear preferences that they desist. This growing international
reach of China also extends to the internationalization of the RMB and its
inclusion as a reserve currency by the IMF, as well as its One Belt, One
Road (OBOR) initiative, which, together with loans from Chinese state
banks, the AIIB and NDB, are expected to contribute substantially to
increasing investment in infrastructure and facilitating the movement of
goods, services, and people across national borders. This is an outcome that
also benefits China economically and potentially expands its regional
influence.
China still accepts the basic rules of the existing order and appreciates
the benefits that it accrues from acting multilaterally with the BRICS by
promoting new mechanisms and institutions, to increase its influence—and
by extension, the collective influence of the BRICS—on shaping the reform
and operation of existing governance arrangements.119 After working
toward having a more equal voice and representation on its own, and with
the BRICS collective “rise from within” strategy, China was finally
rewarded in 2016 with the third-largest voting share in the new IMF reform
package, roughly the same share as the second-ranking Japan, and senior
positions in the Bretton Woods institutions. China, as a great power with
immense financial resources, is also better positioned than other BRICS to
exercise an exit option and engage in forum-shopping when it needs to
satisfy its individual interests though another institutional setting.
In contrast, and possessing significantly lower levels of capabilities than
China, the four other BRICS are incentivized to ride China’s rise and
exploit opportunities to tap into its immense financial reserves for their own
investment priorities and loans when needed. Lesser states cannot expect
that institutions—let alone loose clubs with few rules—will reliably bind
hegemons. This means that the other BRICS have to skillfully manage their
complex relations with Beijing, perhaps by providing China with concrete
interests in seeing them prosper, such as what would result from joint
business ventures or investments in one another’s economies.
TABLE 1.1

Typology of BRICS Club Policies

Functions Instruments
Formal rules and institutional Informal practices
properties
Enhance Increase members’ presence in Challenge the
bargaining existing institutions (e.g., IMF, legitimacy of
power World Bank, G20). incumbent powers’
clubs (e.g., G7).
Enhance Create a club with Protect the BRICS
status nonrivalrous, but excludable, “brand” as
membership. heterogeneous and
representative.
Promote Create parallel institutions. Bind China and take
group Share leadership positions. advantage of its rise.
interests

Table 1.1 provides a typology of the various ways in which the BRICS
behave as a multilateral club, bringing together the arguments of this
chapter. The initial column lists the functions, or goals, of cooperation from
the viewpoint of the participating countries. The remaining columns clarify
the ways in which the member countries may pursue these functions by
means of formal rules and institutional incentives (column two) or via
informal practices (column three). The first row lists the BRICS’ collective
goal of enhancing their international bargaining power vis-à-vis the
incumbent powers, which may be pursued through both formal mechanisms
to increase their presence and voice in existing international organizations
such as the IMF, or by means of informal yet widely publicized complaints
that question the legitimacy of the long dominance of the G7 in global
economic governance. Row two notes that the BRICS may boost their
global status by both the formal, concrete action of creating their own
exclusive coordinating club (the BRICS group itself), and by informally
marketing that club as having desirable qualities such as heterogeneity and
representativeness—qualities arguably lacking within the G7. Row three
focuses on functions desired by the entire group, but particularly the four
less powerful BRICS. At a formal level, their preferences are addressed by
the creation of new institutions (the BRICS coordinating committee and
two new multilateral financial institutions, the NDB and CRA), in which
the formal rules specify their closely equivalent voice and influence with
those of China. Informally, the non-Chinese BRICS seek to bind China to
themselves and profit from its global rise (a dynamic discussed from the
viewpoints of each country in Chapter 4). Finally, the table’s bottom row
highlights the functions that such a club may perform for its most powerful
member or members (in this case China, potentially joined on some
occasions by Russia, India, or both). The formal rules and institutional
properties such as unanimous decision-making permit the intraclub
hegemon—here China—to reassure its partners of its commitment to the
pursuit of club goods and respect for their preferences. At the same time,
the more powerful club member or members are likely to prevail when core
interests are affected, as only it (or they) can pose a credible threat of exit.

PLAN OF THE BOOK

This first chapter has used insights from international relations theories and
the behavior of clubs to explain the existence of the BRICS group and how
it operates in the global governance system. The BRICS share common
aversions to unipolarity and the hegemonic power of the G7—particularly
the United States—and cooperate to promote selective common economic
and geopolitical interests. The five BRICS countries have pressed for a
greater voice within existing multilateral institutions, including the major
international financial institutions, and more recently also have pursued
their outside option of founding parallel multilateral institutions in which
they themselves are in charge. With China being disproportionately strong
within this club, the asymmetry of capabilities among the BRICS members
has enabled China to dominate the BRICS’ internal decisions, as it has the
most obvious outside options vis-à-vis the BRICS, yet only to the extent
that the other members continue to find value in their collaboration. In this
behavior, China within the BRICS presents some echoes of the role played
by the United States within the G7.
Chapter 2 goes on to evaluate several dimensions of the global power
shift from the incumbent G5/G7 powers to the rising powers, particularly
the members of the BRICS. Taking note of alternative conceptualizations of
interstate “power,” the chapter maps the redistribution of economic
capabilities from the G7 to the BRICS, most particularly the relative rise of
China and decline of Japan, and especially of Europe. Given these clear
trends in measurable material capabilities, the BRICS have obtained
considerable autonomy from outside pressures. Although the BRICS’
economic, financial, and monetary capabilities remain uneven, their relative
positions have improved steadily. Via extensive data analysis, the chapter
argues that whether one examines China alone or the BRICS as a group, the
BRICS members have developed the necessary capabilities to challenge the
global economic and financial leadership of the currently dominant powers
—and perhaps even the United States one day. At the same time, the inertia
and incumbency of continuing American structural power perpetuate the
existing global financial order and the U.S. dollar.
Chapter 3 examines four cases in which the BRICS governments
engaged in collective financial statecraft between 2007 and mid-2016. The
first type is inside reforms of existing institutions, illustrated by the BRICS’
attempt to gain greater influence within the IMF and World Bank. A second
type is inside reforms of the political power accruing to states that possess
currency power and whose firms dominate global markets. The associated
case profiles the BRICS’ opposition to sanctions against Russia over its
intervention in Ukraine. A third type of BRICS collective action occurs via
the outside option to create new parallel institutions such as the NDB and
CRA. Finally, the fourth type combines the choice of an outside option with
a market-based venue, such as BRICS support for greater
internationalization of China’s currency to rival the U.S. dollar. The BRICS
have cooperated successfully in most of their attempts.
Chapter 4 explores the distinct mix of motives within each country’s
foreign policy goals that has impelled cooperation among the five BRICS
countries. In the case of China, the BRICS club allows it to express its
leaders’ aversion to Western high-handedness and policy demands, while
exerting leadership in a less threatening fashion. Russia prioritizes
resistance to financial sanctions and Western dominance, while aiming to
translate BRICS cooperation into greater regional and global influence.
India hopes to amplify its voice in global governance and to expand choices
of international partners through the BRICS. Brazil’s left-leaning
governments through mid-2016 hoped to emphasize South-South
diplomacy to please their domestic political supporters and raise the
country’s profile in the global South. In South Africa, China’s expected
support and investment in Africa’s growth has topped the list. The non-
China BRICS all see China as the most important member of the group, and
tying China to their economic and club interests has been a critical element
of the BRICS’ collective financial statecraft.
Finally, Chapter 5 concludes the book by discussing the implications of
the BRICS’ collective financial statecraft and analyzing its prospects.
Contrary to initial expectations, the BRICS have hung together by
identifying common aversions and pursuing common interests within the
existing international order. Their future depends not only on their
bargaining power, but also on their ability to overcome domestic
impediments to the sustainable economic growth that provides the basis for
their international positions. To continue successfully with their collective
financial statecraft, the members must tackle the “middle income trap,” as
well as their preferences for informal rules originating from their own
institutional weaknesses or regime preferences. This book shows that, in the
context of a global power shift, the BRICS club has operated to protect the
member countries’ respective policy autonomy while also advancing a joint
voice in global governance. Recently, the BRICS have made concrete
institutional gains, giving them expanded outside options to achieve
specific objectives in global finance.
Global Power Shift

THE BRICS, BUILDING CAPABILITIES FOR INFLUENCE

TOGETHER, THE FIVE BRICS (Brazil, Russia, India, China, and South Africa) are demanding a larger voice and a
more substantial role in shaping the evolution of the international political economy and global governance
structures, in particular by diminishing American dominance and increasing their own autonomy. But do they—
especially China—have sufficient capabilities to exert their will, to cooperate on terms that advance their interests,
and to resist and sustain a possible backlash? Is their individual and collective commitment to pursue greater voice
and influence inside the existing global order and in the parallel institutions that they create backed up by credible
strength to achieve their objectives?
A diffusion of international productive capabilities that change the rankings of national economies potentially
offers rising states opportunities for gaining more influence in the international arena. More than any other BRICS
state, China has emerged as the principal global competitor to the United States, nearly four decades after Deng
Xiaoping initiated the strategy of reforming China’s moribund economic system and “opening up” the economy to
the outside world. To the extent that the BRICS work collectively to have a larger impact, their power and
influence are amplified if they tap into Chinese capabilities. As their relative capabilities have grown since 2006,
so have the ambitions of the BRICS to address systemic and governance issues in the global economy.
Significantly, the BRICS have chosen to rely mainly on economic and financial capabilities in their collective
financial statecraft, rather than on military power. Nonetheless, defense spending is also increasing and is not
irrelevant as a backstop to collective financial statecraft.
Scholars and policy analysts acknowledge that international power has been diffusing, but they disagree on how
it should be measured and its implications for world politics. Debates about measuring power shifts center on the
persistence or decline of American primacy relative to potential challengers, notably China. One perspective views
“the ascent of new great powers” as “the strongest evidence of multipolarization” in world politics.1 In contrast,
many other international relations specialists emphasize the durability of American hegemony—even unipolarity
—in dynamic terms.2 In this view, “China’s rise to an emerging potential superpower” does not change the fact
that “China is rising, but . . . is not catching up [to the United States].”3 According to Stephen Brooks and William
Wohlforth, even if China’s economy grows to “twice the size of the United States’ . . . and possess[es] a
comparable scientific-technological capacity, . . . as long as Beijing chooses not to use those resources to develop a
superpower’s military capability, the world will remain unipolar.”4
Thus, if China and the BRICS writ large lack the sufficient material resources or political will to compete for
position and status as a rival pole (or for dominance), then the structural power differentials that still exist in
unipolarity will discourage radical challenges to the existing order. Predicting that a rising power, or even the
average great power, will lack political will in the future seems a leap of faith, however. Meanwhile, an important
third view highlights a different type of opportunity for rising states when power is diffusing: emerging challengers
may opt for soft forms of resistance and limited or regional challenges to the norms, rules, and pecking order that
define the incumbent order.5 Importantly, China and the BRICS do not need to equal the capabilities of the United
States and the West to threaten the status quo, use instruments of statecraft coercively, or gain influence.6 Thus,
while prudence dictates that scholars avoid the trap of invoking selective indicators to prematurely predict U.S.
decline, it is also worthwhile to recall George Orwell’s cautionary observation: “Whoever is winning at the
moment will always seem to be invincible.”
Although this chapter does not find evidence that the BRICS currently possess material capabilities that would
challenge the structural dominance of the United States, it does identify sources of support for this third view. It
also sheds light on underexamined dimensions of material power, including how the BRICS can build the
capability to diversify international relations in ways that increase their autonomy and weaken U.S. influence
while potentially increasing those of China and the other BRICS. The investigation focuses not only on the
diffusion of economic power to new or resurgent regional powers, but also on the extent to which power is shifting
in the distribution of monetary and financial capabilities. This is an arena in which the dominance of the U.S.
dollar, U.S. support for open markets, and commanding multinational corporations has long afforded Washington
“exorbitant privilege,”7 while assuring a key pillar of U.S. preponderance in the international system. Yet China
and other rising non-Western powers are not only rising economically, they also have become large net creditors
and potential drivers of financial globalization.8
 The chapter contains five major sections. It begins with a brief discussion of the common paradoxes and
complexities involved in deciding how to conceptualize “power” in international relations. The second section
moves to explain the focus on material power capabilities as the best path to understanding the importance of the
BRICS, exploring their significance from three perspectives: as an improbable, yet consequential, international
club, which may be usefully compared to the G7; in terms of the China–United States duo; and by means of the
intra-BRICS capability distribution. The third section directly asks whether these shifts constitute a genuine
evolution toward global multipolarity and lays out some of the related analytical puzzles that would need to be
resolved before such a determination was made. In the fourth section, the discussion turns to examining the BRICS
monetary and financial capabilities, which generally lag the shifts in relative economic weight, yet may be
significant in the future (e.g., if they engage in more assertive or offensive financial statecraft going forward).
Finally, the fifth section considers the rise of China’s currency: the renminbi (RMB), also known as the “redback.”

CONCEPTUALIZING POWER

Most contemporary academic approaches to power dismiss a simple aggregation of capabilities and tangible
resources, recognizing that a state’s possession of economic or military resources does not automatically confer
international leadership or translate into a greater or lesser impact on international outcomes or on how other actors
behave.9 The weak sometimes defeat the strong in armed conflicts, midsized states regularly withhold cooperation
from more resolute, powerful allies, and greater strength in one domain does not necessarily convert to usable
power and influence in another. Whereas liberals assume that absolute economic gains are primarily wealth
enhancing, interdependence can be asymmetrical in situations in which one side would lose more from a
disruption, creating potential leverage by the other.10 Realists also emphasize the fungibility of economic
resources, which permit relative gains by states if they are converted into military and geoeconomic power.11 In
this way, large rising economies may emerge as potential challengers to the interests of incumbent powers.
Likewise, incumbent power-holders can resist changes that reduce their influence and authority in international
institutions long past their prime in the panoplies of power rankings.
Scholars often prefer definitions of “power” privileging either relational power between and among actors, or
structural power. Relational power implies that actor A is able to persuade, coerce, or offer material incentives to
induce actor B to behave in ways that B otherwise would not have freely chosen. State A may exercise relational
power over state B because B depends on A for military protection, trade, investment, or international status.12
Relational power traditionally implies influence, which may involve pushing others to do something, but also may
cause actors to redefine their interests in response to changed perceptions and incentives. Influence thus may
involve the use of what Nye calls “soft power” as a means of “getting others to want what you want.”13Autonomy
—defined as the ability of one state to resist or ignore the attempts of another state to induce, persuade, or coerce it
into altering behavior—is also a particularly important variety of relational power in an era characterized by rising
multipolarity (or perhaps bipolarity-multipolarity). States seek the capacity for autonomous action and national
policy independence. Autonomy becomes particularly important in a historical epoch in which interstate relative
power shifts are becoming more significant. Following Benjamin J. Cohen and David Andrews, autonomy can be
seen as a type of passive power that is a by-product of capabilities, whereas influence involves “purposeful acts” to
shape the behavior of others.14
Structural power confers a special form of control, which both Susan Strange and Lloyd Gruber equate with
changing the choices opened or closed to other actors.15 Strange defined it as the power “to shape and determine
the structures of the global political economy . . . to decide how things shall be done, [and] the power to shape
frameworks within which states relate to each other… .”16 According to Bachrach and Baratz, structural power
inheres in social institutions, whose formal and informal rules of procedure tend to privilege certain actors while
undermining others.17 Various international structures may be identified, including the financial structure: “the
sum of all the arrangements governing the availability of credit plus all factors determining the terms on which
currencies are exchanged for each other.”18 Similarly, network power, or the influence accruing to an actor sitting
at a node or bridge that provides valuable and otherwise scarce links to other actors, may be exercised both by the
incumbent representatives of sovereign states and by nonstate actors.19 In an age of multiplying and globalized
international economic links, network power has become an ever-more-significant form of structural power that
amplifies and reinforces American preponderance.
The dynamics of influence, autonomy, and structural power all come into sharper relief during power shifts.
Preponderant powers tend to be more satisfied with the status quo and can behave as more or less cooperative and
benevolent hegemons—yet those lower in the hierarchy are likely to resent second-class citizenship. Rising powers
tend to become more ambitious as their capabilities multiply, and they can take advantage of their increased might
relative to incumbent powers in order to assert themselves internationally, even though some attempts may not pan
out.20 Some scholars identify a hegemon as a “system maker and a privilege taker” and rising powers as “rule-
takers,” “rule-makers,” or “rule-breakers,” reflecting the preferences and varying levels of power needed to create
an international order; to write, accept, or break the rules; and to exploit other entities, shifting the costs of those
actions to them or inducing them with carrots to cooperate in advancing a political goal.21 These distinctions
underscore that power exists in a competitive realm with Darwinian (albeit not necessarily zero-sum) overtones: to
decide which currencies prevail,22 whether first-mover advantages hold up or are overturned, which countries set
the agendas in the “Green Room,” and whether a state is more concerned about being acted upon or has multiple
opportunities to influence others.
Given the weight of scholarly disapproval of assessing the international power of states by the unsubtle exercise
of counting dollars, missiles, or voting power in international organizations, why do it?23 First, as G. John
Ikenberry, Michael Mastanduno, and William Wohlforth point out, it is “axiomatic that there is some positive
relationship between a state’s relative capability to help or harm others and its ability to get them to do what it
wants.”24 Second, this is how foreign policy establishments in actual sovereign states proceed: They continually
assess their state’s capabilities vis-à-vis those of both rivals and friends and decide on the feasibility of alternative
policy options based on calculations of both the capabilities and preferences of their strategic partners.25 Third,
such shifts may be investigated via both forward- and backward-looking indicators. Understanding which states
have exercised influence over others requires a forensic analysis of past state behaviors. In contrast, the interstate
distribution of capabilities and identification of significant trends or disruptive change may be useful for
speculating about what is to come. It is clear that there is some relationship between material capabilities in time
T0 and autonomy, influence, and structural power in time T1. Consequently, the remainder of this chapter explores
recent shifts in the relative material capabilities of sovereign states and highlights some potentially significant
trends that may disrupt the current distribution of power and influence.

MEASURING THE SHIFT IN ECONOMIC CAPABILITIES

The rise of the BRICs into the world’s top ten global economies and the ranks of leading regional actors marks the
first significant power shift since the creation of the Bretton Woods order. The original four largest non-Western
powers, despite weaknesses, present a growth story that has exceeded even Goldman Sachs’s expectations. The
BRICS contributed half of global growth in the decade ending in 2014, and in 2016, China alone accounted for
nearly 40 percent of total global growth—more than four times the U.S. contribution and more than 50 percent
greater than all the advanced economies combined.26
Since the start of the global financial crisis, U.S. intelligence and corporate communities have similarly
recognized a momentous diffusion of power in the world arena, focused especially on Asia. The U.S. National
Intelligence Council (NIC), for example, observed, “in terms of size, speed, and directional flow, the transfer of
global wealth and economic power now under way—roughly from West to East—is without precedent in modern
history.” By 2030, the diffusion of power is expected to have a significant impact, “largely reversing the historic
rise of the west since 1750 and restoring Asia’s weight in the global economy and world politics.”27 Similarly, the
McKinsey Global Institute (MGI) projects a shift in the “economic center of gravity,” erasing most of the regional
imbalances ushered in by the Industrial Revolution.28 By comparison, in the Washington think tank community
and in American academia, there has been a reluctance to investigate the implications of the global power shift
toward the BRICS, and a willingness instead to find confirmation in early dismissals of the BRICS as a meaningful
group, especially after the growth of these economies started to slow and Russia and Brazil went into recession.29
Given the geoeconomic importance of the European Union (EU), it is useful to compare its economic
performance to the BRICS. Despite the volatility in their respective economic performances, the BRICS’
aggregate economic output amounts to a significant portion of the global economy, as shown in Figure 2.1. The
five BRICS combined have doubled their contribution to global economic output since 2000, and in 2016, this
amount constituted 22 percent, when gross domestic product (GDP) is calculated on the basis of market exchange
rates, or about 30 percent in purchasing power parity (PPP)–adjusted global GDP. Figure 2.1 shows that the
BRICS share in 2015 surpassed the EU’s share of global output.30 By 2020, the BRICS’ share is projected to reach
25 percent of global output, despite the downturns in Russia and Brazil.
FIGURE 2.1 Shares of World GDP (MER, %): BRICS, G7, EU, China, and United States
Source: IMF World Economic Outlook, April 2017; C. Roberts calculations.

It is also instructive to compare the incumbent hegemon directly with its putative rising challenger. In 2015,
China accounted for 17.1 percent of global GDP in PPP, pulling ahead of the United States, at 15.8 percent.31 The
U.S. portion of the world economy has been steadily declining for half a century. In market rates, the current U.S.
share of global GDP is 24.7 percent, down from a high of 38.5 percent in 1960.32 As shown in Figure 2.2, China’s
GDP also surpassed the United States in PPP terms in 2014, and within a decade, it is likely to catch up to the
United States in dollars at market rates. China is now also the world’s largest trading nation, and it has the world’s
largest middle class, edging out both the United States in 2015 and the struggling Eurozone, where only in France
did wealth grow faster (3.6 percent) than the 2 percent median for the twenty-first century, according to Credit
Suisse. Even Russia, which swung between peaks and valleys, recorded a net 4.1 percent gain from 2000–2015,
ranking sixth in its rate of growth of real wealth.33
With respect to the size of the international economy, from 2000 to 2014, global GDP more than doubled,
increasing from $31.8 trillion to over $75 trillion. Overall, emerging market economies contributed 46 percent of
global growth (70 percent in PPP) in 2000–2008, before the global financial crisis, and 70 percent in 2010–2015 in
market exchange-rate terms. By 2014, all emerging economies constituted 34 percent of global GDP, rising as they
integrated into trade and financial markets. The BRICS accounted for two-thirds of this emerging market output,
and in 2010–2014, they contributed 40 percent of global economic growth, with a peak of 50 percent in 2013.34
Together, they account for more than one-fifth of global activity—as much as the United States, and more than the
Euro area.
Over the same 14-year period, China’s nominal GDP rose from $1.2 trillion to more than $10 trillion—growing
at more than four times the global rate in market exchange-rate terms—and in 2016, it is forecast to contribute four
times more to global growth than the United States. As shown in Figure 2.3, China’s 2016 projected GDP in
market exchange-rate terms was $11.4 trillion, compared to the projected U.S. output of $18.6 trillion. In
purchasing power parity terms, as shown in Figure 2.2, by the end of 2015, China’s output of $19.4 trillion was the
world’s largest, surpassing the American economy.
Despite the current lopsidedness among the BRICS countries’ growth rates (as discussed later in this chapter),
on average over the next decade, the BRICS will more than likely match or beat major European countries’ growth
rates, and in China and India, by more than threefold or fourfold. The GDP annual growth rate in the Euro area
averaged 1.6 percent for more than two decades from 1995 to 2016.35 In 2000, the combined size of the BRICS
economies was about a quarter of the U.S. GDP. By the start of 2016, the BRICS’ combined output ($16.5 trillion)
in market rates ranked them above the Eurozone and nearly equivalent to the U.S. economy (at $17.9 trillion),
while their share of world economic output was equivalent to the European Union. The shares of global GDP
contributed by Brazil and Russia increased greatly during this period, to the extent that they rose from the tenth-
and eleventh-largest G20 economies in 2003 (leapfrogging four G20 EU member-states) to become the fifth- and
sixth-largest G20 economies in 2013. A host of factors, from the fall in commodity prices to governance issues, as
well as deep recessions since about 2013, have seen Brazil and Russia slide recently. Yet the four original BRICs
all remained within the top ten world economies in 2016.36
This section’s focus on the distribution of material capabilities allows for analysis of multiple potential power
dynamics involving the five BRICS countries, including the comparison between the BRICS club and that of the
major incumbent powers, the G7, and the intra-BRICS distribution of material power capabilities.

FIGURE 2.2 Combined GDP (PPP): BRICS, G7, China, and US, 2000–2020
Source: IMF World Economic Outlook, April 2016; C. Roberts calculations.

FIGURE 2.3 Combined GDP (MER): BRICS, G7, China, and US, 2000–2020
Source: IMF World Economic Outlook, April 2016; C. Roberts calculations.

The Potential Power of Economic Clubs: BRICS versus G7

Over the last decade, China’s economy grew to be almost double the size of the other four BRICS countries put
together. Each of the three other original BRIC countries reached a GDP of approximately $2 trillion (in MER),
similar to that of Italy, although Russia declined markedly since 2015. By 2020, India will likely power ahead of
Italy and Brazil, thanks to markedly higher growth rates and favorable demographics. In this sense, China
transcends the BRICS, just as the United States transcends its G7 partners. As shown in Figures 2.2 and 2.3, in
2015, China’s GDP (PPP) was 55.8 percent of the BRICS whole (67.8 percent in MER), while the U.S. GDP
(PPP) represented 50.2 percent of the total G7 economies (52.6 percent in MER).37
Despite their unevenness in size (five members versus seven), such BRICS–G7 comparisons are instructive.
Both groups have preponderant powers among their members, and the BRICS also have started to narrow the gap
with the G7 in their contributions to the global economy. In 1990, the G7 and BRICs countries represented 59 and
11 percent of global GDP in market exchange rates, respectively. By 2015, as shown in Figure 2.1, the G7
countries’ share of global output had declined to 46 percent, while the BRICS share had grown to 23 percent (2015
MER). However in PPP terms, both groups accounted for a 31 percent share of global GDP in 2016, despite the
BRICS being outnumbered by two countries. BRICS are forecast to surpass the G7 share of global GDP in PPP
terms as early as 2016, depending on variations in growth rates and prices. With respect to combined GDP output,
as shown in Figure 2.3, the G7 in 2015 contributed twice the BRICS’ combined GDP output, or $34 trillion
(MER), compared to $15.5 trillion (MER) by the BRICS. However, in PPP terms, as shown in Figure 2.2, the G7
contributed $35.7 trillion as opposed to the BRICS’ $35 trillion, with the BRICS projected to surpass the G7
starting in 2016.38
Estimating when the BRICS collectively might outdistance the G7 measured in market exchange rates depends
heavily on assumptions about relative growth weights (i.e., How much will China’s average growth rate decline in
out years, and by what increments? Will the three stagnant BRICS countries undertake needed structural reforms
and increase potential growth? Will the allies of the United States raise their average growth above 1 or 1.5
percent? Will the United States overcome secular stagnation and grow above an average of 2 percent per year?)
and currency appreciation (i.e., How much will the RMB appreciate/decline in value per year?). Given that China’s
population is four times the size of the United States, it is likely that with continued convergence, China’s GDP
could surpass that of the United States in market exchange rates in the 2020s, or the 2030s at the latest, always
depending on the aforementioned assumptions and all other things being equal. Likewise, the BRICS will be
boosted further by India’s rapid growth.
Forecasting about the BRICS’ economic potential has been particularly contentious. However, a decade after
Jim O’Neill’s 2001 inaugural paper on the BRICs,39 Goldman Sachs issued a decennial review noting that the
process of global economic transformation was proceeding faster than expected.40 Goldman revised its original
projections, forecasting in 2011 that the original BRIC economies would make up four of the five largest
economies in the world by 2050, measured in U.S. dollars, and that the Chinese economy would surpass the
United States in 2026, while the BRICs together would surpass the United States in 2015 and the G7 in 2032. A
team at the Organisation for Economic Co-operation and Development (OECD) made similar predictions.41
In fact, China’s economic acceleration involved significant convergence, allowing it to reach a quarter of U.S.
per capita GDP (in PPP terms),42 while Russia’s per capita GDP reached 45.5 percent of the U.S. level. Earlier
estimates expected that prices and currencies would rise relative to the United States and other advanced countries,
leading to such outcomes.43 China’s currency appreciated significantly since 2005, which helps explain its rapid
rise in the rankings of top ten economies. Eswar Prasad calculates that by the beginning of 2015, the RMB had
appreciated by about 35 percent relative to the dollar, by 47 percent on a trade-weighted basis, and by about 57
percent on an inflation-adjusted basis.44 However, the RMB started experiencing two-way volatility in 2014 and is
likely to encounter depreciation pressures against the U.S. dollar as the Federal Reserve raises its discount rate.
Goldman Sachs has been accused of erroneously extrapolating on the basis of the boom in emerging markets
and forecasting hyperbole while “dreaming with the BRICS.”45 However, the firm proved too conservative in its
BRICs projections—the four economies grew faster than expected. Moreover, the original Goldman predictions
were not linear projections; they emphasized the importance of both economic convergence and real exchange rate
appreciation. As China and the other BRICS gradually converged toward advanced countries’ per capita levels, in
line with economic theory, their growth would slow, although a host of other factors (including poor governance)
could stymie convergence.46 Taking the point one step further, Lant Pritchett and Lawrence Summers show that no
country grows at warp speed forever, and that “[r]egression to the mean is perhaps the single most robust and
empirical relevant fact about cross-national growth rates.”47 Even as it regresses to the mean, however, China will
remain the BRICS’ preponderant power (until India catches up).
Two important implications logically follow. First, given that both groups, the G7 and the BRICS, have
dominant members that constitute more than half of their total economic weight, these two major powers, the
United States and China, are more able and likely than the others to use their superior positions to pursue their
independent interests, as well as collective financial statecraft. When their respective interests are compelling, the
dominant powers will exercise their outside options and employ other forms of informal power to get their way,
sometimes on their own and in other cases in common endeavors, as discussed in Chapter 1. The dominant
members are the only powers that are simultaneously “rule-makers” and “privilege-takers.”48 Second, although
club dynamics may feature lobbying and horse-trading forms of coalitional bargaining, other members face the
option of remaining or exiting, but they cannot veto or bind their respective hegemons when their interests are
strong.

The Chinese Colossus Is No Longer Emerging: China Has Emerged and Continues to Rise
The fast-growing Chinese economy is the anchor for the BRICS, despite a slowing of its annual rate of growth
since 2011 to around 6.5 percent. China provides the glue for the BRICS to hang together, both because of its
resources and its increasingly overt ambition to challenge and reform the incumbent global economic governance
system that has discounted its preferences and potential influence.
In the late 1970s, China was one of the poorest countries in the world, with a real per capita GDP that was only
one-fortieth of the average U.S. income and one-tenth of Brazil. From 1980 to 2010, China grew at an average rate
of 10 percent a year, and its real per capita GDP rose about 8 percent per annum.49 China’s growth miracle has
been extraordinary in scale and pace, achieving a doubling in output per person in 12 years and having a current
real per capita GDP roughly equivalent to Brazil’s. China has more than 20 percent of the world’s population, yet it
still grew 10 times faster than, and at 300 times the pace of, Britain’s Industrial Revolution, which took 150 years
to accomplish.50 Now the World Bank categorizes China in the ranks of upper-middle-income countries, along
with Brazil, Mexico, and South Africa.51
China’s rapid growth was propelled by market-oriented reforms from the last 30 years. Accession to the World
Trade Organization (WTO) in 2001 further opened the Chinese economy to the world and dramatically increased
the level of productivity, including in the rapidly expanding nonstate sector of the economy.52 The share of state-
owned enterprises (SOEs) in industrial output has steadily declined, from 78 percent in 1978 to 26 percent in 2011,
as the vibrant private sector of the economy has steadily expanded.53 According to Nicholas Lardy, between 2010
and 2012, the Chinese private sector produced roughly two-thirds to three-quarters of China’s GDP, despite having
a low share of resources.54
Strong growth in investment and infrastructure was one of the engines of China’s acceleration, but primarily as a
follow-on, not a precursor to the large upswing in total factor productivity (TFP) since 1978. When China’s
reforms started, its aggregate TFP was below 3 percent of the U.S. level and still further from the production
possibility frontier. By comparison, both Japan and South Korea were already at 56 and 43 percent of the U.S.
level, respectively, when they began their comparable growth spurts. The fact that China was still only at 13
percent of the U.S. level after 30 years of rapid productivity growth suggests that it still has catch-up growth
potential, and continued economic reforms could propel China’s extraordinary growth for many more years.55

China and the BRICS: Slowing and Becoming Lopsided

China’s growth has slowed for the last few years, and more important, the composition of growth is changing with
more than half of GDP in the services sector, as a new equilibrium is sought. This is what is behind China’s new
normal (xin chang tai). Consumption is growing slightly faster than investment, with disposable income growth of
more than 6 percent annually.56 Moreover, China’s current account and trade surpluses have declined from their
heights in 2007.57 According to Premier Li Keqiang, “The new normal means . . . a farewell to the unbalanced,
uncoordinated, and unsustainable growth model.”58 However, this “new normal” is accompanied by an array of
structural problems and risks, including massive misallocation of capital and declining productivity stemming
from state ownership of banks and mismanagement of state-owned firms, high local currency indebtedness,
volatile financial and real estate markets, local-federal dysfunctionalities, and governance issues that require
revisions in the role of the state in the economy and the financial system.59 One of the major risks concerns the
quadrupling of China’s total domestic debt burden, which according to McKinsey, rose from $7 trillion in 2007 to
$28 trillion by mid-2014, amounting to 282 percent of GDP, declining slightly in 2016 to about 258 percent of
GDP.60 Corporate debt alone (accumulated mainly by SOEs) may have reached 150 percent of GDP by 2016.
Many experts believe that China has the policy space and adequate reserves to avoid a full-blown crisis, but the
potential costs are growing.61
Moreover, the BRICS club itself is becoming increasingly lopsided, at least in the medium run. As shown in
Figure 2.4, what is true about China with respect to an unavoidable tapering of growth applies even more to the
other BRICS (with the exception thus far of India), with important consequences for their relative positions within
the group. Like China, India rapidly doubled its output per person—in only sixteen years—and now is poised for
its own great breakout, growing faster than China in 2016, at a rate of 7.6 percent. India overtook Japan in 2008 as
the world’s third-largest economy in PPP terms and should soon overtake Italy and Brazil to move into seventh
position, behind France and Britain, when output is assessed in market rates. All the BRIC countries were once
synonymous with rapid growth. However, by 2015, they struggled to remain in the top ten world economies and
were split between the top and the bottom, as shown in Figure 2.4, which charts the BRICS’ year-on-year percent
changes in GDP.
A similar pattern manifested itself in the 2016 Global Manufacturing Competitiveness Index. That source views
China as one of the top two manufacturing nations, with India expected to rise from eleventh to fifth position by
2020. Meanwhile, Brazil fell to twenty-ninth in 2016 from fifth in 2010 and Russia slumped to thirty-second from
twentieth in the same period.62

FIGURE 2.4 GDP Growth: BRICS (% Change, Year on Year) 2000–2020

Source: IMF World Economic Outlook Database, April 2016; Year-on-year changes are percentages of constant
prices in national currencies.

Growth in emerging markets as a group has been slowing since around 2010 and is currently below its long-run
average, declining from 7.6 percent (2010) to 3.7 percent (2015). Following this pattern, the BRICS countries have
also slowed, from about 9 percent to 4 percent on average in the same period, reflecting slowing growth in China,
recessions in Russia (since 2014) and Brazil (since 2014), and chronic weakness in South Africa. It is evident that
the slowdowns in growth are a global phenomenon, although the U.S. performance has been stronger than that of
its European counterparts. As the BRICS integrate further into the global economy, the potential for spillovers will
increase, not just in positive, virtuous circles but also (as now demonstrated) with downward negative feedback.
The World Bank is concerned, for example, about the risks of a perfect storm, in which BRICS weakness
combines with financial turmoil.63 The potential for consequential impacts on other economies are also indicators
of the global influence of the BRICS, intended or not.
Finally, all the BRICS, like other emerging economies, must face the “middle-income trap,” as the easy catch-up
productivity gains (relative to developed economies) are gradually exhausted, typically when their GDP per capita
levels reach around $16,000 in constant 2005 international prices.64 Although analysts disagree on how much
scope China still has to increase productivity and maintain relatively rapid growth, the World Bank concurs that
“[i]mplementation of much needed structural reforms will not reverse a moderation of economic growth over the
next decades.”65 Unless the BRICS successfully address the institutional reforms and productivity gains needed to
ensure strong growth, it is doubtful that they can achieve their collective ambition to become and remain
significant global rule-makers and important regional powers (see Chapter 5). Particularly in Russia and China,
without gains in productivity, a smaller workforce will constrain consumption and slow the overall rate of
economic growth. China’s labor force peaked in 2012, and as the population ages, China’s high labor-force
participation rate is expected to decline from 70 to 67 percent by 2030.66
A NEW, MULTIPOLAR WORLD?

What are the political implications of these rather large shifts in relative economic capabilities? What difference do
they make to international relations, now or in the future? More directly, what else, besides raw capabilities, turns
a large and capable country into a great power? This section begins with a more detailed inquiry into the expansion
of China’s relative power capabilities. It then raises—without definitively answering—the questions of when and
whether enhanced capabilities ought to be considered a shift to a new international strategic balance (i.e., to a
bipolar or a bipolar-multipolar interstate system). The section closes with the observation that, thus far, the
enhanced economic power of some of the BRICS, mainly Russia and China, has accompanied an equivalent
expansion in their military capabilities.
In 2011, World Bank economists, led by the institution’s first Chinese chief economist, Justin Yifu Lin, argued
that “emerging markets” had finally “emerged,” and optimistically foresaw the contributions of the BRICs and
other large, fast-growing economies propelling a “great transformation in economic structure, power, and
influence” toward a “new multipolar world economy.”67 Over the course of the next half-decade, China’s
performance met the World Bank’s high expectations, while the other BRICs also progressed into the ranks of the
trillion-dollar economies, but not without encountering strong headwinds. By the second decade of the twenty-first
century, each of the BRICS is the largest and strongest country in its respective region.68 Currently, the BRICS
together comprise 42 percent of the world’s population, while the G7 countries comprise 11 percent. Moreover, the
BRICS contribute 17 percent of global merchandise trade, 13 percent of global commercial services, and 45
percent of the world’s agriculture production.69
China’s advances are especially notable for current and future economic and financial capabilities. These are
surveyed next, and then considered comparatively in the BRICS context in the third section of this chapter. China
and the BRICS do not need to close all the gaps with the United States and G7 to increase their influence as
significant regional powers or to reach levels of development sufficient to achieve their collective financial
statecraft ambitions.
First, China is likely to account for one-third to one-half of growth in both global incomes and trade.70 Even
with its growth tapering, it will continue to be the single biggest contributor to global trade in absolute terms.
Some 13.8 percent of global trade originated in China in 2015, making it the largest exporter in the world,
surpassing the United States (9.1 percent) and Germany (8.1 percent).71 Richard Baldwin connects the dots from
the previous discussion in this chapter about the G7’s declining share of world GDP to the transformation of the
globalization of trade. He shows that since about the late 1980s, communication costs have declined, allowing G7
innovations to spread through the offshoring of factories and massive knowledge flows through the simultaneous
creation of global value chains (GVCs). As a result, the world went from the “Great Divergence” (1820–1990),
when G7 innovations remained in the G7 and globalization was associated with rising G7 shares of world trade
and income, to the “Great Convergence” (1990–present), when globalization worked differently and G7 shares of
global income and exports plunged. During this latter period, North-South production sharing flourished,
benefiting the G7 “knowledge owners” and developing-country—mostly Chinese—workers, helping bring
hundreds of millions out of poverty in China and creating the world’s largest middle class.72 By 2010, the G7’s
share of world income shrunk to its 1900 level, while the group lost 24 percentage points of its share of global
manufacturing from 1970 to 2010; and China rose 18 percentage points in the same period (with 16 points shifting
since 1990).73
No longer possessing a low-cost advantage in many sectors, China is starting to move up the value chain to gain
market share in higher-value goods, while its domestic market is absorbing a growing share of both services and
manufacturing. China’s substitution of domestic materials for imported by individual processing exporters caused
China’s domestic content in exports to increase to about 70 percent in 2007.74 Such substitution was induced by
the country’s trade and investment liberalization, which deepened its engagement in GVCs and led to a greater
variety of domestic materials becoming available at a lower price integration into global value chains.
Liberalization encouraged intermediate input producers in China to expand their product varieties, and exporters in
China started to buy more domestic intermediate inputs and rely less on imports.75 Between 1993 and 2014, the
share of Chinese exports made up of foreign-sourced parts slid from more than 60 percent to 35 percent.76 Given
that China’s international manufacturing and trade position has been dismissed as merely “the assembler of the
world,”77 as illustrated by the famous iPod case, experts find it striking that China’s trade pattern does not
resemble Mexico’s but instead is marked by reimporting relationships and activity at the “very upstream and very
downstream ends.”78
 Second, the World Bank estimates that by 2030, half the total world capital stock of about $158 trillion (in 2010
dollars) embodied in investments in factories, equipment, and infrastructure will belong to developing countries,
while their share in global aggregate investment activity is projected to triple to three-fifths, from one-fifth in
2000. Of this amount, China is projected to account for 30 percent of global investment, while estimates for Brazil,
India, and Russia combined amount to an additional 13 percent.79 Since that initial estimate, China further
expanded its outward investment activity through “One Belt, One Road” (OBOR) and other initiatives, growing 19
percent per year on average between 2009 and 2014.80 The stated goal of OBOR is to reach $4 trillion in financed
projects, well above the existing projects worth $230 billion.81
Some observers see China as being poised to become the world’s largest net creditor as China’s cumulative
surpluses (measured as its net international investment position) amounted to $1 trillion in 2011–2015, larger than
Japan’s $200 billion.82 The opportunities for China’s leadership in national and collective financial statecraft that
emerge from its (and other BRICS members’) creditor status are numerous, ranging from supporting club
initiatives such as the New Development Bank (NDB) in development and infrastructure financing, and the
Contingent Reserve Arrangement (CRA), which may operate similarly to the IMF (or de facto to the U.S. Federal
Reserve) by providing crisis liquidity (see Chapter 3). In turn, creditors expect greater formal and informal
influence in existing global governance arrangements, as China and the BRICS have sought in the Bretton Woods
institutions. Similarly, China can gain potential leverage over debtors such as the United States if it is prepared to
pay high costs to achieve its objectives (see Chapter 4).
Third, recognizing the gap in innovative capacity, the Chinese government has embarked on several initiatives
to make indigenous innovation in products and processes a new driver for productivity and growth, particularly in
research and development (R&D), where weak intellectual property protection is an obstacle. To this end, China’s
share of global manufacturing value-added more than tripled, from 8 to 25 percent between 2004 and 2014.83
According to McKinsey and other assessments, China is increasingly competitive in more sophisticated,
knowledge-intensive sectors such as solar panels (with 51 percent of global revenue in this sector), construction
machinery (19 percent), and electrical equipment (16 percent), as well as in high-speed rail, where China now has
41 percent of the global market.84
China’s success as a global manufacturing leader stems in part from its vast ecosystem of suppliers, workers,
service companies, and logistics providers. In some areas, Chinese innovators can leverage supply chain partners
in the Chinese industrial ecosystem to become the global market leader, such as in small civilian drones, where a
Chinese firm now dominates about 70 percent of the market.85 By comparison, China has had only mixed success
in engineering-based and science-based innovation, reflected in the fact that only 5 percent of China’s large R&D
spending is devoted to basic research. Thus, Chinese filing of triadic patents in 2012, an indication of high patent
quality, was only one-tenth the number of U.S. and Japanese companies’ filings.86 However, one offset economic
strategy, where other BRICS lag far behind, is China’s “going global” push in R&D, where it was the largest
investor in global greenfield foreign direct investment (FDI) in the first half of 2016 and third overall in outbound
FDI, behind only the United States and Germany.87 Such investments parallel China’s OBOR initiative, serving
both domestic economic restructuring and global geoeconomic engagement.
One area where all the BRICs are storming ahead is in reaping the benefits from their industrial tycoons who
preside over large, private-sector companies that are integrated into the global economy. According to a new study
by Caroline Freund, their extreme wealth and large-scale entrepreneurship correlate positively with economic
modernization when it is associated with the creation of large, global, fast-growing firms like China’s Alibaba and
Foxconn, Brazil’s WEG, and India’s Bharat Forge. Such megafirms and their founders have been a source of
growth and structural transformation for the BRICs. Combined, they contributed 30 percent of the new fortunes,
40 percent of real global growth (in PPP), and an even larger share of the new Fortune 500 companies between
1996 and 2014.88 By 2025, emerging economies are expected to account for 45 percent of Fortune 500 firms and
50 percent of the world’s billionaires; China, and to a lesser extent India, lead the emerging economies in the share
of these large firms.89
However, one legitimately may wonder whether China can rival the United States in innovative capacity and
dominance in global corporations. According to Sean Starrs’ rigorous 2013 analysis, American corporations still
dominate most sectors, and in advanced sectors, such as aerospace, software, and financial services, U.S.
dominance has increased since 2008.90 Only three sectors show both relative American decline and Chinese
ascendance: banking, construction, and telecommunications. Moreover, U.S. firms own 46 percent of the world’s
top 500 corporations, 13 percent of which are domiciled outside the United States. Similarly, thirty-four of the top
fifty “Most Innovative Companies,” including the top five, in Boston Consulting Group’s (BCG) 2016 survey are
from the United States, ten are from Europe, and six from Asia. Moreover, North American companies are
increasing their share, up from 44 percent in 2013 to 68 percent in 2016.91
As may be expected in periods of rapid change, balanced assessments of China’s future capabilities differ. A
2015 McKinsey report acknowledges that most emerging-market companies have yet to develop the kind of global
footprint characteristic of multinationals from advanced economies.92 For example, the overseas revenue of the top
five Chinese companies is still less than 10 percent of total sales, compared with 30 to 70 percent of non-Chinese
multinationals. If Chinese companies go global in a bigger way, in part through mergers and acquisitions (M&A)
and also by acquiring talent and know-how in foreign markets, McKinsey reports that this could be one of the
pathways to greater innovation, productivity, and competitiveness.93
Similarly, private companies, such as Alibaba, Tencent, Baidu, and Xiaomi, are likely to be motivated to become
global leaders but are still relatively small in revenue in comparison to China’s SOEs, which benefit from massive
state support and are oligopolies at home.94 Yet, for five years, China has had the world’s second-largest number of
Fortune Global 500 companies, rising from 46 in 2010 to 98 in 2015, while the United States has declined, going
from 179 in 2000 to 139 in 2010 and 128 in 2015. Although China is expected to overtake the United States by
2020 in this ranking, China’s top entries are mostly these large, state-owned banks or national champions, not
global leaders. This is an important incentive for China to push back against U.S. and Western trade and financial
discrimination rules against the Chinese style of state capitalism. Many Chinese analysts argue that the state’s role
in the economy gives China “a competitive advantage in the international market, thus undermining American
interests,” while also permitting large-scale intervention to mitigate crises.95
At the same time, China and the other BRICS must recognize the greater success of the private sector. For
example, ExxonMobil’s sales revenue was much less than Sinopec’s, but its profits are at least six times the size.96
Nonetheless, McKinsey persists in forecasting that “the next 10 to 15 years are likely to topple the long-established
dominance of Western multinationals.”97

Economic Prosperity and Geopolitical Influence

Given their rising economic capabilities and potential, key questions are whether China and its BRICS partners can
convert economic prosperity into military and geopolitical influence, and whether there is any collective will to
collaborate to this end. In an early important analysis of the implications of the rise of China, Richard Betts in
1993 estimated that China’s GDP per capita needed only to reach about one-fourth of U.S. GDP per capita (in PPP
terms) to equal total U.S. economic output.98 In 2016, China had already reached the necessary figure of 23.4
percent, with a per capita GDP of $14,107, and had surpassed the United States in total output in PPP terms. In
market exchange-rate, China’s current GDP per capita of $7,990 is 14.3 percent of the U.S. level, and its economy
is 61 percent of U.S. output. The turning point for India is similarly 24.9 percent, but India’s 2016 per capita GDP
is only $6,162, or 11 percent of the U.S. level, while its total GDP is 44 percent of U.S. output. None of the other
BRICs countries has a realistic chance of matching the U.S. economy; with its current population size, Russia
would need to achieve 220 percent of U.S. GDP per capita to equal the total U.S. GDP, while Brazil would need to
achieve 157 percent. Moreover, given their rivalry, China and India are the least likely of the BRICS to see any
benefit in military or geopolitical collaboration.
In light of China’s growth, some realists question whether the regional balance of power is “up for grabs.” Betts
argued that the United States would be unable “to dominate East Asia militarily without paying costs that have
been made unthinkable by the end of the Cold War.”99 More than two decades later, China has begun to assert its
influence geopolitically in the East and South China Seas, building military outposts on disputed islands, and
geoeconomically through the OBOR initiative, the Asian Infrastructure Investment Bank (AIIB), and the BRICS.
Beijing has important interests to defend, including the annual $5.3 trillion commerce and oil imports accounting
for 61 percent of its total consumption, which pass through the South China Sea to Chinese tanker ports. China
does not fully accept the American defense of the sea lanes as an unmitigated public good, and its ambitions also
seem to have expanded as its capabilities have grown.100 Moreover, China is able to provide financial inducements
to get its way. Similar points could be made about Russia’s assertive behavior in the former Soviet space, although
Russia’s potential to convert economic power into geopolitical influence is declining in the long run.

Converting Economic Power into Military Capabilities? Regional Influence, Not Collective Action
Indicators of military strength are one measure of the BRICS’ global standing, which in turn influences each
member’s potential for autonomy of maneuver and ability to backstop individual or collective policies in other
arenas of statecraft, particularly in its respective region. However, aggregating the BRICS’ defense budgets serves
no useful purpose, given that their club is not an alliance and the members have important political differences and
geopolitical rivalries. The original four BRICs all rank in the top eleven countries in military spending. Russia,
India, and China are also nuclear weapon states. Brazil and South Africa both had nuclear weapons programs, but
they voluntarily abandoned them in the 1980s and 1990s, respectively.
In global terms, an important turning point occurred in 2012 when Asian defense spending (excluding Australia
and New Zealand) surpassed the defense spending of European members of the North Atlantic Treaty Organization
(NATO), reflecting in part the impact of Europe’s high debt-to-GDP ratios and severe defense austerity that had
shrunk NATO Europe’s nominal defense spending in 2012 to 2006 levels. Although West European states started
cutting their defense budgets at the end of the Cold War, after the global financial crisis started, NATO European
defense budgets contracted at a faster rate than their economies were declining, a trend that was stemmed only
after Russia’s armed intervention in Ukraine and annexation of Crimea. By 2015, Asia was spending about $100
billion more on defense than Europe.101
TABLE 2.1

Global Defense Rankings and Trends, 1993–2016

Spending as a
Share of GDP
Global Rank (%)
2016 1993b Country Spending 2016 Change 2007– World Share 2016 2007
($ bn, MER) 2016 (%) 2016 (%)
1 1 United 611 −4.8 36 3.3 3.8
States
2 3 China 215a 118 13a 1.9a 1.9a
3 2 Russia 69.2 87 4.1 5.3 3.4
4 9 Saudi 63.7a 20 3.8a 10a 8.5
Arabia
5 13 India 55.9 54 3.3 2.5 2.3
6 4 France 55.7 2.8 3.3 2.3 2.3
7 7 UK 48.3 −12 2.9 1.9 2.2
8 5 Japan 46.1 2.5 2.7 1.0 0.9
9 6 Germany 41.1 6.8 2.4 1.2 1.2
10 10 South 36.8 35 2.2 2.7 2.5
Korea
11 8 Italy 27.9 −16 1.7 1.5 1.6
12 15 Australia 24.6 29 1.5 2.0 1.8
13 19 Brazil 23.7 18 1.4 1.3 1.5
Sources: Trends in World Military Expenditure, SIPRI (2016); World Military Expenditures and Arms Transfers
(WMEAT) 1993–1994, U.S. Arms Control and Disarmament Agency (1995); C. Roberts calculations.
a SIPRI estimates. Dollar figures are current prices and exchange rates, while figures for percentage changes over
time are in constant (2015) US dollars.
b WMEAT rankings are based on current prices and exchange rates.

Given that growth in GDP and growth in military spending are strongly correlated over the long term,102 it is
notable that the four BRICs have been steadily moving up in the top ten rankings of both world economies and
leading defense spenders, while a substantial share of global defense spending has been shifting away from the
United States, and particularly its allies. As Table 2.1 shows, between 2007 and 2016, China’s defense spending
soared 118 percent, while Russia, India, and Brazil increased their defense budgets 87, 54, and 18 percent,
respectively. From 2010 to 2015, China’s defense spending rose from 18 to 36 percent of U.S. defense
expenditures. If sustained, China’s double-digit annual growth will allow Chinese defense spending to approach
U.S. levels after 2025.103 Moreover, China already dominates Asian military spending; its defense spending is five
times larger than Japan’s.104 By 2020, China is forecast to spend more than all of Western Europe, and by 2025,
more than all the other states in the Asia-Pacific region combined.105
Declines in Western defense spending are a symptom of a larger reality, in which major American allies are
slipping in global weight economically, demographically, and militarily. In fact, the decline of Europe and Japan is
the principal factor driving the striking trend that by 2025, the BRICS are on course to edge out the G7 in global
GDP (measured in PPP), as shown in Figure 2.2. According to McKinsey, Europe and Japan’s combined share of
global R&D expenditures also declined by 11 percent in the twenty years after 1991. By comparison, China
increased its share of global spending from 1 to 9 percent during the same period. In 2016, the U.S. share of global
R&D is forecast to be 26.4 percent, while China’s is expected to be 20.4 percent. China’s R&D spending remains
less than the United States in absolute terms, but the gap is closing. At the same time, the fast-growing India is
now the sixth-largest R&D spender in the world, forecast to surpass both South Korea (fifth) and Germany (fourth)
in total R&D investment by 2018.106 Beyond economic potential, a quarter-century later, R&D investments are
strongly correlated with the quality of a state’s military’s equipment.107
Although it is a mistake to conflate superior military power with trends in either a country’s overall economic
size or its level of defense spending, one may observe some links among these dimensions in the United States
today. As the relative economic capabilities of the United States decline, some foreign policy realists favor limited
retrenchment of U.S. foreign policy, concluding that “the price of dominance is too high.”108 Other analysts prefer
to fall back on liberal policy prescriptions for prioritizing prosperity, open markets, and interstate cooperation
through institutions. Yet the United States is still globally dominant in defense; in capitalism, through its leading
multinational corporations, open, innovative economy, and favorable demographics; in soft power, through its
strong democratic institutions and Washington’s leadership of the Bretton Woods institutions; and in myriad other
ways.109 Moreover, the relative capability advantages of the United States and other advanced industrial countries
are greater financially than economically, which means that this summary underestimates the structural effects of
U.S. primacy. Most international trade is settled in dollars, the United States has the largest financial markets and
clearinghouse banks, and of course, the dollar is the dominant reserve currency.
The United States also has cleverly retooled such instruments to assert its dominance in new disruptive ways,
some of which allow the United States to leverage its financial power to compensate for its declining share of the
world economy. For example, Washington treats access to the American financial system through the global
banking system as a set of proprietary nodes, leaving other countries potentially vulnerable to interruption of such
access.110 The United States also demonstrated its greater importance than the International Monetary Fund (IMF)
when the Federal Reserve Bank (and the European Central Bank) were the only institutions with the power to
inject funds to manage the shortage of liquidity, bank failures, and the freezing of markets during the global
financial crisis of 2008–2009. Could these strengths also start to erode in favor of China and other non-Western
regional powers? Can they be countered or offset through other Chinese and BRICS capabilities? Such questions
are considered in the next section, as well as in Chapters 3 and 4 of this book.
In short, the relative increase in the global economic weight of the BRICS, but most prominently of China, over
the past quarter-century has been remarkable. These shifts do not necessarily translate into relational, much less
structural, power. However, they likely increase opportunities for the BRICS, both individually and collectively, to
exercise greater autonomy by acting independently in global affairs.111

THE GLOBAL FINANCIAL AND MONETARY CAPABILITIES OF THE BRICS

This section turns specifically to the financial capabilities of the five BRICS countries. In general, their domestic
and international financial depth and sophistication have risen, but somewhat unevenly. Overall, the BRICS’
current financial and monetary capabilities lag their clear economic rise relative to the major advanced industrial
economies. With the start of the global financial crisis in 2008, two turning points in the evolution of the BRICS
intersected. First, it became increasingly evident that there was a mismatch between the relative ascendance of the
BRICS, and especially that of China, as the world’s leading trading nation, and their comparatively low
international financial profiles. Despite becoming major creditors, the BRICS were not major players in global
equity markets, their currencies were not commonly used in trade transactions (let alone as reserves), their firms
were not leading multinational investors, and they were not home to major global financial centers. As recently as
the mid-2000s, for instance, the BRICs’ share of global FDI stock was still a paltry 3.3 percent ($510 billion),
while flows were smaller than their economic weight, with combined BRIC outward FDI smaller than Italy’s, and
China’s FDI smaller than Brazil’s and Russia’s.112 Moreover, all the BRICS, but especially China, were taking
increasing losses by concentrating their external holdings in high-grade, low-risk foreign government debt reserve
assets instead of seeking higher-yield investments.
Second, the BRICS governments recognized that, although the Western lords of finance continued to dominate
both global financial markets and financial governance, they were not necessarily skillful or trustworthy stewards.
The global financial crisis reinforced the view that the BRICS needed more robust defenses against U.S. leverage,
the exorbitant privileges of the dollar, and to protect against contagious shocks from U.S. financial
mismanagement.
While Chapters 3 and 4 discuss Chinese and the BRICS collective financial statecraft moves to promote their
international financial and monetary profiles, this section takes a brief look at incipient, yet significant, shifts in
these dimensions. Throughout, the BRICS are compared to the incumbent powers, particularly to the major
advanced industrial countries.
The first subsection begins by examining the structure and health of domestic financial institutions and markets
in the BRICS in comparative perspective on the assumption that minimally competent domestic financial
performance is a prerequisite for those who would play an active role in global financial governance. The second
subsection turns to investigate the openness of BRICS’ national markets to interact with global investment flows
and actors, while the third subsection reviews the distribution among the BRICS of certain financial assets and
resources that are potentially helpful for the exercise of assertive or defensive international financial statecraft.

The Foundation: Domestic Finance in the BRICS

How strong and solid are the BRICS’ home financial systems? It seems reasonable to assume that varied, vibrant,
yet sober domestic banks and capital markets, a solid national regulatory and legal framework that protects
financial property rights, and transparent oversight and governance all would be prerequisites for a country’s
leaders to exercise international financial power. How do the BRICS fare on these dimensions?
TABLE 2.2

Stock Markets: G7 and BRICS

Market
Capitalization
Countries

$ (millions) % of World % of GDP Total Domesti

Number of Compan
Companies
2016 2010 2016 2010 2005 2014 2010 2016 2016
World 66,660,631 51,452,952
United States 25,724,982 17,283,452 38.6 33.6 41.2 151.2 115.5 5,215 4,330
Japan 4,772,751 3,827,774 7.2 7.4 10.5 95.1 69.7 3,521 3,512
*London SE 3,719,417 1,868,153 5.6 3.6 7.7 … 66.9 2,636 2,142
Group
*Euronext 3,419,911 … 5.1 … 4.7 … … 1,063 940
Germany 1,671,601 1,429,719 2.5 2.8 3.4 44.9 41.8 601 540
Canada 1,879,629 2,171,195 2.8 4.2 3.0 117.4 134.5 3,495 3,441
Italy 587,312 535,059 0.9 1.0 2.3 27.4 25.2 … …
G7 TOTAL 41,775,603 27,115,352 62.7 52.7 72.8
G6 (minus 16,050,620 9,831,900 24.1 19.1 31.6
United
States)

China 6,815,773 4,027,840 10.2 7.8 1.2 58.0 66.7 2,874 2,874
Hong Kong, 2,977,709 2,711,316 4.5 5.3 2.4 1,111.4 1,185.9 1,899 1,805
China
India 2,930,239 3,228,455 4.4 6.3 1.1 76.1 95.5 7,760 7,758
South Africa 982,528 925,007 1.5 1.8 0.6 266.7 246.4 385 317
Brazil 577,804 1,545,566 0.9 3.0 1.0 34.9 70.0 356 345
Russian 486,324 951,296 0.7 1.8 0.9 20.7 62.4 251 248
Federation
BRICS 14,770,377 13,389,480 22.2 26.0 7.0
TOTAL
BRICS 4,976,895 6,650,324 7.5 12.9 3.5
(minus
China)
Unit: U.S. dollars (millions)
Most Recent Value (MRV) if data for the specified year or full period are not available; or growth rate is calculated
for less than the period.
Euronext: Includes Belgium, France, Netherlands, Portugal, and the United Kingdom. Since 2000, the Paris
Bourse has existed as “Euronext Paris,” included within the pan-European Euronext. French figures are used
instead for 2005.
United States includes NYSE and NASDAQ.
China includes Shanghai and Shenzhen stock exchanges.
India includes BSE Limited exchanges and National Stock Exchange India.
Sources: World Development Indicators, World Bank; World Federation of Exchanges; Bloomberg; CEIC.
C. Roberts calculations; Last updated June 14, 2016.

Table 2.2 tracks the size and performance of stock markets in the G7 and the BRICS. It shows the stock market
capitalization, as a share of the world total, for the G7 countries and the BRICS in three years: 2005, 2010, and
2016. Over the entire period of 2005 to 2016, the G7’s share fell by 10 percentage points, from 73 to 63 percent,
with most of this loss coming from relative declines in Western Europe and Japan. Meanwhile, the share of the
BRICS countries rose from 7 to 22 percent of the global total, constituting a dramatic rise of 15 percentage points,
the vast majority of which (11 percentage points) was due to an increase in the value of Chinese exchanges.
China is again the standout in the BRICS group, as its share of global market cap increased since 2010 from 8 to
10 percent, jumping to second place worldwide in 2015. China is now the only other country besides the United
States (and Japan a decade ago) to reach double-digit status, despite experiencing considerable volatility. This is a
striking development given that China held only a 1 percent share in 2005 and its domestic market is only on the
verge of being open to global investors; many experts expect a surge of money to flow in that is now on the
sidelines. As of June 2016, as Table 2.2 shows, China has more than 2,800 domestic companies, but no foreign
companies listed with Chinese exchanges (excluding 94 in Hong Kong). Similarly, there are fewer than four
foreign companies listed in India and Russia, while only Japan among Western countries is so relatively closed to
foreign participation. On the other hand, market liquidity and trading volume in China are now higher than in all
G7 countries except the United States.
China’s quotas system for access by foreign investors and other limits on capital mobility have kept China’s A-
shares out of major indices,113 such as the Morgan Stanley Capital International (MSCI) Emerging Markets index,
one of the world’s most-followed with an estimated $1.5 trillion in capital markets assets worldwide benchmarked
to it.114 The MSCI case is one of the best recent examples of markets demanding reforms from the world’s second-
largest economy. Over three years, MSCI annually signaled Chinese authorities what roadmap of reforms would be
required, and both MSCI and market observers suggest that it is a question of when, not if, China will be admitted.
Although China already accounts for 27 percent of the MSCI Emerging Market index via shares of Chinese
companies listed elsewhere (mostly in Hong Kong and New York), the eventual upswing after a phase-in process
of China’s A-shares could be considerable. If China allows reforms that include greater accessibility for investors
to move their investments in and out, to repatriate funds, and also removes quotas for onshore investment, its
combined onshore and offshore weighting would likely account for more than 40 percent of the MSCI EM
index.115 The 2016 Shenzhen–Hong Kong Stock Connect, with 880 stocks listed, could also dramatically increase
foreign exposure to mainland Chinese firms, including the technology, consumer, and healthcare companies that
are the leaders of China’s privately owned new economy.116
TABLE 2.3

Structure and Performance of Domestic Finance: G5 and BRICS

Share of Fixed Credit/GDP Loan to Z- Market Bond

Investment Financed Ratio Deposit Score Capitalization/GDPc Maturity
(%)a Spreadb (yr)d
Desired High High Low High High High
score
G5
Britain … 161.7 … 23.1 130.8 12.9
France … 114.3 … 9.3 121.4 7.2
Germany 31.9 100.5 … 33.5 63.7 6.8
Japan … 106.9 1.8 35.5 139.8 6.9
United … 49.4 … 28.9 196.1 29.3
States
G5 Mean … 106.6 … 26.01 130.4 12.6
BRICS
Brazil 34.1 61.7 15.8 6.5 88.1 7.5
China 7.7 124.4 3.0 21.2 93.0 4.7
India 28.8 47.9 … 34.1 74.6 1.7
Russia 9.1 44.3 3.8 3.1 56.6 8.5
South 28.5 67.5 3.3 19.4 172.7 11.4
Africa
BRICS 21.6 69.2 6.5 16.8 96.9 6.8
Mean
Median, … 36.1 6.2 14.3 40.6 …
180
Countries
a Percentage of fixed investment financed through the country’s financial system.
b Excess of loan interest rates over deposit interest rates.
c Stock market capitalization/GDP.
dAverage maturity, corporate bonds (years).
Source: World Bank. Global Financial Development Report 2015/2016. Washington, DC: World Bank, 2016:
Appendices A and B. Scores in each category reflect the latest available, usually 2013 or 2014.

However, as the recent global financial crisis amply demonstrated, the size and valuation of a nation’s stock
market may shift quite dramatically overnight. Therefore, it is important to look at more enduring measures of
national financial prowess. Table 2.3 looks at the standard comparative measures of financial depth, health, and
sophistication. Since not all the indicators are well known, its first row shows whether a higher or a lower score is
considered desirable. The table reports both individual totals and the unweighted group mean for the G5 largest
advanced industrial countries, as well as for the BRICS, while its final row shows the median score for the entire
group of 180 countries. Not surprisingly, the big picture that emerges from Table 2.3 is that the domestic financial
sectors within the G5 advanced industrial countries are, on most of these measured dimensions, more sophisticated
and developed than those of the BRICS. However, the BRICS usually fall in the upper half of the full country
distribution.
The most important performance indicator may be the first, which shows the percentage of total fixed
investment by the corporate sector that has been intermediated through the country’s financial system.117 The
remainder is funded from the enterprises’ own savings out of profits, generally presumed to be a less efficient use
of resources. In Brazil, India, and South Africa, roughly a third of all funds invested by businesses have passed
through the financial system, similar to Germany,118 while China and Russia rely much more heavily on the
alternatives: productive enterprises’ own savings or direct budget transfers from government. Overall, then, the
domestic financial sectors of the three democracies are deeper and more developed than those of the two
autocracies.
Table 2.3 also includes three measures of banking system development: the overall quantity of bank loans
(credit/GDP), the efficiency with which banks intermediate funds (the loan/deposit spread), and a measure of
banks’ riskiness or vulnerability to crisis (the country’s overall Z-score, where a high score indicates greater
banking stability). Chinese banks provide the most credit, on par with those of major Western European powers,
while the remaining BRICS provide less—but about as much as U.S. banks. Turning to the comparison of
loan/deposit spreads, Brazil has extremely expensive loans in the free segment of the credit markets, while
Chinese, Russian, and South African commercial banks provide relatively inexpensive credit.119 Looking at the Z-
scores, one sees that banks in Brazil and Russia look risky—but so do those of France. In addition, there are
persistent reports that Chinese banks, solid Z-scores notwithstanding, are much riskier than official statistics
reveal.120
The final two columns assess the capital markets. Unlike Table 2.2, which reports market capitalization of the
stock market alone, the “capital markets” indicator in Table 2.3 aggregates the value not only of corporate shares,
but also of corporate and government bonds. The capital markets/GDP ratio suggests that both the G5 and the
BRICS countries have stock and bond markets two to four times the size of those in the median country, as a share
of their respective home economies. The smallest capital markets, relative to the size of the home economies,
among the ten countries are in Germany and Russia, while the largest are in the United States and South Africa. In
terms of the average maturity of corporate bonds, shown in Table 2.3’s final column, one may note that firms in
Brazil, Russia, and South Africa are able to place bonds with average maturities that are quite similar to those of
Britain, France, Germany, and Japan. The only outliers among these ten countries are India, where average bond
maturities are less than two years, and the United States, at nearly thirty years. Although change over time is not
shown in the table, all the BRICS countries have improved their financial depth and soundness over the past
twenty years.
Moreover, in absolute terms, China’s combined government and corporate bond market has doubled in size in
just five years to become the third largest, although international investors hold less than 2 percent of the $7.4
trillion in bonds outstanding.121 Previously, the only access to the China Interbank Bond Market (CIBM) was to
use restricted channels, such as those for previously vetted Qualified Foreign Institutional Investors (QFII) or
Renminbi-Qualified Institutional Investors (RQFII). In contrast, the new CIBM is without quotas or limits, and it
expands opportunities.122 In line with the RMB’s inclusion in the IMF’s unit of account, the Special Drawing
Rights (SDRs) (see Chapter 3), the World Bank also will issue bonds in China that are settled in RMB but backed
by the IMF’s currency basket. These planned new bonds will provide domestic investors with exposure to foreign
currencies despite capital controls, while also increasing the use of SDRs as a challenge to the dominance of the
dollar.123 This chapter’s final section provides further details on current developments in RMB-denominated
capital markets.
TABLE 2.4

Rankings of Domestic Financial Development: G5 and BRICS

Entire Financial System Banking System Only Capital Markets Only

IMFa WEFb IMFa WBc IMFa WBc
Ranking from: (n = 183) (n = 140) (n = 183) (n = 189) (n = 183) (n = 189)
G5
Britain 3 16 4 19 6 4
France 11 29 3 79 21 29
Germany 14 18 23 28 13 49
Japan 8 19 6 79 11 36
United States 4 5 13 2 1 35
BRICS
Brazil 25 58 15 97 31 29
China 33 54 57 79 20 134
India 51 53 102 42 38 8
Russia 32 95 46 42 19 66
South Africa 28 12 28 59 30 14
Note: Higher-ranked countries have lower numbers.
a“IMF” is Katsiaryna Svirydzenka, “Introducing a New Broad-Based Index of Financial Development,” IMF
Working Paper WP/16/5, Washington, DC: International Monetary Fund, January 2016.
b“WEF” is World Economic Forum, Global Competitiveness Report 2015–2016, Geneva, Switzerland: World
Economic Forum, 2015.
c“WB” is World Bank, Doing Business 2016: Measuring Regulatory Quality and Efficiency, Washington, DC:
World Bank, 2016.

Table 2.4 compares global rankings of the domestic financial development of these same ten countries.124 There
are two large conclusions. First, the variability of the judgments, which come from three different sources, about
these ten countries suggests some caution. Nonetheless, and second, the table’s rankings generally confirm our
assertion that domestic financial development within the BRICS has been considerable, as their scores overlap
those of the G5 countries. The first two columns compare assessments of the overall financial system from the
IMF (drawn from a composite labeled “financial development”) and World Economic Forum (WEF) (its judgment
of “financial market development”). As anticipated, the G5 receive higher scores than the BRICS, and the United
States, followed by the United Kingdom, leads the pack. However, the WEF ranks South Africa’s financial system
twelfth in the world, higher than any of the G5 members except the United States.
The middle two columns evaluate banking systems, drawing from the IMF (a ranking of “financial
institutions”)125 and World Bank (via a survey indicator of “ease of getting credit”). Again, the G5 generally
outscore the BRICS. However, there are some anomalies: the IMF’s methodology awards Brazil a higher rank than
Germany, while the World Bank’s survey respondents considered it tougher to get credit in Japan than in India,
Russia, or South Africa.
The final columns report rankings for stock and bond markets, jointly known as the capital markets. They report
a general assessment from the IMF (“financial markets”) with the World Bank’s findings about honesty and
transparency (“protections for minority investors”). Here, one finds the expected patterns for rising middle-income
countries, with a few outliers. On the World Bank’s measure, for example, India and South Africa score higher
than any of the G5 countries except Britain. And even within the BRICS group, China’s reputation for protecting
small investors is very bad, and its domestic financial sector reporting may be particularly unreliable. Nonetheless,
the structure and performance of the BRICS’ home financial sectors clearly are sufficient to support their leaders’
ambitions to play a larger international role.
The Links: The External Trade and Financial Openness of the BRICS
Table 2.5 reports on the trade and financial openness of the BRICS and the G5. The argument is often made that
economic liberalization is a prerequisite for economic growth, as well as influence in international financial
markets. Scholars such as Carla Norrlof suggest that openness to international trade and financial markets is not
only helpful, but in fact essential for a country that wishes to play a serious international financial and currency
role.126 Similarly, bringing in foreign financial institutions and competition, together with a gradual opening of
domestic financial markets, can help reduce the power of domestic interest groups and accelerate financial reform
and innovation. Especially for middle-income economies, these measures can help improve financial services and
the efficiency of resource allocation.127
However, leaders of each of the BRICS countries, as well as many prominent Western scholars, are skeptical
about the benefits of full external economic openness.128 In their judgment, the relationship between capital
account liberalization and a presence in global financial governance is not linear, but rather curvilinear: a
minimum level of openness surely is required, but ever greater openness does not generate ever greater
possibilities to exercise international financial statecraft, especially for countries that are not currently at the top of
the global hierarchy. Relatively closed financial links may protect emerging economies against external financial
contagion, and they do not necessarily imply that these economies cannot wield significant influence in
international financial governance. Moreover, transitional financial systems may develop regulatory gaps and
fragmentation, as in China, leading the IMF to recommend against opening the capital account too quickly lest the
financial system and the economy “get unbalanced by capital flows.”129
Economists in China and Russia have complained that Western measures of financial openness are themselves
biased.130 For instance, the Russian market has no formal capital controls and encourages foreign investment,
although informal political risks are not inconsiderable. In China’s case, some economists question whether the
IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions is too broad and static and not
sufficiently sensitive to incremental changes where capital controls are being relaxed.131 Nonetheless, it is worth
assessing the differing profiles of trade and financial liberalization found in the G5 and the BRICS, as is done in
Table 2.5.
TABLE 2.5

Indicators of External Openness: G5 and BRICS

Trade Foreign Nondiscrimination Overall Capital Nonresident Holdings of

Openness Investment against Foreign Account Corporate Bonds/GDP
Openness Investors Liberalization (%)
G5
Britain 0.88 0.90 1.00 0.80 55.8
France 0.83 0.70 0.70 0.95 63.4
Germany 0.88 0.60 0.60 0.82 52.3
Japan 0.83 0.70 0.91 0.90 7.0
United 0.87 0.70 0.40 0.82 29.3
States
BRICS
Brazil 0.69 0.55 0.00 0.40 11.1
China 0.73 0.30 0.00 0.09 0.7
India 0.71 0.35 0.10 0.02 1.7
Russia 0.72 0.25 0.50 0.70 2.0
South 0.77 0.45 0.50 0.32 11.4
Africa
Note: 0 = fully closed; 1 = fully open.
Sources: Data columns 1–2: Heritage Foundation, 2016 Index of Economic Freedom, at www.heritage.org,
measures labeled “trade freedom” and “investment freedom,” accessed June 2016, Data columns 3–4: Jahan and
Wang (forthcoming), 2016. New Index on Capital Account Liberalization. Washington, DC: International
Monetary Fund. Data column 5: World Bank. Global Financial Development Report 2015/2016: Long-Term
Finance. Washington, DC: World Bank, Appendix B.

Table 2.5 reports one index of trade openness and four measures of external financial openness. On the Heritage
Foundation’s trade liberalization index, the G5 look somewhat more open than the BRICS, but the gap between the
mean of the two groups is not large. In contrast, in the table’s second data column, the Heritage Foundation ranks
the G5 quite a bit higher than the BRICS on “investment openness.” This is because this conservative think tank
considers that both capital controls per se and any preferences given for national over foreign firms (in tax
treatment or access to credit or government contracts, for example) undermine investment openness.
Table 2.5’s third and fourth columns show indices of “nondiscrimination” and “overall capital account
liberalization.” These report on formal laws and rules, or the de jure constraints governing cross-border
transactions.132 By these measures, the G5 appear substantially more open to international capital flows than the
BRICS, although Russia and South Africa have the most liberalized regulations among the five BRICS. The
table’s final column examines instead an important outcome dimension: the share of nonresidents among all
owners of the corporate bonds of a country’s firms. Here, the difference is stark. In China, India, and Russia,
foreigners own less than 2 percent of corporate bonds. In the remaining two BRICS, Brazil and South Africa,
however, foreign holdings rise to about 11 percent of all corporate bonds. Among the advanced economies, one
sees an even larger bifurcation. Japanese corporate bond markets are either closed to foreigners or simply
extremely unattractive: foreign holdings in 2013 were only 7 percent of the total. Foreign holdings in the other
advanced economies are above half the total, except in the United States, where they reach only a third of the total,
possibly reflecting the large size of the U.S. corporate bond market itself rather than disinterest from potential
foreign investors or barriers to their participation.
Thus, by the early twenty-first century, each of the BRICS countries had reached a level of domestic
development of the banking sector and capital markets sufficient to locate them, as a group, at approximately the
lower end of the upper third of all countries worldwide. In terms of comparative financial openness, the BRICS
rank below many smaller or poorer developing countries in global comparative terms, at least partly because their
leaders have had a choice. In contrast, policymakers in less powerful emerging economies often have been less
able to resist pressure by the United States and international financial institutions such as the IMF, which until
quite recently, insisted on capital account liberalization as essential for both domestic financial development and
sustained economic growth (see Chapter 3).

The Capabilities: International Assets and Global Financial Centers

The continuing presence of capital controls in each of the BRICS has not impeded the growth of their shares in
world financial resources, which also have increased in recent decades. Just as the BRICS’ share of global
production has risen, so has their relative weight as national owners of international financial and monetary
resources. International economic and political economic influence ultimately rests on a country’s national growth
rate and its ability to generate an economic surplus whose disposition political incumbents can shape. International
influence may be exercised indirectly, through tax and national regulatory frameworks, or directly, via executive or
legislative actions such as imposing capital controls or international financial sanctions. The publicly sourced,
comparative data compiled and presented in this section suggest that as of 2012 or 2013, the BRICS, including
China, remained clearly inferior to the G5 in their control of potentially influential international financial,
monetary and closely related capabilities. However, the clear direction of change since the mid-1990s is toward
rising capabilities accruing to the BRICS.
TABLE 2.6

Transitions in Global Trade, Financial, and Monetary Capabilities: G5 and BRICS

Trade Current Home Financial Foreign Home Currency in

Presence Account Market (ends 2012) Exchange Allocated Reserves
Surplus Holdings
G5
United 1995 13.9 0.0 32.2 5.4 68.1
States 2013 11.4 0.0 33.4 1.1 62.9
G4 1995 27.9 45.6 45.5 24.5 31.7
2013 18.7 19.5 14.4 12.7 33.1
BRICS
China 1995 2.3 0.6 0.4 5.5 0.0
2013 9.5 12.5 5.9 32.6 0.0
Other 1995 4.0 2.6 2.0 6.1 0.0
BRICS 2013 6.5 2.3 4.9 9.7 0.0
Note: Country shares in global totals, in percent.
Source: Leslie Elliott Armijo, Daniel Tirone, and Hyoung-kyu Chey. “Global Finance Meets Neorealism, and a
Dataset,” Unpublished paper and dataset, indicators TST, CAS, FWD, FWFX, and CDSRA.

The first data column in Table 2.6 shows comparative trade capabilities, measured as a country’s share of total
world trade flows using the standard measure of its share in both merchandise exports and imports as a percentage
of the world totals.133 Trade flows are closely related to, and a likely prerequisite for, many international financial
capabilities. The trade presence of the BRICS has grown dramatically between 1995, when they accounted for 6.3
percent of total world trade, and 2013, by which time their collective share had grown to 16 percent, with 7.2
percentage points of this rise being accounted for by China alone. Meanwhile, the share of the G5 decreased by a
roughly equivalent amount, falling from 41.8 percent in 1995 to 30.1 percent in 2013. That is, the importance of
the five most politically and economically dominant countries in total world trade fell in less than two decades by
slightly more than 10 percentage points—and most of this drop was picked up by the BRICS, but especially by
China.
Moreover, the shift in the share of the world’s total current account surplus (measured by summing the total
value of the surpluses of all countries with a surplus and then allocating percentage shares) was much more
dramatic over this same period.134 Although it may be argued that free trade provides cheaper and better goods to
both parties, national policymakers who conceptualize international political and economic relations in terms of
relative power capabilities reliably prefer trade or current account surpluses to deficits. Such surpluses provide the
nation with a cushion, enabling them to import essential goods even when there is an unanticipated, and
uncontrollable, decline in exports, such as might be due to long-term shifts in a global commodity cycle or a
recession in a major trading partner. Surpluses also enable a country to accumulate foreign exchange reserves or
purchase foreign assets135—arguably important resources for both defensive and offensive financial statecraft.
The BRICS accounted for only 3.2 percent of the global current account surplus in 1995, while the G5 (mainly
Japan) were responsible for almost half, or 45.6 percent. However, the United States had no share in this current
account surplus, having moved into permanent structural deficit on current account in the early 1980s. By 2013,
the BRICS, but overwhelmingly China, owned 14.8 percent of the global current account surplus, while the share
of the G5 had fallen below 20 percent, with almost all this remaining share due to Germany.
Another type of national financial capability is the size of a country’s home credit and capital markets as a share
of world totals. Of course, the country’s degree of international integration matters, as a large domestic market
with high barriers to foreign participation will have less influence in global financial markets than a home financial
market that is more open to foreign inflows and outflows.136 As BRICS economies have grown, so has the value of
their domestic financial sectors, rising from 2.4 percent of the world in 1995 to almost 11 percent in 2013. This
development is once again mainly, although not entirely, due to an increase in China’s share. Meanwhile, the share
of the G5 fell from over three-quarters (77.7 percent) to under half (47.8 percent). The importance of the U.S.
home market rose slightly, however, reflecting its continuing role as the world’s safe haven during any
international financial or political crisis.
However, in the twenty-first century, China has increasingly dominated new flows of foreign investment,
especially foreign loans and FDI. Although China’s domestic financial markets are not yet trusted by international
investors, the advantages of trading with and transacting financial business in the home markets of the country
with the largest pool of investible resources already have generated a large uptick in RMB use, as discussed in this
chapter’s final section.
The penultimate data column in Table 2.6 suggests that there also has been a recent but profound shift of
international monetary or currency capability from the incumbent major powers and toward important emerging
powers, especially China. As shown, from the mid-1990s to 2013, China’s share of global foreign exchange
reserves grew from a significant 5.5 percent to a dominant 32.6 percent, overtaking Japan in 2006, which was
previously the holder of the world’s largest official reserves. The other BRICS members also increased their
holdings from about 6 to almost 10 percent of global totals. Meanwhile the combined holdings of the G5 countries
(largely of one another’s currencies) fell from about 30 percent to just under 14 percent over the same period.
The large foreign exchange buildup in the central banks of many emerging economies, to a great extent a
defensive reaction to the waves of financial contagion that hit emerging economies in Latin America, East Asia,
and Eastern Europe in the 1990s, has been widely noted. In particular, economists debate whether such official
reserves, primarily invested in low-yielding Treasury securities of hard currency countries, especially the United
States, are an inefficient use of valuable national resources. As becomes clear in Chapter 3, one impetus for both
the NDB and the AIIB comes from concerns among policymakers in China and the other BRICS over the costs
associated with arranging for themselves protection from the volatile capital flows that had been associated with
financial globalization since the early 1980s.
Conceptualization of large foreign exchange reserves as an international financial power capability is, of course,
controversial. As is frequently observed, not only are such reserves expensive (in terms of foregone opportunity
costs to invest in higher-yielding foreign assets, for example), but they also create vulnerability for their holder.
While the U.S. dollar surely would tumble were China to decide to unload a large quantity of U.S. public debt
securities, a fall in the international value of the U.S. dollar would impose an equivalent reduction on the value of
Chinese government savings, which would then be worth that much less in terms of what they potentially could
purchase in world markets. The straightforward conclusion, thus, is stalemate: So long as China owns large dollar
holdings, both the United States and China have a strong incentive to maintain a high value for the U.S. dollar.
However, the underlying shifts in various trade, financial, and monetary capabilities just detailed—beginning with
the expanding share of the global current account surplus held by emerging powers (notably China, but also the
other BRICS countries)—are continuing. Both the United States and Britain demonstrate the international profiles
of declining financial and (eventually) declining currency great powers, while China boasts the profile of a country
likely to increase its global financial and monetary weight.137
However, the final column of Table 2.6 suggests that China’s hour of currency dominance has not yet arrived:
for the moment, the U.S. dollar remains the clear preference of central bank governors worldwide. If one examines
only allocated reserves, it is apparent that the share of the U.S. dollar has shrunk somewhat over the nearly two
decades covered by Table 2.5, falling from about 68 to 63 percent of the global total, while the percentage of
allocated reserves held in the form of the euro, pound, and yen has increased slightly, to 33 percent. As of 2013,
the G5 currencies accounted for 96 percent of all allocated foreign exchange holdings, with the currencies of other
advanced industrial countries, including Canada, Australia, and Switzerland, making up most of the remainder. As
of that date, official foreign central bank holdings of the currencies of any of the BRICS were negligible. Thus,
arguments that the monetary dominance of the United States and other Western powers should continue well into
the future would seem to have the weight of evidence behind them. Still, it is worth noting that the share of total
official reserve assets whose allocation by currency is reported to the IMF has been dropping steadily over time,
suggesting that the actual share of the U.S. dollar in total international reserve holdings is increasingly opaque.
TABLE 2.7

Rankings of G7 and BRICS Global Financial Centers

GFCI 19 GFCI 14 GFCI 1 Xinhua-Dow Jones 2014

2016 2013 2007
BRICS Rank Rating Rank Rating Rank Rating Rank
Hong Kong 4 753 3 759 3 684 5
Shanghai 16 693 16 690 24 576 5
Shenzhen 19 688 27 660 … … 15
Beijing 23 682 59 598 36 513 9
São Paulo 43 639 38 643 … … 35
Rio de Janeiro 44 637 31 654 … …
Mumbai 42 640 72 570 39 460 24
Moscow 67 611 69 580 45 421 33
Johannesberg 51 628 61 592 … … 34
G7 Top 5
London 1 800 1 794 1 756 2
New York 2 792 2 779 2 760 1
Tokyo 5 728 5 720 9 632 3
Paris 32 667 29 656 11 625 7
Frankfurt 18 689 9 702 6 647 8
Xinhua—Dow Jones International Financial Centers Development Index (2014), National Financial Information
Center Index Research Institute, Standard and Poor’s Dow Jones Index Co. (November 2014). Global Financial
Centres Index 19, GFCI no. 14, and GFCI no. 1, Long Finance Z/Yen Group (April 2016).

Table 2.7 shows a final way to conceptualize the importance of the BRICS in global financial markets. It
compares two rankings of international financial centers: the first derived from the London investment research
organization Z/Yen, which bills itself as a “commercial think tank,” and the second a joint project of China’s
official government news service, the Xinhua News Agency, and the U.S.-based Dow Jones Corporation.138The
Xinhua-Dow analysis for 2014 ranked Shanghai and Hong Kong as tied for the fifth most important global
financial center, an assessment based on judgments about future growth potential, as well as possession of high
scores in confidence, capital attraction, financial innovation, and investment attraction ratings, whereas European
cities, such Stockholm, Geneva, and Copenhagen, have fallen sharply in the rankings.
Similarly, the Dow Jones Global Financial Centres Index (GFCI) considers major cities in three of the BRICS—
China, India, and Brazil—in the top fifty international financial centers, while Johannesburg (ranked 51) and
Moscow (ranked 67) lie just outside this charmed circle. Outside the top ten rankings, where the United States and
Europe are still featured prominently, European international financial centers are declining, while North American
and Asian financial centers are rising, underscoring the other results reported in this chapter. By comparison,
BRICS financial center cities, except for Moscow, are either stable or rising. Russia dropped five places from 2013
to 2014, reflecting the negative impacts from international sanctions and monetary and financial volatility.
This section has argued that the major advanced industrial countries, especially the United States, remain
dominant in quantifiable financial and monetary indicators, at least according to the major publicly available data
sources, the timeliness of whose numbers unfortunately lags that of proprietary financial data sets by several years.
There are reasons to suggest that this scenario may change in the future. The chapter’s fifth major section, next,
shifts to considering very recent evidence about gains being made by China’s RMB (also known as the yuan and
the redback).

REDBACK RISING

Although economists debate whether the RMB is destined to be a leading regional or global currency, there is no
doubt from multiple indicators that, to quote Steven Liao and Daniel McDowell, the “redback is rising.”139 The
internationalization of the RMB is a combined process of a naturally forming market and Chinese government
policies, or what Liao and McDowell term a progression that involves both “supply and demand.”140 This
evolution first includes the use of the RMB as a trade currency. The RMB is now the third-most-used trade invoice
currency, reflecting the notion that demand should correlate with the largest share of global output, tradable goods,
and assets.141 Second, China has generated the means for investment exchange to take place by introducing
currency swap lines and developing the offshore market. Third, until recently, China had been releasing controls
on both inward and outward investment flows as a means to begin aligning onshore and offshore markets and open
up the capital account. Although the RMB is now convertible on the current account, the trend toward relaxed
controls on the capital account has been reversed, at least temporarily, to prevent Chinese residents and companies
from sending money out of country, accelerating a decline in the dollar-value of the RMB since 2014.142
China is now the world’s second-largest economy (and its largest in PPP terms) and the dominant trading nation,
with volumes of about $4 trillion in imports/exports. China also provides increasing amounts of outbound foreign
direct investment (OFDI), and is using its expanding trade and monetary strength to integrate the RMB into the
global financial system. By the end of 2015, about 30 percent of China’s trade was settled in RMB, up from 8
percent in 2012 and zero in 2010. In addition to its use in cross-border trade and financing, the RMB was in fifth
place among all currencies for use in international payments and foreign exchange trading.143 In 2015, HSBC
estimated that the use of RMB as a trade payments currency would soar to over 50 percent of China’s total trade by
2020.144 About 60 percent of China’s OFDI is now denominated in RMB, up from 15 percent in 2013; and in
2014, China’s OFDI surpassed its inbound nonfinancial FDI. Some experts even forecast that by 2020, China may
rise to become one of the largest global cross-border investors, with offshore assets tripling from $6.4 trillion to
almost $20 trillion.145
The RMB’s role as a payment currency was increasing for clearance and settlement of cross-border financial
transactions, but downward pressure on the RMB and tightening capital controls have taken a toll. According to
statistics from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the RMB overtook the
yen during 2015 to reach the fourth spot among the world’s most used payment currencies. Subsequently, the RMB
and the yen fell back to fifth and sixth place, respectively, just behind the Canadian dollar, with a share of 1.9
percent. As recently as 2011, SWIFT had ranked the RMB only seventeenth in its table of world currencies.
Nonetheless, recent real increases were notable, not just in Asia, where the RMB has made inroads as a payments
currency, but also in Europe, where Germany’s usage rose by 151 percent and Sweden’s by 1,050 percent between
mid-2013 and January 2015, though the euro still ranks ten times higher.146
China has made significant investments around the world, including in the G7 countries, such as the United
States, where annual Chinese FDI tripled in 2016 to $46 billion, often through M&A of existing firms.147 Yet
China has not lost its principal focus on Asia, recently through the OBOR initiative where the use of the RMB is
higher, reflecting China’s dual ambitions of becoming the leading economy in Asia, as well as a global maritime
power.148 Whether these snapshots of a moving target are just the tip of the iceberg is difficult to know. There is
still a large gap between the RMB, accounting in August 2015 at a high of 2.79 percent of global payments, and
other major currencies, with the U.S. dollar accounting for 44.8 percent and the euro for 27.2 percent.
Eventually, such developments could diminish the dominance of the U.S. dollar, particularly in two of the three
important functions of money: as a medium of exchange and a unit of account. For example, the U.S. dollar is used
for 43 percent of cross-border payments on the SWIFT network and 86 percent of trade finance, even though the
U.S. economy is only involved in less than 15 percent of global trade flows. Of the 70 major raw material price
series (tracked by the IMF), only five are not denominated in U.S. dollars. Some 53 percent of international bank
borrowing is financed in U.S. dollars, and around 64 percent of identified official foreign reserves are held in U.S.
dollar assets.149
Whether these developments will have larger geoeconomic ramifications depends on whether other factors
discussed at the beginning of this chapter will also cause the greenback to slide from its dominant position. Some
political economists contend that there is only an economic, not a political, gain from invoicing in the home
currency and that a larger role for the RMB at the expense of the U.S. dollar, if that develops, will increase
transaction costs and diminish rents, but not affect U.S. autonomy or policy influence.150 Even if they are wrong,
China’s leaders seem inclined to try to achieve this, and according to Cohen, “its ambition to ‘manufacture’ a top
currency seems nakedly clear.”151
It is not simply that “great powers have great currencies,” as Robert Mundell observed.152 Rather, as Barry
Eichengreen argues, “It is not obvious why the dollar, the currency of an economy that no longer accounts for a
majority of the world’s industrial production, should be used to invoice and settle a majority of the world’s
international transactions.”153 The BRICS seek a diversified system of multiple reserve currencies. However, the
third role of international money, as a store of value, is the area where the RMB falls short the most.154 China’s
capital account is not yet sufficiently liberalized, and its financial markets are not yet sufficiently deep and liquid
or anchored in a transparent rule of law system that breeds the trust that investors and other governments
demand.155
As the IMF’s inclusion of the RMB in SDRs and these other developments show, China’s currency does not
need to become fully convertible first for internationalization to progress. Premier Li Keqiang reemphasized in his
March 2015 report to the National People’s Congress that “China will achieve renminbi convertibility under the
capital account.” Meanwhile, People’s Bank of China (PBOC) governor Zhou Xiaochuan later said that China is
committed to liberalizing its capital account but plans a “concept of managed convertibility” instead of the
“traditional concept of being fully or freely convertible,” suggesting some uncertainty about how far the
government is prepared to go in loosening controls over the RMB.156 Regardless of the details, it is premature to
look to the RMB as a serious global challenger to the U.S. dollar as a safe-haven currency.
These processes and institutions for expanding the roles of Chinese currency have intertwined domestic and
international objectives, but not smoothly.157 Battles in China between reformers and supporters of Chinese-style
state capitalism also reflect concerns about political risks and party control. This is especially so as the economy
shifts more to the private sector and increases scope for consumption, and the authorities reduce wasteful
investment, unwind local government debt and shadow banking, and transition to a more modern, sustainable
development path.158 Reducing the state control of the financial sector goes hand in hand with rebalancing, which
allows greater market influence in determining the value of the currency. In turn, this process lays the foundation
for China to own a major international currency and become a global player in international finance.159 The bumps
and shocks in the road are numerous, as evidenced by the Chinese authorities’ struggle to reduce capital controls
when outflows surged over recurring fears of currency devaluation.
Although the other BRICS have supported the international use of the RMB and an expansion of SDRs with
emerging market currencies, the IMF’s decision to include the Chinese currency as a reserve has stimulated some
competitive envy. Many experts and commentators in India, observing the rise of the redback and China’s
lobbying for it to join the SDR basket, have become energized to dream about the day when the rupee also
becomes a major global currency. Raghuram Rajan, then-governor of the Reserve Bank of India (RBI), discounted
any “big bang,” suggesting that internationalization of the rupee would be an incremental process over many years.
However, India is already moving to settle bilateral deals in rupees, developing its own currency swap agreements,
and encouraging foreign investors to buy Indian bonds. The RBI has also relaxed rules for firms to issue rupee-
denominated offshore debt, creating a market for so-called masala bonds (not without disputes over pricing and
taxes) that mimics China’s initial use of panda bonds. Although India faces its own share of obstacles to overcome
and differs from China, which industrialized its economy with an undervalued exchange rate, the logic of financial
market development and FDI should also follow from its large and growing economy.160
Secure in its leading position among the BRICS, the Chinese government has steadily promoted the RMB’s
international use by helping to increase the liquidity or currency availability and ease of use through offshore
centers approved to clear transactions. By the middle of 2015, the PBOC had signed currency swap agreements
with authorities in 33 countries and regions and the European Central Bank, reflecting the fact that the European
Union’s second-largest export market is China. With specific reference to the BRICS, China has supplemented its
bilateral RMB swaps with a BRICS’ CRA, to which, as explained in Chapter 3, China has contributed the largest
initial commitment of $41 billion.
 Two additional institutional bases for wider international use of the RMB are the introduction of a new Chinese
international payments system and the expansion and reform of quotas for investing in China’s local-currency
equity market (i.e., the RQFII quota). In October 2015, China launched in a phased roll-in of its own international
payment system—the Cross-border Interbank Payment System (CIPS), substantially in accordance with
international standards, but run by the authorities in contrast to similar systems operated by private actors.
According to Ma Jun, the PBOC’s chief economist, the entire cross-border RMB settlement framework is expected
to “inevitably stimulate greater renminbi demand from market participants.”161
Reportedly, Russia has piloted its owns rudimentary variant of CIPS, but in a sign of future links, in March 2016
the second-largest Russian bank joined other foreign banks to connect to CIPS while remaining linked to SWIFT,
given the former’s still limited hours of operation. The same month, CIPS and SWIFT, which is an interbank
communications system (not a payments system) that rapidly shares financial information between financial
institutions globally, agreed to collaborate in their respective roles. If CIPS adopts full international standards and
acquires the functionality necessary to reduce operational risk and achieve efficiency levels equivalent to advanced
competitors, such as the New York–based Clearing House Interbank Payments System (CHIPS) that daily supports
about $1.5 trillion in payments, its usage could expand to its trading partners worldwide. Some experts also
suggest that the Chinese government seeks greater autonomy and eventually to create its own dedicated messaging
line to operate outside of SWIFT, which is operated by U.S. and European banks. All the BRICS (especially
Russia) share China’s concerns about their vulnerability to the United States using its financial and monetary
power to sanction other states and spy on them using payments systems that can be accessed by U.S. intelligence
agencies, according to National Security Agency (NSA) documents leaked by Edward Snowden and other
experts.162
Finally, RQFII, China’s program of quotas, gives another indicator of progress in capital account opening. These
have been increased in total size and extended to new offshore centers beyond Hong Kong, in Europe, and in other
regions, including Western countries such as Britain, Germany, Singapore, France, South Korea, and Canada. In
June 2016, Beijing also belatedly granted U.S. asset managers a $38 billion quota to invest in RMB-denominated
Chinese securities (the second largest, and only slightly smaller than Hong Kong’s).
As noted at the beginning of this section, all the BRICs recognize that there is a trade-off between the security
that comes from holding large war chests of unproductive foreign reserves and deploying that capital in profitable
investments that may also serve their geoeconomic ambitions. China is the BRICS’ largest creditor and has a
strong positive net international investment position. At the end of 2016, China’s banking system also surpassed
the Eurozone’s to become the world’s largest banking system by assets, with $33 trillion compared to $31 trillion
for the Eurozone and $16 trillion for the United States.163 China’s financial rise, however, paradoxically also
reflects its over-reliance on bank-financed investment and masks perilous debt levels. Moreover, because it is also
long on low-yielding foreign government debt securities while short in equity, it is losing tens of billions of dollars
from the lower rates of return on its overseas assets. Given that total bank credit as a percentage of GDP has been
at least three times larger than China’s stock market capitalization (the reverse of what it is in the United States),
the authorities have strong incentives to continue opening the capital market and developing the financial services
sector. Combined with China’s other initiatives, OBOR, AIIB, the NDB, and Chinese sovereign wealth funds
(SWFs), as well as the shift to open access to its equity and bond markets, the preoccupation with a conservative,
defensive, low-yield position seems to be shifting to the deployment of capital for high economic and geopolitical
returns regionally and globally. If profit, growth, and influence are indeed important motivations, outside observers
will see China’s leaders feel their way across the stones in the river, balancing domestic and international risks, to
reach the other side.

CONCLUSION

This chapter has assessed several dimensions of the global power shift currently underway, in which the post–Cold
War unipolar period of unquestioned U.S. dominance is beginning to give way to an eventual multipolar, or
bipolar-multipolar, global interstate system, with the United States and a rising China significantly stronger than
other traditional regional great powers. The discussion began with a brief review of traditional international
relations debates about the proper conceptualization of a national “power.” A state’s power may be understood as
derived from its ability to pressure or persuade another country to alter its previously chosen course of action
(power as influence) or from its institutional, normative, or system-governance position and resources that allow
the powerful country to set agendas and otherwise shape the environment within others may act, whether they
recognize it or not (structural power). Despite the value of these more sophisticated articulations, it is nearly
impossible to assess the extent of a rising country’s power without recourse to the third major conceptualization
(power as relative capabilities). Consequently, the chapter’s second section examined the distribution of economic
capabilities, noting both the comparative size of national economies and their growth rates, and contrasting the
incumbent G7 powers on the one hand, to the BRICS club on the other. The data demonstrate an unambiguous
relative advance of the BRICS vis-à-vis the G7, although this primarily reflects the relative rise of China, and
eventually of India, and the comparative decline of Western Europe and Japan.
If material capabilities only represent potential power, then does the enhanced economic weight of the BRICS,
as a club and individually, actually imply a shift toward global multipolarity? Section three of the chapter reviewed
some complications of translating economic capabilities into actual influence. All the BRICS have increased their
military expenditures, although Brazil and South Africa less so given their less conflict-prone locales, but several
members, especially China and Russia, also have been eager to expand their regional geopolitical dominance.
However, the BRICS club is not a military alliance, nor does it have any potential whatsoever to become one: in
this sense, the BRICS as a group does not pose a security challenge to global stability.
The picture of shifting capabilities is more mixed when one turns to the global distribution of financial and
monetary resources and their future implications, the subjects of this chapter’s fourth and fifth sections. As
compared to their positions in the late twentieth century, today the BRICS individually and as a group have deeper
and more sophisticated domestic banks and capital markets, more openness to international trade and financial
flows, and greater relative importance as issuers and purchasers of global financial assets. Nonetheless, the global
diffusion of financial capabilities and the shift of reserve currency and other monetary capabilities toward China in
particular lag the massive swing in its relative economic capabilities. Despite its impressive advance as a currency
for trade invoicing and its recent inclusion in the IMF’s unit of account (the SDR), China’s RMB remains
relatively unimportant as a global reserve currency. At the same time, China’s government, particularly under
President Xi Jinping, has committed itself to work actively to enhance and expand its international monetary and
financial reach. The OBOR initiative to upgrade infrastructure serving about 75 percent of the world’s population
is another example of China’s big ambitions, which could boost economic interdependence and the use of the
RMB if it is successful. It also will unavoidably give China advantages in the competition over spheres of
influence with its BRICS partners India and Russia.164
Overall, the findings of this chapter suggest that China is rising, and so are the BRICS as a collective entity, at
least in the economic, and subsequently in the financial, sphere. If they remain able to hang together (a question
addressed in Chapter 4), then the BRICS eventually might possess the necessary capabilities to challenge U.S.
global economic and financial leadership and the Bretton Woods order. China especially has the potential to catch
up to the United States in some dimensions of power.
Moreover, China and the BRICS do not need to equal the United States and the West to be able to increase their
influence, deny certain outcomes preferred by the United States, and generate disruptive changes in the status quo.
Given their increased capacities, notably Chinese financial heft, the BRICS already possess the resources to act
independent of the United States and Bretton Woods institutions such as the IMF in what Setser calls “financial
coalitions of the willing.”165 But they still fall far short of structural power. Absent a rise of the RMB as a genuine
alternative to the U.S. dollar, inertia and incumbency, as well as the current weakness of potential alternatives,
benefit continued U.S. dollar dominance. Thus, it is at best premature to look to the RMB as a serious global
challenger, let alone a safe-haven currency, absent very significant liberal institutional reforms.166
Despite the emphasis throughout much of this chapter on the interstate distribution of material capabilities,
perceptions of state power are not irrelevant. The Chinese repeatedly stress that they see the United States as
weaker and themselves as stronger since the global financial crisis.167 Meanwhile, the Donald Trump
administration in the United States has signaled uncertainty about the web of post–World War II U.S. treaty, trade,
and global governance commitments, despite subsequently reversing course to embrace inter alia NATO, selective
trade deals, the Export-Import Bank, and the idea that China is not a currency manipulator, but instead potentially
a valued partner. As the data presented here show, although the United States and its allies combined remain
predominant, the objective capabilities of the Western allies in Europe and Japan are relatively declining and/or
under stress, as in the case of the euro. As will be discussed in Chapter 3, this shift in capabilities puts these major
U.S. allies out of line with their current institutional positions in the international order. The United States retains
dominant structural power, but the rise of the BRICS shows that new competitors will seek to counteract American
influence as much as possible.
BRICS Collective Financial Statecraft

FOUR CASES

GIVEN THEIR RISING capabilities and similar frustrations with the existing
system, the emerging economic powers of the BRICS (Brazil, Russia, India,
China, and South Africa) are bound to affect global economic governance,
whether individually, as in the case of China, or collectively. Many scholars
and policymakers have been skeptical that this eclectic group of five,
dispersed around the world only to be bound by the imagination of a
Goldman Sachs economist, could create an effective coalition.1 As evidenced
in the following discussion, the BRICS governments have achieved
discernibly successful collective actions in their financial statecraft to further
common foreign policy goals over the past decade.

DEFINING COLLECTIVE FINANCIAL STATECRAFT

International financial statecraft is defined as a national government’s use of

monetary or financial regulations, policies, or instruments to achieve foreign
policy ends.2 Most analysts of financial statecraft begin with a set of
assumptions about how the topic should be defined (see Table 3.1). Five
assumptions in the traditional conceptualization of financial statecraft are as
follows. First, the agent, or initiator, is assumed to be an individual state,
either acting alone or becoming the main mover behind a coalition of like-
minded states. Second, the target is similarly assumed to be an individual
state. Third, the purpose of the action is assertive or offensive on the part of
the agent, and the means employed are coercive.3 Fourth, given these
preceding assumptions, it is clear that the traditional financial statecraft
literature conceptualizes power principally as influence, in which one state
attempts to compel another to alter its previously determined course of
behavior. Finally, it follows from all five of these standard conceptualizations
that the agent-state necessarily will be a hegemon or major power, as less
capable states have little hope of exercising such influence.
TABLE 3.1

Conceptualizing International Financial Statecraft

Dimension Traditional Expanded Conceptualizations

Conceptualization
Agent Individual state Group of states acting jointly
Target Individual state Group of states
Social system within which states
interact (e.g. multilateral
institution, global regulatory
regime, or global market)
Means Offense (via Positive inducement or persuasion
coercion) Defense (via protection or
substitution)
Understanding Influence Autonomy; structural power
of “interstate
power”
Agent redux Major power Rising or intermediate power(s)

Each dimension of the traditional conceptualization of financial statecraft

may usefully be expanded. The agent may be either an individual state, or a
group of states. The target may be an individual state, a group of states, or a
social system within which states interact, as within a multilateral institution
such as the International Monetary Fund (IMF), a global regulatory regime
such the various Basel bank regulatory committees plus their wide
transnational networks, or simply global markets themselves. The means for
achieving state goals via financial and monetary statecraft are not necessarily
offensive and coercive. They also may be actively directed outward toward
others while employing inducement or persuasion.4 For example,
inducements may include subsidized sovereign lending, as well as the offer
of membership in prestigious financial regulatory clubs, such as the Financial
Stability Board (FSB) or Basel committees. Persuasive financial statecraft
occurs whenever national policymakers attempt to convince their foreign
peers to adopt a particular view on a contested international financial issue,
such as capital controls or trade in financial services. Of course, developing
countries often have perceived (sometimes correctly) the policy advice
offered by the multilateral financial institutions as constituting coercive
economic statecraft engineered by the system’s financial hegemon, which
would like to lock in the advantages provided by a particular regulatory
framework favorable to itself.5 In an expanded conceptualization, financial
statecraft may be employed not only for offense; it also may be used for
defense. For example, the agent-state (or a group of states) may alter its
domestic actions or regulatory profile in order to protect itself from an actual
or perceived threat from abroad, as by introducing capital controls. As with
other forms of statecraft, the “security dilemma” may apply: when status quo
states take defensive moves to protect themselves but this behavior cannot be
distinguished from offensive actions, the result may be an inadvertent
escalation spiral and less security instead of more.6
The fourth row of Table 3.1 notes that the traditional conception of
financial statecraft assumes that the agent-state is seeking influence.
However, this book’s more inclusive definition of financial statecraft can
accommodate other conceptualizations of state power as discussed in Chapter
2, including power as a defensive search for autonomy or structural power in
international institutions or market systems. The fifth row returns to the
identity of the agent-state. Once one allows for collective or defensive actions
or for financial statecraft carried out through attempts to induce or persuade,
it is clear that rising and middle powers, as well as major powers, will be able
to engage in this type of foreign policy activity.
This book examines the collective financial statecraft of a group of rising
powers, and includes four types of cases, which vary along two analytical
dimensions, yielding four basic categories of collective financial statecraft
employed by the BRICS vis-à-vis the incumbent powers. The first dimension
of collective financial statecraft, represented horizontally in the table,
distinguishes between two types of action. The insurgent or rising states may
engage in “inside reforms,” or instances of joint pressure aimed at altering
existing structures and systems dominated by the status quo powers by
working within established confines. Alternatively, dissatisfied states may
instead use collective financial statecraft to exercise their “outside options”
by constructing new and competing structures and systems, with de facto or
de jure rules and procedures more attuned to the rising powers’ preferences.
The second or vertical dimension in the table demarcates two types of venues
for collective financial statecraft, which may focus on either international
“institutions” or global “markets.” Both institutions and markets may be
subject to attempts by states employing financial statecraft to execute either
inside reforms or outside options.

FOUR CATEGORIES OF COLLECTIVE FINANCIAL STATECRAFT

As Chapter 2 shows, the major emerging powers in recent years, prominently

including the BRICS, have risen quickly in their relative financial and
monetary capabilities, becoming significant new players in the postwar
global economic order established by incumbent major powers. Because the
postwar liberal economic order reflects the preferences and voices of those
incumbent powers, policymakers in these rising powers hope to see their own
capabilities and preferences better reflected in the prevailing global order by
challenging its important aspects.
Collective international action, principally through the club mechanisms
discussed in Chapter 1, has been one means of pursuing the overlapping
goals of the individual BRICS states. BRICS governments discovered focal
points for their common interests during transgovernmental meetings of
senior officials from the BRICS countries. BRICS collaboration has included
ministers and deputy ministers of foreign affairs, finance, economy, and other
government departments unrelated to financial and economic matters, as well
as the sherpas and sous-sherpas. Together, they coordinated common
positions on a range of issues concerning the four cases recounted in this
chapter. The evidence of their collaboration is found in ten years of joint
communiqués and other public statements by leaders and officials, as well as
interviews of officials conducted by scholars. During Russia’s chairmanship
of BRICS in 2015–2016, for example, over ten ministerial and about twenty
expert meetings and other events were scheduled. At the 7th BRICS Heads of
State Summit in Ufa, Russia, the official declaration included seventy-seven
summit items.7 Under the 2016 Indian sponsorship of the BRICS Summit in
Goa, there were ninety-five events, and the Goa declaration boasted 110
agenda items for the 8th BRICS Heads of State Summit.
When the BRICS reached common or overlapping positions, they seized
the opportunity to bargain with their American and G7 counterparts. These
encounters were usually on the sidelines of the meetings of multilateral
organizations or in the G20 setting after that group was elevated to become
the top global economic governance steering group in 2008, during the global
financial crisis.8 The BRICS governments also coordinated on their own to
develop and exercise outside options, notably the creation of their own New
Development Bank (NDB), and Contingent Reserve Arrangement (CRA).
Even as it compromised with its BRICS partners on the organizing principles
of the NDB, China also opted to exercise its own outside option to create a
bank in which it would be the indisputable leader, the Asian Infrastructure
Investment Bank (AIIB). Seeking support from both the major Western
powers and its BRICS partners, China invited two of its fellow BRICS
partners, India and Russia, to be the leading shareholders in the AIIB, after
itself, followed by major European powers and other countries, including
Brazil.
This chapter examines four cases in which the four (through 2010) and
later five BRICS governments attempted to coordinate the international
financial statecraft of their respective national governments, 2008 to mid-
2016. The cases were selected on the basis of two criteria. First, as a set, they
represent each of the four types of collective financial statecraft summarized
in Table 3.2. Second, the financial statecraft actions taken in these cases are
substantive and nontrivial “hard tests” of the proposition that BRICS are a
club pursuing its members’ shared interests, as opposed to a merely rhetorical
or symbolic group incapable of sustained significant collective action.9
Successful collaboration in any of these collective financial statecraft actions
over the medium run demonstrates a significant bid by the BRICS to
influence the rules, norms, and distribution of influence in global financial
governance or markets.
The cases do not constitute a representative sample of the universe of all
possible international financial interactions among these states in this time
period, in which circumstance the chapter also might have included notable
failures to collaborate. The last section of this chapter briefly considers some
of the most important instances of noncollaboration in collective financial
statecraft to probe the scope of the larger universe of cases that may be useful
to investigate in future research. A second research design challenge is the
ongoing nature of the cases, which implies that the current level of
“successful” BRICS cooperation in these cases could change. Some cases,
such as the creation of the NDB, represent relatively recent initiatives, while
others, such as IMF reforms, represent more long-standing common
concerns.
TABLE 3.2

Varieties of Collective Financial Statecraft: Types of Actions and Venues

Type of Action Related to the Incumbent Powers

Venue for
Action Inside Reforms Outside Options
Institutions Join and reform Create new multilateral financial
existing global institutions
governance
institutions
Markets Resist dominant Promote a new distribution of
states’ use of market financial market and monetary
power for their power to challenge incumbent
political aims powers’ dominance

One may locate the concrete cases of the BRICS collective financial
statecraft in the four cells of Table 3.2. The upper-left cell represents inside
reforms of existing institutions currently dominated by the incumbent
powers. Case 1 examines collective efforts by the BRICS to reform the IMF
and World Bank, with an emphasis on the former. The lower-left cell
corresponds to inside reform options for influencing the non-market benefits
accruing to states from their market position, including resisting the efforts of
dominant states to employ their market-based financial or monetary power
for political ends. Case 2 shows the BRICS joining together to oppose
Western financial sanctions on Russia over the latter’s intervention in
Ukraine. The table’s upper-right cell illustrates the situation of countries
exercising their outside option to create new institutions or instruments, as in
Case 3, the BRICS’ decision to establish the NDB and CRA as parallel
financial and monetary institutions run by and for the BRICS and other
developing or emerging economies. Finally, the lower-right cell showcases
outside options to influence the shape of international markets. The primary
case (Case 4) discusses collective BRICS efforts to challenge U.S. dollar
dominance in the global monetary order by group support for China’s efforts
to promote the enhanced use of the Chinese renminbi (RMB) for
international transactions.
Other examples of activities that would fit in our fourth category include
nascent efforts to support parallel structures to existing Western dominated
payment, clearing, and settlement systems, such as their proposed
counterparts to the Society for Worldwide Interbank Financial
Telecommunication (SWIFT), in the event that the advanced industrial
countries cut access as part of sanctions. The BRICS have also agreed to
evaluate the merits of establishing their own credit rating institutions to
compete with those dominated by the United States, such as Moody’s
Investors Service and Standard & Poor’s (S&P), which together control 80
percent of the global market. Importantly, at the Goa BRICS Summit in 2016,
strong interest in this initiative was tempered by concerns over its
“credibility” and access to “dependable data.” The BRICS governments then
tasked their experts group to examine the possibility as part of their “action
plan,” while the official Goa declaration underscored that “setting up an
independent BRICS Rating Agency” would have to be “based on market-
oriented principles, in order to further strengthen the global governance
architecture.”10

INSIDE REFORMS: THE BRICS QUEST FOR GREATER INFLUENCE WITHIN THE IMF AND
WORLD BANK (CASE 1)

The BRICS have pursued inside reforms of the Bretton Woods institutions
via pushing for enhanced “chairs and shares,” calling for an openly
competitive process for leadership (or at least assured positions for
themselves), and for policies and economic ideas less biased toward U.S. and
Western preferences. These provide the first case of BRICS cooperation in
financial statecraft, illustrating the upper-left cell in Table 3.2.

The Battle over “Chairs and Shares” in the International Financial

Institutions
The IMF and the World Bank have been guardian institutions for the global
economic and financial governance regime led by the major incumbent
powers throughout the last seventy years. Dating from the end of World War
II, they were established by the Allies in hopes that creating stronger and
more stable international economic ties would help prevent future economic
crises and wars. The governance structure of both institutions reflects the
global interstate power balance of the early postwar decades. Chapter 2
documents how significantly the major West European countries have been
declining in their percentage shares of the world economy in recent decades
relative to faster-growing emerging economies. Even when viewed from the
slightly better European Union (EU) perspective, this power shift has
rendered European countries overrepresented in global governance
institutions, making them the main target of would-be reformers from the
BRICS. Figures 3.1 and 3.2 show the BRICS, G7, and EU quota shares in the
IMF relative to their respective shares of world gross domestic product
(GDP), first in market exchange rates (MER) and second in purchasing
power parity (PPP). In both measures, the EU countries are overrepresented,
while the still-dominant United States is underrepresented in market rates and
slightly overrepresented in PPP terms. In these graphs, 1 equals fair value,
while ratios greater than 1 signify overrepresentation and ratios less than 1
signify underrepresentation.

Ratio of IMF Quota Shares (%) to Share of World GDP (MER, %):
FIGURE 3.1
BRICS, G7, and EU, 2005–2020
Source: IMF World Economic Outlook, April 2016 update; C. Roberts
calculations.
 Ratio of IMF Quota Shares (%) to Share of World GDP (PPP, %):
FIGURE 3.2
BRICS, G7, and EU, 2005–2020
Source: IMF World Economic Outlook, April 2016 update; C. Roberts
calculations.

Figure 3.3 shows the actual BRICS, G7, and EU quota shares relative to
the 60:40 GDP blend of market rates and PPP used in the current IMF
formula. The shares are charted chronologically through three quota reforms
implemented by the IMF from 2006, through the 2008 reforms (implemented
on March 3, 2011), to the most recent package meant to implement the 14th
General Review of Quotas, which was endorsed by the G20 in Seoul in
November 2010, belatedly approved by the U.S. Congress in December
2015, and implemented by the IMF on January 26, 2016. As Figure 3.3
reveals, the BRICS’ combined economic size, of which China’s GDP (PPP)
was 55.8 percent of the whole (67.8 percent at market exchange rates), has
rocketed up in recent years, while adjustments in BRICS quota shares have
moved from only 10 to 15 percent of the total. By comparison, the EU
percentage of the total shares has dropped by only about 3 percent of the
total. The fact that the advanced industrial powers as a group are
overrepresented is an issue that long has rankled developing countries.11
FIGURE 3.3 GDP Blend and IMF Quota Shares: BRICS, G7, and EU, 2005–2020
Source: IMF World Economic Outlook, April 2016 update; C. Roberts
calculations.

The 14th General Review, finally implemented in 2016, marks an

important readjustment of these imbalances, but many emerging economies
believe that it does not go far enough. It shifts more than 6 percent of quota
shares from overrepresented to underrepresented member countries, and more
than 6 percent of quota shares to dynamic emerging market and developing
countries (EMDCs). In the new realignment, China jumps from seventh to
the third-largest member country in the IMF, after the United States and
Japan, while Brazil, India, and Russia now rank in the top ten largest
shareholders.12 The same comparison of International Bank for
Reconstruction and Development (IBRD) shareholding to the blended 60:40
economic weighting in the current IMF formula shows that the underweight
examples from among the larger member countries include not only the
largest BRICS—China (at 33 percent of economic weight), India (72
percent), and Brazil (74 percent)—but also the United States (83 percent).13
Despite periodic adjustments, most recently as part of the 2010 reforms,
the United States still holds veto power with its 15 percent quota
(representing its share of capital subscriptions and votes) in the World Bank
and 17.41 percent quota at the IMF. Although the U.S. share has declined
over time, procedural rules in both institutions require a supermajority
(ranging from 70 to 85 percent) for major decisions, including approval of
adjustments in quotas, changes to the articles of agreement, and allocation of
Special Drawing Rights (SDRs), so as to allow a U.S. veto alone or with a
single partner.
In addition to the lags in adjusting voting shares over the past two decades,
emerging economies have challenged leadership appointments and the
distribution of “chairs” in the so-called “shares and chairs” negotiations. The
allocation of chairs, or country representation, through the current 24-
member Board of Executive Directors (EDs), which is authorized to
supervise IMF activities, has also involved considerations of politics and
power.14 In two important cases, this has worked to the advantage of the
BRICS, as China and Russia were given single-constituency seats elected by
their own governments when they returned to the Bretton Woods fold (see
Chapters 1 and 4).
Under the current rules (revised by the 14th General Review), the process
by which countries with the five largest quotas (at present the major Western
powers: the United States, Japan, Germany, United Kingdom, and France) are
able to appoint a member of the IMF Board is supposed to end. Eventually,
all EDs will be elected by more than one country. Also, by the time the quota
reform takes effect, the advanced European countries are supposed to lose
two of their nine chairs given their reduced position in the world economy.15
The other seventeen chairs are grouped in unbalanced constituencies under
elected EDs, whose fortunes involve some measure of bargaining, while the
member-states cannot form cross-constituency coalitions to vote together.16
Both shares and chairs are also determined by the formulas of key
indicators whose selection (or exclusion) and weighting have long favored
Western powers, given their traditional dominance in the international
distribution of power. However, the decline of Europe and rise of Asia, as
well as the emergence of the BRICS, are some of the factors that have caused
distributional conflict over informal rules such as formulas. For example, the
current formula allocates 30 percent to “openness,” or integration into the
world economy. It relies on a peculiar methodology supported by the
European Commission, which includes intra-European trade in the tabulation
of imports and exports. BRICS and experts from other countries have
criticized such practices, which have led to the bizarre result of smaller
European countries such as Belgium equaling the voting shares of large
emerging economies such as China.17 In general, the BRICS resist formulas
that privilege trade or financial openness or otherwise advantage countries
with more neoliberal policies. The IMF staff periodically engage in statistical
analyses of quota formulas for use by EDs in their periodic reviews of
existing quota formulas.18 In 2013, the staff completed a formula review, but
this did not yield agreement on a new formula. Hence, the deliberations were
deferred to the 15th General Review of Quotas, which IMF Managing
Director Christine Lagarde confirmed in 2016 would take place after the 14th
Review was implemented.19
The BRICS’ demands for quota reform to correct the skewed voting
balance in the IMF and the World Bank predated the global financial crisis
but acquired new urgency in its wake. The U.S. subprime mortgage crisis of
2007 became a global financial panic as it spread following the failure of
Lehman Brothers in September 2008, resulting in a vastly increased demand
for IMF loans, including in Europe.20 In early 2009, IMF Managing Director
Dominique Strauss-Kahn announced his hope that IMF resources could be
doubled, or even tripled, to reach $500 or $750 billion at the second G20
leaders’ summit scheduled for April. In mid-March 2009, the BRICS issued a
joint statement linking expanded contributions from them to increased votes
at the IMF and the World Bank. The “voice reform” at the World Bank,
whose process had been in place since 2003, achieved only modest success in
reallocating the voting shares of its three institutions, IBRD, the International
Development Association (IDA), and International Finance Corporation
(IFC), to the BRICS countries at the conclusion of the reform process in
April 2010.21 Meanwhile, the promised 2008 share redistribution at the IMF
did not materialize for three years, and negotiations for the 14th Quota
Review continued through 2009 and early 2010.
During the global financial crisis, the Federal Reserve Bank provided
discount window loans to create liquidity, bilateral currency swap lines with
foreign central banks, and quantitative easing, while the Obama
administration ensured IMF funding through the alternative New
Arrangements to Borrow (NAB). President Obama was also committed to
seeing the IMF get an increase in its total funding to deal with ongoing
repercussions of the crisis. For this reason, the United States pushed Western
European countries to agree to increase quotas for developing countries,
including the BRICS, partly at their expense.22 Finally, all countries agreed to
a 100 percent multilateral capital increase as part of the 2010 IMF package,
which also included a 3.3 percent quota reallocation away from the advanced
industrial countries and toward developing countries in the World Bank, and
a 6 percent readjustment between roughly the same groups in the IMF. China,
Brazil, Mexico, India, and other large emerging economies benefited the
most.
The 2008 Quota and Voice Reforms were finally implemented in 2011,
resulting in an ad hoc (one time only) shift of shares, with increases for 54
countries, including in the top percentage China, India, and Brazil among the
BRICS and South Korea, Japan, and the United States among the developed
countries. The top losers in percentage terms included the United Kingdom,
France, Saudi Arabia, Canada, Russia, Netherlands, and Belgium. As shown
in Figure 3.4, of BRICS countries’ quota shares over time, South Africa has
lost in every IMF reform since the Singapore agreement, decreasing 21
percent (from 0.8670 to 0.634). Russia declined from 2.734 to 2.386, but then
increased 8 percent in the 2010 package to rise to 2.587.23

FIGURE 3.4 GDP Blend and IMF Quota Shares: Individual BRICS, 2005–2020
Source: IMF World Economic Outlook, April 2016 update; C. Roberts
calculations.
 The 2008 ad hoc shift of shares still left Europe overrepresented, with
Germany, the United Kingdom, and France outranking China and Europe as a
whole in control of one-third of the chairs on the executive board. The
combined quota and voting shares of the EU members (including the United
Kingdom) declined from the 2008 packages of 31.9 and 30.9 percent to 30.4
and 29.4 percent, respectively, under the current 2010 package. Europeans
also agreed in 2008 to a reduction of two fewer board seats from advanced
European countries, but these could go to developing countries in Europe or
members of Euro-Atlantic institutions. Thus, Belgium’s chair was replaced
by Turkey.
Russia was unhappy about its slightly reduced position, so in 2008, it
abstained in the Council of Governors vote on the reforms. Moscow
continued to support collective BRICS positions strongly, but like Saudi
Arabia, it refused to support the 2010 deal unless the reallocation to
underrepresented countries in the IMF came at the expense of states other
than itself—namely, Europe’s advanced industrial democracies.24 On the
other hand, in the World Bank negotiations leading up to the 2010 provisional
deal, China chose to be generous, taking less than the additional quota that it
might have claimed due to its relative economic size.25
Throughout the long delays before reforms were approved and
implemented, the BRICS coordinated extensively, mostly on the sidelines of
the G20 and similar meetings of multilateral institutions.26 Although the
BRICS’ view of Europeans as a bloc in the IMF was somewhat exaggerated,
given they did not coordinate (let alone agree) on all important issues, club
dynamics were apparently more prevalent in the BRICS in this case than
among the incumbent powers, which benefited more from holding to the
status quo than the harder task of trying to build consensus to change it. The
degree of BRICS coordination varied from informal and ad hoc, such as
among EDs in the IMF, to more focused and concrete, at BRICS summits and
when senior ministers met at the G20 and on the sidelines of other
multilateral gatherings.27
This case also demonstrates how BRICS collaboration benefited from
quantitative analytical work done by experts both in BRICS governments and
in academia, working on proposals to revise the existing IMF formula for
determining quota shares to break the informal power of Western countries.
For example, prominent Russia economists from the Academy of Sciences
and the independent Russian Economic School (RESh) weighed in publicly
with their research and criticisms of the existing formula, which heavily
favored the Europeans and the incumbent powers overall. Russian Finance
Minister Anton Siliuanov dismissed it as not reflecting the real situation in
the world economy and creating blatant inconsistencies. Sergei Guriev, then
rector of RESh and currently chief economist at the European Bank for
Reconstruction and Development (EBRD), argued that the BRICS’ IMF
reform proposals are “not radical enough.” Guriev’s view, that “control rights
in the IMF should stay with the net creditors,” is widely supported in Russia
as a slap at the United States,28 although not universally in the BRICS, since
some members like Brazil are debtors while many Western economies like
Japan or Germany are creditors. IMF quotas, in this view, not only
overrepresent the West in proportion to their actual share of the global
economy, but also underrate creditors like China, which are needed to
increase funding to the IMF in the future. According to Gureiv, “if BRICS
cannot control how their funds are spent, they may simply refuse to increase
funding to the IMF in the future.”29
The formula review process, along with national research, reveals the costs
and benefits to members of different methodologies that they then can use in
advocating their respective positions. The current quota formula, which
replaced the previous five formulas in 2008, specifies four variables for
determining quota shares: (0.50 * GDP + 0.30 * Openness + 0.15 *
Variability + 0.05 * Reserves)^K (GDP is blended using 60 percent market
and 40 percent PPP exchange rates; K is a compression factor of 0.95).30 In
order to advantage incumbent powers against shifting economic capabilities,
the IMF also has an obscure clause in the rules that protects losers from
falling below a 30 percent floor in reallocations of quota shares.
But Russia’s argument on the quota found greater favor in the BRICS, as it
challenges the existing quota formula by reducing the weight given to the
level of openness of the economy (currently 30 percent), which favors
European countries, arguably unreasonably, while increasing the weight of
the country’s proportion of the world economy (currently 50 percent of the
total formula) and of official national reserves (5 percent of the total
formula). BRICS also realized that they would benefit from inverting or
equalizing the current ratio of 60 (market rate) to 40 (PPP) in the
determination of GDP, given the price differentials in developing economies.
PPP measurements increase the weight of developing countries, as their GDP
is much higher than when measured at market rates.31Figures 3.5 and 3.6,
which break down the BRICS’ IMF quota shares in these two measurements,
also show that South Africa is significantly overrepresented in market rates
and somewhat overrepresented in PPP, while the other BRICs have been
mostly underrepresented except for Russia, whose position has fluctuated
with its changing economic fortunes.

FIGURE 3.5 Ratio of IMF Quota Shares (%) to Share of World GDP (MER, %): Individual BRICS,
2005–2020
Source: IMF World Economic Outlook, April 2016 update; C. Roberts
calculations.
FIGURE 3.6 Ratio of IMF Quota Shares (%) to Share of World GDP (PPP, %): Individual BRICS, 2005–
2020
Source: IMF World Economic Outlook, April 2016 update; C. Roberts
calculations.

As the IMF debates changing the formula in the 15th Quota Reform, the
BRICS are gearing up to lobby in pursuit of their self-interests. Russian
economic research shows that giving greater weight to the country’s
proportion of the world economy and to international reserves will increase
the BRICS’ share more than what was achieved in the 2010 package of quota
reforms, where the combined BRICS share only rose from 10.71 percent to
14.8 percent. One calculation by prominent government experts shows that
an increase in the share of reserves in the quota calculation up to 30 percent,
while commensurately reducing the level of openness, leads to a total
increase in the BRICS quota to 25.41 percent. However, in this case, the
United States would lose its veto rights and European countries would see
their quotas reduced from 30.01 percent to 22.8 percent.32 The rest of the
BRICS have broadly supported approaches to changing the formula that
emphasize such factors.33 Western analysts have made similar observations,
and numerous studies have been written about the distributional effects of
reforming voting shares and formulas.34 Of course, if the BRICS’ economies
decline, these adjustments will be of little use.
 It is also worth noting that voting is rare in the IMF; decisions are usually
made by the practice of reaching the “sense of the meeting,” or consensus, as
determined by the managing director. This convention works to limit
accountability and transparency (unless summaries of positions are available)
and testifies to the prevalence of informal rules in U.S.-led governance
institutions. Western scholars also have noted that this practice has allowed
the United States “to veil its power through conventions that convinced other
countries that the rules of the game were reasonably fair or at least better than
no rules at all,” while still favoring those with greater power resources.35
In the aftermath of Washington’s ratification of the 14th Quota Reform, the
BRICS governments started emphasizing the need to accelerate the timeline
for the delayed 15th Quota Reform. Lagarde pushed a timeline of October
2017 for the next shareholding review in the IMF. Indian Prime Minister
Narendra Modi acknowledged that the long-pending quota revisions have
finally come into effect, but complained that “even now, IMF quotas do not
reflect the global economic realities.”36
According to Indian Finance Minister Arun Jaitley, a new quota formula
will enhance the voice, role, and voting shares of developing countries. On
the sidelines of the Spring 2016 meetings of the World Bank and IMF, Jaitley
also pushed for another review of the World Bank’s voting shares and for
additional concessional financing for infrastructure investment, almost
doubling its annual funding volumes. Further, he stated that the
representation of Indians in the top management of the World Bank should be
increased.37 In Hangzhou, China, at a BRICS meeting on the sidelines of the
G20 summit in 2016, Vladimir Putin approvingly noted that the combined
share of the BRICS was 14.89 percent, “coming close to the blocking
threshold of 15 percent,” but added that the countries needed to move further
in pushing IMF reforms.38

The BRICS as Creditors: Bargaining to Compel Reforms

It was to be expected that reforming the incumbent order would be difficult,
given the inherent distributional conflicts that arise with pressures for change
in governance institutions. Even when they collaborated, the BRICS had to
rely mostly on persuasion until they were prepared to exercise their outside
options (Case 3). Absent a credible threat to exit, even partway, the BRICS
did not possess sufficient bargaining power to compel others to share
leadership roles and give up privileges and positions—at least not until the
global financial crisis. At that time, the developed countries needed resources
for the IMF and looked to the BRICS and other large emerging economies for
help. The IMF had underestimated its need for significant financial resources
in 2008, only to discover that a $250 billion lending capacity is insufficient in
a time of $700 billion bailouts and cross-border capital flows in trillions of
dollars. The needed usable resources from IMF quotas and permanent
borrowing arrangements had more than tripled, reaching about $750 billion
as of early 2011.39
As the BRICs were attempting to reform the system, they appreciated the
need to increase resources, but at the same time, they had their own priorities,
concerns, and grievances. Since about 2002, China had already shown
concerns about the stability of the international monetary system and
expressed its preference for multipolarity and diversification of reserves to
gain greater autonomy and protection from the dominance of the U.S.
dollar.40 At the same time, Chinese leaders and Central Bankers recognized
that along with tighter regulation of the United States and other systemically
important economies, the world economy was in crisis and needed liquidity.
Demonstrating that it was a responsible stakeholder with an interest in
defending the existing system, not just reforming it, China agreed to
contribute $50 billion to bolster the IMF. However, Beijing coordinated with
the other BRICS to leverage their contributions in a public attempt to make a
down payment on more rapid reforms and to set the terms on how their
contributions would be structured.41
As creditors, the BRICS were not prepared to give the IMF open-ended
funding. They wanted the IMF to issue its first SDR-denominated bond with
short-term maturities to signal their preference that the fund needed to make
adjustments to the international monetary regime and stop overrelying on a
single national currency as the world’s sole reserve.42 At the same time, the
four BRICs planned to shift some foreign reserves into IMF bonds, showing
that they have a large voice in global markets. This move led some prominent
economists to predict that over time, the status of the U.S. dollar as the
world’s sole reserve currency might deteriorate.43 In fact, some BRICs
countries had already been agitating to revise the SDR basket of currencies to
include their own currencies.
Thus, ahead of the inaugural BRICs summit in Russia, a Chinese official
made clear that the group was “asking to increase the voice and
representation of emerging economies.” China’s State Administration of
Foreign Exchange (SAFE) said that it was “actively” considering buying as
much as $50 billion of IMF bonds, the Bank of Russia announced it would
sell some of its $140 billion of U.S. Treasuries to purchase IMF bonds. India
similarly announced that it would be “perfectly capable of contributing” to
the IMF’s bond program, while Brazil’s Finance Minister Guido Mantega, in
Brasília, emphasized that the IMF debt denominated in SDRs would pay a
similar yield to U.S. Treasuries. Although shifting from dollar holdings to
SDRs was still largely an investment in the dollar (then 44% of the SDR), it
was an important signal that the BRICS wanted to increase their voice in
international financial institutions.44
In a remarkable turnaround, prior to the 2009 London G20 summit U.S.
Treasury Secretary Timothy Geithner requested to meet with the BRICs
quartet, as they discussed whether and how to contribute to the IMF. A
Russian delegation source told reporters, “The voice of the BRICs has grown
stronger, and proof of that is that U.S. finance minister Geithner has asked to
come to the BRIC meeting and to discuss a range of issues.”45 However,
progress was still slow, and a year later, the BRICS were still trying to get a
firm commitment to increase their representation in the IMF. Prior to the G20
summit in South Korea in October 2010, there was another opportunity for
G7 countries to negotiate with the BRICS. The result was a breakthrough that
helped conclude the 2010 package of quota reforms, though these still had to
be ratified by the parties, especially the United States, which was the veto
holder. According to Eswar Prasad, a former IMF official and professor at
Cornell University who has close ties to Chinese and Indian officials, the
BRICs wanted to send a “double message”—that they “are willing to
contribute to the IMF, but they won’t contribute heavily to longer-term fund
resources until the world body increases their voting shares substantially.”
Prasad added, “They don’t want to get locked into providing more money
until they get their [shares] increased.”46
Subsequently, in 2012, before the Los Cabos G20 summit, the BRICS
affirmed their commitment to help provide a financial safety net. The
financial and economic crisis in the West and demand for financial resources
had a silver lining for the BRICs countries. It marked a major step toward
perceived multipolarity and also raised questions about whether the United
States and the G7 countries were “responsible” stewards, while leaving no
doubt that the BRICS were increasingly major stakeholders in the existing
order.47
 In retrospect, it is also worth noting that when the Eurozone sought direct
bilateral bailouts to help manage its sovereign debt crisis, the BRICS insisted
on helping through the existing institutional structure, the IMF, instead of a
European special-purpose vehicle that would allow European debtors more
flexibility, avoiding the hard conditionality and shame of an IMF program.
Indian, Russian, and Brazilian officials ruled out lending to the Eurozone
except through the IMF. Nonetheless, the IMF was prepared to extend
“flexible credit lines,” with few conditions, to select countries like Spain and
Italy that sought rebranding. However, India and other BRICS publicly
complained about double standards by the IMF, which give Eurozone
countries easier conditions without a stigma attached.48

The BRICS Seek Leadership Positions

Since the founding of the IMF and World Bank, the IMF managing director
always has been a Western European, and the president of the World Bank an
American,49 although the numbers of very senior staff from the BRICS and
other emerging economies at these organizations have increased notably in
the last 15 years. Another dimension of the BRICS’ influence within the
major international financial institutions has been their desire to see
prominent non-Western economists have the opportunity to head these
institutions.50 In April 2011, the BRICS affirmed their interest in ending the
de facto Western monopoly on appointing the heads of the two institutions.
When IMF Managing Director Dominique Strauss-Kahn resigned suddenly
in May, they had an unexpectedly early opportunity to unite around a single
candidate. The BRICS members issued a statement on May 24, 2011,
reiterating their collective desire that the selection should be fair and based
on merit rather than on the convention of the IMF managing director always
coming from Europe.51
The announced candidates included Stanley Fischer, former IMF deputy
managing director and a dual U.S. and Israeli citizen, who had excellent
technical qualifications and many supporters in Africa and the developing
world, but not the nationality profile that the BRICS or many other countries
hoped to promote. Russia supported National Bank of Kazakhstan Chair
Grigorii Marchenko, whose candidacy Finance Minister Aleksei Kudrin
called “a positive thing,” while noting that other BRICS members “already
have their candidates and we shall weigh them up too.”52 Although the
Russian media were generally skeptical that a developing country’s candidate
would prevail this time, the government daily Rossiyskaia Gazeta warned the
United States and European Union against attempting “to play by the old
rules” and not to forget previous commitments that Strauss-Kahn’s successor
would be chosen “fairly,” not based on the candidate’s European
citizenship.53
The two major candidates were Agustín Carstens, president of Mexico’s
central bank, frequently referred to in the international press as the best
candidate from the developing world, and French Finance Minister Christine
Lagarde. Unlike the backroom negotiations that had characterized previous
selection processes, both Carstens and Lagarde openly campaigned for the
job, with Lagarde rapidly flying off to visit, in succession, Brazil, China,
India, and Russia—all of whom refrained from early endorsement of either
candidate. In the end, Brazil and Russia publicly supported Lagarde. The
government of Brazilian President Luiz Inácio Lula da Silva, of the left-
leaning Workers’ Party, was uncomfortable with Carstens’s orthodox
financial views, and likely was also influenced by its long-standing rivalry
with Mexico as the leading country within Latin America.
In a May 27, 2011, news conference following the G8 summit, then-
Russian President Dmitri Medvedev said that non-European countries had the
right to nominate candidates “if not for the managing director position, then
certainly for the positions of deputy directors,” which Foreign Minister
Sergei Lavrov subsequently called “very logical,” noting a “decision in
principle” was required to create this “new position.”54 Russia’s Finance
Minister Aleksei Kudrin said that Lagarde possessed the expertise and
qualifications for the post and would show support to the emerging
economies, as his deputy and key point man, Sergey Storchak, observed that
there were no other candidates of the same “scale, knowledge, and
education.”55 Lagarde actively lobbied to secure the BRICs’ support for her
candidacy. In return for China’s support for Lagarde, a European candidate,
the IMF created a fourth deputy managing director position, as Medvedev
had publicly requested, and filled it with a Chinese economist, Zhu Min.56
Moscow’s nomination of Marchenko was not the first time that Russia had
ventured into the leadership issue. Russia had previously opposed Strauss-
Kahn as lacking “the technical qualifications for the job,” according to
Russia’s executive director at the IMF, Aleksei Mozhin. Instead, Moscow had
nominated Josef Tosovsky, a former governor of the Czech central bank,
former prime minister, and for seven years the chairman of the financial
stability institute at the Bank for International Settlements, to head the IMF.57
At the time, Mozhin had insisted that Russia was not just attempting “to
create the appearance it is a competitive process. We strongly believe that Mr
Tosovsky is the best candidate with the most relevant experience.”58
Brazil’s outspoken IMF executive director, Paulo Nogueira Batista, a
Washington insider who served as one of two Latin American IMF EDs from
early 2007 until his June 2015 appointment as Brazil’s vice president at the
NDB, similarly complained that Lagarde “is the 11th European in a row to
run the IMF—it is an outdated position to reserve the managing directorship
for a European.” He added in remarks to Newsweek that a representative from
one of the BRICS countries should lead the fund.59 Meanwhile, David
Lipton, first deputy managing director of the IMF, said in a July 2015
interview that once Lagarde steps aside, her successor would likely be a non-
European and that the person’s appointment would be “strictly merit-based.”
However, this will be the decision of a new U.S. administration.60
The 2012 election of a new World Bank president proceeded similarly to
the IMF selection. In principle, the BRICS wished to support a common
candidate from the developing world, but in practice, they could not. The
Intergovernmental Group of Twenty-Four on International Monetary Affairs
and Development (G24), a low-key coordinating committee of current and
former developing country financial officials established in 1971, recruited
former Colombian Finance Minister José Antonio Ocampo to run. Brazil’s
IMF ED Batista acted as Ocampo’s campaign manager.61 While Ocampo
would draw the support of much of the Western Hemisphere, all parties
understood from the beginning that his views were likely too left-leaning for
the United States to accept. South Africa strongly backed neoclassical
economist (and current Nigerian finance minister) Ngozi Okonjo-Iweala,
while the United States nominated Korean-American university president and
public health specialist Jim Yong Kim. Although Ocampo very publicly
withdrew in favor of Okonjo-Iweala shortly before the official balloting,
hoping to force unity among the various pro-diversity constituencies, Russia
endorsed Kim, who was offered the post. In the end, 80 percent of the votes
cast in the official balloting at the World Bank board went to Kim, although
the African executive directors continued to support Okonjo-Iweala.
When it came time to consider a second five-year term for Kim in 2016,
despite controversy over his tenure and management, Washington rushed his
nomination, and he ran unopposed. Critics, who include former senior bank
officials from the United States, warned that the absence of alternatives “is a
symptom of how many big emerging economies such as China are turning
away . . . to focus on their own new institutions.” According to scholar and
former World Bank official Nancy Birdsall, the United States is “putting the
long-term relevance, effectiveness, and legitimacy of the World Bank at
risk.” Influential staff asked the bank’s board to conduct a global search for a
replacement, but the Obama administration did not take up such calls for a
change in leadership.62
The BRICS could not unite around a common developing country
candidate.63 They were unable to coordinate their financial statecraft
positions and did not influence the selection process in any clear direction:
thus, the results at both the IMF and the World Bank must be coded as
failures. However, some individual BRICS were able to shake out some
back-room quid pro quo deals from the incumbent powers along the way.
India had been among the earliest developing countries to complain, mostly
through unofficial channels, about underrepresentation of senior staff from
developing countries at the Bretton Woods institutions, and in recent years,
BRICS nationals have done somewhat better than previously. Indian national
Raghuram Rajan served as chief economist of the IMF (2003–2006), and
Chinese national Justin Yifu Lin as World Bank chief economist (2008–
2012). Lin was succeeded by Kaushik Basu (2012–present), a Cornell
University professor of Indian origin. Robert Wade reports that the
appointment of Basu, and of Chinese economist Jin-Yong Cai (2012–2015)
as chief executive officer (CEO) of the IFC, the private-sector funding wing
of the World Bank, were in part rewards offered by the dominant Western
powers to China and India for their flexibility and patience in the negotiations
over the top positions at the World Bank and the IMF.64
Lagarde’s active courting of China from the outset has been reflected in the
creation of a new deputy managing director position in July 2011, which was
filled by Zhu Min for a five-year term, but also with her firm support for the
incorporation of the RMB into the SDR Reserve. Zhu was replaced by Zhang
Tao in August 2016. Formerly deputy governor of the People’s Bank of
China (PBOC), Zhang had years of experience at the World Bank and the
Asian Development Bank (ADB) and as an ED for China at the IMF from
2011 to 2015.65 Lagarde also reappointed David Lipton and gave senior
management positions to a Japanese (Takatoshi Kato), and one dual national
of Brazil and Italy (Carla Grasso). At the World Bank, as of late July 2016,
the two managing directors (immediately subordinate to the president) were a
former Brazilian finance minister, Joaquim Levy, and a former Chinese
senior finance ministry official, Shaolin Yang.

The BRICS Club Coordinates on Capital Controls and Global Imbalances

The final element of BRICS cooperation around reforming the Bretton
Woods institutions from within has been aimed at changing IMF economic
ideas and policies. For example, emerging powers have been frustrated with
the IMF’s policy of promoting capital liberalization and the perceived
neoliberal bias within IMF surveillance activities.66 Throughout the several
financial crises experienced by many middle-income countries from Latin
America to Asia to Russia from the 1980s through the 2000s, these
institutions became the bulwark of neoliberal and financial interests,
imposing conditionality and structural adjustment onto the debtors to
restructure their economies in support of economic liberalization. IMF
surveillance practices follow closely the American model of economic
governance as in the so-called Washington Consensus.67 Many developing
economies have been scrutinized by the IMF and found wanting in terms of
IMF preferences for economic openness and prudent macroeconomic
management, while the United States and some other advanced economies
have escaped systematic surveillance. After the global financial crisis, the
BRICS repeatedly emphasized in G20 meetings and in joint communiqués
from the sidelines of these and similar gatherings that the IMF needs “better-
focused even-handed surveillance across all IMF members, especially . . .
advanced economies with major international financial centers and large
cross-border capital flows.”68
More recently, some of the BRICS (notably Russia, China, and to some
extent India) have been gradually dismantling, or in Russia’s case,
eliminating capital controls. For China, incremental movement toward the
free flow of financial capital, while retaining managed control, is connected
to the plan to internationalize the RMB. Nonetheless, all the BRICS share a
common aversion to IMF pressure, preferring to protect their autonomy and
financial stability through national policy discretion. Like many other
emerging economies, the BRICS believe that capital controls are a necessary
part of the arsenal of emerging economies exposed to external financial
contagion. The IMF’s drive in the 1990s to amend its Articles of Agreement
to force member-states to endorse eventual full capital account liberalization
was derailed by the Asian financial crisis of 1997–1999, and since then, its
assessment of capital controls has been mixed.69
In the aftermath of the global financial crisis, it is obvious to most
observers that the BRICS countries mitigated their experience of the crisis
through utilizing capital controls. Nonetheless, the BRICS’ executive
directors at the IMF worried about a return to the capital account
liberalization debates, especially in advance of the G20 summit in 2011, to be
hosted by conservative French President Nicolas Sarkozy, and coordinated
among themselves and with other emerging economies through the Group of
24 (G24).70
Overall, the BRICS governments have had solid success in reframing
capital controls as a legitimate policy option for IMF members—an outcome
related to their pivotal role in the G20 and the large financial contributions
that they have made in support of the IMF’s European rescue programs. As
Kevin Gallagher shows, the push by the BRICS and other emerging
economies tipped already-divided opinion within the IMF toward a
preference for supporting limited capital controls on both financial inflows
and outflows.71 The result is that the IMF debates capital controls more
openly than in the past.72 Moreover, as Russia’s recent experience shows, the
BRICS desire the flexibility to set policies as they see fit given their
particular circumstances. Thus, during the 2014–2015 crisis, Russia relied on
a flexible currency and administrative tools, rather than strict capital controls,
to restrict the movement of capital. Russia’s net capital outflow, which
reached a record $152.1 billion in 2014 and slowed to $57.5 billion in 2015,
declined to $10.6 billion in the first half of 2016.73 Another policy tension
within the IMF has concerned identifying the root causes of “global
imbalances.” These imbalances refer to persistent national merchandise trade
surpluses, such as those of China and Germany, or trade deficits, as in the
United States and southern Europe. The discussion has also addressed alleged
exchange rate manipulation in the interests of achieving a supposedly unfair
trade advantage and the spillovers that could result from loose monetary
policy. The major protagonists in this competition of interpretations have
been the United States and China. The U.S. position in this debate has been
that China has kept its currency deliberately undervalued against the U.S.
dollar in order to promote the country’s exports and sustain its rapid
economic growth.74 In another variant, China’s abnormally high public
savings get invested in dollar-denominated assets (most visibly U.S. Treasury
bonds), pushing up the dollar and generating a U.S. trade deficit.75 Chinese
government economists and policymakers, in contrast, have claimed that their
steady trade surplus with the United States has been driven by the lack of
U.S. competitiveness. In China’s view, the U.S. savings rate is consistently
low and its macroeconomic and fiscal policies irresponsible, especially since
the quantitative easing that began in early 2009.76
Both the United States and China have each attempted to persuade other
major countries and international organizations to line up behind its preferred
interpretation. Thus, in August 2007, the IMF announced a U.S.-promoted
plan to monitor global imbalances. Countries whose exchange rates
demonstrated “fundamental misalignment” would be audited by the IMF.
China objected, but it lacked sufficient support to derail the process. China
found allies among the BRICs: in early 2009, the four finance ministers
called on the IMF to extend its surveillance to the wealthy countries.
By mid-2009, the IMF had responded to the BRICs’ pressure to drop the
judgmental language on exchange rate levels in its new Article IV guidelines,
and in September 2010, the IMF announced mandatory surveillance of
“systemically-important countries,” including all the members of the large
economies in the G20.77 By late 2010, G20 members Brazil, China,
Germany, and Russia (later joined by India and South Africa) each had
criticized U.S. monetary expansion, or quantitative easing, as tending to
promote currency and trade instability. The communiqué from the 2013
BRICS summit in Durban, South Africa, similarly referred to
“unconventional monetary policy actions which have increased global
liquidity,” noting “unintended consequences . . . which may have negative
growth effects on other economies, in particular developing countries.”78 At
one level, such international wrangling is not very consequential: the IMF
and other international organizations regularly issue communiqués that
subsequently are ignored. But the fact that China, backed by the BRICS, has
engaged in these subtle battles of economic ideology over multilateral
guidelines, persistently and with growing success, is an important indicator of
the underlying global power shift.

INSIDE REFORMS: RESIST MANIPULATION OF FINANCIAL MARKET POWER FOR

U.S./WESTERN POLITICAL AIMS (CASE 2)

The second case of BRICS cooperation in financial statecraft, listed in the

lower-left cell in Table 3.2, involves the members’ choice to collectively
oppose attempts by the incumbent powers to use their financial market
leverage to further their political goals. This case involves each of the other
four countries deciding to support Russia’s efforts to resist U.S. and EU
financial sanctions that followed Russia’s 2014 intervention in Eastern
Ukraine beginning in February, subsequent annexation of Crimea, and
ongoing support of separatists in Eastern Ukraine.
Economic and other forms of targeted sanctions have been sequentially
deployed by the United States and the EU to change Russia’s international
behavior by imposing costs that escalate over the medium term.79 Rather than
bring Russia’s economy to its knees by targeting the Russian sovereign, U.S.
sanctions have been designed to demonstrate a sustainable and scalable
ability to generate overwhelming costs while avoiding unwanted spillover
effects, such as disruptions to global financial markets or provoking the
Kremlin to shut off gas supplies to Europe. The Obama administration
believed that sanctions affect Putin’s calculus (viewing him as risk-acceptant
and revisionist) and deterred Russian escalation of the war, while also giving
Ukraine time to reform its military and economy. The product of Euro-
Atlantic political compromises, the sanctions were considered a second-best
option by many U.S. policymakers who favor arming Ukraine. They
indirectly led to a more hybrid war and were not always well sequenced. In
fact, some sanctions were increased during the first ceasefire agreement and
exchange of prisoners, while others failed to affect an expansion of the
territory under the separatists’ control, including the Donetsk airport and the
city of Debaltseve.
Given that the West remains unwilling to use military force to defend
Ukraine, sanctions are the principal instrument available to coerce and
constrain, and also to send a costly signal to the Kremlin that the West deems
Russia’s international behavior unacceptable and might be willing to raise the
costs. After the Russian annexation of Crimea in March 2014, Washington
moved quickly to speed sanctions into effect, attempting to save Ukraine
from a deteriorating situation. Together with a 50 percent plunge in the price
of oil and a correlated collapse of the ruble since mid-June 2014, the
sanctions had a negative economic impact on the Russian economy, but
without notable political success for the West. This result is in line with
leading studies of sanctions showing that they work in less than 30 percent of
cases in terms of achieving desired policy shifts.80 Targeted financial
sanctions can cause significant punishment, and brought about concessions
that may have helped delay Iran’s nuclear ambitions, for instance. Sanctions
also may deter further unwanted actions, but they still have uncertain and
possibly inadvertent consequences.81 Moreover, Iran and Russia are very
different cases, as Russia is larger economically and more integrated into the
global economy.82
Eager to avoid a disruption of the global economy or the interruption of oil
and gas flows to Europe given its reliance on Russian energy imports, the
financial sanctions, beginning in March 2014, first targeted individuals close
to Putin, freezing their financial assets in the West and imposing travel
restrictions. Then came sectoral sanctions focusing on pressure points on
Russian financial, energy, and defense firms with close government ties. U.S.
sanctions restricted their access to Western markets, credit (especially dollar
financing), and technology, including equity or debt instruments with a
maturity longer than 30 days, effectively closing the capital markets to
Russian corporates; and U.S. firms were blocked from doing deals with
Russia on deepwater, Arctic offshore, or shale projects.83 The downing on
July 17 of Malaysia Airlines Flight 17, with many European passengers
onboard, by a missile launched from pro-Russian separatist-controlled
territory in Ukraine, catalyzed the EU to coordinate with the US on the
harsher sectoral sanctions, prohibiting financing to targeted Russian firms
with a maturity exceeding 90 days.84 In November, after North Atlantic
Treaty Organization (NATO) reports that Russian military equipment and
troops had moved into Eastern Ukraine, there were additional asset freezes
and travel bans. Periodically, new sanctions are added to signal businesses
(particularly the financial sector in Europe and China) of the potential costs
of doing business with Russia. Unable to refinance their external debt
obligations, many Russian firms were forced to repay, causing a sharp rise in
net private capital outflows in 2014. Trade between Russia and the European
Union declined significantly in the sanctioned sectors, and the near-term
prospects were dimmed, as countries imposing the sanctions accounted for 80
percent of foreign direct investment (FDI) in Russia.
Still, Putin didn’t blink. The Russian economy did not collapse, sanctions
did not diminish current Russian hydrocarbon production, import substitution
benefited important protectionist constituencies that “rallied round the flag,”
and the Kremlin bailed out the sanctioned firms.85 Putin gained greater
control as sanctions “weakene[d] the relatively independent and modern part
of Russia’s economy” and Russia’s Western-oriented economic elite and
internationalists, while strengthening Russian nationalists and isolationists.86
Russian authorities avoided a severe balance of payments and banking crisis
by allowing the ruble to float, keeping credit markets open, and buying back
foreign exchange debt. These moves helped ensure macroeconomic stability
was restored without a deepening of the crisis and depletion of Russia’s
reserves. Moreover, by blocking Russia from the bond markets, sanctions
also paradoxically capped foreign currency liabilities and imposed greater
financial discipline on Kremlin-connected firms such as Rosneft. Two years
later, in May 2016, Russia reentered the Eurobond markets despite warnings
from Western governments to investors to stay away. Russia then turned to
corporate issues, showing that it could chip away at financial sanctions.87
From 2014–2016, transatlantic unity in support of sanctions was
surprisingly solid, with German Chancellor Angela Merkel showing striking
leadership within the European Union despite Germany’s history of a close
economic relationship with Russia. However, cracks are evident, with
opposition arising from Hungary, the Czech Republic, Greece, and Bulgaria,
while Italy and others have argued against automatic extensions of
sanctions.88 German and French businesses and Finnish farmers are also
increasing opposition, although it is noteworthy that EU sanctions are
implemented by individual European countries, not Brussels, giving
European firms greater flexibility and regulatory discretion in their Russian
deals than their U.S. counterparts have had, as evidenced by Nordstream II
and BP’s joint ventures with Rosneft. Throughout, Russia has attempted to
exploit political divisions in the West to its advantage. The rest of the West,
including Japan, South Korea, and Turkey, were reluctant and either limited
or absent partners in the sanctions, despite active lobbying by the Obama
administration. Skirting the spirit albeit not the letter of the sanctions, Japan
showed a willingness to provide financing to a new partnership with Russia’s
Novatek to produce liquefied natural gas in the Arctic.89
Facing coercive pressure against one of its own, the BRICS club stood
firmly in opposition to sanctions, but unsurprisingly did not give enthusiastic
support to Russian foreign policy. In March 2014, Brazil, India, China, and
South Africa joined 54 other countries that abstained in the vote on the
United Nations General Assembly (UNGA) resolution to condemn the
Russian annexation of Crimea (which passed 100:11:58). Russia had already
vetoed a Western-backed UN Security Council (UNSC) resolution (13:1:1)
condemning the proposed referendum in Crimea to secede from Ukraine and
join Russia. In that vote, China abstained, evidently because it did not want to
give the appearance of supporting separatist movements fighting for self-
determination and secession given its own positions in Tibet and toward the
indigenous Uighur population in the Xinjiang province. The Chinese
government called for a political settlement, while several articles in the
Chinese press blamed the West for supporting regime change in Ukraine.
All the BRICS refused to participate in the sanctions regime, just as they
rebuffed unilateral sanctions against Iran that were not approved by the
United Nations. Putin was welcomed collegially at the 6th BRICS Summit in
Fortaleza, Brazil, in July 2014 and at the 8th BRICS Summit in Goa, India, in
October 2016, and he also hosted the 7th BRICS Summit in July 2015 in Ufa,
Russia, with all the BRICS heads of state in attendance. In Ufa, Indian Prime
Minister Narendra Modi insisted, “Unilateral sanctions are hurting the global
economy. So it is very essential that BRICS economies deepen their
cooperation.” The summit declarations from 2014 through 2016 consistently
emphasized BRICS opposition to unilateral economic sanctions as a violation
of international law.90
President Xi Jinping also paved the way for economic deals with Russia
despite the reticence of Chinese commercial banks to ignore sanctions.
Russian-Chinese trade rebounded in the first three quarters of 2016, after
dropping by almost 30 percent in 2015 following the collapse in oil prices.
The volume of Russian oil exports actually increased, making Russia the
largest or second-largest supplier of crude to China (roughly equivalent to
Saudi Arabia). Moreover, although previously reticent to permit equity
positions above 25 percent in strategic sectors such as oil and gas, the
Kremlin felt compelled to ease such restrictions given the impact of the
sanctions, the drop in the oil price, and Rosneft’s financial constraints. Thus,
China’s National Petroleum Corporation (CNPC). and China’s Silk Road
Fund combined acquired a 30 percent stake in Russia’s Yamal Liquefied
Natural Gas (LNG) project as two Chinese banks extended $12 billion in
credit lines. Likewise, a consortium of Indian firms acquired a 26 percent
stake in Russian oil company Vankorneft from Rosneft. Russian arms sales of
advanced weapons, such as the S-400 surface-to-air missile and Su-35
fighters to China and India, also boomed. China became Russia’s largest
source of foreign capital in 2015 (excluding Russian capital reimported from
Cyprus).91 These were strong signals that Washington could not impose the
diplomatic isolation of a major power.
As discussed in Chapter 4, it is unclear whether the sanctions and threats to
escalate them deterred more aggressive Russian action in Ukraine than in fact
took place. Some senior officials in the Obama administration contend that
scalable sanctions deterred Putin from gambling he could take Kiev in two
weeks and pushed him instead to the negotiating table. The most notable
example in this case, which reverberated through some of the BRICS, was
serious consideration by the United States and the European Union of turning
off Russia’s access to the SWIFT financial messaging system in response to
its intervention in Ukraine and annexation of Crimea. In this respect, the U.S.
approach resembles Thomas Schelling’s risk strategy of imposing significant
punishment while threatening much higher costs so that submission appears
the best option. However, Washington’s credibility in making coercive threats
was perhaps impaired by its greater concern about the reaction of global
financial markets.
Moreover, as Daniel Drezner points out, sanctions can have negative
blowback effects that may impose greater future costs on senders.92 Other
analysts similarly suggest that American unilateralism supported by the
“weaponization of finance” could provoke balancing against the United
States in the form of diversifying away from the dollar.93 Prime Minister
Dmitri Medvedev threatened to escalate to the “unlimited” use of force in the
event of a SWIFT cutoff.94 On the eve of the BRICS 2014 summit in Brazil,
Putin signaled the urgent need to reduce Russia’s vulnerability to sanctions,
telling interviewers: “Together we [the BRICS] should think about a system
of measures that would help prevent the harassment of countries that do not
agree with some foreign policy decisions made by the United States and their
allies… .”95
After U.S. sanctions led to the interruption of Visa and MasterCard
operations in Russia, meaning that Russian bank–issued credit cards could no
longer be used abroad because their payments with sanctioned banks would
not be processed, Putin complained that these were not “depoliticized
economic entities,” but instead “are strongly affected by political pressure.”96
The fact that Visa and MasterCard had the largest market share and could
disrupt even Russian officials’ use of their cards while overseas came as a
shock to the Kremlin. As a consequence, the Russian government rapidly
tasked the Bank of Russia to establish a national payment card system from
scratch. Demonstrating a commitment to develop a viable global system, this
was followed by cobranding agreements with a number of international
payments systems, including Visa and MasterCard; Japan Credit Bureau
(JCB) International, a Japanese national payment system; UnionPay, the
Chinese equivalent; and others, despite ongoing sanctions.97
In 2015, China accelerated work on its own Cross-border Interbank
Payment (i.e., not messaging) System (CIPS), given similar concerns about
protecting its sovereignty from U.S. intelligence targeting of SWIFT.98 China
also has financial incentives to provide independent infrastructure in clearing
and settlement services to facilitate use of the RMB in its growing cross-
border trade and investment business. The number of domestic and foreign
participants is increasing, and in March 2016, the institution managing CIPS
contracted to connect with SWIFT’s global user community, demonstrating
again an interest in meeting market incentives while building parallel
institutions. Eventually, current limitations with operating hours, liquidity,
and connectivity are expected to be surmounted to help CIPS become a
mainstream platform for RMB cross-border and offshore capital clearing and
settlement.99 In this sense, CIPS could be another outside option contributing
to the gradual erosion of U.S. dollar dominance.
Finally, at the initiative of Moscow and Beijing, subsequently joined by
Prime Minister Modi, the BRICS agreed at the Goa Summit to consider
developing their own independent credit rating agency, building on the
experience of nascent national agencies. Interest in this initiative reflects
concerns that ratings agencies are subject to a range of conflicts of interest
and that Western ratings firms are biased in favor of developed nations while
pessimistic about developing and emerging economies, just as overly
optimistic credit ratings contributed to the global financial crisis.100
In this case, then, the BRICS have hung together in resisting financial
sanctions against Russia, while some members have also used outside options
to reduce their future vulnerability to coercion by Washington and Brussels.
At the same time, after Russian meddling in the 2016 election, the U.S.
Congress voted overwhelmingly in 2017 to escalate the sanctions, codified
them into law, and required Congressional approval to ease the penalties,
making the sanctions regime extremely difficult for President Trump and
future administrations to remove. This action, which significantly expands
U.S. extraterritorial restrictions and breaks with the EU on pipelines and
other Russian deals, demonstrates sustained U.S. leverage in financial
statecraft. Intra-BRICS unity remains strong, but Russia’s hope for an end to
the sanctions appears more distant.
OUTSIDE OPTIONS: CREATE PARALLEL FINANCIAL INSTITUTIONS CONTROLLED BY
THE BRICS (CASE 3)

Notwithstanding their incremental progress in pushing for greater influence

within the World Bank and IMF, the BRICS have found it slow and strenuous
to change the existing institutions from within. An alternative strategy is to
exercise their outside options: they can step outside Western-controlled
institutions to create new institutions answerable only to themselves. The
pursuit of outside options to establish new institutions constitutes this
chapter’s third case of collective financial statecraft, contained in the upper-
right cell in Table 3.2. According to Batista and other officials from BRICS
countries, an important motivation to create new institutions was the
prolonged inaction on governance reforms by “the Washington-based
institutions.”101 Some American officials were also concerned about losing
rising powers, but they were a minority, and there was no bipartisan
consensus to act.102 By 2015, former senior American officials, including
Ben Bernanke, the former chairman of the Federal Reserve, and Lawrence
Summers, the former Treasury Secretary, blamed the U.S. Congress for
blocking the 2010 IMF agreement and mishandling the U.S. response to
China’s ambition to play a bigger role in the international economy.
The priority for investments to be made through such parallel institutions
would be infrastructure, as BRICS policymakers find the current low levels
of infrastructure funding—less than 10 percent of loans from the World Bank
sources103—as sorely lacking.104 The ADB estimates that $8 trillion in
infrastructure financing will be required in the decade of the 2010s in Asia
alone,105 while the World Bank forecasts Africa’s infrastructure financing for
the decade needs to be about $93 billion annually.106
The momentum for a multilateral financial institution not controlled by the
West has been building for some time. In the midst of the Asian financial
crisis of the late 1990s, Japan (at the time the world’s largest creditor
country) attempted to create an Asian Monetary Fund, only to have the
project resisted by the United States.107 During the next decade, a number of
global financial reform projects percolated among developing-country
policymakers and sympathizers. In 2006, Venezuela launched a project to
create a South American alternative to the World Bank and IMF: the Bank of
the South.108 In 2009, former World Bank chief economist and insider-
turned-critic Joseph Stiglitz chaired a specially convened panel within the
UNGA on revamping the global financial architecture, which generated a
report actively promoted and discussed by “Southern” multilateral and
transnational caucuses such as the Group of 77 (G77) and G24.109
The Stiglitz Commission’s report made concrete suggestions for greater
participation of developing countries in international financial governance,
and explicitly linked the issue arenas of global financial regulation (important
to advanced industrial countries), development finance (critical for
developing countries), food security (a major concern for India),
environmentally sustainable development, and making financing available to
developing countries for climate change mitigation. The commission’s
meetings also provided a forum for high-level, multilateral discussions on the
historical anomaly of poor countries financing wealthy ones by sending their
savings to be invested in low-yielding securities such as U.S. Treasury bonds
and bills, thus effectively providing cheap loans to the U.S. government.
India was represented on the Stiglitz Commission by former Reserve Bank
of India Governor V. K. Reddy, ensuring that its discussions would be widely
followed there. In 2011, Stiglitz, along with the prominent London economist
Nicholas Stern, circulated an informal paper laying out concrete suggestions
for a southern-run multilateral bank.110 That paper went through multiple
revisions based on feedback from senior academics and policymakers
worldwide, and subsequently was cited as a concrete inspiration for the
NDB.111 Senior Indian economic policymakers explicitly promoted the idea
of a BRICS development bank among their BRICS colleagues, and Prime
Minister Manmohan Singh formally proposed the idea at the New Delhi
BRICS summit in 2012.

The BRICS Bank—Be Careful What You Wish For

By the 2013 Durban summit, the proposed new bank had a name—the NDB
—and it opened for business in 2015 with a subscribed starting capital of $50
billion and authorized capital of $100 billion. It was joined by a second
prospective multilateral institution, the CRA, with pledged funds totalling
$100 billion.112 Compared to the reserve holdings of some of the BRICS, not
to mention China’s other financial vehicles, these are not enormous sums.
Moreover, the BRICS’ shows of unity masked some important intra-BRICS
disagreements, especially about the size of the bank. Both India and Brazil
strongly insisted that initial capital subscriptions, and thus voting shares, be
equally allocated among the five countries, and the others agreed except
China, which wanted to have voting shares reflect economic weight, which
would give Beijing the dominant position.
China’s compromise is the most significant signal to its partners that their
club not only serves Chinese interests, but also provides benefits to all the
members. It was also a way to demonstrate that Beijing is not only a principal
funding source in the tradition of a global hegemon, but also fair-minded.
However, the downside of the victory of the principle of equal representation
is twofold: first, China gains the most prestige and influence from its larger
AIIB, which causes some resentment in the BRICS club. Second, and more
important, it means that the NDB, by virtue of its articles of agreement giving
the BRICS permanent 55 percent control over voting shares, is organized on
a lowest-common-denominator basis among the five. Consequently, it likely
cannot achieve a meaningful scale and development impact unless the
founders go back and renegotiate its first principles.
Other disagreements arose between India and China regarding the NDB
site, as well as its leadership. India, considering itself the source of the NDB
idea and, sotto voce, clearly better qualified than either China or Russia in
terms of the sophistication and expertise of its domestic financial regulators,
hoped to host the proposed BRICS bank. However, it was obliged to yield to
China’s greater economic power and financial resources—in particular, large
foreign exchange reserves—and agreed to the NDB being sited in Shanghai.
Russia and Brazil also wanted to host the bank but did not put up a fight.113
China argued in favor of a permanent NDB presidency for itself, rather than
the rotating one ultimately chosen, but was persuaded to back down on this
demand.114
Moreover, India was granted the right to appoint the NDB’s first president,
while each of the other countries would appoint a vice president. The NDB’s
official founding occurred at the June 2014 BRICS Summit in Fortaleza,
Brazil.
When the NDB was launched in Shanghai on July 22, 2015, its first
president, Indian private-sector banker K. V. Kamath, noted, “Our objective
is not to challenge the existing system as it is, but to improve and
complement the system in our own way.”115 Chinese Finance Minister Lou
Jiwei, also in attendance, added, “[t]his bank will place greater emphasis on
the needs of developing countries, have greater respect for developing
countries’ national situation, and more fully embody the value of developing
countries.” Lou further observed, “[t]here is no such thing as so-called ‘best
practice,’ ” noting that the NDB would like to move development finance
“from best practice to next practice” by moving beyond the existing
multilateral development banks which are “too rigid, inflexible, and slow.”116
Lou did not mean that the NDB could afford to ignore the cost of
borrowing on open markets and the profit level necessary to support future
lending. Rather, the priority that Kamath and others have emphasized is on a
streamlined, low-cost, less bureaucratic, “strings-free” operation (focused
more on projects than shaping domestic policies). The BRICS sought to
prioritize the objective of processing loans more rapidly than the lumbering
World Bank, whose advantage is being able to borrow at low rates due to its
triple-A credit rating.117 However, the NDB has shown a sensitivity to best
practices in a host of decisions, from hiring Western management consultants
to write its articles of agreement to cooperating with World Bank former and
current staff on modes of operation and projects and to interest in raising
money on capital markets. The NDB is also coordinating with the AIIB and
signed a memorandum of understanding on September 9, 2016, to cooperate
with the World Bank on infrastructure projects, although it is as yet unclear
whether such cooperation will affect the NDB’s higher borrowing costs on
international capital markets or its standards. The NDB will benefit from
cofinancing with state-owned development banks of BRICS countries, such
as the China Development Bank (CDB) and Brazilian Development Bank
(BNDES) and is signing cooperation agreements with other regional banks,
including the Development Bank of Latin America (Corporación Andina de
Fomento, or CAF).118
The CRA is the BRICS’ own small monetary fund, whose treaty was
signed by all five BRICS members on July 15, 2015. Like the IMF, its
statutory role is to provide a framework for short-term, balance-of-payments
lending in times of crisis. Unlike the NDB, for which the initial capital
subscriptions were equally shared among the five BRICS members, China
commits to contributing the bulk of funding for the $100 billion CRA.
China’s share is $41 billion, that of Russia, India, and Brazil $18 billion each,
and South Africa has committed $5 billion for its share.
Like the East Asian counterpart, the Chiang Mai Initiative
Multilaterization (CMIM), the CRA has an IMF link: countries may access a
maximum of 30 percent of the funding to which they formally are entitled
without prior agreement with the IMF. This is arguably one way to secure the
repayment of the emergency funds disbursed, but it also represents a
pragmatic recognition of the current weakness of the monitoring and
surveillance capabilities of the BRICS themselves.119 However, some critics
question whether the CRA has “the requisite firepower,” in that it is
equivalent to about 1 percent of China’s reserves or 80 percent of India’s
budget deficit for the 2013–2014 fiscal year. Although it might help South
Africa, Brazil’s 2002 bailout rose to $30.4 billion.120
These new BRICS institutions give the club credibility in global economic
governance, and the members were eager to go operational. In April 2016,
after caucusing on the sidelines of the World Bank/IMF spring meeting in
Washington, the NDB’s board of directors announced that its first loans
would go to four of the five BRICS countries (i.e., all but Russia), and that all
would target the renewable energy sector, “supporting 2,370 megawatts” of
capacity.121 Later, at the July board meeting, a loan to support the
construction of two hydropower generation plants with a total installed
capacity of 49.8 megawatts in the Republic of Karelia in the Russian
Federation was also approved.122
The loans would be issued in U.S. dollars and would go to established
banks in each country with long experience in infrastructure project finance,
and thence be passed on to their ultimate loan recipients, although the
Russian loan would be in coordination with the Eurasian Development Bank.
They were relatively small, with all four loans summing to only $911 million,
but their importance was clearly symbolic on multiple levels, including in the
sense that they were supposed to address the NDB’s twin goals of
infrastructure and “sustainable development,” the latter a goal especially
important to domestic constituencies in Brazil and India.
Then, in late June 2016, NDB President Kamath took another step that was
arguably more important: he announced plans to issue bonds in national
currencies to attract private capital within the BRICS countries.123 The first
Green Financial Bond issuance was in China’s onshore bond market, with an
issue size of 3 billion RMB at a nominal interest rate of 3.07 percent. Leslie
Maasdorp, the South African chief financial officer of the NDB, expects that
the bank will become a frequent issuer in the Chinese interbank market. Two
Chinese rating firms, China Chengxin Credit Rating Group and China Lianhe
Credit Rating Co., have assigned their highest (AAA) rating to the bank, but
ratings from the American “Big Three” (Moody’s, S&P, and Fitch) are
pending at the time of writing.124 It will not be triple-A, however, given
China’s AA sovereign rating from S&P and the other countries’ scores in the
BBB range. Overall, the initial step of maintaining cooperation among the
five BRICS member countries, despite their differing preferences, has been
successful.

China Pursues Its Outside Options with AIIB and OBOR

China’s position within the new BRICS’ multilateral financial institutions,
and within the group more generally, has three special characteristics that are
worth highlighting here. First, China has access to much larger quantities of
funds than any of the others. Moreover, domestic overcapacity requires China
to find demand elsewhere to absorb excess capacity in industries like steel
and manufacturing inputs.125 Although the NDB represents collective
financial statecraft among the BRICS members, its establishment would not
have been feasible without the full financial backing of the Chinese
government, whose foreign exchange reserves peaked at just over $4 trillion
in June 2014, but have since declined to $3.17 trillion (as of September
2016).
Since the early twenty-first century, China’s state-owned banks and its
sovereign wealth funds (SWFs) have become increasingly active in lending
to developing countries worldwide. The CDB, for example, committed more
than 17 percent of its $1.9 trillion portfolio to overseas loans of about $330
billion as of December 2015. The Export-Import Bank of China lends
overseas about six times less than CDB annually.126 The Overseas
Development Institute (ODI) estimates that by 2025, the AIIB could have a
portfolio of around $100 billion, similar to the ADB, and the NDB could
have $65 billion. Other estimates are more bullish, but this is still small
compared to the CDB. Moreover, the NDB of the five BRICS has pledged to
lend in local currencies (initially those of the BRICS countries), while the
AIIB will lend in U.S. dollars, giving the AIIB more options for future
expansion.127
Second, China has founded or cofounded three international infrastructure
initiatives, all within a short time. The One Belt, One Road (OBOR)
initiative, first announced by President Xi in 2013, was scaled up in 2017.
The NDB, as mentioned, was also announced in 2013, formally agreed in
2014, and officially founded the following year. The third institution is the
AIIB, formally announced in 2014. The three initiatives perform different
and complementary roles from the Chinese viewpoint, but they have
discomfited the other BRICS (see Chapter 4 for a further discussion).
 OBOR reflects China’s interest, as the world’s biggest trading state in
reducing the costs of transporting goods, but other exporters will also benefit.
Similarly, China seeks to secure its energy supply through new pipelines, as
China is now the world’s largest energy consumer and oil importer. The
OBOR land initiative is directed toward Central Asia, encompassing the
entire route of the old overland trading route known as the Silk Road, from
Asia to the Middle East and North Africa. The Maritime Silk Road is planned
to run from China’s coast to Europe, through the South China Sea and the
Indian Ocean in one direction and from China’s coast to the South Pacific in
the other direction. Xi initiated the Silk Road Fund with an initial
commitment of $40 billion. Planned and existing projects now exceed $900
billion, and the stated goal of OBOR may reach $4 trillion in financed
projects.128 Like the AIIB, OBOR’s investment philosophy is described as
“based on market principles, international practice, and professional
standard[s], raising the bar for China to harmonize its approach to
globalization.”129 Moreover, both have been considered complementary as
“an international economic cooperation project [that] will produce influence
on [the] regional and global order.”130
The AIIB was officially founded in 2015 with fifty-seven members. The
bank focuses on lending to infrastructure projects in Asia. Thirteen states
from the wait list (including Canada) were approved to join the bank in
March 2017, bringing its total membership to 70, leaving the United States
and Japan as the only major G7 holdouts. At its annual meeting in June 2016,
representatives from more than eighty countries attended. Its member
countries have subscribed to the entire $100 billion planned initial capital for
the AIIB, and $20 billion of that has been paid already. The AIIB is moving
forward with four lending projects totaling $509 million, all in Asia: creating
a power grid in Bangladesh, improving slums in Indonesia, constructing a
highway in Pakistan, and building roads in Tajikistan. Although these
projects cost nearly $2.4 billon, the AIIB will cofinance them with the World
Bank, the ADB, and the EBRD. Additional projects are likely in India and
Pakistan.131
The establishment of the AIIB came as a challenge to the G7 powers.132
The World Bank in recent decades had dropped its once-dominant focus on
heavy infrastructure down to only about 10 percent of total lending, partly in
order to focus on new priorities, including antipoverty lending and rural
development, and partly in response to environmental campaigners in the
industrialized countries opposed to megaprojects such as hydroelectric dams.
One study shows that there are more than 70 U.S. congressional mandates
tied to narrow environmental or human rights issues or specific countries that
nix projects, at a time when the United States has become stingier in funding
multilateral development banks (MDBs).133
By comparison, the AIIB brought back the priority on infrastructure in
response to the reported $8 trillion infrastructure needs in the next ten years
in Asia alone.134 Jin Liqun, the bank’s first president, is former vice minister
of China’s Ministry of Finance, and he has vowed to run a “clean, lean, and
green operation” to the “highest international standards” but also speedy. Jin
also reportedly supports tough environmental and social standards and
expects to model the AIIB on existing MDBs, not Chinese banks,135 but
outside observers have been skeptical. The AIIB will have a less expensive
nonresident board, saving the $70 million annually spent by the World Bank.
Convening meetings by video conferencing does not necessarily mean less
rigorous oversight with Western participants such as Germany as board
members.
The AIIB is also a regional bank focused on Asia, so it is a direct rival to
the ADB, traditionally headed by a president nominated by G7 member
Japan, and with the controlling shareholding of 32 percent divided equally
between Japan and the United States.136 Consequently, the AIIB invited
much higher-profile political drama than either the OBOR or the NDB. In
late 2014 through early 2015, the United States pressured its allies, including
Australia and South Korea, not to become founding members of the AIIB,137
and Japan also stayed out.138 The major showdown came in March 2015, as
the deadline to join as a founding member drew near. Then Britain, one of the
closest U.S. allies, jumped ship, fearing (before Brexit) that Frankfurt could
outmaneuver London to become the leading RMB offshore trading center,
provoking a stampede in which fifty-seven countries around the world,
including Germany, France, Italy, Australia, and South Korea, all became
AIIB founding members. The AIIB instantly became a global multilateral
bank and, according to former U.S. Treasury Secretary Lawrence Summers,
this was “the moment the United States lost its role as the underwriter of the
global economic system.”139
The AIIB’s headquarters is in Beijing, and China holds 26.1 percent of the
voting shares.140 Although the AIIB spectacle stole some thunder from the
near-simultaneous launch of the NDB (with both occurring in mid-2015), the
BRICS members are treated quite well in the AIIB. As Figure 3.7 shows,
India, Russia, and Germany hold the second-, third-, and fourth-highest
voting shares in the AIIB, with 7.5 percent, 5.9 percent, and 4.2 percent,
respectively. Even Brazil, the only founding AIIB member from the Western
Hemisphere, holds a 3.0 percent voting share, nearly equivalent to those of
France, the United Kingdom, and Indonesia.
For its part, Russia delayed signing on to the AIIB because the Finance
Ministry was ready to reject the initiative, given that falling oil prices and
sectoral sanctions were forcing painful budget cuts. Word went out that “we
have no money to participate in Chinese geopolitical projects,” which led the
Russian foreign ministry to send a “polite rejection” to China. However,
when the issue finally reached the Kremlin, Putin immediately overturned the
bureaucratic response and decreed that Russia would indeed join the AIIB.141
FIGURE 3.7 Voting Shares in AIIB
Source: Asian Infrastructure Investment Bank (AIIB) Articles of Agreement,
www.aiibank.org/html/aboutus/basic_Documents, accessed December 1,
2016.

Third, China has new and increasingly intense bilateral financial relations
with each of the other BRICS. Unlike China, the other BRICS are chronically
short of long-term investment and have crumbling and inadequate
infrastructure. That is, these are primarily cases where there is an expansion
of bilateral, intra-BRICS credit and investment relations, but the movement is
overwhelmingly from China and to the remaining four countries. For
example, in late 2014, China and Russia signed a thirty-year, $400 billion
deal for the Russian gas company Gazprom to supply China, although the
collapse of the ruble delayed agreement on pricing terms and whether China
would pay in RMB.
Brazil’s state oil and gas company Petrobras, the country’s largest firm,
held in 2011 what then was the world’s largest-ever initial public offering,
raising almost $70 billion. By 2014, however, it was embroiled in a profound
corruption scandal that helped to bring down Brazilian President Dilma
Rousseff in mid-2016. With global markets temporarily closed to it, in early
2016, Petrobras raised to $10 billion its total outstanding loans from the
CDB.142 Similar financial largesse, with few obvious strings attached, has
characterized China’s recent relations with India and South Africa.

OUTSIDE OPTIONS: DIMINISH DOLLAR DOMINANCE AND BUILD THE FINANCIAL

MARKET POWER OF THE RMB (CASE 4)

The fourth and final case in this chapter involves BRICS collaboration to
support the internationalization of China’s currency, the RMB, as a means to
challenge the dominance of the U.S. dollar in the world. It provides an
example of the type of financial statecraft collaboration identified in the
lower-right cell of Table 3.2. RMB internationalization creates an outside
option for these countries to diversify their international transactions
currencies, and in the future, possibly reserve currencies as well. Leaders in
each of the BRICS countries have complained about the overwhelming
power and “exorbitant privilege”143 accruing to the United States, whose
home currency has served since the mid-twentieth century as the global
reserve currency and major transactions and trade invoicing currency, and
whose government’s low-yielding Treasury securities are understood to be
the world’s safest and most liquid asset for investment. Such dollar
dominance has imposed on governments the constant imperative to provide
de facto cheap loans to the United States. Particularly for China, which had
accumulated massive foreign exchange reserve and dollar-denominated assets
in the past, the “dollar trap”144 and uncertainty of U.S. monetary policy has
become an acute problem.145 More generally, the high opportunity cost of
dollar reserves and uncertainty related to U.S. monetary policy has led the
leaders of these emerging or reemerging powers to prefer, in principle, to
have an alternative to the U.S. dollar through actions to promote a greater
multiplicity of reserve and transactions currencies.146
 Individually and collectively, BRICS governments have approached the
problem of dollar dominance from multiple vantage points. Some BRICS
countries are in favor of increasing the number of reserve currencies.147 For
at least a decade, Russia has been one of the strongest proponents of
increasing the international role of the ruble; in 2003, it set the goal of
making the ruble “freely tradable” in connection with Russia’s entry into the
G8. A second idea, initially promoted by China and Russia, that gained
collective support was to create a supranational reserve currency that would
transform the SDR. In 2009, Russia tabled both proposals to the G20 meeting
in London, emphasizing the need for the expansion and diversification of
reserve currencies and the development of “major regional financial
centers.”148
At the 2010 BRICS summit in Brasilia, the BRICS agreed to explore
monetary cooperation, including using national currencies in trade. Russia
and China began to hold auctions in yuan and rubles the following year,
while Brazil also emphasized shifting toward bilateral trade in national
currencies and including the real in the foreign exchange reserves of other
states. After the G20 summit in Los Cabos, Mexico, in 2012, Brazil and
China also agreed to establish the first pool of reserves of BRICs countries
for $60 billion to ensure liquidity in the event of a crisis—a precursor of the
subsequent BRICS CRA.149
In 2011, then–Russian President Dmitri Medvedev also supported
including BRICS currencies in the IMF SDR, given Moscow’s view of its
prospects to be leaders of global development, despite the fact that BRICS
currencies are not at present fully convertible or widely used in global trade
or investment outside of some regional or bilateral trade settlement.150 For
example, some Indian trade with near neighbors is rupee-denominated and
Indian multinationals may use the currency in financial operations with
subsidiaries.
Meanwhile, China was actively promoting the use of national currencies in
bilateral trade with several regional partners, including Japan, as well as the
inclusion of the RMB in the SDR basket. The SDR goal reportedly was
constantly discussed in 2011 at the G20. While the Europeans focused on the
sovereign-debt crisis, the Chinese, as a major creditor, expected European
reforms and the protection of their investments in euro debt. Into this mix, a
French-Chinese working group was set up to study the question of integrating
the RMB into the SDR.151 That same year, PBOC authorities declared that
there was a “high probability” of RMB inclusion in the SDR.152 On the eve
of the BRICS summit in New Delhi in 2012, China also transferred currency
to the BRICS domestic development banks to permit lending in local
currencies.
During this time, the BRICS had mounting concerns regarding U.S.
monetary policy, particularly when the U.S. Federal Reserve Bank began
massive quantitative easing in the aftermath of the global financial crisis. To
protect their assets in the face of the potential collapse of the dollar, they
were virtually forced to continue to lend funds to the United States by
retaining their large investments in U.S. Treasury securities. Moreover, many
of their currencies were quite volatile against the U.S. dollar, which these and
other emerging economy policymakers tended to blame on U.S. and Western
monetary policy.
Among the BRICS, only the Chinese yuan remained relatively steady
against the U.S. dollar. The currencies of the remaining four reacted to the
first hints of the U.S. subprime crisis in early 2008 by falling sharply through
early 2009, and then appreciating significantly thereafter as U.S. monetary
policy became and remained very loose. It was during this period, in
September 2010, that Brazil’s Finance Minister Guido Mantega famously
declared that the international community was engaged in a “currency war.”
After appreciating for a year and a half, in mid-2011 the currencies of all the
BRICS except China began dropping fast and hard again, and they have
mostly continued to do so through September 2016.153
One of the lessons that BRICS policymakers have learned is that a greater
diversity of international anchor currencies may be desirable. However, the
currencies of the other four BRICS countries have been about as volatile
against the RMB as against the U.S. dollar, as shown by Figure 3.8.154 Thus,
rhetorical support from the other four for a greater role for China’s RMB
(yuan) may be more about BRICS solidarity than a clear and credible
calculation of self-interest.
FIGURE 3.8 Nominal Exchange Rate Movements against U.S. Dollar: BRICS, 2009–2015
Source: Exchange Rate Archives by month, IMF,
https://www.imf.org/external/np/fin/data/param_rms_mth.aspx, accessed
November 15, 2016.

The dilemma of the BRICS is that while they would all like to have
alternatives to the U.S. dollar, they do not want the value of the dollar to fall,
for that would reduce the value of their own dollar-denominated assets.
Russia, for example, increased its holdings of U.S. debt by more than 1,600
percent between 2006 and 2011 to a 2010 peak of $176 billion, thanks to
surging commodity prices for its oil and gas. After S&P’s downgrade of U.S.
debt to AA+ sparked a global selloff in August 2011, then–Prime Minister
Putin complained that the United States “is living beyond its means and . . .
acting . . . as a parasite on the global economy and its dollar monopoly
position.”155 But strikingly, Russia’s Deputy Finance Minister Sergei
Storchak joined the chorus of U.S. debt holders voicing support for the dollar,
insisting that Russia doesn’t expect “any alternative whatsoever” to its
holdings of U.S. sovereign debt in the next five years. In justifying his stance,
Storchak gave the standard explanation: “The U.S. debt market is still the
most liquid, dependable, and safe.”156
The Russians would like to diversify, but good alternatives have been
lacking. In practice, the only viable alternative to a dollar-only global reserve
currency system would be one with multiple-currency reserves adding
increased use of the euro and the RMB over time, although the yen and Swiss
franc also are considered hard currencies.157 The attractiveness of the euro
was drastically reduced as much of Western Europe experienced economic
turmoil or teetered on the edge of it following the global financial crisis of
2008–2009. For many observers, the obvious choice is the RMB.158 In 2011,
a World Bank report forecast that the dollar’s dominance would end before
2025 and would likely be replaced by a monetary system based on the U.S.
dollar, euro, and RMB.159
In support of the increased use of the RMB in global transactions, the
BRICS have engaged in four tactics. First, they have talked up the RMB and
moved away from the dollar, including taking the step of transferring some
official reserves out of U.S. Treasury securities and into an alternative asset,
with mixed success. Most countries report their total official reserves and the
currency breakdown of some share of that total, known as their “allocated
reserves.” Since the introduction of the euro in 1999, the share of the U.S.
dollar in total allocated reserves worldwide slowly declined, from around 70
percent (1998–1999) to 62 percent (2008) reflecting challenges by the new
united currency, the euro.
The share of the U.S. dollar hovered at around 62 percent, until 2015,
rising slightly to 64 percent in the latter two quarters of 2015.160 However, it
is possible that some countries are disinvesting from some currencies (the
U.S. dollar) very quietly so that their sales do not influence the price of that
currency, and thus the value of their remaining financial assets in that
currency. For example, there have been persistent, although unverified,
reports that the PBOC has acted thus. Russia also reportedly shifted a
significant percentage of its holdings of U.S. securities into a custodial
account when the threat of sanctions emerged in 2014. In November 2014,
moreover, Chinese Premier Li Keqiang announced a ten-point plan for
financial reform, including a pledge to make “better use” of China’s then–
$3.6 trillion in foreign exchange reserves. In practice, this has meant allowing
China’s SWFs to access a greater share of the country’s reserves in order to
redeploy these funds in higher-yielding corporate securities and FDI.
 Second, ever since the famous paper by PBOC Governor Zhou Xiaochuan,
released in March 2009 prior to the G20 London Summit, which advocated
the increased use of SDR,161 the Chinese government has been advocating
the inclusion of the RMB into the SDR, the IMF’s virtual currency. Since
1969, the SDR has supplemented global liquidity and been used for IMF
transactions, functioning as both a unit of account and a store of value. The
SDR was long based on a “currency basket” that includes the world’s four
major hard currencies: the U.S. dollar, the euro, the Japanese yen, and the
British pound sterling.162 The composition of the SDR is reviewed every five
years, and it requires a 70 percent majority among the IMF EDs’ votes to
revise the currency composition.
Although Governor Zhou’s proposal was a practical policy suggestion
regarding the wider use of SDR, many took it, probably correctly, as a
Chinese challenge to U.S. dollar dominance.163 The IMF Articles of
Agreement specify that a currency may qualify to be included in the SDR
when it is “freely usable.” This usability consists of two components: it
should be “widely used to make payments for international transactions” and
“widely traded in the principal exchange markets.”164 When the Chinese
government began to make some moves toward including the RMB in the
SDR, the IMF’s 2010 review found this premature.165 But given China’s
increasing weight in the economy in the 2010s, the G20 at its Cannes Summit
in November 2011 took it upon itself to recommend to the IMF that the
question of SDR composition be revisited. The BRICS governments at the
July 2015 BRICS leaders’ summit at Ufa, Russia supported China on
including the RMB in the SDR in order to “counter Western dominance of
the IMF.”166 Then on November 30, 2015, the EDs of the IMF completed
their review and determined that the RMB meets the existing currency
selection criteria for the SDR basket, and its inclusion was effected as of
October 1, 2016.
The revised SDR basket is now based on the following weights: 41.73
percent for the U.S. dollar; 30.93 percent for the euro; 10.92 percent for the
Chinese RMB; 8.33 percent for the Japanese yen, and 8.09 percent for the
British pound. These weights are derived from a new formula adopted by the
IMF EDs in their review, including the value of the issuers’ exports, the
amount of reserves denominated in the respective currencies that were held
by other monetary authorities, foreign exchange turnover, and international
bank liabilities and international debt securities denominated in the respective
currencies.167 The World Bank also will issue bonds in China settled in RMB
but backed by the IMF’s currency basket for the first time. This is, in part, to
revive China’s domestic bond market (already the third-largest), but
international investors hold less than 2 percent. China is also interested in
boosting SDR use to support RMB internationalization and challenge the
global dominance of the dollar.168
Third, the five BRICS have supported greater use of the RMB and other
local currencies for trade, and they have signed currency swap agreements
stating that this is their intention. China in particular has taken concrete steps
to implement local currency-denominated trade with many of its trading
partners through settling the trade in the RMB. In 2015, trade settlement in
RMB totaled $1.7 trillion, about 25 percent of China’s annual trade. HSBC
Bank forecasts that annual cross-border trade settlement in RMB will climb
to over 50 percent of China’s total trade by 2020.169 In order to facilitate such
RMB settlements, the PBOC has concluded RMB swap arrangements with
more than thirty countries, including Russia and Brazil. As of summer 2014,
more than fifty central banks had invested in RMB assets using onshore and
offshore RMB markets.170
The final category of concrete steps that would be needed to promote a
shift away from the U.S. dollar and toward the RMB would be Chinese
moves to open its capital account and liberalize the country’s domestic
financial markets and regulation, allowing them to become more liquid and
opening them up to foreign financial investors. China has made some
important moves in this direction (see Chapter 2). Such pro-market financial
reforms may have multiple goals, including promoting domestic financial
reform and economic efficiency, and have encountered domestic resistance
(see Chapter 4).171
As an exercise in collective financial statecraft among the BRICS
countries, their attempt to cohere around the goal of tempering U.S. dollar
hegemony has met with some although limited, success. Although there has
been a dramatic percentage increase in the employment of the RMB as a
global transactions currency, it remains a small share of total transactions.
Nor is the RMB’s share of official reserves large, although both have risen
rapidly. The BRICS leaders have made many speeches in support of this goal,
and individual countries have modified their initial positions in order to move
closer to the BRICS’ club position. But the attempt to challenge the
dominance of the U.S. dollar is still in its early stages. It has been relatively
cost-free so far for the non-Chinese BRICS to support RMB
internationalization. As the RMB becomes more internationalized, and more
widely used, China’s fellow BRICS, which lack influence over global
currency markets, may look more carefully at whether their own national
interests are served by a rising RMB, even if mainly for regional transactions.
Unequivocal embrace of the goal of RMB internationalization by the
principal Chinese actors—which has not yet occurred—would appear to be a
prerequisite for joint BRICS actions to have any impact on global currency
outcomes. The significant August 2015 RMB devaluation, which took traders
by surprise, demonstrates the difficult choice that Chinese authorities face in
stabilizing their currency, which is also likely to be a requirement for
successful currency internationalization.172 Nonetheless, the direction of a
shift in global currency power seems inevitable: the RMB is becoming more
important, and the other BRICS will try to benefit from its rise.

FUTURE DIRECTIONS AND COOPERATIVE OPPORTUNITIES NOT TAKEN

In the cases discussed here, as well as other cases not examined in this
chapter, the BRICS have found focal points to consider future collaboration.
In other cases, they either collectively remained neutral or acted separately.
To take one example of the latter, the BRICS never developed a collective
position in the financial regulatory discussions of the newly established FSB
or in the Basel Committee on Banking Supervision (BCBS), to which Brazil,
China, India, and Russia were admitted at the time of the March 2009
expansion.173 There is also no sign of either resistance to or collective
support by the BRICS with respect to the Sovereign Debt Restructuring
Mechanism (SDRM) being discussed at the IMF.174 However, the BRICS
have converged on broadly similar responses to the Basel III accord on
banking regulations: commercial banks in China, Brazil, and Russia each
now hold capital greater than the Basel rules require.175 More contentious is
Beijing’s recent proposal for a “BRICS FTA” (free trade agreement) to boost
trade. India’s trade deficit in goods with China soared from $1.1 billion in
2003–2004 to $52.7 billion in 2015–2016. Although in 2014, both Brazil
($16.7 billion) and South Africa ($28.9 billion) ran trade surpluses with
China, all three of the democratic BRICS worry about their future trade
balances with China (see Chapter 4). In the near term, the BRICS are more
likely to confine themselves to more modest framework agreements on
matters related to small and medium-sized enterprises, the service sector and
intellectual property rights, and possibly new mechanisms for a single
window clearance and faster resolution of nontariff barrier disputes.176
With respect to emerging cooperation in other areas of collective financial
statecraft, surprises abound, particularly where they share common aversions.
Thus, as previously noted, BRICS have individually (and as of 2016,
collectively) agreed to evaluate the merits of establishing a BRICS credit
rating agency to break the monopoly of the U.S. “Big Three”—Moody’s,
Fitch, and S&P—which together account for 90 percent of the global ratings
market. The BRICS governments challenge the ratings of these private firms
as Western-biased and insufficiently informed about their local conditions.
Similarly, threats to shut off SWIFT as part of U.S. sanctions campaigns
against Iran and others have been opposed by the BRICS. They add further
justification for the creation of China’s proposed CIPS, which is supported by
Russia and is designed to work competitively, but also in collaboration with,
not as a wholesale substitute for, the incumbent Western model.

CONCLUSION: MOSTLY SUCCESSFUL BRICS COLLECTIVE FINANCIAL STATECRAFT

This chapter has examined collective financial statecraft, focusing on the

ways in which rising or middle powers might choose this medium to seek
greater power and influence in the international system, specifically vis-à-vis
a group of dominant incumbent powers. Four ideal types of collective
financial statecraft were analyzed: inside reforms of institutions of global
governance, the outside option of creating new global financial institutions,
and both inside reforms and outside options to manipulate international
financial markets, resist such manipulation by others, or acquire more power
and influence within such markets.
In terms of the four cases, the key questions are whether the cooperation
itself was a success, as well as whether the cooperative action succeeded in
achieving the group’s intended aims. The challenge of evaluating success and
failure of the BRICS collective financial statecraft in these four cases arises
not only from the fact that these cases are relatively new developments and
most of them are still ongoing, but also from the time inconsistency
challenge. That is, thus far none of these cases has been very costly for any of
the BRICS countries. This makes cooperation much easier than otherwise
would be the case, and they can all see that current commitments to cooperate
have potentially large rewards. However, such commitments are less credible
looking into the future, as costs may grow or benefits fail to materialize. This
time-inconsistency problem becomes more acute in that the BRICS is a group
housing a vast power asymmetry between the already “risen” and very large
country, China, as compared to the rest (as shown in Chapter 2). In this
context, China may use the group during its time of need, but it always
possesses the easiest exit option. Hence, the other four BRICS members
perhaps discount promises of benefits in the future.
Notwithstanding the time-inconsistency caveat, there has been
considerable cooperation among these four (and then five) countries over a
number of years. Most of the cases are surprising successes. The only clear
failure among these cases is their inability to unite around a new head of the
IMF or World Bank in 2011 and 2012, which constitutes one piece of their
attempts at inside reforms of the Bretton Woods institutions. Still, even that
unsuccessful cooperation resulted in a much more transparent process. When
Christine Lagarde wanted to serve a second term, she lobbied the BRICS
very hard and was rewarded with their support, especially from the Chinese
government following her support for RMB inclusion in the SDR in 2015.
The “chairs and shares” cooperation in Case 1 is a belated success and
progress is expected to continue. In all the remaining cases—resistance to
Western sanctions on Russia (Case 2), the establishment of the NDB and
CRA (Case 3), resistance to Western sanctions on Russia (Case 3), and
promotion of RMB internationalization (Case 4)—the BRICS’ cooperation is
ongoing and has strengthened over time. In other words, the BRICS
governments have been impressively successful in hanging together despite
having diverse political regimes, distinct interests, and even long-standing
tensions among some members of this group. Even more striking, there has
been remarkable success in achieving the desired outcomes: enhanced voice
within the IMF and World Bank, support for Russia and for the principle that
financial clout ought not to be employed as a foreign policy tool to violate the
sovereignty of other major powers,177 viable new international financial
institutions not controlled by the incumbent Western powers, and RMB
internationalization, which is proceeding faster than many observers
expected. BRICS cooperation was clearly important for Cases 1, 2, and 3.
The BRICS also supported China’s case for including the RMB in the SDR
(Case 4).
Over the decade of their collaboration, BRICS acquired club properties and
successfully coordinated among themselves, while also engaging in repeated
instances of bargaining on these cases with the United States and other G7
countries. BRICS bargaining was facilitated in part by the enhanced status of
the G20 governance group, which has regularly brought together both the G7
and the BRICS and supported the interests of both members’ clubs since the
first BRICS summit in 2009.178
Equally important is the signal by the BRICS that they have strongly
supplemented their hybrid strategy of inside reforms with outside options,
which was an important turning point in their group relations and their
interaction with the incumbent powers who have dominated global economic
governance since the end of the Second World War. However, the BRICS did
not transition into an oppositional stance as spoilers, nor it is accurate
anymore to label them as shirkers. The BRICS are not engaged in a hostile
takeover or a “destroy and replace” mission. They are persistent, disruptive
change agents led by China, the most important competitor to the United
States since the Soviet Union. The global financial crisis, prolonged delays
by Washington to ratify the 2010 IMF quota reforms, and other acts of
incumbent power resistance, such as only token attempts by the Obama
administration to include any of the BRICS in the Trans-Pacific Partnership
(TPP), shows both cracks in the order and increased U.S. sensitivity to
China’s rise. There is an increasing U.S. tendency to hedge on its
commitment to integrate China and the BRICS as a group into a benevolent
and legitimate negotiated liberal order179 as China and the other BRICS have
taken one step closer toward its possible replacement.
The next chapter alters the analytical focus from the group to the
individual countries, discussing each country’s mixed motivations for
cooperation in international financial statecraft. It investigates specific
propositions about the intentions of BRICS countries regarding these and
other issues central to their collaboration.
Motives for BRICS Collaboration

VIEWS FROM THE FIVE CAPITALS

THE COLLABORATION OF Brazil, Russia, India, China, and South Africa (the
BRICS) between 2006 and mid-2016 enabled the members to address much
of their dissatisfaction with the existing global financial governance
institutions, resist financial sanction pressures, and establish new and
alternative institutions. But why? What motivates leaders in each of the
BRICS to engage in collective financial statecraft? Chapter 1 suggests that
the BRICS have rational incentives to emulate the successful practices of
the leading incumbent powers, most prominently the G7, which organized
themselves into clubs to facilitate the coordination of important common
interests and set the agenda in key multilateral arenas. For decades, the club
model enabled the dominant powers to steer the policy debate in a favorable
direction and effectively constrain the policy preferences and bargaining
power of the emerging economies in Bretton Woods institutions.1 Acting
collectively in a similar club format, the BRICs could achieve better
outcomes than they could by acting alone.If they “actively engage in efforts
to discern . . . their respective positions,” they are able to “negotiate among
themselves to agree on a common position.”2 Moreover, their club meets
the basic condition of providing a sufficiently large pool of net benefits for
each of its members.3
This chapter begins by specifying six propositions that suggest starting
points to examine the motivations of the five BRICS to cooperate. The
analysis rests on two basic assumptions. First, each BRICS government
gauges the costs and benefits of intra-BRICS collaboration. The benefits
come from material or status gains that these governments anticipate from
cohesion around collective financial statecraft, and the costs include direct
material costs (as from contributing funds to achieve some goal),
opportunity costs (arising from alternative uses for the resources expended),
and indirect costs (such as compromises of a country’s future scope for
independent foreign policy actions, or the risk of provoking the incumbent
major powers). Second, the country case studies understand intra-BRICS
cooperation as the result of intentional, independent, and sovereign choices
about foreign policy. Unless otherwise specified, reference to the
preferences, fears, or perceptions of a country refer to those of its
incumbent leadership in accordance with the “unitary rational actor”
assumption.

SIX PROPOSITIONS

The following six propositions delve more deeply into the BRICS’
motivations—that is, why they collaborate.
Proposition 1. Collective financial statecraft among the BRICS countries
is more likely when collaboration magnifies the signal to the incumbent
powers that the BRICS are dissatisfied with current global financial
governance.
The BRICS, as intermediate and/or newly arrived and insecure major
powers, are unhappy with the state of global financial governance. The
rising economic status of the BRICS, their particular preferences and
voices, are not proportionally reflected or fairly represented in the current
global governance system. The incumbent powers, due to the path-
dependence of institutions and domestic resistance, are unwilling to agree to
share their privileges. Furthermore, the BRICS countries tend to have
revisionist preferences for specific substantive components of contemporary
global financial governance.4 Hence, they have a common interest in
increasing their representation, status, and voice in the global financial
system. It is no coincidence that BRICS collaboration expanded in the
aftermath of the global financial crisis, when core country financial
practices, particularly in the United States, became somewhat discredited.5
Proposition 2. Collective financial statecraft among the BRICS countries
is more likely when each country perceives threats to its sovereignty or
autonomy to act, particularly in its respective region.
The BRICS countries are “sovereignty hawks”: despite power
asymmetries, differential speeds of economic growth, being located in
different geographic spaces, and dissimilar political regime types and
relations with the incumbent powers and the liberal global economic order,
the BRICS share common aversions when it comes to protecting their
countries’ sovereignty and autonomy. They fear and resent interference by
the incumbent powers in their internal affairs, autonomy, or independent
foreign policy choices. This shared sentiment leads all the BRICS
governments to come to the aid of any member whose sovereignty is being
attacked through sanctions or other non-violent means. Not only are the
BRICS motivated to support the attacked member because they are
fundamentally opposed to such actions on the part of the incumbent powers,
but they also want to ensure that such tactics do not succeed, in order to
prevent a precedent. They fear that if economic sanctions succeeded in
limiting the policy autonomy of one BRICS member, a similar tactic could
be used against the others another time.
Proposition 3. Collective financial statecraft among the BRICS countries
is more likely when such cooperation promises to provide benefits, or
“carrots,” that each BRICS government can distribute in its own geographic
region, commensurately increasing its own regional status.
Each BRICS country would like to enhance its status as a regional power,
and intra-BRICS collaboration in financial statecraft promises the
opportunity to access material benefits that might subsequently be
distributed to others in each BRICS country’s geographic neighborhood.
Each of the BRICS countries is a large regional power whose unilateral
actions in the region are either feared or seen with some uneasiness by
neighboring small powers. BRICS’ collective action to address unequal
representation in global financial governance, as well as the failures or
shortcomings of the incumbent powers, particularly in the aftermath of the
global financial crisis, also promises significant benefits to the BRICS in
terms of both international and regional status. As the BRICS address these
shortcomings of global governance, they signal their commitment to taking
the lead in addressing the plight of the “global South” and inequality
between the “West” and “non-West,” thus potentially enhancing their
legitimacy and standing among their regional neighbors.
Proposition 4. Collective financial statecraft among the BRICS countries
is more likely when such cooperation promises to appeal to the domestic
audience and increase the status of each country’s current political
leadership within its respective domestic political arena.
BRICS leaders believe that membership in their exclusive club boosts
their political fortunes in their respective political systems, despite their
large differences in the types of domestic political regime. In a way, this is
the same “carrot” strategy as that of each BRICS member in its regional
arena, but now their domestic constituencies are the beneficiaries and the
audience. The BRICS’ actions concerning global governance as they stand
up to double standards, hypocrisy,6 unfairness, and so-called bullying by the
incumbent powers are all very popular among their domestic audiences.
Incumbent political leaders can use BRICS actions to deflect domestic
criticisms directed at themselves, despite ongoing rivalries among some
BRICS powers (including between China and India or China and Russia).
Proposition 5. Collaboration by China with the other BRICS in financial
statecraft is most likely when China can employ the other BRICS as a cover
to make its offensive foreign policy choices appear more benign to the rest
of the world.7
China is the clearly dominant economic power within the BRICS club,
and it is the only member, as of the early 2010s, with attractive outside
options to carry out systemically consequential financial statecraft on its
own, without relying on the rest of the BRICS members. Lacking allies,
China is likely to be motivated by the amplified impact of its financial
statecraft when it is supported by the other BRICS. When China’s
international actions are made in the name of a diverse, multilateral group,
then China’s motivations may be less likely to be construed by the status
quo powers as self-serving or threatening. These actions also may have a
much more visible impact if conducted collectively, the benefits of which
outweigh the costs of slight compromises with the other BRICS.
Proposition 6. Collaboration by the other four BRICS with China in
financial statecraft is more likely when they perceive defensive
opportunities to bind China by enticing it to cooperate with them over time.
The other BRICS simultaneously expect to gain from China’s rise.
This last proposition also recognizes the capabilities imbalance between
China and the other four countries (discussed in Chapter 2) and suggests
that each of them either has reasons to fear China, wants something from
China, or both. The other BRICS will be more likely to collaborate with
China when they see a tethering effect on China through such collaboration.
Of course, these weaker BRICS governments are also motivated by the
amplifying effect of BRICS positions when China is on board.
In sum, the country cases that follow in this chapter suggest that the
BRICS collaborate for several reasons, ranging from their positions in the
global interstate balance of capabilities, to their expectations of intragroup
dynamics, to their hopes for benefits vis-à-vis other countries and each
leadership’s domestic constituents. Some of these reasons dominate at one
time, and other motivations predominate at other times. Moreover, the mix
of motivations will not be constant among the five BRICS. Nonetheless,
together, these six propositions constitute a useful foundation to explain
why the BRICS have hung together—at least so far.

THE VIEW FROM BEIJING: IN SEARCH OF LEGITIMACY AND UNTHREATENING

LEADERSHIP

Of the BRICS members, China represents by far the largest economy, with
the fastest growth in the last few decades; it also possesses the strongest
global political influence. Since the global financial crisis in 2008, the
United States and China have stood as the de facto G2 leading powers, as
they engage global economic governance now under the auspices of the
G20.8 Since Xi Jinping’s rise to the presidency of China in late 2012, the
U.S.-China dialogue has operated under what China calls a “new type of
great power relations.”9 In addition, China has a seat at every global and
regional governance table, including a permanent seat on the United
Nations Security Council (UNSC). With its massive foreign exchange
reserves, budding international currency, and military and productive
prowess backing the economy, China can go it alone all the way, if it
wishes, to implement financial statecraft to defend itself or to shape global
economic debate and governance. Furthermore, China now has the financial
power to entice and coerce others to its advantage. Nevertheless, it has been
unequivocally supportive of the BRICS’ process,10 and it has even taken
multiple actions to promote cooperation among the members, as discussed
later in this chapter. As the other BRICS members struggle with China’s
exports overwhelming their markets, China has also been willing to provide
access to its currency, the renminbi (RMB), for trade settlement through
currency swap agreements, and has showed its willingness to compromise
on the structure of the BRICS New Development Bank (NDB).
China’s willingness to collaborate with BRICS members is even more
curious considering that the group includes two of China’s traditional
archrivals, Russia and India. Despite gradual and visible improvement in
the bilateral relationship between China and both countries since the early
1990s, rivalry and tension occasionally flare up, particularly with India.
China is one of the countries that has benefited immensely by the existing
liberal economic order. Now more than ten times the size it was when it
reengaged the Bretton Woods institutions, China can challenge global
governance structures by itself if its leadership so chooses, as stated
previously. As discussed in Chapter 3, China’s challenge to the system
comes both by reforming from within the existing governance institutions
largely built by the West and selectively creating new parallel institutions
outside of that architecture. Why has China preferred employing the BRICS
and collaborating within it as a way to pursue its financial statecraft strategy
for the last several years in the face of its impressive rise? Will China
pursue a path of revisionism in the face of a worrying economic slowdown
and what would that path mean to the BRICS cooperation?

Changes and Continuities in China’s Stance Toward Global Governance

China under the Chinese Communist Party (CCP) has a history of
protecting its economic and monetary autonomy, including by defensive
financial statecraft, to sustain its economic growth model through self-
reliance. Less recognized is the history of China’s commitment to
multilateralism and its self-image as an important member of the
international financial community. The history of the Bretton Woods
institutions is illustrative. For the Bretton Woods Conference in June 1944,
the Chinese government (under the Kuomintang) sent a thirty-two-member
delegation, the second-largest behind the United States, and its chief
delegate was Kong Xiangxi, the finance minister and governor of the
Central Bank.11 Throughout the discussion on global financial governance
after World War II, as a founding member of these institutions, advocated
equal treatment of all nations. Chinese officials were also very pleased that
China had a large enough quota to symbolize its commitment and presence
in international monetary affairs.12
Due to the communist triumph in the country’s civil war in 1949, and the
subsequent conflict over China’s international representation throughout the
1950s into the 1970s, communist China was absent from these institutions
for decades. After the evolution of both the Bretton Woods institutions and
the CCP policies in the late 1970s, and in response to fierce efforts on the
part of both the Bretton Woods institutions and CCP leadership, the
People’s Republic of China (PRC) finally rejoined the International
Monetary Fund (IMF) and the World Bank in 1980. At this point, China
was given the ninth-largest quota and its own executive director (ED) seat.
The CCP government immediately began to request an increased quota and
representation via a single-country ED seat.13
 China’s economic opening and growth under Deng Xiaoping’s leadership
from the late 1970s was supported by the country’s access to the financial
resources from the World Bank for building infrastructure, and by
economic, financial, and technical expertise from the IMF. In most
circumstances, however, China maintained a low profile in global financial
governance matters.14 China’s taoguang yanghui (which roughly translates
to “hide your capabilities and bide your time”) strategy, following Deng’s
wisdom, continued to dominate China’s stance on global financial
governance well into the early 2000s. With the exception of China’s
misgivings about the IMF’s handling of the Asian financial crisis, the
Chinese authorities did not overtly express either strong interest in or
serious disagreement with the major powers in the international financial
institutions before 2005.15 Since then, one can identify several reasons for
increased tension; among these are the breakdown of Article IV (exchange
rate) consultations with the IMF due to the IMF’s pressure for RMB
revaluation,16 the IMF’s open criticism of China’s global “savings glut,”17
and concerns over excessively loose monetary and fiscal policies conducted
by the United States that intensified the volatility of the dollar-dominant
global economy.18 Behind these tensions over global imbalances lies the
inescapable fact that the Chinese economy, particularly since the late 1990s,
has become irreversibly integrated into the global economy through its
trade and investment around the world, and changes in global economic
conditions also have begun to affect China’s own economy.19 At the same
time, one may note China’s renewed interest in its own heritage as a
prominent power in global financial governance going back seventy years,
as policymakers called on this legacy when addressing the need for fair
representation of developing countries, as well as the imperative for the
Bretton Woods institutions to serve as entities of “resource mobilization and
transfer” from the rich regions to the poor.20 These calls made by China
predated the BRICs formation.
The quick ascent of the Chinese economy and expansion of its economic
influence around the world was already visible prior to the crises of the late
2000s, as the advanced economies were struck by the subprime mortgage
crisis (2007) and subsequent global financial crisis (2008–2009).21 These
crises, nonetheless, opened up more space for the Chinese government to be
proactive in challenging global financial governance, as discussed next.
 In contrast to the devastating effects that the global financial crisis had on
the U.S. and European economies, the Chinese domestic economy survived
the crisis relatively well, as its 4 trillion RMB stimulus package translated
into massive investment.22 By this time, the soon-to-be number-two world
economy, China, had already extended its trade and investment partners
beyond the advanced industrialized nations and its immediate neighbors
into Latin America and Africa.23 As the country’s economic partners in the
developing world began to experience a slowdown, the Chinese
government stepped in by providing loans through its state-owned banks,
the China Development Bank (CDB) and Export-Import Bank of China, as
well as by extending bilateral currency swaps in RMB.24 Beyond these
bilateral initiatives, the global financial crisis brought to the fore several
new forums such as the G20, where China could voice its views and
establish new coalitions in support of global financial governance reforms.
The crisis tarnished neoliberalism and the globalization of finance25 and
diminished U.S. leadership of the IMF, as it needed to turn to emerging-
market economies such as China for more financial resources to help
bolster itself.26 Since the global financial crisis, Chinese financial statecraft
became more forceful and started to have multilateral inclinations,
particularly in the realms of global financial and currency governance.
President Xi came to power in late 2012, at a time when China had
indisputably risen to become one of the great powers in the world, along
with the United States. Following the Third Plenum of the CCP’s 18th
Congress in November 2013, the Chinese leadership launched multiple
political and economic reform initiatives, ranging from an anticorruption
drive, to phasing out of the one-child policy, to state-owned enterprise
(SOE) and financial reforms. In the foreign policy realm, Xi has
emphasized China’s role as a great developing nation. For example, when
commemorating the sixty-year-old “Five Principles of Peaceful
Coexistence,” which emphasizes equality among all sovereign states and
peaceful coexistence, Xi announced China’s desire to establish a new-type
of international relations through “win-win” cooperation among developing
and emerging countries.27
With this stance, Xi’s political team has pushed for a more activist
Chinese foreign policy, ranging from pursuing its conception of Chinese
security requirements in the South China Sea to the exercise of strong
leadership at the Asia-Pacific Economic Cooperation (APEC) summits.
Like the other BRICS, China’s financial statecraft operates in the context of
the leadership’s view of China as a regional power. For his part, Xi
reportedly “aspires to increase China’s power and influence . . . to give it a
dominant role in Asia and the Western Pacific—at the cost of U.S.
ascendancy,” but strongly prefers the approach of “pushing towards the
bottom-line without breaking it.”28
As discussed in Chapter 3, Xi also launched the One Belt, One Road
(OBOR) initiative in 2013 to expand China’s presence both through the
ocean and on land to connect the country throughout the Eurasia continent
and beyond. The fact that initiatives such as OBOR, the Asian
Infrastructure Investment Bank (AIIB), and the NDB emerged in the years
when China’s “going out” strategy and loans and investments are facing
default risk and debtor insolvency29 demonstrates that China’s financial
statecraft intentions go beyond infrastructure funding and regional
connectivity. Multilateral initiatives and positive enticement are ways to
manage the risks of China’s growing global presence where anti-Chinese
sentiment and securing China’s national interests are at stake.30
In sum, despite political regime changes and throughout the dramatic ups
and downs of the nation in China’s seventy-year postwar history, the
Chinese leadership maintained two fundamental aspirations as important
parts of China’s foreign policy identity. First, China is a great nation with a
desire to contribute to global governance on its own terms. Second, China is
a developing country that has already reached upper-middle-income status
and whose interests also align with the unfairly treated parts of the world
that have a legacy of colonization. Why is China interested in collaborating
with BRICS members and engaging in collective financial statecraft, given
that it possesses sufficient financial capability to influence global
governance single-handedly? Its motives spring from five sources,
discussed next.

Aversion to the Domination of Western Liberal Values in Global Financial

Governance
The first source of China’s motivation derives from the nation’s frustration
with the predominance of Western liberal norms, rules, and strategies of
global financial governance. China also shares with other BRICS leaders an
aversion to the West’s imposition of its rules on the rest of the world.31 It
has been apprehensive about certain aspects of international financial
governance, such as the imposition of conditionality on and interference in
its domestic affairs, which challenge the principle of sovereignty, highly
valued by the Chinese leadership. The Chinese government has been
opposed to and suspicious of IMF surveillance and critical of IMF
conditionality imposed on debtor nations during balance of payments crises.
Since the PRC joined the IMF in 1980, China has repeatedly indicated its
discomfort with IMF conditionality. For example, not only did China resist
full currency convertibility for sixteen years after joining the IMF, but it
also made sure to avoid any balance-of-payments crisis that would call for
IMF policy involvement.32 In 2007 and 2008, furthermore, China
suspended its Article IV consultation because it was unhappy with the way
in which its foreign exchange rate policy was placed under scrutiny by the
IMF as the country faced “currency manipulation” charges. During this
period, the Chinese leadership underscored its frustration about IMF
intrusion into “matters of national sovereignty.”33 Furthermore, as the
Chinese government has quickly become one of the largest bilateral foreign
aid donors, it has made clear its opposition to political conditionality
attached to its own foreign aid, emphasizing its commitment to the principle
of noninterference.34
Chinese leaders share the frustration over the underrepresentation of
developing countries and unfairness of the way that adjustment pressures
are placed on non-Western powers in the context of international financial
imbalances, either as a deficit country (like Brazil) or a surplus country
(like China).35 Such frustration is also targeted at the exorbitant privilege of
U.S. dollar dominance in the world, whereby U.S. macroeconomic or fiscal
policy is hardly ever placed under IMF surveillance or financial discipline.
China strongly sympathizes with developing countries and emerging
markets, which in its view “have been in [a] subordinate position [in the
global financial system], constantly being governed and regulated by
developed countries.”36 Recently, China found it almost intolerable to have
to face obstruction by the United States (owing to Washington’s
dysfunctional politics rather than to opposition by President Barack Obama)
blocking the agreed-upon 2010 IMF quota reform, and has been frustrated
by delays in having the RMB included in Special Drawing Rights (SDRs).
The nation had a distinct view that the United States was purposefully
obstructing global financial reform, particularly within the IMF.37
Illustrating China’s frustration with the United States, the prominent and
well-connected observer Wang Jisi stated that “even in the economic realm,
the two sides still harbor substantial divergent interests and contrasting
visions of the future global order they hope to see.”38 Meanwhile,
“emerging powers like India, Brazil, Russia, and South Africa are
increasingly challenging Western dominance and are working more closely
with each other and with China in doing so.”39 Also manifest in the policy
pronouncement of the former President Jiang Zemin (1993–2003) is the
concept of “democratization of international relations,” which has been at
the front and center of China’s stance toward global financial governance.
The concept suggests that “international affairs should be decided by all
states in the world peacefully through dialogue and negotiation,” but more
fundamentally, it means that “domestic politics should be left to a country’s
people and government to decide.”40 Moreover, the Chinese leadership has
always been wary of fundamentally intrusive economic instruments used by
external powers to influence the Chinese economy, society, and politics.
Hence, China hopes to induce more pressure to change the Western
domination in global economic governance by hanging together with the
BRICS.

Increase China’s Voice in the System

The second motivation for China to work with the BRICS is to use the new
global financial forums effectively to increase its voice in the global system.
The G20 process, which was converted in November 2008 from meetings
of finance ministers and central bankers to summits with heads of state, has
become the main forum for this purpose.41 The BRICs finance ministers
first convened for a conference in São Paulo, Brazil, in November 2008 in
preparation for the first G20 summit in Washington, DC. Since the Cannes
G20 Summit (November 2011), the leaders of the five countries have
habitually met just prior to the G20 summits to coordinate their positions.
“Group making” (jí tuán huà) has become a new approach that China uses
to address the issues of global governance.42 With the birth of this new
forum, along with discussions at the United Nations where emerging
powers tackle the dominance of institutional power of the advanced
economies, the Chinese leadership has realized that China is more likely to
achieve its objectives in international bargains if it bands together with
others with similar positions. Beyond the common aversions among the
BRICS discussed previously, the Chinese leadership hopes to leverage its
power to its advantage, both in achieving its goal of fairer distribution of
voices in global governance43 and in creating a more favorable global
economic environment, as the country, along with the other BRICS, faces
the so-called middle-income trap of slower growth and excess capacity.
The G20, within which multiple developing countries (including all the
BRICS) are represented, is a particularly ripe environment for such a
strategy, as it allows China to claim to represent the interests of all
developing and emerging countries.44 In the early years of the enhanced
G20 process that has been in place since 2008, there was a concern that
China, along with other newly integrated emerging powers such as India,
Russia, and Brazil, would become a veto player, conflicting with the
interests and preferences of the industrialized economies in dealing with
issues such as the global financial crisis and its aftermath. Although the
Chinese leadership remains critical of how the international financial
architecture worked in the past, China has made it clear that, at least thus
far, it has no intention of blocking or harming the process.45 Instead, China
hopes to become a sufficiently influential power in the G20 to engage in
agenda setting.46 The global financial crisis thus became the first
opportunity for these emerging countries, including China, to influence the
process from within the global governance summitry, encouraging the
Chinese government to designate the G20 as “the premier forum” for
managing the global economy.47 As discussion on global financial reform
continued, the G20 became an important forum to advance developing and
emerging countries’ demands, such as the IMF quota reform (Pittsburgh
2009) and the adoption of the Shared Growth Agenda (Seoul 2010).48
These new forums are ways through which China extends its reach and
influence into the world multilaterally. Through these processes, it has
sharpened its financial strategies.49 By the late 1990s, China has engaged in
regional multilateralism via the Chiang Mai Initiative (CMI) in the area of
finance, several regional free trade agreements, and the Shanghai
Cooperation Organization (SCO) in the security arena. Since then, its
bilateral reach had already extended throughout the developing world via
trade, investment, and foreign aid. Now China is moving to extend its
global reach through multilateral institutions via the G20 and the BRICS.
The prominence of the BRICS in the G20 process has also been useful
for China to deal collectively with the international political pressures
imposed on itself. At their onset, the G20 summits were seen as forums to
put pressure on China, as others demanded that China revalue the RMB and
contribute to financial rescue efforts to benefit the Western economies hit
hard by the global financial crisis. Being included and put on the spot as the
second-most important member of the G20 process (behind the United
States), the Chinese government has felt wary of the demands and the
pressure, as it has had to abandon its skeptical rule-taker position regarding
the issues of global financial governance and step up its game in addressing
global reforms.50
Although China now has clearly moved beyond the phase in which some
scholars have labeled it “reluctant to lead,”51 concerns remain among
Chinese leaders that the country would be trapped into the state of pengsha,
wherein China would be placed in the position of sharing the costs of global
reforms without being given actual influence in the process.52 Chinese
elites have often felt that China has sometimes been a victim of the
hierarchical, U.S.-led order and should resist pressure to integrate more
deeply to avoid paying high costs.53 China has needed to cultivate the space
and foreign policy instruments where it can expand what Benjamin Cohen
calls “power-as-autonomy,” which is the ability of one state to avoid direct
pressure from another; that is, “it means, not allowing other states to
influence you.”54 This would include the power to avoid pressure and
sanctions, even as China engages in the politics of global financial
governance using the BRICS as its collaborators and becomes a key
member of global forums.55

Fund and Control the BRICS Process Through Its Resource Dominance
The third source of China’s motivation to cooperate with the BRICS is
simply that it can afford to do so. With large financial resources at its
disposal, it can also afford its individual “outside option” to control the
BRICS’ collective strategy. As discussed in Chapter 2, the exceptional
growth of the Chinese economy in the last thirty years, particularly since
the 2000s, has created an ever increasing gap between China’s economic
presence in the world, on the one hand, and its contribution to and
representation in global economic governance, on the other. By the early
2000s, and against the backdrop of China’s huge trade surplus against the
United States and American accusations of Chinese “currency
manipulation,” the U.S. administration called for China to step up its
contribution to global governance as a “responsible stakeholder.”56 From its
own point of view, however, China has always behaved as a “responsible
great power,”57 and to be expected to contribute to global public goods with
no increase in its influence in the global governance system was
unacceptable.58
In any case, since the global financial crisis, the Western powers have
lost the grounds for accusing China of free-riding. China’s economy has
contributed mightily to global economic recovery, as well as to economic
growth in the developing world.59 China is now one of the largest
contributors of foreign aid to Africa, and its outward direct investment
around the world has created an economic boom from Australia to
Ecuador.60
In addition, it has begun to contribute directly to multilateral institutions,
both regional and global.61 In the region, China (including Hong Kong) and
Japan are the largest contributors to the CMI. Globally, it has been using its
large sovereign wealth funds (SWFs), such as the China Investment
Corporation and the SAFE Investment Company, to forge new political-
financial ties in many corners of the world.
Moreover, China is now stepping up its contribution to the IMF. As the
Eurozone’s sovereign debt crisis deepened in 2011, at the top of the agenda
at the Cannes G20 summit was the question of how to enhance the financial
resources available to the IMF so it could implement multiple rescue efforts
for Europe and beyond. For that purpose, China committed $43 billion,
along with other BRICS members ($10 billion each from Brazil, Russia,
and India and $2 billion from South Africa), boosting the IMF’s resources
by a total of $75 billion.
With $3 trillion in its foreign exchange reserves and high domestic
savings,62 China’s financial power now allows the Chinese government to
fund domestic, regional, and global funding projects simultaneously.63 That
means that taking the main financier role for the newly installed AIIB does
not constrain China from also funding both the BRICS’s NDB and its
increased quota from the IMF quota reform. Such far-reaching financial
power gives China the flexibility and the financial ability of a great power.
With the new financial institutions and the G20, China can engage in
forum-shopping in this complex and overlapping institutional
environment,64 and it can also expect to implement an exit option when the
traditional institutions of global financial governance do not allow space for
China’s increasing voice and preferences.
Furthermore, the power asymmetry among the BRICS members allows
China to keep intra-BRICS dynamics in check. Despite China’s cooperative
stance within the BRICS, as the very tension between the concurrent
establishment of the AIIB and the NDB demonstrates (Chapter 3), China
can always introduce alternative choices and competitors if decisions within
the BRICS do not go its way.65 Hence, despite the wishes of the other
BRICS to bind China in the BRICS coalition and institutions, China will
always maintain its flexibility and freedom of policy choice as the great
power. As discussed in Chapter 1, the asymmetrical club structure of the
BRICS allows China to reject the demands of the other BRICS if they stray
too far from China’s preferences.

Pursuit of Prestige and Legitimacy as the Leading Developing Country

A fourth motivation is that acting in concert with the BRICS gives China
enhanced legitimacy, prestige, and status as a rising developing country
seeking fair multilateral solutions to the challenges of the global
economy.66 China’s legitimacy in the global sphere comes first in the form
of an increased contribution to global public goods and through the
provision of alternative options to Western solutions to financial challenges
for the developing world.67 The NDB, first promoted by (then) Indian
Prime Minister Manmohan Singh, has been a good opportunity for China
on various grounds. This way, China can contribute to global public goods
based on its own principles, not by financing Western interests. Unlike the
AIIB, which has a regional focus, the NDB is set up to have a global reach.
It also avoids the flaw of slow response by the advanced nations among the
G20 in support of the Seoul Development Consensus for Shared Growth,
adopted at the 2010 Seoul Summit.68 Of course, developing countries
greatly appreciate the move.69 In short, the $10 billion initial contribution
and later support to the NDB are very much worth China’s investment.
 Once its material rise has become indisputable, however, China has to
deal with two major challenges, which come from opposite sources, to
enhance its positive image and legitimacy in the world. On the one hand,
China has to counter the prevalence of the “China threat” thesis. For the last
few decades, it has devised multiple ways, ranging from its “charm
offensive” toward smaller and/or neighboring powers to its announced
doctrine of “peaceful rise,” to soften its threating image perceived by
others.70 Here, BRICS has served China as a “prominent new club to shield
its rise”71 during the time of its emergence as a great power. Even now that
China has already risen, the BRICS “shield” is still useful for legitimizing
its benevolent leadership advocating (if not fully practicing) “democracy
and equality (i.e., decentralization of power and more equal
representation)” in the international system. Furthermore, it is useful for
China to possess this benevolent image so that “balancing coalitions don’t
form to block” China’s policy preferences.72 On the other hand, China has
relied on the BRICS group to overcome its capacity constraints.73 Although
China’s financial expertise has strengthened rapidly, its presence and
experience in global financial governance is yet to fully develop.74 China
very recently graduated from a net aid-recipient status.75 China’s economic
globalization is quite recent, and its staff presence in international financial
institutions is still relatively low.76 In this context, sharing ideas and
experiences with the BRICS experts and policymakers provides China with
important learning opportunities.77 In addition, coordinating with the
BRICS regarding the discourse demanding international financial order
effectively legitimizes its demands.78 Hence, the BRICS collaboration
provides China with the credential as the leading developing country that is
serious about South-South cooperation.
It is not only in the face of the developing world that China has to
enhance its legitimacy. The global market and its players have to see
Chinese policies as legitimate, too. In short, for China to be successful in
reforming the global financial architecture, the BRICS and its newly
established institutions have to receive the seal of approval by the major
market players. Although the Chinese government would use its financial
resources for strategic purposes, it also needs to worry about its investments
as a major creditor nation so the Chinese government has no intention of
tarnishing its reputation and credibility in the global market by making the
AIIB or the NDB into crony banks for the BRICS’ vested interests. China,
thus, seeks legitimacy through imposing effective market discipline on
these new banks, to the extent possible.79 In the case of RMB
internationalization as well, Chinese efforts toward both domestic and
international financial reforms should be seen as legitimate to convince
market actors to use and hold RMB.

Meet a Diverse Array of Domestic Expectations

The fifth and final source of motivations to cooperate within the BRICS
framework derives from China’s domestic political concerns. Collective
financial statecraft caters to three principal domestic constituencies, each of
which demands a similar foreign economic policy stance, although for
substantially different reasons. The first group of domestic constituents are
the rationalists and pragmatists and those expecting the CCP to protect the
value of China’s external investments, as well as to offer increased welfare
to the general public, as promised by President Xi in the form of “great
rejuvenation of the Chinese nation” under the slogan “the Chinese
Dream.”80 As an autocratic and developmental state with limited
democratic instruments of accountability and legitimacy, the CCP has long
relied on so-called performance legitimacy for its popular support.81 As
China becomes a major global economic actor and its domestic
development becomes increasingly tied to events outside its borders, “it
makes no sense to stand on the sidelines and let other powers remain the
main arbiters of global affairs.”82 Hence, China’s political leaders
deliberately include components of China’s diplomatic and foreign policy in
their articulation of the “Chinese Dream.”83 Even prior to Xi, China’s
policy priority always lay with domestic economic development, and
opening up and taking an active role in global management and regional
cooperation has been understood as contributing to this goal.84 Given the
Chinese economy’s global reach, cooperation and coordination with the
BRICS can help the Chinese government accomplish its performance goals.
The other two domestic constituent groups come from the two opposite
sides of China’s political spectrum: the conservative nationalists versus the
internationally minded reformers. China’s collective financial statecraft
with the BRICS engaging in global financial governance resonate with both
of these groups, hence gaining support for the Chinese leadership. From the
nationalists’ point of view, the economic rise of China must come with a
proportional increase in its power and prestige in the global economy.
Contributions to international prestige may come from greater strength and
wider use of the Chinese RMB (including its inclusion in the SDR) and a
more genuine voice for China in global economic governance.85
Chinese monetary nationalism emphasizes the desirability of both
protection of the country’s financial and national security and a more active
Chinese challenge to global economic governance. For the former, the
Chinese government is tasked to maintain financial sovereignty against
domestic and foreign attacks and international financial crises.86 For the
latter, pride in China’s economic rise leads nationalists to demand that
Chinese leaders take an increasingly active stance in challenging the
existing global financial governance structure dominated by the United
States and other incumbent powers.87With their rising pride in the country’s
economic success, it has become increasingly difficult domestically for
Chinese leaders to maintain a low profile internationally.88 All in all, the
nationalists call for the Chinese leaders to act more aggressively in the
global sphere, acting as the Great Power. In response, and to avoid such a
nationalistic urge from going out of control, Xi’s policy under the Chinese
Dream is to guide China to take Great Power leadership in the global sphere
by employing its globalizing RMB currency and its economic might.89
Here, China’s collaboration with the BRICS would allow it both to
challenge the incumbent powers, particularly the United States, collectively
and with higher legitimacy, and to soften the degree to which others
perceive it as a threat.
Collaborating with the BRICS also goes well with popular nationalism
because the Chinese people resent the meddling of the Western powers in
Chinese affairs. China’s “popular nationalism is particularly suspicious
about a Western conspiracy and hidden agenda to slow down or even stop
China’s rise.”90 Hence, China’s general public is even more vocal and
emotional about Western domination in the international financial
institutions and the perceived evil intentions of their policies toward China.
The globalizers and reformers in China, meanwhile, welcome this
nationalistic push to make China a global financial power, seeing it as a
useful counterweight to those powerful domestic interests that have blocked
economic (particularly financial) reforms in the country for many years.
Many senior financial policymakers in China call for the country to reform
its domestic financial structure and strengthen the rule of law in domestic
economic governance. Due to global market pressure, as well as the
requirements from the international financial institutions to complete the
inclusion of the RMB in the SDR and to achieve other goals, the Chinese
leadership must continue to reform its financial sector—a process that has
been resisted by state commercial banks, SOEs, and many other
government entities.91 Because domestic financial liberalization and reform
are often viewed by the Chinese public as Western impositions, though,
reformers have to play their hand carefully to avoid backlash.
However, when these reforms and liberalization moves become the
prerequisite for China’s stronger role in global financial governance, it
becomes much easier for China’s national leadership to push a domestic
reform agenda forward. The BRICS members’ support for making this
process a part of global financial governance reform gives good cover for
liberals in China to make progress in the financial reforms agreed to at the
Third Plenum, held in Beijing in November 2013, without too much
suspicion or pushback from the country’s vested interests or popular
nationalism.

Opportunities and Limits to China’s Revisionist Agenda

Given these motivations to work together with the BRICS, should one
characterize China as a fundamentally revisionist power in the global
financial system?92 Akin to all the BRICS countries, China benefits
tremendously from the existing economic order; hence, it stands to lose
significantly if the existing global economic order is destroyed. At the same
time, as discussed previously, the relative importance of the Bretton Woods
institutions for China has declined, and it is dissatisfied with the existing
system, both in terms of its own level of representation and with respect to
the normative and ideological underpinnings of the system. Ren Xiao
argues that China is a “reform-minded status quo power” in the area of
international financial governance in that, although it maintains the
governance structure through the G20 and international financial
institutions, China has also pushed to change unfair and flawed aspects of
the current global financial order.93 Another perspective suggests that China
has outgrown the incumbent order in some respects and is less willing to
settle merely for the U.S. and the Western approach to governance and
existing institutional arrangements.94 Others, such as David Shambaugh,
emphasize a domestic split in views of what China really wants.95
In sum, reasonable observers may disagree about the true mix of Chinese
motivations for its collective financial statecraft. Different factors could
lead China to become either a fully developed revisionist power or a status
quo (but reformist) power in global financial governance. On the one hand,
there are ample contemporary opportunities for China to challenge existing
global financial governance fundamentally from a strong push to RMB
internationalization to defense of capital controls. Illustrating a similar
problem, David Dollar quotes an Indian official, exasperated at the pace of
World Bank–sponsored projects, as saying: “Mr. Dollar, the combination of
our bureaucracy and your bureaucracy is deadly.”96 Some parts of the AIIB
and NDB governance structure (such as the absence of resident EDs who
would decide on every funding project) have learned from the “negative
examples” of the World Bank and the IMF.97
On the other hand, the costs of China asserting its regional financial
power, let alone fundamentally changing the existing global financial
system, could be considerable. Chinese leaders are sensitive to global
market pressures and the country’s global/institutional reputation. China is
aware that the international spotlights are now on many of its initiatives, so
they must look legitimate and not significantly tainted by corruption. The
Chinese leadership and its reformers have already learned that it is
necessary to use U.S./Western expertise in Bretton Woods institutions to the
extent that they have resorted to Western consulting firms to write the
articles for the NDB Charter. Like other powers, they still must adapt to
markets.
As discussed previously, the BRICS club has been very useful for China
to voice its aversions and frustrations, challenge Western/U.S. dominance in
the global financial governance system, and air its views without destroying
the very system from which China has long benefited. At the same time,
China is not only hedging its bets, but also building and bolstering
alternative forums by creating multiple layers of outside options, from the
BRICS itself to NDB, RMB, and AIIB, because the Chinese authorities
recognize that there are limits to how far inside reforms of the Bretton
Woods institutions can go.98
 It is likely that we have not seen any major conflict among the BRICS
members so far because they are still progressing along those paths that
offer the least resistance.99 The global financial governance system and its
associated institutions need China for their own legitimacy and viability in
the current uncertain global climate, which in itself strengthens China’s
voice in considering the best reforms and policies for these institutions. In
the long run, the nature of the BRICS collaboration may inhibit China from
becoming a hegemonic revisionist power if China continues to rely on the
BRICS collective action for its legitimacy and shield. However, if China
acquires more revisionist zeal, and in particular, if it becomes more
hegemonic within global financial governance and starts to resemble the
United States in this respect, the BRICS collaboration will likely become
increasingly difficult.100

THE VIEW FROM MOSCOW: RUSSIA’S STRUGGLE FOR AUTONOMY AND

INTERNATIONAL INFLUENCE

Since 2006, when President Vladimir Putin proposed transforming the

Goldman Sachs investment plan into a diplomatic strategy for the four
original BRICs, Russia’s interest in developing the BRICS into a significant
“Rising Powers Club” has steadily grown.101 Originally, Russian elites
imagined the BRICS as part of a dual strategy of raising Russia’s profile
and guaranteeing it a voice in all the significant clubs across multiple
vectors.102 In the West, Russia preferred a concert with the major Western
powers, particularly the United States, Germany, France, and Italy, but it
was consigned to the outer rungs of not-so-special relationships by the
North Atlantic Treaty Organization (NATO) and the European Union (EU),
the two dominant Euro-Atlantic institutions.103 Even its inclusion in the G8
in 1997 (which was suspended in 2014) involved only a partial partnership,
as Russia was excluded from most G7 meetings on core financial matters
(for its part, China has long declined to be a member). To the East, Russian
elites sensed the rise of China and “the rest,” but they did not yet appreciate
the full measure of the Chinese economic behemoth or the competition that
would ensue for regional influence in traditionally Russian spheres, such as
Central Asia, or for the status of being the significant counterpart to the
United States.104
 The original BRICS idea emerged partly from the Moscow-Beijing
strategic partnership and as a follow-on to the continuing trilateral group,
Russia-India-China (RICs). This precursor was the brainchild of Yevgeny
Primakov, Boris Yeltsin’s last prime minister and a former diplomat, who
sought to contain the U.S. global influence by finding opportunities for
Russia to be an influential pole as the dominant Eurasian power in a
multipolar world.105 Although Russia was already a prominent player on
the global stage, having inherited the Soviet Union’s permanent seat on the
UNSC, it did not emerge from the Soviet detritus as a global economic or
financial power outside of energy markets. Russia possessed neither full
autonomy over its monetary policy and economic destiny nor what many
Russian elites considered their rightful influence in the former Soviet space.
Putin’s emergence as Yeltsin’s successor coincided with Russia’s economic
and geopolitical resurgence after the economic crises of the 1990s. Putin
oversaw key market reforms in his first term, (2000–2004) as oil prices
skyrocketed and Russia’s economy boomed, dramatically improving living
standards in the first decade of the twenty-first century.106 By the second
half of that decade, Russia had become a global financial power, with a net
positive international investment position and a sizable war chest of foreign
currency reserves.107
Together with other rising (or resurgent) economic powers not well
represented in the elite of incumbent rule-makers associated with the G7,
Moscow felt entitled “to take its rightful place in the global governance
system.”108 Russian officials had an easy sell for their BRICs idea because
the other potential members of this informal club also recognized that their
economic growth “does not automatically guarantee [them] a corresponding
increase . . . in global decision-making.”109 In an article published on the
eve of the 2012 elections–and Putin's return for a third presidential term–
Putin wrote that Russia would give “high priority to interaction with BRICS
partners,” a “unique structure” that “vividly symbolizes the transition from
unipolarity to a more equitable world order.”110
At the BRICS Summit that year, then–President Dmitri Medvedev
emphasized that “our organisation can become one of the key elements in
the global governance system.”111 In 2009, at the inaugural BRICS summit,
Medvedev declared, “We need to make sure our countries . . . take part in
defining the new rules.”112 Putin approved Russia’s BRICS strategic
concept document in February 2013, which establishes the BRICS as “one
of the most important geopolitical events since the beginning of the new
century,” one that has rapidly become “a significant factor in global
policy.”113
Over time, the Kremlin has worked to transform the BRICS club into a
more robust institution, widening the sphere of cooperation.114 The BRICS
has helped create a focal point around the importance of using financial
statecraft to defend the autonomy of non-Western powers, but without
turning the BRICS into an “anti-Western” club, despite Moscow’s
inclinations. The Kremlin welcomed the BRICS’ support against the use of
Western sanctions over Ukraine, including at successive leadership summits
in 2014, 2015, and 2016. Russia also prudently backs the BRICS consensus
that it would be “an exaggeration to assume that” the new BRICS
institutions “could be an alternative to the IMF and World Bank,” despite
some loss of effectiveness in existing governance institutions. “To work
properly, [BRICS institutions] must interact with the established
institutions.”115 But Moscow is not content to be reformers from within the
system; officials and elites believe that Russia should also play a key insider
role in the “Green Rooms,” which it considers would befit its role as a
major power and its perceived comparative advantage from its long
institutional experience brokering deals.116
This section expands on these insights and discusses Russia’s unilateral
and multilateral exercise of economic and financial statecraft as a clue to
understanding Moscow’s motivations for acting jointly around financial
issues with the other BRICS and why it is more comfortable with its
offensive financial statecraft than the BRICS club consensus. It focuses on
six issues: Russia’s aims vis-à-vis the incumbent powers and adjustment to
a rising China; Russia’s engagement with the global financial governance
order prior to the BRICS; the priority attached to ensuring Russia’s
autonomy; the impact of Western financial sanctions and welcome support
from its BRICS partners; Russia’s interest in challenging the U.S. dollar’s
hegemony and a desired shift to a multipolar world while wary about the
rise of the RMB; and finally how Russia blurs defensive and offensive
instruments of financial statecraft.

Russia’s BRICS Agenda and Contending with China’s Rise

Creating a new Great Powers club has proved to be one of Moscow’s
smartest diplomatic gambits. But no club in which power is so out of
balance could be expected to pour fairy dust on Russia’s ambitions to be a
global rule-maker or contain China’s influence. At the start of the twenty-
first century, Russia was the largest trading partner and creditor for all of
the post-Soviet states in Central Asia, bolstering Moscow’s regional
dominance. However, a dozen years later, Russia’s position relative to
China’s had significantly eroded, while inflated hopes of creating a ruble
zone in Eurasia more broadly were dashed.117 Instead, Chinese banks
became the main source of loans, and Russia’s position worsened after oil
prices plunged and sanctions restricted new investment.
Few Russians had appreciated that Russia would rapidly be eclipsed by
China’s tremendous economic power and growing ambition to set the
agenda. In nominal terms, China’s economy in 2016 was eight times larger
than Russia’s, and with a much higher potential growth rate. Former
minister of finance, Aleksei Kudrin, forecasts Russia’s share of the world
economy will be the smallest in the post-Soviet era by 2020 (around 2.6
percent in PPP),118 compared to China’s estimated 19.4 percent. Thus,
according to a senior Russian official, Moscow has had to accept that China
is probably “doomed to play the leading role in the BRICS simply by virtue
of its economic power.” Moreover, “it is no secret” that the decrease in
benefits for the West is primarily being claimed by China.
Russian officials dampen relative gains concerns by asserting that at least
so far, China has not sought “to dominate the group,” knowing that this
would doom the BRICS. On the contrary, according to the director of
BRICS Research and coordinator of many BRICS events in Russia, there is
a sense that without a “monitoring mechanism” or “BRICS Board of
Directors,” Beijing would have been much freer to act “and have less need
to take into account the interests of its partners.”119

Russia and Global Financial Governance

As discussed in Chapter 1, Russia was a beneficiary of U.S. outreach to
systemically important states to bring them into the Western order, and
therefore it should have a nuanced perspective on the incumbent order and
perhaps comparatively fewer grievances than some of its BRICS partners.
In the IMF, Washington agreed to a generous package of voting shares and
an ED position when Russia returned to the Fund in the early 1990s after
the Soviet collapse. In the G7, the Bill Clinton administration favored
including Russia and enlarging the group to the G8 as another anchor to
Yeltsin’s government. Although Russians blame the United States for taking
advantage of Russia’s retreat and weakness and for ruinous economic
advice, its polarized politics and partially reformed economy were the
principal causes of its economic problems.120 However, one of the
important American mistakes in the IMF was a failure to find the right
balance between support and discipline.
It took two major shocks—the 1991 collapse of the Soviet Union and the
1998 currency shock and Russian default—for Russian leaders to learn the
importance of sound macroeconomic policy and large foreign currency
reserves, particularly for a state dependent on energy exports. Along the
way, Putin and Medvedev came to appreciate the value of expert
assessments from liberal Russian economists, as well as from the world’s
foremost multilateral and private institutions such as the World Bank, IMF,
and Organisation for Economic Co-operation and Development (OECD);
Western investment banks such as Goldman Sachs and Deutsche Bank; and
management consulting firms, including McKinsey and the Boston
Consulting Group, whose staff have been contracted to support a wide
range of state projects, such as improving Russian business practices. The
quality of information and analysis about the Russian economy arguably
has never been higher or more widely available, although Russia’s rulers
predictably appreciate sound macroeconomic advice more than reform
plans that require changes in institutions that buttress the Russian political
order.121
Sanctions have simultaneously strengthened the voice of nationalist
economists, such as Sergei Glazyev, who see the West as seeking the
destruction of Russia while weakening the practical utility of their
economic arguments.122 Their antimarket, statist, protectionist agenda
favors greater state investment in technology and defense industry, as well
as a reorientation of reserves to BRICS currencies.123 However, despite
sustained support for defense and some apparent politically motivated
shake-ups, including the arrest in November 2016 of the liberal Economic
Development Minister Aleksei Uliukaev, Putin has adhered to prudent
macroeconomic policies and steadfastly supported Elvira Nabiullina, his
choice to head Russia’s central bank, who was named the best Central Bank
Governor in Europe in 2016 by the international financial magazine, The
Banker. Indeed it was Russia’s very market transformation and the textbook
orthodox response of the Central Bank that helped stem the crisis in 2015—
allowing rate hikes to combat inflation but no reintroduction of capital
controls. Yet, BRICS has not been a major factor in heated economic
debates between liberals and statists, partly because systemic (i.e., inside
the government) liberals could help build support for Russia’s integration
into the global economy and the Bretton Woods order by embracing many
BRICS concerns, such as a fairer distribution of voting shares and a revised
formula to determine the distribution of shares in the incumbent
institutions.124
Judging from his many speeches, interviews, and policies, Putin has
learned some basic economic lessons from the notable shocks in his
formative years. Although the collapse of the Soviet Union had multiple
taproots, the economic and financial causes are among the most rigorously
explored. The stagnating Soviet economy was hit by a perfect storm
triggered by a collapse of world oil prices, which contributed to the
depletion of Soviet currency reserves and the communist country’s final
death spiral. Weeks separated the country from bankruptcy, nonpayment of
its foreign debt, and severe food shortages. Yegor Gaidar, the liberal
economist appointed acting prime minister by Yeltsin to rescue Russia from
impending disaster, dissected these Soviet calamities in his landmark study,
“Collapse of an Empire.” Among the documents that he unearthed was one
from the Vneshekonombank [Foreign Economic Bank of the Soviet Union],
which notified the leadership that the Soviet state had not one cent
remaining in its coffers.125 Russia went to the brink again in 1998–1999,
paying a steep price for its short-term foreign currency debt and
macroeconomic imbalances without the backstop of adequate reserves.
The United States and the incumbent global financial system played an
important intervening role in this crisis. It reflected the White House’s
strategy at the time of shielding reformers from harsh economic policies
that would leave them vulnerable to domestic political opponents,
especially in nuclear-armed Russia, widely considered a special case in the
post-communist world. In particular, the United States sought to protect
Russia from the usually stringent conditionality associated with IMF
programs in unstable macroeconomic conditions. The Clinton Treasury
Department, under Robert Rubin and then Lawrence Summers, considered
Russia too big to fail and frequently seized control of the Russia portfolio
from IMF staff. As Randall Stone shows, “the autonomy of the IMF staff
varies in inverse proportion to the international significance of the case at
hand.”126 The IMF failed to enforce the conditions attached to its programs
for Russia and violations of its stabilization programs because the Russian
government could use its influence in Washington to gain exceptions and
watered-down commitments in return for new loans. In the early 1990s,
Washington intensely lobbied G7 countries to create an initial $28 billion
loan package, and Clinton called on the IMF to forgo harsh conditionality
and adopt a softer bargaining position.127
In 1997, the IMF also made the mistake of pressing Russia into
liberalizing its bond market. Relaxing capital controls was problematic
because the government had financed much of its budget deficit after 1995
by borrowing in capital markets and issuing short-term zero-coupon bonds
and Treasury bills, known by the Russian acronym GKOs.128 When
contagion from the Asian financial crisis spread to Russia and slumping oil
prices made hard currency revenues scarcer, the Russian authorities were
unable to devalue the ruble. By spring 1998, panic ensued in the GKO
market, whose yields were reaching astronomical levels and in some cases
had maturities of only seven days.
President Boris Yeltsin made urgent telephone calls to key G7 leaders
and demanded IMF assistance. Over a six-week period from mid-June
through July, the cost of the IMF portion of the bailout doubled from $5.6
billion to $11.2 billion. The crisis came to a head on August 17, 1998, when
the Russian government abandoned its defense of a strong ruble exchange
rate against the dollar, forced a restructuring of government domestic debt,
and placed a 90-day moratorium on commercial external debt payments,
essentially placing the Russian government in default. American leadership
had undermined the IMF’s standard conditionality practices, which in
Russia’s case proved self-defeating. For most of this period, Russia’s
leaders were convinced that they could evade both IMF discipline and
punishment by the bond markets, but this was like denying the forces of
gravity. These were misjudgments that Yeltsin’s successors have avoided.
By the end of the 1990s, the Clinton administration and its successors also
were less inclined to treat Russia as a future superpower that deserved
exceptions to the rules.129
Pursuit of Autonomy and Protecting Against Infringements on Russia’s
Sovereignty
Moscow’s foremost aversion—to infringements on Russia’s autonomy and
national sovereignty—is a driving force behind Russia’s expectations for
the BRICS’ collective financial statecraft. The lessons from the experience
of two major economic shocks, followed by the global financial crisis and a
fourth economic shock coinciding with a plunge in oil prices and the value
of the Russian ruble and the imposition of Western sanctions, reinforced
such aversions. It informs Moscow’s interest in strengthening the club’s
voice in incumbent institutions and increasing the development of
emerging-market financial institutions and currencies. It also contributes to
several unilateral Russian policies, notably maintaining the large stockpile
of foreign currency reserves, diminishing the dominance of the dollar while
also increasing the regional (and global) role of the ruble, and creating new
financial institutions (e.g., alternative national payments systems and non-
Western credit rating agencies) that bolster Russia’s autonomy from U.S.
structural power while boosting its own global influence in ways that speed
the emergence of multipolarity.
Paradoxically, post-Soviet Russia’s self-defined requirement for a war
chest of foreign currency reserves is necessitated first and foremost by its
rejection of autarky. Russian leaders have largely embraced markets and
globalization, albeit in their own way, which has meant that globalization is
filtered through a political economy saturated with crony capitalism and, in
Putin’s second and third terms, a pronounced shift toward state
capitalism.130 It is also worth remembering that when Putin assumed power
in 1999, Russia had less than $13 billion in hard currency reserves and
faced $133 billion of foreign debt. After the devaluation of the ruble
following the 1998 debt crisis, the first Putin term oversaw the enactment of
reforms crafted by Putin’s economic adviser German Gref, including of the
tax system and business regulations stimulating a new class of
entrepreneurs.131
As a share of gross domestic product (GDP), government expenditure
declined to 36 percent in 2006, the same year that exchange rates were fully
liberalized. The federal budget deficit was replaced by a surplus, and real
disposable income soared by a compound growth rate of more than 10
percent.132 Russia’s growth also benefited from rising oil prices, but sound
macroeconomic policies and the strengthening of market institutions
undeniably put Russia in a stronger position before the 2008–2009 global
economic crisis than it had been in 1998 or 1991. Russia had built a sturdy
economy during the heyday of high growth from 1999 to 2007, as well as a
foreign currency reserve war chest that peaked in 2008 at just below $600
billion. That sum fell significantly during the 2008–2009 crisis, and then in
2014–2015, as the Central Bank of Russia attempted to defend the ruble
until finally going over to a free-floating exchange rate regime in 2015. At
the end of 2015, Russia’s international reserves stood at $368 billion, and it
reached close to $400 billion in September 2016.133
The Russian government was able to bail out stressed companies with its
war chest of reserves in the wake of the global financial crisis in 2008–
2009, just as it did again in 2014, when oil prices collapsed and sanctions
were imposed. However, in the intervening years, the state shifted toward
greater control and renationalization of many of the largest private
companies, particularly in oil production, where government control rose
from 11 percent in 2000 to 55 percent in 2014, and in the overall economy
to more than 50 percent. Public-sector employment similarly rose to 28
percent of the workforce in 2012, as the number of new private-sector jobs
stagnated.134 Most liberal Russian economists attribute Russia’s economic
stagnation, which predates sanctions and the decline in oil prices, to its
obsolete growth model and low investment.135 They fear that the economic
shocks and crisis are not severe enough to provoke Putin to embrace the
needed reforms of Russia’s institutions. As Gref remarked, “human nature
is quite resistant to change, and changes start when the money runs out.”136

Autonomy as a Means of Withstanding the Impact of Sanctions

Moscow engages with the BRICS to enhance its financial autonomy,
through which Russia can withstand the impact of sanctions. Although
Putin has conceded that sanctions have hurt Russia’s economy,137 President
Obama’s 2015 speech deriding Russia as “isolated with its economy in
tatters” was a gross exaggeration. Estimates of the impact of the sanctions
on the Russian economy vary, but a consensus suggests that the economy
had been weakening since 2012 and that the shock of the sharp decline in
oil prices from late 2014 into 2015 exerted the more significant impact.
Russia is the world’s second-largest oil producer and relies on oil export
earnings to provide 40–50 percent of the federal budget. Further, living
standards have sharply declined, and the economy went into a recession
(less severe than 2009), while still suffering from a serious structural
slowdown. Yet Russia is resilient. Clifford Gaddy and Barry Ickes aptly
describe Russia as “the cockroach of economies—primitive and inelegant in
many respects but possessing a remarkable ability to survive in the most
adverse and varying conditions.”138
According to Kudrin and other economists, sanctions exacerbate but are
not the root cause of why Russia’s economic structure “is not up to modern
challenges”; these are traced to weak growth drivers and a financial system
that is encumbered by various liabilities and is not increasing investment.139
Even the IMF staff disagreed with the Obama administration’s extremely
negative outlook, noting in its 2016 country report that “Russia has a
floating exchange rate, large official foreign exchange reserves, a positive
net international investment position of about 20 percent of GDP, and a
current account surplus. In addition, . . . public sector debt is low, financing
needs moderate, and . . . the National Wealth Fund (NWF) . . . could be
used as an alternative to finance the deficit.”140 Moreover, despite EU
sanctions, which Moscow countered with reciprocal sanctions on European
agricultural exports, Russian still accounts for about one-quarter to one-
third of Europe’s energy imports. Volumes in Gazprom’s biggest market
have held relatively constant; exports to European markets outside the
former Soviet Union were 158 bcm in 2015, compared to 154 bcm in
2005.141
In comparison to the 1990s, Putin has ensured that Russia has no
significant sovereign debt either to foreign governments or to international
institutions. As discussed in Chapter 3, Russia avoided a severe balance of
payments and banking crisis and depletion of Russia’s reserves by allowing
the ruble to float, keeping credit markets open, and buying back foreign
exchange debt cheaply. Sanctions have taken their toll, especially in
slowing needed new investments and debt rollovers in the energy sector,
costing Russia its Investment Grade rating (as of March 2017 a Ba1 stable
with Moody’s), creating uncertainty about the viability of future
investments, and strengthening China’s hand in its deals with Russia. In
fact, financial constraints and the need for prefinancing of major projects
led the Kremlin to permit Chinese entities and a consortium of Indian firms
to acquire equity positions above the 25 percent limit in strategic sectors
such as hydrocarbons.142 Conversely, sanctions appear to have strengthened
Putin’s regime, as Kremlin insiders have been prioritized in bailouts and
with selective import substitution projects. Polls also show higher support
for Putin and increased negativity toward the West, whose governments are
seen to “weaken and humiliate” Russia.143
Moscow not only wants to insulate itself from the threat of future
sanctions, it also is experimenting with using collective financial statecraft,
including as counteroffensives.144 Russia moved to prioritize its pivot to
China, to strengthen cooperation in the BRICS, and work to diminish the
influence of the dollar while bolstering BRICS currencies. As shown in
Chapter 3, the BRICS card was useful during Moscow’s standoff with the
West over Ukraine. Putin adroitly demonstrated that Russia was a major
power that could not be isolated by the United States and Europe. Beijing
helped with collective financial statecraft, such as coordinating on
alternative payments systems and credit rating agencies, as well as with
infusions of cash. For example, China arranged the $25 billion prepayment
of oil for the Power of Siberia pipeline agreed to in May 2014 and $12
billion in credit lines for Rosneft in 2016. The looser implementation of
sanctions by European countries also has allowed some deals and loans to
Russia to go through. However, the BRICS cannot replace the Western
capital and technology that Russia needs.145
After the annexation of Crimea in March 2014, the G8 club of advanced
Western economies suspended Russia’s attendance, and President Obama
threatened to “impose a greater cost” on the Kremlin if it escalated the
confrontation over Ukraine. Russia was not permanently ejected from the
G8; the democratic leaders held open the prospect of readmission if
Moscow would agree to “abide by international rules.”146
Whether Western sanctions or the threat of more severe sanctions,
including closing Russia out of the U.S.-based Society for Worldwide
Interbank Financial Telecommunication (SWIFT)—an action taken against
Iran in 2012, deterred Putin from full-scale territorial aggression against
Ukraine is publicly unknown. However, Medvedev and other officials
aimed to restore intrawar deterrence by issuing counterthreats of severe
retaliation and escalation, stating that any cutoff from SWIFT would be met
with a response “without limits.”147 Andrei Kostin, the head of Russia’s
second-largest bank, remarked that “excluding Russia from the global
SWIFT banking transactions system would mean “war.”148 In a meeting
with international experts, Putin underscored the certain blowback that
would result, contending that sanctions are reinforcing the inclination of
many countries to become “less dependent on the dollar” and to set up
alternative financial and payments systems and reserve currencies, partly in
coordination with China. Suggesting that the United States does not have a
monopoly on financial statecraft, he warned, “I think that our American
partners are quite simply cutting the branch they are sitting on. You cannot
mix politics and the economy, but this is what is happening now.”149 Many
in the audience surely appreciated the cheeky hypocrisy of Putin’s assertion,
given decades of Russian application of geoeconomic statecraft in its
neighborhood.150

Offense in Financial Statecraft: Russia’s Pursuit of Regional Influence

Although Putin has repeatedly asserted that it is not Russia’s goal to restore
the Soviet Union,151 Moscow seeks to exert a dominant role in the former
Soviet space, relies primarily on economic inducements and coercion to
achieve this position, and uses the BRICS to help advance this goal.
Manipulating the pricing and supply of gas, import bans, and, more
recently, cyber-attacks have been the principal instruments of Russian
statecraft since the 1990s. Russia subsidized lower prices for many former
Soviet republics and periodically threatened cuts or higher prices if
governments sought to venture outside Russia’s orbit. Russia also has
waged trade wars with its neighbors and two limited armed conflicts with
Georgia (2008) and Ukraine (2014–present).
After it became clear in the 1990s that Russia could not join the West on
its terms in a Concert structure, Moscow started to prioritize regional
economic organizations. In the 1990s, this took the form of the now largely
defunct Commonwealth of Independent States; then a Customs Union
linking Russia, Belarus, and Kazakhstan in 2010; then a Single Economic
Space, introduced in early 2012; and most recently, since 2015, the
Eurasian Economic Union (EEU), which now also includes Kyrgyzstan and
Armenia and is liberalizing internal trade and border controls between its
members and harmonizing to World Trade Organization (WTO)
commitments.152 Russia accounts for 87 percent of the union’s GDP and 83
percent of its population.153
 Putin outlined his plans for a new type of Eurasian integration with
Russia’s ex-provinces in speeches and a 2011 newspaper article. The vision
is grandiose but also infused with pragmatic elements, such as expanding
markets and production chains. Unlike the past, twenty-first-century Russia
is unwilling to pay the costs of empire, while its post-Soviet neighbors are
wary of relinquishing their sovereignty to the regional hegemon.154 Putin’s
original concept resembles Anatoly Chubais’s 2003 idea of a “liberal
empire” in the post-Soviet space, where Russia would be an economic
magnet for the region.155
Over the long term, the goal extended beyond creating a single economic
space to forming a currency union, and ultimately economic integration of
states at the level of supranational institutions. Before the 2014 conflict
with Ukraine, Putin envisioned a partnership with the European Union as
part of a “greater Europe” from Lisbon to Vladivostok that would “change
the geo-political and geo-economic configuration of the entire continent.”
Together with the BRICS, the Eurasian Union was expected to give Russia
leverage in challenging Euro-Atlantic dominance and pave the way for
genuine, equal partnership on more favorable terms. Thus, in better times,
Putin had pictured Russia as leading the process of regional integration and
the Eurasian Union as “one of the poles in the modern world,” a “bridge
between Europe and the dynamic Asia-Pacific region, . . .” “creating
additional competitive advantages . . .” such as “setting the rules and
shaping the future.”156
To cement Russia’s regional power, the Kremlin fully expected that
Ukraine would become a key member of the EEU, insisting that it did not
contradict potential members’ “pro-European stance.”157 But by 2013, Kiev
was on the verge of signing an Association Agreement, with provisions for
a Deep and Comprehensive Free Trade Area with the EU, throwing a
wrench into Putin’s clearest geopolitical ambition. Russia offered a variety
of subsidies to states to join the EEU, including cheaper gas loans and gas
price subsidies for members of the customs union. Russia also agreed to
bear the lion’s share of the “accession costs” linked to Kyrgyzstan’s and
Armenia’s need to upgrade their customs infrastructure.158 As Alexander
Cooley and Rilka Dragneva and Kataryna Wolczuk show, members of the
EEU are likely to demand side-payments for their “geopolitical loyalty” to
Russia and continue to struggle against infringements on their sovereignty
by Moscow in pursuit of its regional hegemonic role.159
Putin resorted to a concerted campaign using both sticks and carrots,160
such as economic embargoes and promises of hefty financial loans, to
compel then-President Viktor Yanukovych to bring Ukraine into Russia’s
economic orbit against the will of Ukrainians. Putin finally brought
Yanukovych around, but this sparked the Maidan revolt, Yanukovych’s
rapid exit in February 2014, and Putin’s shift to military intervention. The
resulting sanctions war between Russia and the West, in which Moscow
expected the support of its EEU partners, underscored instead the strength
of their concerns for their own sovereignty and economic incentives to
sidestep Russia’s retaliatory embargo on many Western food products.
After a period in which sanctioned EU products were reexported into
Russia by landlocked Belarusian producers as their domestic merchandise,
including French cheese and Norwegian salmon and oysters, Russia
reinstalled border controls, challenging the free movement of goods in the
customs union. Conversely, the weaker ruble gave a price advantage to
Russian products in Belarusian and Kazakh markets, prompting those
countries to resort to temporary protectionism.161
This pattern of unilateral economic statecraft underscores the priority that
Russia puts on its regional dominance in Eurasia, and the range of
instruments that it is prepared to use to get its way, from coercion and
sanctions to offering bribes and economic inducements to its targets, which
have had only limited success, and less than in the 1990s.162 By
comparison, China not only has greater resources to invest, but also is more
likely to engage the region with positive inducements than with coercion.
Russia’s pattern of unilateral economic statecraft meshes with the political
economy of Putin’s crony/state capitalist regime but is less successful
regionally.
Russia’s highest aspirations for the EEU include developing the ruble as
the dominant regional currency, an idea that Russian leaders keep recycling
without any success. Several members of the Russian government,
including Putin and Medvedev, pointed to a rise in trade and growing use of
the ruble in 2009–2011 to press for ruble dominance, but other members of
the customs union were resistant to commit fully to the ruble. Putin
eventually relented in October 2012.163
 Trade among Russia, Belarus, and Kazakhstan has been falling since
2013, and Russia is losing both share and investment dominance to
China.164 In February 2015, Putin nonetheless resurrected the idea of a
currency union for the EEU and instructed Russia’s central bank and other
parts of the government to develop a single currency and a Eurasian Central
Bank by 2025.165 But regional concerns and trade have not shifted
favorably, and thus some experts dismiss this plan as a pipe dream.
Although currency unions facilitate trade and integration, as Robert
Mundell shows, they require certain basic elements that are mostly lacking
in the EEU.166

Russia’s Futile Pursuit of Currency Power

Of all the BRICS, China and Russia have most strongly supported
diversifying the international monetary system, calling for inclusion of
emerging-market currencies in the current SDR basket. Both also favor
increasing the use of the RMB and ruble in place of the U.S. dollar in their
transactions for mutual settlements. Russian leaders believe that great
powers have great currencies, and this belief carries over to the BRICs
which have jointly advocated for a multicurrency international monetary
system since the first summit in 2009. Juliet Johnson suggests that Russia’s
ambitions for ruble internationalization limit the extent to which Moscow
can support the Chinese yuan as an alternative to the U.S. dollar,167 but
Russia may become entrapped as its dependence on China grows.
Russia faces two contradictory challenges in a currency diversification
strategy. First, as a petro state, Russia needs hard-currency reserves to
protect against currency and budget crises generated by oil price
fluctuations. When Russia shifted to a free-floating currency in 2014, the
silver lining of the declining ruble in the crisis was that it cushioned
plunging oil prices. Oil production costs and government expenditures are
denominated in rubles, while oil profits in dollars account for 40–50 percent
of fiscal revenue. Second, Russia’s economic decline has significantly
weakened its bargaining power with China and its prospects as a financial
power. Meanwhile, China’s economic rise transformed global trade patterns
both with the BRICS and in the former Soviet space. Thus, with the
exception of Belarus, the European Union and China, not Russia, are now
the dominant trading partners with the post-Soviet states.168 Currency
diversification in this context is more likely to enable China’s further
expansion into the region that Russia seeks to dominate rather than
constrain it.
Many Russian specialists recognized this trend after the 2008 global
financial crisis. In an important and widely read report, Strategy 2020
(published in March 2012), Russian experts laid out the principal external
risks as the ruble and RMB become competitors. If China’s RMB becomes
a regional and then a global reserve currency, the authors warned, this could
limit Russia’s ability to use the ruble in international settlements and lead to
“currency wars.” Equally worrisome, China’s strengthening position in
Central Asia “could undermine the prospects for . . . Russia’s integration
projects.” The report went on to cast the relationship in close to zero-sum
terms: “The new and more active negotiating and interventionist conduct of
China as a ‘wealthy newcomer’ in the ‘club of world leaders,’ the
strengthening of the G2 (the United States and China) in managing global
economic processes, and the growing influence of China in the IMF and
WTO are to the detriment of third countries, including Russia.”169
The Kremlin perhaps could afford to be more bullish about cooperation
with China when Russia’s economy was still growing and trade was rising.
In 2011, when China became Russia’s leading trade partner, many Russian
officials and tycoons convinced themselves that Moscow would become an
international financial center and that the ruble and RMB were both
advancing. The ruble even had the edge, in Putin’s view, as “a stable,
reliable, and freely convertible currency, unlike the Chinese yuan.”170
Since then, the asymmetries in power have widened and Russia
experienced the economic shocks of 2014–2015, raising questions about its
international position and heightening its fears of becoming a resource
appendage of China. Close positive relations between Putin and Xi have
kept the bilateral and BRICS relationships on track thanks to a host of
deals, including some personally approved by Xi as goodwill gestures to the
Kremlin.171 The 2014 contract to build the “Power of Siberia” gas pipeline
from eastern Siberia to China showed hard bargaining over price. Then
China National Petroleum Corporation (CNPC) helped bail out Rosneft in
2015 with $15 billion in prepayments when sanctions made a debt rollover
impossible, following a decadelong pattern of loans and prepayments
(including $70 billion in 2013) to finance Rosneft’s acquisitions and
growth. In June 2016, CNPC sought a seat on the Rosneft board—an
unprecedented act—amid consideration that the Kremlin planned to sell
equity stakes to Chinese and Indian companies to raise funds for the
state.172 Russia also edged out Saudi Arabia as the top crude exporter to
China by agreeing to accept RMB for payment despite the potential costs.
Both China and Russia are also trying to attract interest in their own
fledgling oil futures markets in national currencies, a venture that Russia
has attempted for over a decade without success.
After prolonged debate, the Russian leadership came to accept that China
will be the dominant investor in Eurasia, leading Putin and Xi to agree in
May 2015 on coordinating the development of China’s OBOR initiative
with Russia’s plans for the EEU.173 However Moscow spins this process,
Russia remains in a weak bargaining position, meaning that relative gains
from this partnership will more likely accrue to China, while enriching
select firms and associates close to the Kremlin.
Still, the RMB locomotive has left the station, and Russia is on board
with multiple projects, from RMB-ruble exchange trading and issuing “dim
sum” bonds to expanding the scope of settlement in national currencies. But
like its other BRICS partners, Russia does not benefit from rejecting U.S.
dominance, only to fall into China’s embrace as the supplicant partner.

Blurring the Offense-Defense Mix in Financial Statecraft

Whether vis-à-vis the West or China, Russian policies to achieve autonomy
are sometimes contradictory and bleed into the pursuit of influence. Far-
reaching objectives must be scaled back when the gap between Russia’s
resources and its ambitions grows too wide. There is ample evidence that
Putin is willing to gamble to achieve his goals, but usually with an eye to
the risks and potential consequences. On a host of issues, the Kremlin
allows itself to get pulled back when it starts to veer too far into potentially
extreme and costly positions.174 In financial statecraft, before Putin
embarked on the campaign to take over Crimea, he reportedly asked three
top officials in February 2014 if Russia could afford the economic
blowback. The reply was that Russia’s foreign currency reserves were
sufficient to withstand any sanctions.175 No one apparently anticipated the
impact from a near-simultaneous black swan event involving the collapse in
the price of oil.
 Russia has also engaged in collective financial statecraft with China,
most prominently when the global financial crisis unfolded in 2008 and
Fannie Mae and Freddie Mac started to become unglued. At the time, China
was the biggest external investor in these two U.S. government–sponsored
enterprises, owning $527 billion of asset–backed securities and other long-
term debt, while Japan, as the next-largest creditor, held $270 billion.
Russia held $75.3 billion in long-term agency debt and $38.5 billion in
short-term debt, totaling $113.8 billion as of June 2007.176 China had also
accumulated $1.95 trillion in foreign exchange reserves at the end of 2008,
and Chinese SWFs had also invested approximately $70 billion in the U.S.
financial sector between April 2007 and January 2008, backing such firms
as Morgan Stanley, Merrill Lynch, and the Blackstone Group, but they were
facing major losses as the crisis developed.177
In August 2008, Moscow reportedly suggested to Beijing that they both
dump their holdings in these securities.178 This overture may have alarmed
the Chinese authorities, as both governments, particularly Beijing, faced a
predictable security dilemma—they were seeking to bolster their financial
security by withdrawing from a vulnerable position, but also did not want to
harm themselves by taking steps that could result in their own financial
destruction. China and Japan were already losing faith that Washington
would take responsibility to guarantee their Fannie and Freddie securities.
Thus, after continuing to lend in the first half of 2008, they were unwinding
significant portions of their holdings by the summer, while the corporations
were unable to raise new capital. The Central Bank of Russia had reduced
its holdings of Fannie Mae and Freddie Mac by 50 percent between January
and June 2008. In July, the crisis worsened, and as the share prices of the
two corporations crashed, credit default swaps rose, foreign credit
disappeared, and foreigners sold $42 billion of their holdings.179
In recounting the (as-yet-undocumented) Russian proposal to U.S.
Treasury Secretary Henry Paulson, Chinese officials made it clear that they
were deeply worried that China would incur massive losses on its bonds, so
they expected significant help from Washington. Paulson, then visiting
Beijing for the 2008 Summer Olympics, later briefed the White House on
what he called a “disruptive scheme” that could seriously shake the capital
markets.180 The Treasury Secretary had been in repeated conversations with
the Chinese authorities and was seeking congressional authorization to offer
financial support to the two corporations. However, Chinese authorities did
not yet feel sufficiently reassured that their agency assets were protected
from default and used their financial leverage to pressure the Treasury
Department for a guarantee, which the United States rebuffed.181
If Paulson’s account is accurate—and Russian authorities deny it182—
Russia’s intentions could have been offensive, to deliberately harm the
United States, as Paulson feared; or they could have been defensive, to
unload its positions before they became worthless; or both. Another report
suggests that Russian officials aimed to create a financial crisis that would
compel the U.S. government to support these firms directly.183 Also unclear
is whether Chinese officials revealed this alleged overture because they
recognized that even signaling that some major parties were contemplating
brinkmanship, which could rapidly provoke contagion while large-scale
selling by creditors was already underway, was likely to produce the desired
effect for international creditors. In fact, Paulson and his team recognized
that they could not let Fannie Mae and Freddie Mac fail. On September 6,
2008, the U.S. government imposed federal conservatorships on the two
enterprises, which then held about $5.2 trillion of home mortgage debt.184
What is known about this case does not resolve the key question of how
high a price the Kremlin is willing to pay to diminish U.S. economic and
financial power. Eroding U.S. dominance and shifting to a multipolar world
is a goal that Russian leaders repeatedly embrace in public statements and is
central to the BRICS, as noted in their communiqués and actions. However,
the means to this end are expected to strengthen, not weaken, Russia’s
power and influence. The available evidence suggests that Putin’s threats
are calculated and sufficiently ambiguous that the Kremlin can always
change course without actually going to the brink. Success in diminishing
the structural power of the United States has been elusive, but Moscow’s
principal concern is that the benefits have disproportionately gone to China,
not Russia.

THE VIEW FROM NEW DELHI: AMPLIFYING VOICE AND ANTICIPATING

MULTIPOLARITY

Among the three democratic BRICS, India is the most populous, has the
greatest military capabilities, and since the mid-1990s, has grown the
fastest. India plays an implicit bridging role within the BRICS club, being
both Eastern—by virtue of geography and linguistic, religious, and ethnic
identities—and Western, as reflected in its use of English as the primary
language of national government and business and its largely British-born
political and bureaucratic institutions, including a vibrant and contentious
free press.185 India played a particularly prominent role in the creation of
new multilateral financial institutions controlled by the BRICS. Indian
Prime Minister Manmohan Singh, an economist and former finance
minister, exercised leadership in early discussions of the NDB and
Contingent Reserve Arrangement (CRA), building on a long tradition of
Indian international development advocacy extending back to the country’s
first postindependence leader, Prime Minister Jawaharlal Nehru (1947–
1964). This section summarizes India’s overall foreign policy orientations,
its incentives to join in collective financial statecraft, and the country’s
complex relations with China.

India’s Desire for Foreign Policy Autonomy

BRICS participation represents a logical extension of India’s traditional
diplomacy, which invokes idealism while simultaneously forging cross-
cutting ties to maximize policymakers’ freedom of action.186 Since
independence in 1947, India has committed to an independent foreign
policy, viewing itself as a natural global player and champion of developing
countries. Nehru’s foreign policy vision promoted norms of multipolarity
and nonalignment, even in an era in which the global balance of capabilities
clearly was bipolar.
Nehru’s daughter and political heir, Prime Minister Indira Gandhi (who
served from 1964–1978 and 1980–1984), continued this tradition, proudly
maintaining ties with both the United States and the Soviet Union. While
Nehru promoted international independence as an abstract ideal, under Mrs.
Gandhi, India’s foreign policy more closely resembled traditional realist
power balancing. In the early 1970s, she deepened defense ties with the
Soviet Union and intervened in neighboring Pakistan’s civil war in defense
of the breakaway East Pakistan (today Bangladesh), infuriating the U.S.
President Richard Nixon, who personally had urged her, just weeks before,
to remain neutral.187 Following Mrs. Gandhi’s assassination by Sikh
nationalists in 1984, she was succeeded as prime minister by her son, Rajiv
Gandhi, who was himself assassinated in 1989 in protest over the end of
India’s intervention in neighboring Sri Lanka’s civil war.
By the 1990s, Indian national politics struggled to move beyond the
decades of dynastic democracy, centered on the Nehru–(Indira) Gandhi
family. Each of the two loose coalitions that has since alternated in control
of the central government has shared a large area of agreement in terms of
foreign policy priorities. The dominant Western industrial democracies are
still often conceptualized (and resented) within Indian elite circles as the
“former colonial powers.” Indian politicians and opinion leaders across the
political spectrum promote nonintervention and a respect for Westphalian
sovereignty (except when Indian leaders decide to intervene in their weaker
neighbors to ensure “stability”). The center-right, assertively nationalist
New Democratic Alliance (NDA), led by the Hindu nationalist Bharatia
Janata Party (BJP), held national power from 1996 through 2004. The BJP
is the party of Prime Minister Narendra Modi (2014–). Deeply suspicious of
neighboring Pakistan, NDA rhetoric has been somewhat friendlier to the
United States and to private business, and the country receives substantial
financial and moral support from the Indian expatriate community,
especially in North America.
The other contemporary alliance is the left-leaning, rhetorically socialist
United Progressive Alliance (UPA), led by the Congress Party (Indian
National Congress, INC), which was the affiliation of Prime Minister
Manmohan Singh (2004–2014). Although the left normally is more critical
of the United States, it was the government of the center-left UPA leader
Singh that negotiated the historic 2005 nuclear deal with U.S. President
George W. Bush, in which the United States agreed to exempt India from
further Western sanctions due to its refusal to join the Nuclear Non-
Proliferation Treaty, which India claimed reinforced existing and unfair
global inequality. Reversing its previous stance, the United States
acknowledged that “India was a nuclear power” and agreed to bilateral
cooperation in civilian nuclear energy.188 Despite these warming relations
with the West, Indian policymakers and elites strongly opposed U.S. and
Western interventions in support of political regime change, as in Iraq in
2003 or Libya in 2011. Indians have been especially annoyed that wealthy
Western countries “play politics” and lag in paying their back dues to
support the United Nations (UN) and other significant multilateral
organizations.189
 India’s participation in the BRICS club builds on its decades-long
activism within what is today termed the “global South,” from Nehru’s
leadership of the Non-Aligned Movement (NAM) in the 1950s, to the UN
negotiations in the 1980s around a more equitable New International
Economic Order (NIEO), to the India-Brazil–South Africa (IBSA) Dialogue
Forum, launched in 2003, which held its first leaders’ summit in 2006. The
IBSA website describes its members as “pluralistic, multicultural, and
multiracial societies” and highlights common aspirations for “participatory
democracy, respect for human rights, the Rule of Law, and the
strengthening of multilateralism.”190 In practice, the IBSA countries have
acted jointly to the greatest effect in the WTO, where their role plausibly
has been referred to as spoilers of the grand bargain that major advanced
industrial countries hoped for in the Doha Round.191
Today, Indian elites—in government, business, the press, the military,
academia, and other areas—aspire to more than a reputation for consistently
making the case for anticolonialism and redistribution on the global stage.
India and Russia also have a long relationship, going back to the days of the
Soviet Union. Russia continues to be a major supplier of conventional arms
to India, while recent India-China tensions make enhanced energy and
diplomatic ties with Russia increasingly attractive within India.192 The
BRICS club appeals to India because—unlike the NAM, NIEO, or even
IBSA—the BRICS club unites global revisionism with actual power
resources, both military and financial, possibly to the extent that would
make an impact on international outcomes.193 Some geopolitical and
strategic analysts also view the strengthening of intra-BRICS financial links
as enhancing India’s overall autonomy in international relations.194

Uniting to Project India’s Voice into Global Governance

Indian policymakers hold accumulated knowledge and expertise in financial
governance. They can magnify their potential influence if India bands
together with the other BRICS countries to enlarge its impact on global
economic management. Indian policy elites long have aspired to a larger
voice in global financial and monetary governance. Proud—as are Brazilian
economic policy elites—of their country being a founding member of the
Bretton Woods institutions,195 Indians have chafed at their relative
marginalization within them. India has been the largest cumulative
borrower from the World Bank and has also borrowed from the IMF. Indian
nationals and expatriates are well represented among the professional staff
at both the World Bank and IMF. India’s national economic and financial
policy communities are consequently well informed about, and frequent
participants in, global financial governance debates in both Washington,
DC, and at the UN. Although there is no unanimity of preferences, Indian
experts within and outside government already have extensively debated
specific policy changes in global financial governance.
For example, many Indian policymakers have been ambivalent about the
post-1980 reorientation of the World Bank away from its earlier focus on
infrastructure and heavy industry and toward increasing attention to poverty
alleviation. There is resentment at international bureaucrats presuming to
know better than Indians what the country’s development needs might be.
Controversies in the late 1990s and early 2000s over forced relocations and
the scope of inundations associated with the massive Sardar Samovar Dam,
partially financed by the World Bank, on the Narmada River in Gujarat
state (where Prime Minister Modi served as chief minister, 2001–2014)
were so painful for the World Bank that it subsequently withdrew from all
dam financing.196 Subsequently, pressure from mostly Western
nongovernmental organizations (NGOs) has led all World Bank group
institutions to insist that its contractors adhere to the Equator Principles, a
set of voluntary standards for environmental protection developed with the
help of activist groups. Indian private banks, which previously had
frequently cofinanced Indian engineering firms building Middle East
infrastructure projects with the World Bank’s International Finance
Corporation (IFC) as a means of reducing project risk and thus financing
costs, have found this new requirement onerous.197 The emphasis of the
NDB, as well as of China’s AIIB, on infrastructure lending responds to a
clear constituency within both the Indian government and the business
community.
Indian policymakers repeatedly have spoken out on the marginalization
of voices from developing countries in global financial governance. With
respect to the IMF, the Indian policy and academic economics communities
for many years have opposed the U.S.-led push to include the promotion of
capital account liberalization as a formally declared goal of the institution.
Just prior to and during the 2007–2009 global financial crisis, former
Reserve Bank of India (RBI) Governor V. K. Reddy gave a series of
speeches at high-profile forums, including the World Economic Forum
(WEF) at Davos, Switzerland, promoting the idea that new regional
financial institutions should exist alongside the Bretton Woods institutions
in order to provide “diversity,” and advocating the reregulation of India’s
(and other developing countries’) national financial sectors to expand local
policy space, while partially rolling back financial globalization.198
Governor Reddy also served on the UN General Assembly (UNGA) panel
on revamping the global financial architecture known as the Stiglitz
Commission (see Chapter 3).
In 2009, Eswar Prasad, an Indian-born U.S. professor and former IMF
economist, wrote, “There are times when a country has the calling to step
forward on the world stage and transform its role from that of a passive
follower to that of a leader… . India’s response to the crisis has been far
more mature than that of many developed economies, without reflexive
moves towards financial protectionism or a reversal of initiatives towards
financial market development. This gives India credibility . . . ”199
Beginning in 2011, senior Indian economic policymakers explicitly
promoted the idea of a “BRICS development bank” among their BRICS
colleagues, and Prime Minister Singh formally proposed the idea at the
New Delhi BRICS summit in 2012.
India has also used its membership in the G20, as well as in the Financial
Stability Board (FSB) in Basel, to promote other shifts embodying its
preferences. For example, India is the world’s largest recipient of migrants’
remittances, receiving about $70 billion annually. At the November 2014
G20 Summit in Brisbane, Australia, India pushed for, and received, an
agreement in principle for the developed economies and/or wealthy Middle
Eastern countries where most of these remittances originate to cut the costs
of these transfers, which have averaged over 5 percent of the value
transferred.200 India’s vocal private business sector also promotes Indian
activism in global financial governance, and several recent expert
commissions constituted by India’s Union (federal) government have
pushed this agenda.
In 2007, the Singh government created the Percy Mistry Committee,
named for the prominent financier who chaired it, to study options for
promoting Mumbai as an international financial center. The report,
predictably positive, recommended promoting Mumbai as a regional
financial hub for West, South, and Southeast Asia, drawing on Indian
capital markets expertise and tapping diaspora savings.201 In January 2008,
another expert committee, chaired by former IMF chief economist
Raghuram Rajan—then a professor in the United States, and thus a
somewhat controversial figure to head a government-appointed body—
recommended further liberalizing reforms of domestic finance, with one
eye turned to the requirements for achieving a larger global profile.202 More
recently, India’s private financial community has become excited about the
BRICS’ financial cooperation. Akshay Mathur, head of research at the
Mumbai-based think tank Gateway House, which has strong ties to the
private financial sector, presented a paper at the 2015 BRICS academic
conference that highlighted increasing intra-BRICS local currency–
denominated trade and proposed a BRICS currency clearinghouse, a
reinsurance market for global shipping, and a credit-rating agency—and
also noted that Mumbai would be ideally suited to host any of these new
institutions.203 Mathur further advocated moving away from global oil-
pricing in U.S. dollars.
Less apparent from outside India is the degree of contemporary
convergence among representatives of normally contending economic
schools of thought within India on the desirability of playing a larger role in
global financial institutions and governance. Former RBI Governor Reddy,
for example, has been a leader among those economists generally in favor
of a more statist and inward-focused style of national financial regulation,
while Prasad and Rajan (the latter appointed by Singh as RBI governor in
mid-2013) are market liberalizers. Governor Rajan highlighted the urgent
need for the Bretton Woods’ twins to become more inclusive, observing,
“Legitimacy is important . . . Legitimacy is not just about quota, not just
about who appoints the boss of the organisation, it’s about sharing agendas,
it’s about transparency on the issues that come to the table, about giving
everybody a chance to place those issues.”204
India thus has ideas about how and why to reform global finance and its
governance—but, acting alone, it lacks the money or the influence to
implement them. India, considering itself the source of the NDB idea (and,
sotto voce, better qualified to run the BRICS bank than either China or
Russia), hoped to host the new institution, but it yielded to China’s greater
economic and financial power resources and agreed to the NDB
headquarters being sited in Shanghai. Both India and Brazil strongly
insisted that initial capital subscriptions, and thus voting shares, be equally
allocated among the five countries. According to Indian sources, China
argued in favor of a permanent NDB presidency for itself, rather than the
rotating one ultimately chosen, but was persuaded to back down on this
demand.205 Moreover, India was granted the right to appoint the NDB’s
first president, while each of the other countries would appoint a vice
president, and in 2014, Prime Minister Modi selected a prominent private
banker, K. V. Kamath, for this role. Kamath was then the chair of Industrial
Credit and Investment Corporation of India Bank (ICICI), the country’s
most successful private bank, a formerly public-sector bank that was
privatized in stages through the 1990s. ICICI’s management strategy has
focused on serving large, internationally oriented Indian businesses and
foreign multinationals operating within India: The bank charges above-
market prices for better service, a somewhat revolutionary strategy in
Indian financial markets, where public-sector banks still hold 70 percent of
deposits. By nominating Kamath, India’s leaders signaled the seriousness
with which they were treating the creation of the BRICS’ new financial
institutions.

Resisting the West’s Abuse of International Financial Clout

Indian policymakers clearly favor a redistribution of both financial market
and financial regulatory capabilities to the emerging economies. Many
Indian elite observers are alert to evidence that the dominant financial
powers are incompetent, and they feel confident that they could do at least
as good a job.206 Policy-attentive elites have been particularly incensed by
the U.S. (and Western) tendency to employ its position as the undisputed
global financial hegemon since World War II as a general-purpose power
capability to be used in pursuit of larger U.S. foreign policy aims. First,
Indians complain that the West, but especially the United States, wields its
financial power irresponsibly. India itself has been harmed on two recent
occasions by U.S. financial sanctions. After India’s detonation of an
underground nuclear device in 1998, the United States imposed trade
sanctions on India due to India’s unwillingness to join the nuclear weapons
Non-Proliferation Treaty (NPT). India’s consistent position—defended
passionately by virtually all politicians and intellectuals—has been that it
will happily renounce nuclear weapons when all the other nuclear-armed
states also do so, but that until that comes to pass, it asserts its right to
acquire them for defensive purposes (initially vis-à-vis China, but more
recently with respect to Pakistan).207 More recently, India also has suffered
indirectly from U.S. financial sanctions on Iran, related to U.S. objections
to what Iran claims is its development of civilian nuclear energy technology
rather than weaponry. India receives around 60 percent of its petroleum
imports from Iran and normally pays by using the SWIFT international
clearing system. The U.S. exclusion of Iran from the SWIFT network
generates additional expense and inconvenience for India.208
Second, as a general principle, India’s leaders resist Western efforts to
promote regime change abroad through the use of force, which they view as
illegitimate. In fact, the majority elite opinion in India views U.S. foreign
policy in the post–Cold War era as unnecessarily aggressive. Indian
politicians are sovereignty hawks209 and are reflexively opposed to foreign
policy carried out by means of financial sanctions. In common with its
fellow BRICS, India thus resists on principle international efforts since
2012 to replace Syrian President Bashar al-Assad. Given this background, it
is unsurprising that Indian officials have supported Russia’s objections to
Western financial sanctions to punish Russian operations in Ukraine.
Third, although India has long possessed ideas for global financial
governance reforms, its experts are not routinely consulted. For example, in
2010, then–British Prime Minister Gordon Brown proposed to the G20 that
the major economies of the world institute a tax on cross-border financial
transactions (which he labeled a “Tobin tax,” after a somewhat similar
proposal made by economist James Tobin decades earlier), and employ the
funds to increase IMF resources, strained by current and projected lending
to comparatively wealthy European countries hit by the global financial
crisis. This might have gone forward were it not for strenuous objections
from emerging economies such as India, which flatly opposed this proposal
due to the use to which the funds collected would be put. Finance Minister
Pranab Mukerjee observed that India would prefer to employ its scarce
financial resources for extending to banking services India’s own “tens of
millions of unbanked.”210 Writing in his personal capacity in 2014 in the
widely read periodical Economic and Political Weekly, senior civil servant
Alok Sheel summed up a series of complaints about the international
financial institutions by concluding that “[t]he IMF has effectively become
a European Monetary Fund, and the World Bank a bank for small, poor
economies.”211 In other words, the Bretton Woods institutions were serving
neither the needs of India nor those of other developing countries.
There are thus two strong reasons for India to cooperate with the BRICS
in employing collective financial statecraft: to magnify its own voice and
preferences and to push back against the incumbent powers’ use of their
international financial capabilities to support their political preferences.

Managing Financial and Political Relations with China

Despite clear gains from exercising collective financial statecraft through
the BRICS club, the collaboration houses challenges for India, especially in
relation to its long-term rival, China. India appreciates the added weight
that participation within the BRICS gives to many of its own positions and
preferences about global financial and monetary governance. Indian leaders
also recognize that Chinese financial resources are essential for the exercise
of BRICS financial statecraft—and that bilateral trade and financial
relations with China have become increasingly important within India. At
the same time, India is wary of Chinese intentions and does not wish to
damage its recently improved relations with the West.212 Moreover, India, a
country with a vibrant democracy, has often been uncomfortable with
China’s autocratic governance at home, particularly vis-à-vis minorities,
including Tibetans.
For India, as for its fellow non-Chinese BRICS, the primary relationship
within the club is with its Chinese neighbor, and the meteoric emergence of
China since the 1990s as a major world power makes Indians very nervous.
Indians have neither forgotten China’s surprise attack across the border in
1962, which resulted in Chinese control of Himalayan territory that India
still claims, nor forgiven China’s provision of nuclear weapons technology
to neighboring Pakistan. Indian academics and officials also long have felt
competitive with China over each country’s relative progress in poverty
alleviation, export promotion, economic growth, and most recently financial
development.213 China has been India’s major trading partner since 2009,
but the reverse is not true, creating an asymmetrical vulnerability. India
hopes for deepening trade with China and for Chinese investment in India,
yet Indians do not wish to promote a political or economic bloc with de
facto Chinese leadership. Each move toward closer economic integration
with China thus tends to be balanced by conscious and public efforts to
demonstrate that India has other friends in Asia and the world. In the words
of senior think tank scholar Sanjaya Baru, India is eager to cooperate with
China, so long as the latter “rejects an imperialist view of history and
believes in the creation of a multipolar world.”214
Apprehensions over cooperation with China have emerged from multiple
quarters in India. Security experts express concerns that participation in
multilateral financial institutions with the Chinese may be dangerous for
India and expect that the India-China rivalry will continue even as the NDB
and CRA begin operations.215 Former Foreign Secretary Shyam Saran, for
example, warmly endorsed the NDB, but he worried about Indian
dependence on China, diplomatically concluding that “in some cases our
interests are closer to United States and Europe, while in some we are
closer to China.”216 Even the Mumbai business and financial community,
among the strongest promoters of BRICS in India, worries about Chinese
authoritarianism. Thus, the rapporteur on a recent “BRICS Studies” meeting
in China highlighted Indian concerns that “if China wants to partner with
BRICS and other emerging economies in articulating a new development
theology, it will have to address internal social infirmities such as restrictive
human rights, the bar on freedom of speech, and lax safety standards at its
industrial complexes.”217
Strategic balancing between China and the West is key to India’s
survival. Consequently, India’s desire to see the Western powers be less
hegemonic in international money and financial markets does not amount to
support for increasing Chinese dominance. On the one hand, many Indians
view increased international use of the RMB as a positive step toward
redistribution of power to the south. Another Gateway House–affiliated
commentator welcomed the inclusion of the RMB in the IMF’s virtual
currency, the SDR, framing the event as confirming “the IMF intent to
bring emerging markets into operational issues and decisions related to the
global monetary system,” and optimistically concluding that “the inclusion
of the RMB is likely just the first step toward bringing other emerging
market currencies into the SDR.”218
On the other hand, both government and private analysts remain wary of
the prospect of an increased role for the “people’s currency” in global
financial and trade markets, and recognize that Chinese preferences on
currency levels may not necessarily benefit India. On his return from the
Seoul G20 in November 2010, Prime Minister Singh was
uncharacteristically blunt, according to an article in the Times of India:
“The relation between surplus countries and deficit countries is not a
technical issue… . The international financial mechanism is essentially a
power mechanism.” The reporter further clarified: “Weighing in on the
China-U.S. currency war, the PM essentially said China could not absolve
itself of responsibility in restoring the global balance.”219
In 2011, then–RBI Governor Duvvari Subbarao complained that an
undervalued RMB was hurting India.220 In mid-2015, Saran wrote that the
RMB “could not” become a reserve currency so long as China remained
authoritarian.221 Senior economics commentator P. Vaidyanathan Iyer
concluded that local currency trade among BRICS would have more
benefits for China than for India.222 China’s difficulties with gradual
financial liberalization, such as the stock market and exchange rate troubles
of mid-2015, have been greeted with scarcely disguised glee in some
quarters in India, as Mumbai financiers hoped that Chinese investors would
pull their funds out of China and place them in the more mature and stable
Indian capital markets. RBI Governor Rajan, nonetheless, felt the need to
come to China’s defense.223
Even pro-BRICS think tank director Mathur avoids endorsing RMB
internationalization as a desirable collective response to U.S. dollar
hegemony and has been guardedly critical of the emerging “Chinese
financial architecture” that has created China’s outside option. Mathur notes
that the AIIB has “diffused the energy being put into the BRICS bank,” and
that China’s OBOR initiative to fund infrastructure development in Central
Asia could “force smaller economies to adopt a Renminbi-based financial
system,” not an outcome that would be helpful to Indian multinational
business.224
Recently, and particularly under the assertive Chinese President Xi and
equally forceful Indian Prime Minister Modi, both economic ties and tit-for-
tat political maneuvering have intensified. In early 2014, Japanese Prime
Minister Shinzo Abe promised $32 billion in foreign direct investment
(FDI) in infrastructure, reportedly leading Indian officials to anticipate up to
$100 billion in inward FDI promises from Xi when he visited later that
year. Instead, at the Modi-Xi New Delhi summit in September 2014, Xi
disappointed, pledging only $20 billion in Chinese FDI for railways and
other infrastructure.225 Worse, during the summit itself, Chinese troops
entered disputed Himalayan territory controlled by India, supposedly
accidentally, a coincidence widely interpreted in India as intentionally timed
to send a warning to India to cooperate with Chinese initiatives.226
Moreover, under Modi’s more muscular foreign policy, India has
attempted harder bargaining within the BRICS club. Modi reportedly tried
to revisit the NDB-siting decision, and he had to be reminded that his
predecessor had already agreed to the bank being headquartered in
Shanghai.227 One commentator suggested that Modi’s resistance melted
only when the Chinese offered a quid pro quo: if Modi accepted the NDB
deal, China would drop its long-standing objection to India becoming a full
member of the SCO. Of course, rival Pakistan also would be offered full
SCO membership, but Modi’s government judged that India had come out
ahead.228
In sum, India’s apparent cheerleading, at least in the joint BRICS Summit
declarations, for China to rapidly elbow aside the United States in global
financial markets is, in the end, more diplomatic than heartfelt. While it is
true that few Indian political or policy elites would like to see China
displace or become a serious rival to the United States (or the West more
generally) at the apex of the international financial system, India would like
to see global financial capabilities become more evenly distributed. For the
moment, nonetheless, Indian policymakers see only benefits from
cooperating with China and the other BRICS to reduce Western hubris
without supporting China becoming a coequal power with the West.

THE VIEW FROM BRASÍLIA: ENHANCING STATUS AND INVITING INVESTMENT

Brazil’s interactions with the BRICS club through this writing occurred
mostly during a 13-and-a-half-year period when the center-left
administrations of two-term presidents Luiz Inácio “Lula” da Silva (January
2003–December 2010) and Dilma Rousseff (January 2011–May 2016), both
from the Workers’ Party (PT), governed the country. Three themes are most
significant in Brazilian motivations. First, Brazil has previously
experienced the power of global finance to topple politicians and wreck
economies, and its economic policymakers have ideas on how it might be
better managed. Second, in Brazilian policymakers’ conceptualization,
BRICS financial statecraft dovetails with preexisting and normatively
valued Brazilian preferences for nonconfrontation and what Brazilian
diplomats refer to as “universalism.” For Brazil, the BRICS club represents
networking within the global South, an arena in which the nation can lead.
Third, Brazilian policymakers anticipate some concrete benefits, primarily
from closer economic and financial ties with China and Asia, although their
expectations have been disappointed before, and so are not especially high.

Brazilian Attitudes Toward Global Financial Governance

Each of the BRICS has experienced or observed banking crises and
international financial contagion in recent decades, but Brazilians are
especially sensitive to the role of volatile capital markets in unseating
political leaders and remaking (or threatening) national political or
economic rules—as happened in Brazil in 1964, 1982, 1994, 1999, 2002,
and 2007–2009.229 For example, when former radical trade unionist da
Silva won a plurality in the first round of presidential balloting in 2002, the
resulting panic among both Brazilian and foreign investors precipitated a
run on the currency, which dropped nearly 40 percent in two weeks. The
rout was contained only after the candidate pledged in writing to continue
his predecessor’s moderately conservative macroeconomic policies—
encouraging the IMF to extend an emergency credit to shore up the real.230
Brazil, like India, has a long and close history of interaction with the
Washington, DC–based international financial institutions, including the
World Bank, IMF, and Inter-American Development Bank, as well as
regional development banks and think tanks, including the influential UN
Economic Commission on Latin America and the Caribbean (ECLAC).231
Familiarity sometimes has translated into informal influence, as when
Brazilian economists in the 1980s lobbied for several years, ultimately
successfully, to have the World Bank adopt Brazil’s own definition of its
public debt (which excluded interest payments and made the total debt
smaller) rather than the bank’s normal definition, as the standard for
judging Brazilian compliance with loan conditionality. But such informal
influence is by definition ad hoc and unpredictable. Brazilians are well
aware of their country’s continuing vulnerability to international “market
sentiment,” and thus eager to participate in any scheme credibly promising
greater input for emerging economies in global monetary and financial
governance. More recently, many Brazilian policy and business elites have
been horrified by the ability of an activist U.S. District Court judge based in
New York City to impose third-party financial sanctions on any U.S. banks
choosing to do business with Argentina, so long as any private bondholders
have outstanding suits against Argentina in the U.S. courts.232
Brazil has sought to increase its participation in global financial policy
debates. During the da Silva and Rousseff presidencies, Brazil became well
known in Washington for left-leaning economist Paulo Nogueira Batista
(PNB), its outspoken ED at the IMF, representing Brazil and eleven other
Latin American and Lusophone developing countries. PNB developed a
devoted following on YouTube, during and after the global financial crisis,
giving many well-reasoned yet provocative interviews in English, Spanish,
and Portuguese. He became very popular with left-leaning politicians and
intellectuals throughout Latin America, as well as with Russian and Middle
East English-language media outlets. Batista occasionally exceeded
instructions, for example, in mid-2013 refusing to vote in favor of the latest
IMF bailout package for Greece, claiming that it was excessively punitive
and dysfunctional.233 PNB was recalled to Brasília and told by Finance
Minister Mantega to support the loan package, which he then did—but he
was not replaced at the IMF.
Brazil also played a role as gadfly when PNB, and the Brazilian
delegations to the World Bank and IMF, were asked by the Group of 24
(G24), a longtime grouping of developing-country financial officials and
experts meeting informally but consistently in Washington, DC, to
coordinate the campaign of former Colombian Finance Minister José
Antonio Ocampo for the presidency of the World Bank in 2011 (see
Chapter 3). In 2015, when the position of Brazilian Vice President for the
NDB opened, the nod went to PNB.
Another prominent Brazilian economist is Otaviano Canuto, a World
Bank vice president (2009–2013) and then senior specialist on the BRICS
(2013–2015), and Batista’s replacement as Brazil’s ED at the IMF. Canuto
has written multiple technical papers and blogs around themes central to the
NDB discussions, for example urging Southern countries to invest their
excess foreign exchange in one another rather than in low-yielding U.S.
Treasury securities.234 In general, Brazilians view greater voice for
emerging economies in global financial governance as highly desirable.

Brazilian Foreign Policy Traditions: Western, Idealistic—and Southern

Brazilian cooperation with the BRICS in financial statecraft also emerges
from Brazil’s overarching foreign policy traditions.235 Brazil is a Western
country, by dint of language, religion, culture, and long (if interrupted)
democratic and liberal political traditions. It also boasts an independent
foreign policy tradition that a North American might characterize as
idealist: dispute resolution by peaceful means is given high priority. Many
Brazilians, especially but not exclusively those whose politics lean center-
left, are deeply suspicious of realist power politics, and they often view the
United States as the main practitioner of a bullying style of international
relations, particularly given its long history of Cold War–era interventions
in Latin America and the Caribbean. Although Brazil lacks major or
enduring conflicts of interest with the incumbent powers, it has been
frustrated with being dismissed as unimportant by the United States and its
G7 partners.
Brazil actively promotes South-South cooperation, a label that Brazilians
employ to encompass all its international relations with emerging,
reemerging, and developing powers—everyone except the global North.
Strengthening ties with its regional neighbors, most also newly democratic,
was among the first foreign policy goals of Brazil’s new civilian leaders
following the end of the twenty-year military regime in 1985. The Common
Market of the South (Mercosur, which also encompasses Uruguay and
Paraguay) was a joint project of Brazilian President José Sarney and
Argentine President Raúl Alfonsín, each of whom hoped that deeper
regional economic links would discourage ambitious military officers from
intervening in politics. Ties with the hemispheric great power, the United
States, continued to be the most important foreign policy relationship, but
by the mid-1990s, under center-right President Fernando Henrique Cardoso
(January 1995–December 2002), Brazil felt sufficiently confident to try to
expand beyond Mercosur to construct new multilateral links with all of
South America, as well to reach out to Western Europe.
President da Silva continued and expanded Cardoso-era initiatives,
although the rhetoric now tilted moderately left. Under da Silva, Brazil
participated in the “people’s socialist” grouping organized by Venezuelan
President Hugo Chávez, the Bolivarian Alternative for the Americas
(ALBA), and played a key role in founding the Union of South American
Nations (UNASUR), conceived in 2004 and formally constituted in 2008.
When he and his counterparts created the IBSA Dialogue Forum in 2003,
President da Silva characterized its goal as focusing the attention of the G8
industrialized nations, then preoccupied with terrorism and global economic
weakness, on the concerns of developing countries. Brazilian Foreign
Minister Celso Amorim added that China and Russia would be welcome to
join as well.236 Shortly thereafter, the Russians invited Brazil to the BRICs,
whose ministers began meeting on the sidelines of the IMF-World Bank
conclaves in 2006. All these South-South initiatives seemed highly
successful.237 In January 2009, da Silva shunned the annual “global
capitalist summit” of the WEF in Davos, opting instead to appear alongside
President Chávez at the “anti-Davos” World Social Forum, held that year in
the Brazilian Amazonian city of Belém.
Since the Cardoso era, Brazil has engaged in increasingly activist
diplomacy, including outside the region. When confronted with evidence of
deviation from democratic practices in one of its South American partners
such as Venezuela, for example, Brazilians consistently advocate behind-
the-scenes consultations rather than public confrontation.238 In the early
twenty-first century, Brazil engaged in several significant extraregional
diplomatic initiatives, notably its innovative and well-intended efforts in
2010, jointly organized with Turkey, to mediate the nuclear inspection
standoff between Iran and the West, as well as its 2011 suggested
modification of the 2005 UN commitment to a “Responsibility to Protect.”
During the 2011 attack on Libya led by the United States and United
Kingdom, rebel forces killed President Muammar al-Qadafi, which
Brazilians found outrageous, leading Brazil to propose an alternative
doctrine of “Responsibility for Protection” of civilians, which would
promote humanitarian intervention and all-party peace talks, while
disallowing regime change by force.239 In both cases, the dominant Western
powers accused Brazil of giving aid and comfort to dictators. Within Brazil,
this response from the United States, as well as some of the other G7
powers, appeared unnecessarily highhanded, as well as hypocritical.240
Participation within the BRICS club, as seen from Brasília, is thus
primarily a means of amplifying Brazil’s international status and voice, in
accordance with an explicit Brazilian strategic doctrine known locally as
“soft-balancing,” which involves making coalitions with other middle
powers in order to enhance Brazil’s voice in multilateral fora dominated by
the United States and other great powers.241 The concept dates from the
1980s and remains a core tenet of the obligatory graduate curriculum for
Brazilian diplomats. The European Union has been viewed as a positive
model for what Brazilian leadership within the global South might achieve.
President da Silva articulated these ideas with his characteristic flair. When
asked by the Financial Times in 2009 whether the BRICs was a
“meaningful group,” da Silva responded, “Yes, it is. The major example I
can give you is the EU. It seemed impossible 30 years ago . . . It’s like when
you meet a new girlfriend. If you only look at her defects and flaws, you’ll
get nowhere. But if you look on the bright side, you might end up getting
married.”242
Such views give context to Brazil’s willingness to back Russia in
resisting Western financial sanctions in response to Russian meddling in
Ukraine, which might seem puzzling given Brazil’s outspoken promotion of
democracy, national sovereignty, and nonintervention. Brazilians explain
their choices by reference to their nation’s consistent preference for quiet
persuasion and nonconfrontation: that is, even if Brazilian policymakers
strongly disapproved of President Putin’s choices, they object even more
strongly to public criticism, which they judge as certain to be
unproductive.243 Moreover, Brazil shares with its fellow BRICS a
“common aversion” to being shut out of global deal-making. Cooperation
within the BRICS to resist Western financial sanctions derives from this
tradition. It is also true that Brazilian trade relations with Russia have
deepened as a result of attenuated trade links between Russia and Western
Europe, as new markets have opened up for Brazilian agricultural produce,
for example; but this is a consequence, not a cause.
In sum, the BRICS primarily have been conceptualized in Brazilian
government, academic, and media circles within the South-South framing,
not as a new departure in foreign policy. The most valued role of the BRICS
and BRICS collective financial statecraft has been to give a positive bump
to Brazil’s international status and voice. For example, Brazilian officials
were particularly proud of having joined with India and China to subscribe
to the IMF’s first-ever international bond issue in 2009, thus becoming a
creditor of the IMF (see Chapter 3). Within the Bretton Woods institutions,
Brazilian economic policymakers have deployed sufficient power resources
to secure flexibility for Brazil itself on issues considered to be of overriding
importance, but they have lacked the means to reform the overall agenda or
rules permanently. Through the BRICS, Brazil now can pursue both inside
reforms and outside options.

Domestic Politics
Shorter-term political and economic challenges provided additional
incentives for the governments of presidents da Silva and Rousseff to
participate actively in the BRICS club. These leaders from the Workers’
Party (PT) needed to be able to claim to their core supporters that they had
not deserted their once-fiery Marxist ideals, despite the daily compromises
imposed by the practicalities of governing in a large, federal, presidential
democracy, including continuation of the centrist macroeconomic policies
of former President Cardoso.244 Although its practice of forging links with
other developing countries and emerging powers was already in place,
Brazil increased its ambitious foreign policy rhetoric after 2003,
emphasizing antihegemonic solidarity among countries of the global South,
which is both a geographic and an ideological category.
Due to the political benefits to the PT leaders from being seen (mainly
within Brazil) to oppose an overbearing United States, Brazilian
government positions on the specifics of BRICS financial statecraft have
not always been fully coherent, particularly with respect to currency issues
and international monetary statecraft. In general, Brazil, along with India,
was happy to endorse the collective goal of reducing U.S. dollar hegemony
in the world. Thus, the statement of the BRICS at its very first summit in
Yekaterinburg, Russia, of its support for a “new global money,” leading to a
smaller reserve currency role for the U.S. dollar was favorably commented
on within Brazil. Finance Minister Mantega, who served under two da Silva
administrations and the first Rousseff administration, became well known
globally for his declaration of September 2010 that the world, but mainly
the United States and China, was engaged in a “currency war.”
Mantega was probably the senior figure among the BRICS who was most
ready to envision a larger international role for China and the RMB as the
best way to counter the pernicious and hegemonic influence of the United
States in global financial markets. As Foreign Minister Amorim put it two
months later, “China isn’t our big problem—the United States is.”245
However, as discussed in the fourth case of BRICS financial statecraft in
Chapter 3, RMB internationalization, it is not at all clear that Chinese
currency policies, as compared to those of the excoriated United States,
actually were more beneficial to Brazil. A larger role for the RMB in global
(in contrast with East Asian regional) markets probably would not be in
Brazil’s interest.246
Overall, the value that Brazilian policymakers have placed on their
participation in the BRICS club fluctuates with the political fortunes of the
incumbent administration and the economic fortunes of the country. There
are clear stages in Brazil’s participation in the BRICS, having to do with
Brazil’s domestic political economy on the one hand and its relationship
with China, the dominant state within the club, on the other. For example,
Brazil was riding high in 2008, heady with economic success, at least
partially thanks to China’s demand for commodities. Then the global
financial crisis hit. Yet, despite
some roller-coaster moments with the exchange rate as the global
financial crisis spread from the United States to the rest of the capitalist
world economy, by early 2009, Brazil and several of the other large
emerging economies, including India and China, had defied the odds and
pulled out of the global slump ahead of the major advanced industrial
nations. Brazilian policymakers and the commentariat gleefully celebrated
their unanticipated escape.247 Finance Minister Mantega claimed that Brazil
could deliver “a qualitative leap in productivity” to “grab the opportunities
open . . . in the post-crisis world,” emphasizing the key roles of the
Brazilian Development Bank (BNDES), Brazil’s majority state-owned oil
company, Petrobras, and emerging powers with large domestic markets
—“China, India, and Brazil”—in driving future global growth.248 In this
context, it was easy for many PT politicians and other opinion leaders to
imagine Brazil escaping from the orbit of the United States and Europe,
forging global links with newly powerful emerging economies instead.
This BRICS/emerging powers euphoria lasted into early 2013, and thus
into the initial years of the administration of da Silva’s chosen successor,
party loyalist and technocrat Dilma Rousseff. President Rousseff retained
Finance Minister Mantega and other members of da Silva’s self-confident
and explicitly developmentalist team. However, in 2014, previously fleeting
hints of political and economic scandal cascaded into full-blown corruption
cases involving many senior politicians, the majority from the PT, and
Petrobras, Brazil’s largest and most revered company, public or private.249
Due to a combination of Rousseff’s own failures of leadership and political
institutions making executive-legislative stalemate likely at the best of
times,250 what could have been a manageable series of crises sent the
country into a downward spiral, escalating just after her close reelection in
October 2014 and continuing through her removal from office in mid-2016.
As a consequence, the mood surrounding Brazil’s participation in
internationally oriented initiatives, from the plans for the 2016 Rio de
Janeiro Olympics to the BRICS, became increasingly desperate.

China—the PT’s Investor of Last Resort?

This shift over time was particularly obvious in the changing views about
China of senior policymakers and opinion leaders in Brazil. BRICS
cooperation from the beginning offered the hope of managing an
increasingly intense, and sometimes problematic, economic relationship
with China. Since about 2000, Brazil’s international economic ties with
China have deepened and thickened extremely rapidly. In a decade, China,
in Brazilian eyes, transformed from being a relatively unimportant country,
to holding the status of a possible development model, to being viewed in
some of the more excitable corners of the senior policy apparatus as a
possible financial savior.251 In 2009, China became the country’s major
trading partner, displacing the United States, which had enjoyed that status
for many decades.
BRICS euphoria among senior politicians notwithstanding, other
Brazilians, especially more market-oriented (i.e., “neoliberal”) economists
and business leaders with economic policy preferences closer to those of the
center-right coalition led by President Cardoso, worried about the wisdom
of replacing much-criticized asymmetrical interdependence with the United
States with asymmetrical, and more opaque, ties with China. The economic
and financial relationship with China is much discussed, and not
infrequently criticized, in Brazil’s elite press.252 For example, the downside
of the post-2000 “commodity supercycle” that benefited Brazil, with
swelling Chinese demand for raw materials and food, including Brazilian
iron ore and soybeans, was that it also shifted Brazil’s export profile (which
by 2000 prominently featured such items as automobile parts and commuter
aircraft) back to that of a primary products exporter. This development was
deeply troubling to economists across Brazil’s political spectrum. It was
also noticed that Chinese citizens, possibly employing government funds,
were purchasing large tracts of agricultural land, presumably to ensure
supply security and lower prices for themselves. Brazil passed new
legislation limiting foreign land ownership in 2010 and tightened it in
2013.253
However, as Brazil’s economy entered into decline from late 2012, and
especially after its political corruption crisis escalated in 2014, President
Rousseff began looking to the Chinese, with their still-ample foreign
currency reserves, less as equal partners and more as possible saviors. Thus,
in 2009, Petrobras, having recently announced unexpectedly large new
deepwater petroleum reserves off the coast of Rio de Janeiro, was the
darling of lenders everywhere, receiving new commitments for $6.5 billion
from private international consortia, $2 billion from the Export-Import
Bank of the United States, and $12.5 billion from Brazil’s own BNDES.
The addition of a $10 billion loan from the CDB was almost seen as a
Brazilian favor to China, and Brazil demurred on taking out further RMB-
denominated loans.254 President da Silva and Chinese President Hu Jintao,
meeting in Beijing, also agreed to begin to study the possibilities for trade
invoiced in local currencies and joint investment in biofuels in Africa (a
Brazilian enthusiasm), while China promised to remove import restrictions
affecting Brazilian poultry and beef. An official from the Brazilian Central
Bank, however, emphasized that the talks were not about a “currency
swap,” as would have been the case if Brazil were unable to access hard
currency, like its Southern neighbor, Argentina, but rather would constitute
links between equals to stimulate trade.255 President da Silva told the press,
“Brazil isn’t afraid of China, and China isn’t afraid of Brazil.”256
By 2013, the government’s relations with China had shifted away from
self-congratulatory rhetoric and toward obvious hopes that China’s financial
resources could help to rescue Brazil. In 2014 and early 2015, Brazil’s
developmentalist President Rousseff was obliged to go against her instincts
and announce a series of large privatizations, in which concessions to run
various essential facilities, particularly in transportation, would be
auctioned to private firms. Yet several auctions had to be cancelled due to
lack of interest. Senior figures at Petrobras, Brazil’s blue-chip investment
stock for many decades and the crown jewel of public firms, were deeply
implicated in the spreading political corruption scandal, and the firm’s
shares, normally steady, had dropped 60 percent in value in 2014,
negatively affecting its coveted international credit rating. Combined with
falling international petroleum prices, some analysts expected losses at
Petrobras of as much as $20 billion.257 Petrobras’ expansive capital
investment programs were (de facto) cancelled. Finance Minister Mantega,
the policymaker most responsible for Brazil’s notably expansionary
response to the global financial crisis of 2008–2009, as well as for its
subsequent and less justified continuation, also received the blame for
negative growth and worsening public finances in 2013 and 2014, and in
January 2015, President Rousseff replaced Mantega with Joaquim Levy, a
prominent orthodox and apolitical economist. Levy immediately began to
take actions to pare government spending, although resistance from both the
government’s own party and the Congressional coalition, as well as
politically motivated noncooperation from the center-right, which otherwise
would have supported his actions, made policy change difficult.258
In this context, publicists of the beleaguered president gave maximum
publicity to the May 2015 visit of Chinese Premier Li Keqiang, and to
Rousseff’s announcement of China’s promise to invest up to $53 billion,
mainly in transportation, power, and other infrastructure.259 Despite the
fanfare, opposition figures and Brazil’s press were quite skeptical of how
many of the announced projects actually would be built, noting, for
example, that a planned Transoceanic Railway connecting Brazil’s Atlantic
Coast with Pacific Ocean ports in Peru had not even had a serious
feasibility study.260
Despite the heroic efforts of the government to portray the visit as an
equal partnership, as well as a win for Brazil, skepticism of China’s motives
and general reliability was widespread in the elite media. Many
commentators recalled the experience early in President da Silva’s first term
on the occasion of a similar visit to Brazil by then-Chinese President Hu
Jintao in May 2004. At that time, China requested, and received, Brazilian
support for China’s bid to be awarded “market economy status” at the
WTO, which would make it substantially more difficult for Brazilian
industrial firms that believed they had been harmed by Chinese dumping or
WTO-illegal subsidies to complain. In return, the Brazilians believed that
they had received a firm promise of very substantial Chinese investment,
“up to $50 billion,” in many of the same or very similar projects that later
figured in the May 2015 package, including an earlier version of the
Transoceanic Railway. When these did not materialize, many policymakers
and opinion leaders felt duped.261
 By the end of 2015, both Standard & Poor’s (S&P), in September, and
Fitch Ratings, in December, had downgraded Brazil’s Treasury debt to junk
status as well. As the country’s macroeconomic problems made it
increasingly difficult for even good firms to access international capital in
global private markets, the CDB, which had stepped in with a pledge of
$3.5 billion for Petrobras in April 2015, increased this amount to $10
billion in January 2016.262
The crisis continued, and of course China was unable and unwilling to
act as a savior for the Rousseff government. In May 2016, Rousseff, whose
popularity had fallen into the single digits, was suspended from office by
Brazil’s Congress, pending her trial before the Senate on charges of
manipulation of public finances, and her impeachment trial concluded with
a judgment against her in August. Acting President Michel Temer,
representing a coalition of the center-right, took rapid steps to move
economic and foreign policies rightward, clearly signaling a downgrading
of the BRICS and of South-South diplomacy more generally, in favor of
refocusing on ties with the United States and European Union. Nonetheless,
the new foreign minister—U.S.-trained economist, senator, and former
mayor of São Paulo José Serra—was careful to emphasize that “China and
India” remained “key partners.”263 Even if the center-right retains power
until the next regularly scheduled election in late 2018, as looks likely,
Brazil will continue to participate in the BRICS and in the BRICS’ projects.
President Temer or his successor might even retain PNB in the position of
Brazilian vice president of the NDB (despite having rapidly replaced
virtually all other senior economic and political appointees of presidents da
Silva and Rousseff). Nonetheless, future BRICS cooperation will be filtered
more directly through considerations of Brazil’s short- to medium-term
commercial and investment interests, and the priority placed on not
alienating the United States will be higher. Brazilian leaders will want to
hedge their bets with China, the rising economic power, but over the
medium term, they nonetheless will continue to expect more from
cooperation with the United States.

Balancing Between the BRICS and the West

This section has argued that Brazil’s political leaders viewed their
participation in BRICS financial statecraft, and in the BRICS club more
generally, through the prism of Brazil-specific attitudes, perceptions, and
concerns. These prominently have included Brazilian foreign policy
traditions of diplomatic, rather than military, responses to international
crises (“nonintervention”), neutrality (“universalism”), and the use of
South-South coalitions and clubs among middle powers (“soft-balancing”)
to acquire greater international voice and autonomy. The NDB consistently
is described in Brazil as equally committed to infrastructure financing and
sustainable development.264 This may be wishful thinking on the part of
Brazilians, but it is consistent with other aspects of their generally idealistic
foreign policy, which for example leads them to be scrupulous in referring
to their foreign aid activities as “development cooperation,” implying more
equal bilateral relations than development “assistance” or “aid.”
Brazilian participation in BRICS financial statecraft was also convenient
for the incumbent center-left governments in power from early 2003 to mid-
2016, as the sometimes anti-Western rhetoric of the club as a whole pleased
parts of the PT political base who were dissatisfied with relatively centrist
macroeconomic policies. However, Brazil’s commitment to the BRICS club
is not especially deep, at least partly because its dissatisfactions with global
economic governance as dominated by the G7 or G5 major Western powers
have more to do with status issues than with substantive disagreements.
Finally, Brazil has increasingly close financial and economic relations with
China, yet already has suffered disappointments with this relationship and
will be eager to avoid becoming too dependent.265

THE VIEW FROM PRETORIA: SUPPORT FOR GROWTH AND REGIONAL LEADERSHIP

Since its 1994 pacted political transition from its racially-based apartheid
regime, South African foreign policy primarily has focused on its region,
defined variously as Southern Africa, sub-Saharan Africa, and the African
continent as a whole. One theme, popular within the country and with
virtually all its neighbors, has been anticolonial and antiimperialist
commitments. A second foreign policy theme, pursued slightly differently
under founding President Nelson Mandela (1994–1999) and his successors
Thabo Mbeki (1999–2008), Kgalema Motlanthe (2008–2009), and Jacob
Zuma (2009–present), has been to promote, in understated fashion, South
Africa as a beacon and model of economic and political stability within
Africa. This theme plays well within the continent—and also serves to
market contemporary South Africa to the larger world.266 Mbeki’s version
of South Africa as a regional leader leaned neoliberal, favoring increasing
trade links and foreign investment for the country and region, while Zuma
has been more populist, leftist, and less personally interested in the details
of economic policy. South Africa’s aversion to being seen to criticize any of
its fellow African leaders on either their political or economic policies is
even stronger than Brazil’s similar reluctance to criticize neighboring states
publicly.
There is today a clear competition between China and India for influence
in South Africa, and sub-Saharan Africa more generally. South Africa, and
more particularly the ruling African National Congress (ANC), has had a
long and close association with India. Mohandas Gandhi spent twenty-one
years at the turn of the twentieth century in South Africa, mostly in Durban
defending the civil rights of the Indian community there, before returning to
India to work with the INC. Following its independence, India steadily
supported the ANC during the apartheid years.
China’s relations with South Africa are more recent, and essentially
economic, but have expanded enormously since the early twenty-first
century. The first leaders’ summit of the Forum on China-Africa
Cooperation (FOCAC) was held in Beijing in 2006; the second in
Johannesburg, South Africa’s (and arguably Africa’s) commercial capital, in
December 2015. At the third India-Africa Forum Summit (IAFS) in Delhi
in October 2015, Prime Minister Modi pledged $10 billion in loans and
investments. At the FOCAC summit just two months later, President Xi
pledged $60 billion in new investments, an amount that surprised observers,
as it was triple China’s pledge of $20 billion at the previous ministerial
meeting in 2012. Having its BRICS partners compete for its attention
creates an attractive option for South Africa.267

Transforming the BRICs into the BRICS

The story of South Africa’s involvement in the BRICS runs through its
relations with China. South Africa was invited into the BRICS club in
December 2010 at the behest of China, host of the 2011 BRICS Summit.
Clearly, China, which has invested heavily in sourcing food and raw
materials in Africa, perceived the advantages of a gateway to the continent.
It may have chosen South Africa for its moral and normative stature,
derived from President Mandela and the ANC (the party that has provided
all of its postapartheid chief executives to date), but certainly also for its
economic and financial advantages. South Africa, with a population of just
under 50 million, is not the most populous country in Africa; in fact, it
ranks sixth, after Nigeria, Ethiopia, Egypt, Congo, and Tanzania. South
Africa has the second-largest economy in Africa, after Nigeria, ranked by
nominal GDP, and falls to third, following both Nigeria and Egypt, when
purchasing power parity (PPP) calculation of GDP is employed.
Nonetheless, South Africa has the largest industrial base in the continent,
and a stable democracy, despite raucous domestic political competition.
Initially, the South Africans declined to look a gift horse in the mouth,
expressing enthusiasm, despite some initial confusion, about their inclusion
in the BRICS club. Some analysts suggest that, as in Brazil, membership in
South-South groupings268 such as the IBSA Dialogue Forum and the
BRICS is useful for a government concerned about maintaining its leftist,
redistributive, and even anticapitalist credentials, while pursuing fairly
conventional macroeconomic policies at home.269 Also as in Brazil, BRICS
excitement was perhaps highest through 2012 or 2013. President Zuma has
attended all the BRICS summits since 2011, and his government was proud
to host the Durban BRICS Summit in 2013. Nonetheless, earlier ambitious
plans to host a grand China-Africa Summit following the BRICS meeting
were scaled back to a short and bland encounter with twelve (of fifty-two)
African heads of state and President Xi, held on the final afternoon of the
BRICS Summit, while Xi also made individual stops in the Republic of
Congo and Tanzania.270 The Durban Summit brought little progress on
defining the new BRICS financial institutions, instead focusing on political
declarations, including criticism of Western sanctions on Syria.271
Thereafter, South Africa’s participation in the BRICS slowed. From the
2013 Durban Summit through 2016, there was less grateful awe and more
skepticism, with South African opinion leaders in academia, business, and
the press (although not within the ANC) suggesting that their country’s
participation in the BRICS ought to be evaluated in terms of its contribution
to helping South Africa and its neighbors escape natural resource
dependence and move up the production value chain,272 or even that South
Africa would be better served by focusing on improving its export
performance than engaging further with the BRICS.273 Some researchers at
the prestigious South African Institute of International Affairs (SAIIA)
concluded, “The BRICS alliance seems to have yielded limited tangible
economic benefits for South Africa,” suggesting instead alternative
groupings such as a hypothetical “small group of emerging economies and
middle powers with close similarities to South Africa . . . , including
Canada, Nigeria, Turkey, Mexico, and Australia.”274 Other scholars
promoted building on the existing FOCAC or IAFS processes.275 While the
BRICS do have enthusiastic promoters among the commentariat,276 and the
Zuma government and the ANC express pro forma support for it, overall
the BRICS have not claimed a high place on the national foreign policy
agenda. Somewhat surprisingly, then, given what appears from the outside
to have been South Africa’s extraordinary good fortune in having been
admitted to the exclusive BRICS club while other aspirants such as Mexico,
Indonesia, and Turkey were denied, there has been a limited commitment
from the national political authorities, along with considerable ambivalence
from academia and the private sector about the usefulness of the BRICS for
South Africa.

Anticapitalist Rhetoric—Yet Milder Grievances with Global Financial

Governance
The Zuma government’s somewhat tepid response to its invitation to join
the BRICS club partially results from South African policymakers being
relatively more satisfied with global financial governance than leaders of
the original four member-states. Despite South Africa’s rhetorical anti-
imperialism—in speeches of senior politicians, including President Zuma,
often equated with resisting capitalism per se—the country’s relations with
the Bretton Woods institutions have been relatively peaceful. Although
South Africa followed India’s lead in blocking any conclusion to the Doha
Round in the WTO that would liberalize agricultural trade without
exceptions for developing countries concerned about food security and
small farmer livelihoods,277 its postapartheid finance ministers and
government and academic economists have been significantly less critical
of the IMF and World Bank than their counterparts in India or Brazil.278 In
practice, macroeconomic and financial policies through early 2016 have
been largely consistent with those recommended by the “Washington
Consensus,” the political populism of leaders such as Zuma
notwithstanding. This could change, as South Africa, like Russia and
Brazil, has suffered dramatically reduced growth associated with the end of
the commodity boom and slowdown in China after 2012. From 2014, Zuma
and the ANC have been under increasing pressure from a new political
movement to their left, headed by ex-ANC youth leader Julius Malema,
who advocates policies that frighten investors, such as immediate land
expropriation and nationalization of large businesses.279
Although South Africa joins in collective declarations, issues of global
financial governance reform have not aroused the passion in South Africa,
even among senior government economic officials, that they have in the
larger BRICS. The one issue that caught fire was the 2012 candidacy of
Nigerian Finance Minister Ngozi Okonjo-Iweala for the presidency of the
World Bank (see Chapter 3, Case 1). According to South African sources,
her candidacy was negotiated between Nigerian President Goodluck
Jonathan and South African President Zuma. Okonjo-Iweala’s candidacy
was jointly announced and enthusiastically supported by three large African
countries that have seldom agreed: Nigeria, South Africa, and Angola.280
South Africans thus were disappointed when Russia supported a different
candidate.
More recently, the CRA aroused some interest—South Africa, with by
far the smallest economy among the BRICS, is the most likely to use this
facility. When Treasury director-general Lungiza Fusile sought the support
of the Parliament’s standing committee on finance for South Africa’s first
tranche of paid-in capital for the NDB, he emphasized to the lawmakers that
borrowing from the CRA in the case of short-term balance of payments
difficulties could allow South Africa to escape IMF conditionality.281
Other than modest lobbying in 2012 and 2013 to have the BRICS’
development bank sited in South Africa, a goal that never had any chance
of success, through 2016 the country’s officials did not take a leadership
role in conceptualizing or designing the NDB, or even the African Regional
Centre. South Africa’s relatively subdued role in establishing the new
financial institutions was at least partly a consequence of increasingly
public clashes between Zuma and his more fiscally conservative finance
minister, Nhlanhla Nene. Nene, a traditional banker, had angered the
president by cutting Treasury subsidies in early 2015 to the country’s loss-
making flagship carrier, South African Airlines, run by a close friend of the
president; as well as openly disagreeing with him about the economic
viability of developing nuclear energy. When Zuma abruptly fired Nene in
December 2015, replacing him with a little-known ANC back bencher, a
financial panic ensued, exacerbating a fall in the rand, which already had
lost about a quarter of its value since July.282 After ten days, appointment of
a second and more experienced finance minister, Pravin Gordhan, calmed
the markets. Although the government quickly announced that it intended to
nominate Nene for a senior position to the NDB’s African Regional Centre,
when Nene was interviewed two months later, he told the reporter that he
had not yet heard anything official and was “keeping busy by tending his
garden.”283 In the end, Nene was not nominated, and he has gone on to
work in the private sector. In early 2017, increasingly public infighting
between the ANC’s more pro-market faction and the populist president led
Zuma to fire Gordhan at the end of March.
Nonetheless, the Zuma government’s choices for the South African
appointments to the NDB have been well received, although the president is
deeply unpopular with much of the business community.284 Leslie
Maasdorp, senior private banker and former head of Southern Africa
operations for Bank of America, became South African vice president of
the NDB, and former Reserve Bank of South Africa Governor Tito
Mboweni joined the new bank’s Board of Directors. The two have
embraced their new roles with enthusiasm. For instance, Maasdrop, as the
NDB’s new chief financial officer (CFO), quickly began making the rounds
of what international investors term the dog-and-pony show circuit, giving
presentations and answering questions for institutional and individual
investors, who are expected to purchase the new bank’s bonds and thus to
provide the bulk of its loan funds, while the five countries’ sovereign
contributions provide the paid-in and callable capital, or the bank’s essential
ballast.285

Wooing Investment and Channeling It to Africa

Some of the activities of BRICS financial statecraft are not of deep interest
to Pretoria or the country’s various policy-attentive communities, yet South
Africans understand the value of being a team player. South Africa has
lined up in opposition to financial sanctions against Russia (see Case 2 in
Chapter 3). Although leaders of postapartheid South Africa are appreciative
of the role, however subsidiary, that Western financial sanctions played in
isolating their country’s previous regime, they are unwilling to endorse the
use of economic or financial capabilities as an instrument for states to
coerce one another. Moreover, South Africa since the early 1990s has been
extremely loath to criticize its neighboring governments, and an absolute
regard for Westphalian norms of sovereignty remains the core value of the
continent’s premiere international organization, the African Union. South
African BRICS expert Francis A. Kornegay observes that “the difficult
political transitions underway within the IBSA members of the BRICS . . .
are compounded by the economic warfare being waged by the West against
Russia’s irredentism in Ukraine,” a formulation that manages to criticize
both sanctioner and sanctionee.286
Similarly, if called upon, the South African government will proclaim its
support for RMB internationalization. Yet thus far, South Africa has no
clearly expressed views on deepening the BRICS’ monetary and financial
collaboration beyond the new financial institutions created. The country’s
private sector also has adopted a pragmatic, yet mildly skeptical attitude
toward the various BRICS business initiatives, complaining, for example,
that the intergroup initiatives to liberalize trade are rather unfair to South
Africa, which already has significantly lower tariff and nontariff barriers
than the others and yet is being requested to reduce them further.287 Beyond
extending lip service to the BRICS’ goal of redistributing global financial
power, South Africa’s political leaders are unlikely to either hinder or
promote the relative growth in the financial and monetary capabilities of the
other BRICS.
Instead, South Africa’s policymakers value bringing new investment to
the country and to Africa as a whole, thus enhancing economic
development and, of course, its own claim to continental leadership. South
Africa’s most pro-BRICS commentators conceive of the new financial
institutions less as a significant challenge to Western global financial
governance than as an aid in more limited and practical goals: providing a
bit of leverage vis-à-vis China or increasing foreign sources for African
infrastructure investment. The assessment in South Africa’s Mail and
Guardian was typical: “Membership of the BRICS can help Africa with
most if not all of the initiatives [of the World Economic Forum on Africa
and the African Union Summit]… . [D]eveloping countries [have] to double
spending on infrastructure to $2-trillion a year by 2020, with the bulk of
this money to be directed to sub-Saharan Africa, . . . Brics [sic], through the
New Development Bank . . . can help drive financing of that
infrastructure… . [The NDB] would need to be a lead funder and attract the
World Bank, Sovereign Wealth Funds, and global pension funds to help
close the funding gap.”288 The South African government also hopes that
the NDB can help with financing the region’s New Partnership for African
Development (NEPAD), a project of the African Union.
Overall, South Africa’s choices about participating in BRICS collective
financial statecraft suggest that its leaders are pragmatic. They accept their
nation’s position as essentially a regional rather than an actual or potential
global power, and have behaved accordingly: uniting behind international
political positions that have neither strong benefits nor profound costs for
themselves while focusing on what does matter, which is attracting new
investment to sub-Saharan Africa, particularly in physical infrastructure,
which arguably is a crucial prerequisite for future economic growth.

CONCLUSION: EXPLAINING BRICS COLLABORATION

The analyses of these five countries reveal a mix of different motivations

among BRICS countries for pursuing collective financial statecraft.
Returning to the six propositions about possible reasons for BRICS
collective financial statecraft, this conclusion identifies possible patterns
from the analysis of the countries’ motivations.
Proposition 1. Collective financial statecraft among the BRICS countries
is more likely when collaboration magnifies the signal to the incumbent
powers that they are dissatisfied with current global financial governance.
The signaling of common dissatisfaction with current global financial
governance has proved an important joint motivation, especially among the
original four BRICs: China, Russia, Brazil, and India. Collaboration
enabled each of them to amplify its criticisms of the shortcomings, double
standards, and inherent unfairness in the existing global monetary and
financial governance regimes, both formal and informal, that have
privileged the incumbent powers, particularly the United States.
Russia and China have been the most critical of contemporary global
financial governance. Russia, whose government originated the BRICs as a
club, has also done much of the hard work to propel the club forward.
China and Russia also have been directly and intensely interested in all four
of the financial statecraft initiatives described in Chapter 3. Diversification
of international currency reserves and monetary sovereignty gradually
became more significant Russian priorities, as the country shifted from its
1990s weakness and default to become a major international creditor. With
the return of economic stagnation, however, Russia is in danger of falling
back again to the position of rule taker instead of rule maker. China’s
position has moved from caution and circumspection over the goal of RMB
internationalization to much greater willingness, particularly under
President Xi, to articulate currency expansion as an explicit state aim.
While each of the three democracies have been somewhat ambivalent
about promoting dedollarization and RMB internationalization, neither of
which is necessarily in their economic interest, they also employ the BRICS
platform to magnify their strength and voice. For example, Indian leaders
have been happy to utilize the BRICS and its new institution, the NDB, to
demonstrate, to the larger world, the financial expertise of their nationals.
The center-right government that assumed power in Brazil in mid-2016
notably downplayed other South-South initiatives, but has maintained its
BRICS identity as one of its foreign policy priorities. Although South
Africa has fewer specific grievances accumulated over time with existing
global financial governance, Pretoria, sensibly, considered the invitation to
join the BRICS group as a windfall. Brazil and South Africa each missed
the March 2017 deadline to ratify their membership in the China-led AIIB,
due to a combination of financial difficulties and a desire to prioritize the
NDB: to maintain appearances, China granted the two countries a year’s
extension.
Proposition 2. Collective financial statecraft among the BRICS countries
is more likely when each country perceives threats to its sovereignty or
autonomy to act, particularly in its respective region.
The principles of national sovereignty and domestic political autonomy
resonate most powerfully among the three Asian and Eurasian BRICS:
China, Russia, and India. Russian leaders believe that the West seeks to
marginalize or isolate Moscow, if not to engage in actual regime change.
Their common aversions extend to the imposition of any policy orthodoxy
embodied in IMF conditionality, most frequently targeted at developing
countries. The collective resistance to financial sanctions against Russia
demonstrates the high premium that these leaders put on their countries’
economic and political autonomy. Such protective reactions become even
stronger, in that these threats are seen by the BRICS members as based on
double standards and abuse of power by the incumbent powers and
advanced economies. The three democracies also have experienced Western
pressure and insensitivity. Moreover, both Brazil and South Africa have
been actively involved in helping to negotiate settlements between warring
or angry neighbors, and they value the alternative of quiet, nonthreatening
diplomacy for dealing with incumbent governments of countries seen to
have violated international norms.
Proposition 3. Collective financial statecraft among the BRICS countries
is more likely when such cooperation promises to provide benefits, or
“carrots,” that each BRICS government can distribute in its own geographic
region, increasing its regional status commensurately.
BRICS collaboration signals “carrots” and a strong commitment to
cooperation with rising, non-Western, and/or Southern powers reaching
beyond each member’s geographic region. The four larger BRICS
emphasize their commitment to provide financial resources and support
(mostly counting on China’s contributions) to all the emerging and
developing regions. China has long aspired to be the champion of the
developing world, and it has unrivaled contemporary links of investment
and trade among developing and emerging regions worldwide—with or
without the other BRICS. Russia, whose unilateral financial statecraft has
always underscored its regional ambitions in Eurasia, hopes for
opportunities to widen its scope and global reach through BRICS and gain
Chinese economic support, but fears Chinese dominance. Both India and
Brazil have provided significant aid and technical cooperation in sub-
Saharan Africa, particularly in Anglophone and Lusophone countries,
respectively, especially since the turn of the new century. Only for South
Africa, however, is the opportunity to employ its BRICS membership to
distribute benefits to its own geographic region a very significant
motivation for political and financial collaboration within the club. Both
China and South Africa (although with somewhat different motives)
correctly view South Africa, with its relatively sophisticated financial and
commercial infrastructure, as a logical gateway for Chinese economic
expansion into Africa, with each country anticipating gains from combining
their different mixes of the resources of status, local knowledge, and money.
Proposition 4. Collaborative financial statecraft among the BRICS
countries is more likely when such cooperation promises to appeal to the
domestic audience and increase the status of each country’s current political
leadership within its respective domestic political arena.
 Participation in the BRICS is a plus in terms of domestic politics for
leaders in each of the five member-states, although the group and its
benefits are portrayed somewhat differently within each one. For autocratic
regimes, with concentrated power and interests and relative stability in their
leadership, it may be particularly appealing to use these “U.S. dollar–
establishment-as-scapegoat” tactics to rally around the flag, while none of
the three democratic powers has an urgent need to legitimate incumbent
leaders by uniting the population in opposition to the West. Leaders in both
the autocracies and the democracies employ their domestic presentation of
the BRICS to focus on the high status accruing to their country as a member
of an exclusive club of rising powers.
For China, the BRICS club meets a diverse array of domestic
expectations. Chinese political leaders deliberately include components of
China’s diplomatic and foreign policy, such as BRICS collaboration, as a
part of the Chinese Dream. BRICS collaboration also appeals to nationalists
demanding more recognition and prestige of China’s rise as it challenges
existing global financial governance arrangements that are seen by the
nationalists as unfairly holding China back. Chinese liberals, who support
the financial reforms, welcome internationalization of the RMB. For
Russia, the BRICS’ collective financial statecraft enhances the wide
legitimacy of Russian protection of its own sovereignty, which is guarded
by the Kremlin. However, the BRICS are of marginal importance in
Russian domestic politics. To the extent that they are mentioned, it is often
in the context of the nationalist “stand up to the West” propaganda, while
the regime does not widely advertise to the mass public its persistent efforts
to play a larger role in Western institutions. In India, Brazil, and South
Africa, the NDB and CRA are popular with visionary public-sector
technocrats and the private financial community; bankers in all three
nations are eager to expand internationally. Brazil has had the clearest
domestic political motives for pursuing BRICS collaboration. After the left-
leaning PT finally captured the presidency, both presidents da Silva and
Rousseff found themselves obliged to disappoint many of their most fervent
and articulate partisans, particularly in the all-important arena of economic
policy. An explicitly left-leaning, South-South-oriented foreign policy
proved helpful in retaining the PT’s substantial group of sophisticated,
urban, and middle-class supporters.
 Proposition 5. Collaboration by China with the other BRICS in financial
statecraft is most likely when China can employ the other BRICS as a cover
to make its offensive foreign policy choices appear more benign to the rest
of the world.
and
Proposition 6. Collaboration by the other four BRICS with China in
financial statecraft is more likely when they perceive defensive
opportunities to bind China by enticing it to cooperate with them over time.
The other BRICS simultaneously expect to gain from China’s rise.
The last two propositions are opposite sides of the same coin, capturing
the dynamics between China and the other BRICS. China is the crucial
entity within the BRICS collaboration. For China, the club is an important
part of its group-making strategy to manage global governance issues. The
group is useful not only to amplify China’s voice and influence in global
financial matters, but also to fend off criticisms from the incumbent powers
and avoid pressure from them. In addition, China is now at the point where
it can create multiple outside options, not only outside of the existing
Bretton Woods system, but also outside of the BRICS, rendering China
more able to control group dynamics in a way that enhances China’s
bargaining power. Since its successful recovery from the global financial
crisis, economic rise to near-equal status with the United States, and
subsequent emergence of President Xi, China is not very worried, either
about hiding its intentions or about being tied down by its fellow BRICS.
Financial statecraft, however, has become ever more interesting for China.
It finds value in employing the BRICS for, inter alia, building support for
RMB internationalization; pushing for a major leadership position in the
IMF and G20; encouraging BRICS country institutions to cofinance with
the NDB, AIIB, and OBOR; and employing this leverage to enforce and
indigenize Chinese foreign investment priorities.
A major objective of the other BRICS members, especially for neighbors
India and Russia, is to bind China within the BRICS club. The relationship
between Russia and China has vastly improved in recent years, and their
strong and multistranded bilateral relations cement the core of the BRICS
club. Yet, while the club was intended to be one of Moscow’s geopolitical
instruments to bind China, it has not been very successful in this goal, as
China has surpassed Russia to become the principal U.S. partner and
challenger. China has also undercut Russia in Eurasia, while Moscow has
failed to get the ruble or the NDB accepted as the dominant financial
statecraft instrument, with China moving fast on RMB internationalization,
as well as in establishing the AIIB and OBOR program.
For India, whose rivalry and tension with Pakistan and China dominate
its foreign policy concerns, it is important to try to use the BRICS club to
balance China and the West strategically. The other two members, Brazil
and South Africa, have no ambition (or need) to restrain China’s
geopolitical actions, but they aim to ride the economic wave with China in
the expectation of expanding trade and investment relations with their
powerful compatriot.
In sum, these five countries, though dissimilar in both their material
power capabilities and strategic and international economic goals, have
surprisingly found common cause in the BRICS club, whose most active
and successful initiatives have involved collective financial statecraft. This
chapter has examined each country’s individual motives for collaboration.
The final chapter of this book explores the potential directions of and
complications for future BRICS collaborations.
Conclusion

WHITHER THE BRICS?

This past month may be remembered as the moment the United States lost its role as the underwriter of
the global economic system… . I can think of no event since Bretton Woods comparable to the
combination of China’s effort to establish a major new institution and the failure of the U.S. to
persuade dozens of its traditional allies, starting with Britain, to stay out of it. This failure of strategy
and tactics was a long time coming, and it should lead to a comprehensive review of the U.S. approach
to global economics. With China’s economic size rivalling America’s and emerging markets accounting
for at least half of world output, the global economic architecture needs substantial adjustment.
LAWRENCE SUMMERS, APRIL 5, 2015

BRICS AND WORLD ORDER: TOO MUCH PESSIMISM IS UNWARRANTED

After a decade of collaboration, the story of the BRICS (Brazil, Russia, India,
China, and South Africa) shows the remarkable perseverance of a group of
middle and regional powers, augmented by an emerging superpower, to
pursue their autonomy and increase their influence in global governance
institutions. Where are the BRICS and their financial statecraft heading now?
It is possible to propose three scenarios, and this book’s analysis suggests that
a pessimistic outlook is not necessarily warranted.
First, contrary to much speculation, the BRICS are neither revolutionary
revisionists seeking to topple the existing order, nor pure accommodationists
or integrationists, willing to accept the United States and the West as the
permanent stewards of the international order. Rather, they have primarily
sought to reform the current global governance system to ensure their
autonomy, maximal policy discretion within existing rules, and greater
influence as rule-makers. Where these aims have been blocked or not fully
realized, the BRICS have demonstrated their willingness to invest in outside
options in the form of experimenting with parallel institutions that could
grow, if needed, into an alternative foundation of governance arrangements.
Therefore, Lawrence Summers’ suggestion, in the quotation at the start of
this chapter, that the emergence of the Asian Infrastructure Investment Bank
(AIIB) marks the end of an era for the United States, may inflate the actual
influence of China and other emerging economies, while succumbing to
excessive pessimism about the future of U.S. primacy. However, it is “a
salutary wake-up call” that the “global economic architecture needs
substantial adjustment” and that the future of the U.S.-led global order could
be contested.1
The BRICS experience in Bretton Woods institutions similarly challenges
a second pessimistic narrative, which holds that the system is breaking down
because illiberal rising powers such as China or Russia are global free-riders
and cheaters, unwilling to accept existing rules and unable to construct viable
alternatives. On the contrary, the BRICS reject abandoning the existing order
or encouraging its breakdown in favor of a nihilistic “No One’s World.”2
They want to sit at the top tables, participate in agenda-setting in the “Green
Rooms,” and enthusiastically pattern their own engagement and attempt to
gain bargaining power based on the club model pioneered by G7. In a kind of
mirror image, they blame the United States and the West for reckless
leadership, alternating poor regulation of the financial system with
underinvestment in Bretton Woods institutions, both approaches that risk
destroying or eroding the current economic and financial order in the world.
In response to Western claims that China’s corruption, Moscow’s crackdowns
on civil society, and their overall resistance to rule of law and accountability
disqualify them, the Chinese, the Russians, and others counter that the
Obama administration and the newly inaugurated Donald Trump have made
the same mistake in underestimating their heightened confidence and
pragmatism after the United States spawned a global financial crisis while
“overestimat[ing] U.S. power.”3
In fact, although the BRICS are not unalloyed shirkers, they have not
always played by the rules, particularly in trade, in their use of state-owned
enterprises (SOEs), and with respect to the environment. Particularly in their
respective regions the two authoritarian regimes in the club, especially
Russia, engage in assertive, even aggressive, geoeconomic and geopolitical
statecraft. Nonetheless, as discussed in Chapter 3, neither seeks to destroy the
global governance order. For this reason, both have contributed to the
International Monetary Fund (IMF) rescue packages and distressed
developed countries’ funding needs, and they also have adopted many sound
financial regulations, such as Basel III, and other rules requiring
transparency. Sensitive to their reputational stakes and the costs of failure, the
BRICS also want their new institutions to gain legitimacy in the eyes of
global market players. Consequently, they hired Western experts to write the
articles of agreement for their banks, adopted transparency rules, and
implemented a lean, green business model to show that they can be more
efficient than the calcified lending procedures of the World Bank.4 The
BRICS also show sensitivity to market incentives and pressures in building
their financial structures, such as equity markets.
A third potential source of dangerous international outcomes has been
partially checked by the factor that most analysts predicted would drive the
BRICS apart—their diversity. In fact, the BRICS have embraced their
diversity and power.5 In their club, they pragmatically put aside differences in
political regime types and forms of capitalism to promote outcomes that
reflect their common aversions while encouraging the realization of common
interests. Diversity is a blessing in that it prevents the BRICS from becoming
a club of anti-Western autocracies, like the Shanghai Cooperation
Organization (SCO).6 The mixed nature of the BRICS has helped mitigate the
worst impulses of authoritarian modernization taking root as the club defines
its positions. Thus, the BRICS stand united with Russia against sanctions but
do not support Russia’s aggressive behavior in Ukraine. Unlike an alliance
system, the BRICS do not constrain the bad behavior of members outside the
Bretton Woods institutions. Nonetheless, they gain experience from
observing one another’s actions and missteps. It is no accident, as a result,
that the BRICS’ collective financial statecraft has focused more on defensive
than offensive measures, pushing back to ensure maximum policy discretion
and protection against U.S. policies rather than making deliberate, coercive
threats. Russia threatened asymmetrical retaliation if the West closed it out of
the Society for Worldwide Interbank Financial Telecommunication (SWIFT).
However, thus far, there may have been only one consequential use of joint
offensive financial statecraft by the BRICS. This occurred during the global
financial crisis when China (and apparently also Russia) signaled to the
United States their concerns about the risk of huge losses if Washington did
not act to protect U.S. agency debt (government-sponsored enterprises, such
as Fannie Mae and Freddie Mac) in which both, particularly China, held large
stakes.
Although these pessimistic interpretations of the medium-term
consequences of the BRICS’ defiance of the global economic order are
largely unwarranted, there is no avoiding the conclusion that the BRICS are
less constrained by the preferences of the West than they were when their
individual and collective power capabilities were smaller. China and the
BRICS do not need to equal the United States and the West to be able to
increase their influence, and they already possess the resources to act
independently of the United States and Bretton Woods institutions.
In the past, the United States and other Western countries successfully
coopted systemically important powers into the incumbent order while
nonetheless blocking them from significant advancement within global
institutions, which would threaten Western dominance and leadership
positions. The BRICS are now in a position to share leadership in global
governance, and some Chinese analysts expect that their greater economic
weight will carry greater decision-making clout.7
Nonetheless, the most important obstacle to the long-term sustainability of
the BRICS may be the weakness of their own domestic institutions: they have
met the enemy, and it is themselves. All the BRICS suffer from high levels of
corruption and weak institutions and need to return to their origins in the
Goldman Sachs idea that the future favored fast-growing, large economies.
Further, such domestic weakness could cost them future economic growth
and institutional prowess, as the BRICS face the power of global financial
markets. As shown in Chapter 2, all the BRICS recently have slowed
economically; in fact, three (Russia, Brazil, and South Africa) have suffered
from serious bouts of economic stagnation that threaten the legitimacy of the
BRICS brand. The weakness of the BRICS’ domestic institutions is
accentuating slow growth, making all wonder: “Whither the BRICS?”

GROWTH: THE ESSENTIAL NEED TO RETURN TO THE BRICS’ ROOTS

To overcome their mounting challenges, the IMF and the World Bank have
repeatedly warned that the authorities in the BRICS countries must take
urgent action to overhaul their economies to make them more productive,
competitive, and better governed.8 The recipes are different for each country,
but many include allowing greater private-sector investment, labor-market
reforms, stronger protections for intellectual-property rights, and bolstering
the judiciary systems and rule of law. The BRICS’ current growth leaders,
India and China, are the world’s largest democracy and the world’s largest
autocracy, but both need to improve the quality of their governance to sustain
positive growth forecasts. China now has the world’s largest middle class and
a burgeoning research and development (R&D) sector. Yet China struggles to
allow market forces to have a greater role, and the economy is heavily
dependent on credit. In India, less than 3 percent of the population has
incomes that might be considered middle class by global standards, while
about 90 percent of workers remain underemployed in the informal
economy.9
Market-oriented, globalized authoritarian countries are sometimes thought
to have the edge in economic development, especially in the early stages of
catch-up growth, primarily by exploiting the advantages of backwardness.10
Even Francis Fukuyama, who foretold the ideological triumph of liberal free-
market democracy, believed that market-based authoritarian modernizers
have a more impressive economic growth record than democracies, given the
inability of weak states in new democracies to resist favored interest groups,
as well as their resulting proclivity to protect noncompetitive industries, run
larger deficits for consumption, and, in general, make economically irrational
choices. “Market-oriented authoritarians,” by comparison, can
simultaneously “enforce a relatively high degree of social discipline on their
populations,” while allowing enough freedom to stimulate innovation.11
Likewise, they can facilitate capital formation in the economy for the purpose
of investment, while democracies that practice financial repression, like
India, have done so mostly in the service of government consumption.
Indeed, some “benevolent autocrats” are associated with growth miracles,
most notably Lee Kuan Yew, the long-serving leader of Singapore.
However, as William Easterly, Adam Przeworski, and other scholars
admonish, the observation of high growth rates in some autocracies is not
particularly significant since autocrats are also associated with growth
disasters. As Dani Rodrik explains, “autocracy is like a very risky bet: you
can win big with Lee Kuan Yew, or you could lose it all with Mobutu [Sese
Seko].”12 Another variant is China’s “bad emperor problem,” where in one
era Mao Zedong rules despotically, while in another Deng Xiaoping
embraces economic reforms.13
The China Model, also called the China Miracle and Beijing Consensus, is
the latest iteration of this debate.14 However, its uniqueness should not be
exaggerated, as important elements of China’s development path have been
consistent with the Washington Consensus, which emphasizes liberalization
of markets, trade, and foreign investment, as opposed to conforming
exclusively to the opposing Beijing Consensus, which features authoritarian
rule, state capitalism, and capital controls.15 The very notion of twenty-first-
century state capitalism in China incorporates elements of market
competition and integration into global production networks that have driven
out state firms in many sectors, while state enterprises in the top-tier strategic
sectors (including the banking sector and equity markets) have seen extensive
Western-style restructuring and improvements in corporate governance and
ownership rights.16
To be sure, China’s SOEs, as discussed in Chapter 2, remain less profitable
than Chinese private-sector firms and have struggled to become global
players despite receiving extraordinary financial largesse from the state.17
Nonetheless, China’s one-party state has acted functionally as the
“developmental state” did earlier in Japan, South Korea, and Taiwan, though
on a much larger scale, and going even one step further in its openness to
foreign investment, which provided a stimulus to competition during the
high-growth stage of development.18 The China Model also encompasses
other growth-inducing factors, including a technocratic meritocracy that
follows rules regarding term limits and succession, a political culture inclined
toward pragmatic policy adaptations, and decentralization that has favored
growth by incentivizing it at the local level and spreading successful
innovations.19 By comparison, Russia, the other autocratic BRICS member, is
less well integrated into the global economy outside of energy markets, and
its regional leaders are incentivized to become “predatory rather than
entrepreneurial.”20
Scholars debate the best combination of sources of growth,21 some of
which are found in China, including sustained high levels of investment and
openness to global investment, which fueled export-led development.
According to Dale Jorgenson, a sharp acceleration in investment is now the
predominant source of growth in India, as it has been in China, but growth is
more likely to continue in India given its favorable demographics,
particularly if New Delhi reforms its labor market, increases competition in
its home economy, and improves governance.22
China’s extraordinary thirty-year growth miracle, however, faces more
than the eventual regression to the mean in economic-growth rates.23 Some
scholars hypothesize that authoritarian regimes lose whatever advantages24
they can mobilize when they reach about 25 percent of U.S. productivity and
start to experience diminishing marginal returns.25 At this point, future
advances require greater productivity growth that cannot be achieved by
ever-greater levels of capital investment. In contrast to India, China has
arrived at this turning point, recently requiring significantly more investment
to grow more slowly than in the past. During the six years ending in 2007,
China’s gross domestic product (GDP) grew at an average rate of 11 percent,
with investment of 41.5 percent of GDP. After the global financial crisis, its
growth rate and total factor productivity (TFP) growth slowed, and the
shortfall in demand was made up almost completely by an increase in
investment, reaching more than 50 percent of GDP in recent years. Thus,
from 2003 to 2008, when annual growth averaged more than 11 percent, it
took just 1 yuan of extra credit to generate 1 yuan of GDP growth, according
to Morgan Stanley calculations. It took 2 for 1 from 2009–2010, when
Beijing embarked on a massive stimulus program to combat the effects of the
global financial crisis, and 4 for 1 in 2015, but by 2016, it required 6 yuan for
every yuan of growth.26
David Dollar shows how different growth paths for authoritarian and
democratic states correlate with the quality of their institutions at different
stages of development.27 This is important for emerging economies such as
the BRICS, which face a middle-income trap after exploiting the so-called
easy sources of growth (rural-urban migration, expanding exports from a low
base, etc.), but find it difficult to develop new sources of growth, such as
technological innovation, that are essential to advance to high-income
status.28 For example, Brazil and South Africa each already has experienced
a period of significant industrialization; consequently, their most intense
period for reaping the ephemeral advantages of backwardness has passed.
Appropriately, former Brazilian finance minister Luiz Carlos Bresser-Pereira
refers to Brazil’s “economic miracle” years of industrial growth of 7 to 10
percent annually (1968–1973), as “Brazil’s China moment”—an era of
unusually high growth resulting from large efficiency gains from early
industrialization, once passed, never to return.29 Governments in both
countries are now mired in corruption scandals in which the electoral
necessity of rewarding political supporters, as well as the parliamentary
demands of holding together a heterogeneous governing coalition, have
fatally undercut the state’s ability to be genuinely developmentalist. Some
analysts contend that a state-led industrialization strategy may work in a
world ruled by neutral, politically insulated technocrats,30 but in
contemporary Brazil and South Africa—as well as in India—the rather likely
alternative outcome is inefficient crony capitalism.31
In practice, countries face a risk at every level of development that they
may descend into a low-growth equilibrium. Hypothesizing that high-quality
institutions will allow countries to adjust to maintain significant growth,
Dollar investigates the problem of low-growth traps and the relationship
between growth and institutional quality. He creates an Institutional Q uality
Index by taking a simple average of three indicators from the Worldwide
Governance Indicators, each of which has a mean of zero and standard
deviation of 1.0.32 The three indicators are as follows:

• The Rule of Law Index “captures perceptions of the extent to which

agents have confidence in and abide by the rules of society, and in
particular the quality of contract enforcement, property rights, the
police, and the courts, as well as the likelihood of crime and violence.”
• Control of corruption “captures perceptions of the extent to which
public power is exercised for private gain, including both petty and
grand forms of corruption, as well as ‘capture’ of the state by elites and
private interests.”
• Government effectiveness “captures perceptions of the quality of
public services, the quality of the civil service and the degree of its
independence from political pressures, the quality of policy formulation
and implementation, and the credibility of the government’s
commitment to such policies.”

The Institutional Quality Index is highly correlated with growth rates in

1990–2010, while economic institutions are persistent. Focusing on the
quality of institutions relative to the level of development, Dollar’s main
contribution underscores that countries that have good institutions for their
level of development tend to grow faster than other developing countries,
particularly at low levels of development. But if the intuitions do not keep up
as income levels rise, as with China after the 1990s and 2000s, then growth
slows significantly.33 The best remedy, then, is for countries to strengthen the
property rights and rule of law that provide the foundation for improving
government effectiveness.
Figure 5.1 reconstructs Dollar’s Institutional Quality Index and uses the
log GDP per capita for 170 countries to determine the BRICS’ institutional
positions in 2015. As is evident from the graph, only India is located above
the regression line. China falls just below, while Brazil is farther down and
Russia is significantly out of sync with the institutions needed for it to restore
growth and rise into the upper-income level.
FIGURE 5.1 BRICS Institutional Quality Index Versus Log GDP per Capita
Source: World Bank, Worldwide Governance Indicators, 2016; C. Roberts
calculations.

Thus, China grew rapidly in the first decade of the 2000s, with institutions
suitable for its level of development, but then growth slowed. Like all the
other BRICS (except India for the time being), China needs better
governance and liberal reforms if it is to break out of the middle-income trap.
Likewise, Brazil and South Africa suffer from too little liberalization and
ineffective governance, despite their democratic structures. Of course, India
is still relatively poor, with a GDP per capita in 2016 of about $1,600 in
market exchange-rate (MER). With more than $9,000 GDP per capital
(MER), Russia is significantly richer, so it requires institutions more
comparable to those in developed countries, but patronal politics continue to
trump needed reforms. Many economists contend that Russia is too rich to
have such corrupt institutions—it is one standard deviation away from the
norm for countries of its development level.34
Given China’s and South Africa’s positions near the regression line, it may
be possible to improve growth there without radical reforms right away.
However, Brazil, and particularly Russia, are more likely to stagnate
economically without significant improvements in governance and rule of
law.35 This is no surprise to the BRICS, whose leaders have publicly
acknowledged the need for reforms while eschewing fundamental changes in
practice.
THE TENSION BETWEEN FORMAL AND INFORMAL RULES

In his discussion of the “bad emperor” problem in China, Francis concluded

that even if a clique of insiders observes informal rules that help mitigate the
economic commitment problem endemic to authoritarian regimes devoid of
formal property rights, this can never be a lasting substitute for a formal rule
of law. Several other scholars emphasize that no less essential in the
globalized world than a modern bureaucratic state are constraints in the form
of a rule of law or democratic accountability.36 China is the paradigmatic
puzzle, in that it has experienced the longest sustained period of rapid growth
(an average of more than 9 percent per year between 1971 and 2014), despite
high levels of corruption and low scores on traditional governance measures
of political liberty, voice, and accountability.37
The rule of law and well-protected property rights are found especially
wanting in the two autocratic BRICS,38 but the others are not immune to such
problems either.39 The absence of democratic accountability and/or strong
legal capacity, combined with weak checks on power and strong vested
interests, is one taproot of disregard of formal rules.40 For those in power in
these countries, informal rules are attractive ways of rent-seeking. In many
middle-income countries, weak market and legal institutions make the actors
turn to alternative informal sources for protection and services, such as those
seen in domestic financial arrangements in China.41 Although it can be useful
in some circumstances to have such flexibility in governance, these informal
rules also can be abused through clientelism, cronyism, and corruption, as
seen in many developing and middle-income countries.
Gretchen Helmke and Steven Levitsky construct a typology that shows
how the role of informal institutions may either improve or undermine formal
institutions because they work either positively (via a problem-solving role)
or negatively (via a problem-creating role) to enhance or constrain formal
institutions.42 Informal institutions that help formal institutions function more
effectively are compatible and complementary; accommodating informal
institutions emerge when formal institutions are effective but have conflicting
goals; substitutive informal institutions occur where formal institutions are
ineffective though goals are compatible; and competing informal institutions
emerge when formal institutions are ineffective and there are conflicting
goals between formal and informal actors. In their study of corporate
governance in BRICs countries, Saul Estrin and Martha Prevezer find that the
effectiveness of informal public institutions varies with firm ownership
structures and property rights and the relationship between firms and external
investors.
Thus, in China and some states of India, where informal institutions
replace ineffective formal institutions, these are critical to enhanced corporate
governance and higher domestic and foreign investment. However, this
condition of positive substitutive informal institutions in China does not
universally hold across economic sectors. As Daniel Mattingly shows, so
long as informal organizations are linked to the state, “local elites can exploit
their control over group social networks to encourage compliance with
extractive policies.”43 In Russia, by comparison, competing informal
institutions and mechanisms of corporate governance are associated with
corruption and clientelism, which undermine the functioning of reasonably
effective formal institutions relating to shareholder rights and relations with
investors. Meanwhile, in Brazil, accommodating informal institutions get
around the effectively enforced but restrictive formal institutions and help
reconcile various objectives.44
Despite the different levels of effectiveness of these institutions, the
BRICS members inherently prefer to live in the world of soft institutions and
informal rules because these norms are more compatible with their domestic
institutions and modalities. The relative underdevelopment of their domestic
legal institutions makes these governments resort to informal rules and
institutions for domestic governance. China is often criticized as not honoring
the rule “of law,” but instead being only ruled “by law.” In China, as in many
or most developing and middle-income countries, the personal relationship
known as guanxi, or blat in Russia, prevails as a dominant way of doing
business.45 In Vladimir Putin’s Russia, not only have blat networks been
monetized, but the entire system benefits the power elite through informal
networks that employ extortion, fraud, bribery, embezzlement, kickbacks, and
blackmail, often for private gain.46
Furthermore, none of the BRICS is eager to participate in multilateral
institutions that will impose additional rules or conditionality on them and
resist those that are not obviously technocratic and universally applied. Given
their history of independence struggles, imperial imposition, shaky national
identity, and feelings of vulnerability, the BRICS states are often extremely
sensitive to sovereignty issues and interference into each country’s internal
affairs, even when such invasion of sovereignty comes in the form of having
to follow formal rules. Thus, as discussed in Chapter 3, the BRICS accepted
Basel III requirements and greater transparency but resisted neoliberal
ideology imposed by edicts from the IMF or others on capital controls and
currency adjustments.
This tendency toward informal rules has led policymakers in the Western
incumbent powers (including Japan) and senior staff in the international
financial institutions to express fears that an expanded presence of the BRICS
in global economic and monetary governance may introduce a greater degree
of informality and illiberal counternorms or no-strings development aid47 into
the forums of global financial governance. For his part, Jin Liqun, president
of the AIIB, insists that the new bank will not only be “lean and green,” but
also “clean,” meaning not only efficient with a small professional staff and
non-resident board of governors that cares about the environment, but also
not corrupt. This aspiration will require overcoming the pressures of
operating a multilateral bank in a country with both strong authoritarian
predispositions and informal practices.48
The BRICS’ imperatives to generate domestic economic growth may be
combined with a possibly salutary influence of a mostly capitalist
international political economy in which private cross-border investment
responds to market imperatives. As David Andrews argues with regard to
financial globalization, its market force is strong enough to squeeze any
flexibility and arbitrary policy tendency out of even the biggest of the
players.49 Particularly in the world of financial integration, the swift flow of
financial capital will penalize any antimarket movement on the part of
governments, whether it takes the form of high taxation, mismanagement, or
corruption.50 Furthermore, for many capital-scarce developing countries, the
competition to attract foreign capital induces discipline on the part of their
governments.
Of course, such discipline could be either detrimental or beneficial to a
country’s economy.51 There could be a “race to the bottom” dynamic, where
welfare of the people in the capital-recipient countries would be adversely
affected in the form of slack environmental standards, lower wages, or
compromised safety regulation to make foreign investment more profitable.
At the same time, these governments could be motivated to reduce
corruption, inefficiency, and mismanagement in order to attract good
investors and steady financial inflows.52 Therefore, it is plausible that market
discipline would influence the BRICS to move toward more formal domestic
rules of the economic game. Under these circumstances, even the strongest
power, China, must strive to establish formal rules and governance to
convince the market of its credibility by tying its own hands. Some China
specialists have argued that domestic economic and political reformers favor
renminbi (RMB) internationalization for precisely these reasons (see Chapter
4).
On the regional and international level, the BRICS have managed to amass
capabilities and collective financial statecraft strategies to influence financial
and economic governance. The ultimate challenge lies in whether the new
multilateral financial institutions established by their efforts would withstand
the test of market and changing economic environments through formalizing
arrangements, a framework that the BRICS have resisted to varying degrees.
There is an obvious trade-off between hard (legalistic, binding, and
enforceable) and formal rules versus soft (nonbinding and nonenforceable)
and informal rules that comes from the flexibility that the latter provides as
opposed to the precise obligations and enforcement for the former.53 The
incumbent powers will insist on their formal rules for governance and
institutions that have served them well in order to lock in the existing power
disparities that are being jeopardized by the rising powers.54
Currently, the BRICS powers face pressure from domestic sources to
improve domestic economic performance through greater adherence to
formal rules, legal accountability, and checks and balances to stymie
corruption, or the use of public resources for private rent-seeking. At the
same time, the BRICS are likely to continue to struggle against the pressure
toward formal rules and institutions to accommodate market demands and to
enhance their collective power to reflect their preferences in global economic
governance.

SUMMING UP: THE BRICS, COLLECTIVE FINANCIAL STATECRAFT, AND THE

MULTIPOLAR FUTURE

This book has examined the collective financial statecraft of the BRICS since
the group’s emergence in the second half of the 2000s, which is a significant
development in the international political economy of our times. In doing so,
the volume addresses four questions. First, how and why did a disparate, and
widely geographically-dispersed group of countries decide to constitute
themselves as a multilateral club? Second, what has been the nature of this
cooperation in the realms of international financial governance and collective
financial statecraft? Third, what has motivated these five governments to
engage in these financial statecraft strategies collectively (in other words,
what has made them want to collaborate)? Finally, what do the rise of the
BRICS club and its challenges to global economic governance and financial
statecraft mean to the global economic order and the BRICS countries
themselves? The five chapters of this book have responded to these queries.
How and why did the BRICS emerge? From the viewpoint of political
leaders in Moscow, Beijing, New Delhi, and Brasília in the early twenty-first
century, there was no doubt that their rapid economic ascent, as compared to
the slow growth of the incumbent Western powers, heralded a global shift
toward a multipolar world. Notwithstanding the triumphalist American
rhetoric following the 1991 breakup of the Soviet Union, the “unipolar
moment” would be fleeting.55 Moreover, just two years after senior ministers
had begun, in 2006, to meet regularly on the sidelines of the United Nations
General Assembly (UNGA) fall meetings, the erstwhile hegemon, the United
States, displayed serious dysfunction in its own lending and securities
markets and then failed to deal adequately with the disruptions, instead
spreading financial contagion to all major and many peripheral markets
worldwide.56 The late 2008 convening of the first summit meeting of the G20
large economies reinforced for the four BRICs countries their importance in
the global economy. Since early 2009, not only have the BRICs (later the
BRICS, when South Africa joined the club) leaders met annually, they have
established concrete multilateral and transnational cooperation across a wide
range of policy arenas, most dramatically in the financial sphere.
The emergence of the BRICS illustrates several larger academic and
foreign policy concerns. One debate concerns the consequences of the “rise
of the rest”57—especially China—and asks whether the West can expect
accommodation from or conflict with the rising powers. As elaborated in
Chapter 1, another debate analyzes the institutions and practices of global
economic governance, observing that international governmental
organizations (IGOs) are not merely institutions for pragmatic problem-
solving; they also function as arenas in which interstate power relations are
perpetuated and sometimes renegotiated. Our discussion notes that rising
powers may possess both inside and outside options for expanding their voice
and influence, and they also may operate within both global institutions and
capitalist markets.
For the inside option, the BRICS learned from the status quo states about
the power advantages of forming an inner circle, or exclusive club, within
multilateral organizations to enhance their influence.58 De facto inner clubs
of powerful states have steered global governance forward since the birth of
these organizations, thus solving problems of collective action among large
numbers of sovereign states, yet bias results very clearly in directions that
further the private, self-regarding interests of the incumbent powers.59 There
is also an outside option. With the rise of their capabilities, but not having
been given an equivalent increase in influence in global governance, the
BRICS governments have aspired to have their own club, so that they can
advocate for their own agenda and interests in managing international
financial and monetary matters. A power asymmetry exists within the
BRICS, however. As the United States clearly dominates the G7, so do
Chinese leaders continue to lead the BRICS, especially given their greater
financial contributions to joint projects. As with the United States within the
G7, China can sometimes obtain its preferences within the group simply
because its partners recognize that China has additional outside options that
others lack. For example, China yielded to its fellow BRICS in establishing
equal votes and shares for each member within the New Development Bank
(NDB), but it also created another bank, the AIIB, in which it has effective
veto power, holding the largest share of voting rights—and insisted that the
others also join, with smaller amounts of capital and influence.
The global power shift in recent decades that has given rise to the BRICS
demands is well documented, as shown in Chapter 2. It is most obvious in the
shift in relative economic capabilities and less evident in the military sphere.
While the United States continues to hold a preponderance of capabilities in
many dimensions, China has increased its relative position very rapidly and
drawn even in economic capabilities, at least by some measures. Most
dramatically, the relative capabilities of the major Western European
countries, and to a lesser extent Japan, have declined, while those of the
BRICS and other emerging economies have increased.
The financial and monetary capabilities of the BRICS are also shifting,
with their home financial markets and regulatory frameworks getting
somewhat deeper and more sophisticated. Overall, the main financial
capability possessed by the BRICS at present is their large foreign exchange
reserves, especially for China, whose buildup of foreign exchange is simply
the counterpart of its enormous trade surplus with most of the advanced
industrial countries (not to mention with India). For decades, China, along
with many emerging markets, has been willing to invest a large portion of its
trade and current account surplus in very low-yield assets of U.S. Treasury
bills, but is today attempting to diversify. Moreover, China’s leadership,
particularly since the ascension of President Xi Jinping in November 2012, is
now hopeful that RMB internationalization will secure China both political
and economic advantages within its geographic region, while new financial
institutions and programs—the BRICS institutions, the AIIB, and the One
Belt, One Road (OBOR) initiative—offer more lucrative, yet still stable,
investment options for China’s large foreign exchange reserves.
Now that the BRICS have incentives and capabilities to possibly influence
global financial governance, how have they gone about implementing their
preferred strategy together? Turning to the BRICS’ financial statecraft,
defined as the conscious strategy, by incumbent political leaders, of national
financial and monetary capabilities for larger foreign policy goals, Chapter 3
extends the framework to encompass collective financial statecraft, wielded
by a group (or club) in the form of a fourfold typology. This includes inside
reforms aimed at existing institutions; inside reforms intended to alter, shape,
or resist the political benefits distributed among state actors in existing global
capitalist markets; outside reforms through which a club of challenger-states
seeks to construct alternative multilateral institutions; and outside reforms in
which an international club of states attempts to shift the operations of
markets themselves.
The first case illustrates the inside option of BRICS collaboration to obtain
greater voice within the World Bank and IMF, by cooperating on supporting a
common candidate (which was not a success) and in applying joint pressure
for larger quotas. The BRICS, at their summit in Goa, India, in October 2016,
have reiterated their call for a reallocation of two executive directorships at
the IMF away from Western Europe and toward emerging economies, as well
as for continued work on a new quota formula in the ongoing review
process.60 A second case concerns defensive financial statecraft within global
markets: as the United States, Western Europe, and other countries imposed
costly banking and other financial sanctions on Russia in response to its
intervention in Ukraine, all the BRICS have clearly and unequivocally
refused to participate. These two cases constitute inside options, as
collaboration among the BRICS did not attempt to forge new institutional nor
market realities.
The third case chronicles the BRICS’ pursuit of an outside option to found,
and fund, two new multilateral institutions controlled by themselves: the
NDB, which announced its first loans in mid-2016, and the Contingent
Reserve Arrangement (CRA). At their most recent summit in late 2016, the
five countries also announced plans to go forward with a jointly sponsored
credit rating agency, arguing that the Western trio of private market actors
(Moody’s, S&P, and Fitch) had demonstrated both incompetence and bias in
failing to warn of the global financial crisis—a point also made by Western
analysts.61
The fourth and final example of collective financial statecraft constitutes
an outside option to reshape the operation of, and thus the politically relevant
capability distribution within, global money markets. Each of the members of
the BRICS club has, at least rhetorically and to some extent in concrete
practice, criticized the dominance of international monetary relations by the
U.S. dollar and praised the option of the greater internationalization of
China’s RMB. The BRICS’ decision to pursue this course is particularly
noteworthy in that a larger role for the RMB would in many ways complicate
international financial policymaking for the other four BRICS, given their
individual trade and foreign exchange profiles. Clearly, ongoing international
political concerns trumped short-term economic interest.
This study’s evaluation of the third question, the motivation of the BRICS
for engaging in collective action, leads Chapter 4 to examine the complex
mix of motives within each of these five very different emerging powers. All
would like greater voice and recognition in global economic governance
institutions, as they share common aversions to being instructed by the
incumbent powers. Political leaders in Russia, the originator of the BRICS
idea as a formal multilateral organization, and in China, the most powerful
among the BRICS, are more willing to admit to the ambitions of major
powers to have a regional sphere of influence, and they have been the most
self-conscious among the BRICS about the advantages of having a BRICS
club within the Bretton Woods institutions and the G20. However, working
collectively with this diverse BRICS group provides China and Russia an
appropriate instrument to convince the global market and suspicious
incumbent powers that they do not have a fundamentally revisionist scheme
for economic and financial governance; they accept the laws of economics
and the concept that markets deserve an important role in their domestic
economies and in the world economy.
The three democracies are somewhat less status-aggrieved than Russia and
China, and their motives for participation are more mixed. Each would like a
greater role in global governance, would like to be viewed as a leader within
the global South, and has hopes for Chinese investment. Indian political
leaders also urgently need to balance China and to do what they can to fend
off closer relations between either China or Russia and India’s archrival,
Pakistan. Neither India nor Brazil wishes to offend the West, including Japan,
and both resist defining the BRICS as “anti-Western,” a rhetorical stance that
sometimes appeals to Russia and China. For their part, South African leaders
remain conscious of their country’s less materially capable position, both
globally and within the BRICS, and have prudently chosen to go along with
the club on most specific global issues, hoping for national and African
regional advantages, especially in the form of investment from China and the
other larger BRICS countries.
Finally, what are the implications of the rise of the BRICS’ collective
financial statecraft? On balance, the BRICS have been relatively constructive
players in global economic and financial governance—dissatisfied with their
degree of influence, and not as accepting of unwanted policy rules as U.S.
security allies such as Japan and South Korea—but in agreement on many
basic principles underpinning the global economic system. Despite their
domestic varieties of capitalism, they have been only moderately revisionist
—certainly not spoilers in this area—owing at least in part to the pull of
domestic reformers62 or, in the case of the democracies, shared values with
Western liberal states. Overall, this record testifies to the soundness of the
U.S. strategy to draw in systemically significant states into the U.S.-led
liberal economic order and its continuing logic. From within this domain of
the global order, the BRICS have often opted for financial statecraft aiming
to accomplish inside reform. Peaceful change could continue to be possible if
the major players, both incumbent and rising powers, are willing to adjust
incrementally, given the overriding benefits of the existing order.
Such adjustment by the United States and the West will not come easily,
however, as suggested by Lawrence Summer’s epigraph at the beginning of
this chapter. Despite the recent waning of Europe and the G7 Concert, the
United States remains the dominant power and has demonstrated its
willingness and ability to leverage its financial capabilities to compensate for
its declining share of the world economy. The BRICS perceive Washington’s
use of financial statecraft, in the form of sanctions and controlling access to
the nodes of the international financial system, as coercive, and these actions
have provoked the group’s collective defensive responses, as evidenced in the
cases discussed in this volume. If the backlash by the BRICS and other
countries contributes to an eroding of U.S. leverage as they invoke their
outside options—then the result may seriously fragment the international
order. This is a risk that leaders of the United States and the BRICS should
not underestimate.
Notes

This book uses Chinese surnames in both traditional (last name first) and
Western conventions that correspond to author preference.
This book generally adheres to the American Library Association and
Library of Congress transliteration table for the Romanization of Russian
words. Some exceptions are made for proper names for which a different
English version is commonly used or the author has used in his or her
English language publications. Diacritics are omitted to avoid additional
complexity. For Chinese transliteration, we have adopted the Pinyin
System.

CHAPTER 1

1. “BRICS 2015,” Special Issue, International Affairs (Moscow, 2015): 151.

2. The G7 includes the United States, Japan, Germany, the United Kingdom, France, Italy, and
Canada.
3. Dominic Wilson and Roopa Purushothaman, “Dreaming with the BRICs: The Path to 2050,”
Global Economic Papers No. 99 (New York: Goldman Sachs, October 2003);Jim O’Neill, “How
Solid Are the BRICs?” Global Economics Paper No. 134 (New York: Goldman Sachs, 2005); Jim
O’Neill, “Building Better Global Economic BRICs,” Global Economics Paper No. 66 (New York:
Goldman Sachs, 2001); Goldman Sachs Global Economics Group, “BRICs and Beyond” (London:
Goldman Sachs, 2007). As BRICs mania spread, other predictions followed; for example, noting that
emerging markets contain 80 percent of the world’s population and create half of global GDP, yet
represent only 11 percent of the combined value of global stock markets, The Times (London) quoted
a financial adviser who predicted that “[b]y 2050 the BRIC nations will dominate the globe.” Quoted
in Cynthia Roberts, “Introduction,” Polity Forum: Challengers or Stakeholders? BRICs and the
Liberal World Order, Polity, 42, no. 1 (January 2010): 1.
4. Gillian Tett, “The Story of the Brics,” Financial Times, January 15, 2010.
5. Robert Hormats was then vice chairman of Goldman Sachs, a former senior government
official, and future U.S. undersecretary of state for economic affairs during the Barack Obama
administration.
6. Jim O’Neill, The Growth Map. Economic Opportunity in the BRICs and Beyond (New York:
Penguin, 2011), Chap. 8; and Jim O’Neill, “Some Advice for the G20,” Global Economics Paper No.
181, Goldman Sachs, March 20, 2009. See also Jim O’Neill, “The Brics Economies Must Help Form
World Policy,” Financial Times, January 22, 2007; Jim O’Neill, “Why It Would Be Wrong to Write
Off the Brics,” Financial Times, January 5, 2009; Jim O’Neill, “You Can’t Build the Future Without
BRICs,” The Daily Telegraph, April 4, 2009; and Jim O’Neill, “We Need Brics to Build the World
Economy,” The Times (London), June 23, 2009. At the Gleneagles Summit in 2005, Western leaders
agreed to hold a separate set of meetings with ministers from the emerging economies of China,
India, Brazil, South Africa, and Mexico, then referred to as the G8+5. Russia had already been
invited to participate in the renamed G8 as a status enhancement to compensate for its diminished
position after the end of the Cold War and collapse of the Soviet Union.
7. The term originated with Fareed Zakaria, The Post-American World and the Rise of the Rest:
Release 2.0 (New York: W. W. Norton, 2012).
8. Leslie Elliott Armijo and Cynthia Roberts, “The Emerging Powers and Global Governance:
Why the BRICS Matter,” in Handbook of Emerging Economies, ed. Robert E. Looney (London:
Routledge, 2014), 503–520; and Jonathan Kirshner, American Power After the Financial Crisis
(Ithaca, NY: Cornell University Press, 2014).
9. Gregory Chin and Wang Yong, “Debating the International Currency System: What’s in a
Speech?” China Security 6, no. 1 (2010): 3–20; Shaun Breslin, “China and the Global Order:
Signalling Threat or Friendship?” International Affairs 89, no. 3 (May 2013): 615–634.
10. Wang also detected “the observation that emerging powers like India, Brazil, Russia, and South
Africa are increasingly challenging Western dominance and are working more closely with each
other and with China in doing so.” Kenneth Lieberthal and Wang Jisi, Addressing US-China Strategic
Distrust (Washington, DC: Brookings Institution, March 2012), vii–viii. See also Thomas J.
Christensen, The China Challenge: Shaping the Choices of a Rising Power (New York: W.W.
Norton, 2015), 260 and passim.
11. Kenneth Lieberthal and Wang Jisi, Addressing U.S.-China Strategic Distrust (report,
Brookings Institution, Washington, DC, March 2012). See also Cui Liru, “Big Power
Game/Cooperation in the Asia-Pacific,” Contemporary International Relations (CIR) 23, no. 2
(March/April 2013): 90–100.
12. Alexei Barrionuevo, “Demand for a Say on a Way Out of Crisis,” The New York Times,
November 10, 2008.
13. D. Medvedev 2009 interview, as cited in Cynthia Roberts, “Russia’s BRICs Diplomacy: Rising
Outsider with Dreams of an Insider,” Polity 42, no. 1 (2010): 38–73, at 72.
14. For a perceptive theoretical discussion, see Phillip Y. Lipscy, “Explaining Institutional Change:
Policy Areas, Outside Options, and the Bretton Woods Institutions,” American Journal of Political
Science 59, no. 2 (April 2015): 341–356. On the IMF, see Barry Eichengreen and Ngaire Woods,
“The IMF’s Unmet Challenges,” Journal of Economic Perspectives 30, no. 1 (2016): 29–51.On two
BRICS (Russia and China) blocking institutional change in the UN Security Council (UNSC), see
Armijo and Roberts, “The Emerging Powers,” 509–514.
15. Albert O. Hirschman, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations,
and States (Cambridge, MA: Harvard University Press, 1970). For elaboration on a “voice
opportunities thesis,” see Joseph M. Grieco, “The Maastricht Treaty, Economic and Monetary Union
and the Neo-Realist Research Programme,” Review of International Studies 21, no. 1 (1995): 21–40.
16. From the 6th BRICS summit communiqué. For a complete compilation of BRICS
communiqués and other documents, see the BRICS Information Centre, University of Toronto,
Canada, http://www.brics.utoronto.ca/
17. IMF Staff, 2014 Spillover Report, Policy Paper, June 25, 2014. The BRICS club also outlasted
the BRICs investment portfolio, which was closed by Goldman Sachs in 2015 after its assets
declined following a peak of $842 million in 2010. The BRIC Index of Morgan Stanley Capital
International (MSCI) returned 308 percent in the first 10 years of the 21st century (through 2010),
compared with a 15 percent gain in the Standard & Poor’s 500 index. After leaving Goldman Sachs
in 2013, Jim O’Neill was made a Lord and worked as a commercial minister to the U.K. Treasury in
David Cameron’s government.
18. Zakaria, The Post-American World.
19. John J. Mearsheimer, “The False Promise of International Institutions,” International Security
19, no. 3 (Winter 1994–1995): 5–49 at 8; Tony Evans and Peter Wilson, “Regime Theory and the
English School of International Relations: A Comparison,” Millennium: Journal of International
Studies 21, no. 3 (Winter 1992): 330. See also Stephen D. Krasner, “Global Communications and
National Power: Life on the Pareto Frontier,” World Politics 43, no. 3 (April 1991): 336–366;
Michael Mastanduno, “System Maker and Privilege Taker,” World Politics 61, no. 1 (January 2009):
121–154; Joseph M. Grieco, “Anarchy and the Limits of Cooperation: A Realist Critique of the
Newest Liberal Institutionalism,” International Organization 42, no. 3 (1988): 485–507; and
Johannes Urpelainen, “Unilateral Influence on International Bureaucrats: An International Delegation
Problem,” Journal of Conflict Resolution 56, no. 4 (August 2012): 704–735.
20. Stephen G. Brooks and William C. Wohlforth, World out of Balance: International Relations
and the Challenge of American Primacy (Princeton, NJ: Princeton University Press, 2008).
21. Michael Mandelbaum, The Case for Goliath: How America Acts as the World’s Government in
the 21st Century (New York: PublicAffairs, 2005).
22. Robert O. Keohane, “Social Norms and Agency in World Politics,” paper delivered at UCLA
Burkle Center Seminar, November 20, 2009, 13; and Beth A. Simmons, Mobilizing for Human
Rights (New York: Cambridge University Press, 2009).
23. Erik Voeten, “Data and Analyses of Voting in the UN General Assembly,” July 17, 2012,
available at SSRN: http://ssrn.com/abstract=2111149; and idem., “Clashes in the Assembly,”
International Organization 54, no. 2 (2000): 185–215. Voeten also observes, “It appears that U.S.
hegemony has elicited almost universal resistance.” Erik Voeten, “Resisting the Lonely Superpower:
Responses of States in the United Nations to US Dominance,” Journal of Politics 66, no. 3 (2004):
729–754, at 747.
24. The Middle East and the Balkans account for 53.2 percent of the nonconsensus resolutions
adopted since 1990; Voeten, “Data and Analyses.”
25. Ibid. See also Stephan Haggard, “Liberal Pessimism: International Relations Theory and the
Emerging Powers,” Asia & the Pacific Policy Studies 1, no. 1 (2014): 8–9.
26. Roberts, “Introduction,” Polity Forum.
27. Arthur A. Stein, “Coordination and Collaboration: Regimes in an Anarchic World,” in
International Regimes, ed. Stephen D. Krasner (Ithaca, NY: Cornell University Press, 1983); Arthur
A. Stein, Why Nations Cooperate: Circumstance and Choice in International Relations (Ithaca, NY:
Cornell University Press, 1983), Chap. 2. See also Duncan Snidal, “Coordination versus Prisoners’
Dilemma: Implications for International Cooperation and Regimes,” American Political Science
Review 79 (December 1985): 923–942.
28. Author’s interviews, Moscow, 2007, 2009, 2011, 2012; and BRICS summit communiqués.
29. Roberts, “Introduction,” Polity Forum; and Armijo and Roberts, “The Emerging Powers,”
503–524.
30. See David Shambaugh, in China’s Future (Cambridge, UK: Polity Press, 2016), 70, on how
Vladimir Putin warned Hu Jintao about the risks of nongovernmental organizations (NGOs) inciting
a color revolution; and Roger McDermott, “Gerasimov Calls for New Strategy to Counter Color
Revolution,” Eurasia Daily Monitor 13, no. 46 (March 2016). Both China and Russia embrace
variations of Stalin’s 1931 reminder that “Old Russia was always beaten for her backwardness.” For
contemporary discussions, see Yang Yao, China’s Approach to Economic Diplomacy,” in America,
China, and the Struggle for World Order, ed. G. John Ikenberry, Zhu Feng, and Wang Jisi (New
York: Palgrave Macmillan, 2015), Chap. 6 at 184; and Jack Snyder, “Alternative Modernities and the
Late Development Trap,” paper presented at a conference on “Future Scenarios for Russia and the
West,” Harriman Institute, Columbia University, November 11, 2016.
31. Roberts, “Russia’s BRICs Diplomacy,” 56.
32. Robert Jervis, “Unipolarity: A Structural Perspective,” World Politics 61, no. 1 (January 2009):
200.
33. Sung Eun Kim and Johannes Urpelainen, “Rising Regional Powers Meet the Global Leader: A
Strategic Analysis of Influence Competition,” International Political Science Review 36 no. 2 (March
2015): 214–234.
34. James Mittelman and Richard Falk, “Global Hegemony and Regionalism,” in Regionalism in
the Post–Cold War World (Aldershot, UK: Ashgate, 2000), 19; David Shambaugh, “China Engages
Asia: Reshaping the Regional Order,” International Security 29, no. 3 (2004/2005): 64–99; Thomas
J. Christensen, “Fostering Stability or Creating a Monster? The Rise of China and U.S. Policy
Toward East Asia,” International Security 31, no. 1 (2006): 81–126.
35. Juan C. Zarate, Treasury’s War: The Unleashing of a New Era of Financial Warfare (New
York: PublicAffairs, 2013).
36. Albert Hirschman, National Power and the Structure of Foreign Trade (Berkeley: University
of California Press, 1945), 16.
37. Allison Carnegie, Power Plays: How International Institutions Reshape Coercive Diplomacy
(New York: Cambridge University Press, 2015).
38. Benn Steil and Robert E. Litan, Financial Statecraft: The Role of Financial Markets in
American Foreign Policy (New Haven, CT: Yale University Press, 2006).
39. Daniel W. Drezner, All Politics Is Global: Explaining International Regulatory Regimes
(Princeton, NJ: Princeton University Press, 2007); and Daniel W. Drezner, “Targeted Sanctions in a
World of Global Finance,” International Interactions 41, no. 4 (2015): 755–764.
40. This formulation is from Randall L. Schweller and Xiaoyu Pu, “After Unipolarity: China’s
Visions of International Order in an Era of U.S. Decline,” International Security 36, no. 1(2011): 41–
72. See also Alastair Iain Johnston, “Is China a Status Quo Power?” International Security 27, no. 4
(2003): 5–56; and idem.,“How New and Assertive Is China’s New Assertiveness?” International
Security 37, no. 4 (2013): 7–48.
41. G. John Ikenberry, After Victory: Institutions, Strategic Restraint, and the Rebuilding of Order
After Major Wars (Princeton, NJ: Princeton University Press, 2001); idem., Liberal Leviathan: The
Origins, Crisis, and Transformation of the American World Order (Princeton, NJ: Princeton
University Press, 2011); and idem.,“The Rise of China and the Future of the West: Can the Liberal
System Survive?” Foreign Affairs 87, no. 1 (January–February 2008): 23–37; Miles Kahler, “Rising
Powers and Global Governance: Negotiating Change in a Resilient Status Quo,” International Affairs
89, no. 3 (2013): 711–729. But see the important critiques of Ikenberry in Richard K. Betts,
“Institutional Imperialism,” The National Interest (May/June 2011): 85–96; and Randall L.
Schweller, “The Problem of International Order Revisited: A Review Essay,” International Security
26, no. 1 (Summer 2001): 161–186.
42. David Lake, Hierarchy in International Relations (Ithaca, NY: Cornell University Press, 2009).
43. Charles P. Kindleberger, The World in Depression, 1929–1939 (Berkeley: University of
California Press, 1986); Stephen D. Krasner, “State Power and the Structure of International Trade,”
World Politics 28, no. 3 (1976): 317–347; and Duncan D. Snidal, “The Limits of Hegemonic Stability
Theory,” International Organization 39, no. 4 (1985): 579–614.
44. Charles P. Kindleberger, “Dominance and Leadership in the International Economy,”
International Studies Quarterly 25, no. 2 (1981): 242–254.
 45. Lake, Hierarchy in International Relations; Lisa Martin, Coercive Cooperation: Explaining
Multilateral Economic Sanctions (Princeton, NJ: Princeton University Press, 1992); Mandelbaum,
The Case for Goliath.
46. China’s strategy to promote a materially strong country and a peaceful multipolar world
necessitated “learning to live with the hegemon” and adjusting to the reality of U.S. dominance. Jia
Qingguo, “Learning to Live with the Hegemon: Evolution of China’s Policy Toward the US Since the
End of the Cold War,” Journal of Contemporary China 14, no. 44 (2005): 395–407.
47. Robert B. Zoellick first applied the term “responsible stakeholder” to China in “Whither
China? From Membership to Responsibility,” Remarks to the National Committee on U.S.-China
Relations, September 21, 2005.
48. Foreign Minister Wang Yi press conference, Xinhua News Agency, Beijing, China, March 8,
2016.
49. Betts, “Institutional Imperialism”; and Michael Mastanduno, “System Maker and Privilege
Taker: US Power and the International Political Economy,” World Politics 61, no. 1 (2009): 121–154.
50. Eric Helleiner and Bessma Momani, “The Hidden History of China and the IMF,” in The Great
Wall of Money: Power and Politics in China’s International Monetary Relations, ed. Eric Helleiner
and Jonathan Kirshner (Ithaca, NY: Cornell University Press, 2014), 45–70.
51. Jin Renqing (former Finance Minister), speech at the World Bank/IMF Annual Meeting,
September 24, 2005. By comparison, China was more quiescent in the WTO until 2008, when it
joined the top table, acting initially as a veto player, rejecting U.S. demands for special concessions
and additional market opening, and then cooperating with Brazil and India.Kristen Hopewell,
“Different Paths to Power: The Rise of Brazil, India, and China at the World Trade Organization,”
Review of International Political Economy 22, no. 2 (2015): 311–338.
52. John Odling-Smee, “The IMF and Russia in the 1990s,” Working Paper No. 04/155 (2004);
IMF, “25 Years of Transition: Post-communist Europe and the IMF,” staff paper, 2014, especially 30–
32.
53. Bessma Momani, “Another Seat at the Board: Russia’s IMF Executive Director,” International
Journal 62, no. 4 (2007): 916–939. However, Washington also gained less influence over China and
Russia than over U.S. allies such as Japan and South Korea because they are not dependent on
American security guarantees.
54. John Gerard Ruggie, “International Regimes, Transactions, and Change: Embedded Liberalism
in the Postwar Economic Order,” International Organization 36, no. 2 (1982): 379–415, at 382.
55. Ibid., 405.
56. Robert G. Gilpin, War and Change in World Politics (Cambridge, UK: Cambridge University
Press, 1981), 35–36.
57. Robert O. Keohane, After Hegemony: Cooperation and Discord in the World Political
Economy (Princeton, NJ: Princeton University Press, 2005).
58. Ren Xiao, “A Reform-Minded Status Quo Power? China, the G20, and Reform of the
International Financial System,” Third World Quarterly 36, no. 11 (2015): 2023–2043.
59. The sentence ends: “at least for the time being.” Wang Jisi and Zhu Feng, “Conclusion: The
United States, China, and World Order,” in Ikenberry, Zhu, and Wang, America, China, and the
Struggle for World Order, 362. Other scholars concur, observing, “although China is not completely
happy with the existing international economic order, it does not seek a new type of order, rather it
wants changes within [the] order.” Weixing Hu, “China as a Listian Trading State: Interest, Power,
and Economic Ideology,” in ibid., 236. Several articles published in recent years in the authoritative
Chinese journal Contemporary International Relations develop the same general line of analysis,
such as articles by Wang Wenfeng, “Analysis on China’s Power and International Environment,”
Contemporary International Relations, no. 6, 2014; Hu Shisheng, “Reflections on International
Order Transition,” Contemporary International Relations, no. 7, 2014; and Wu Zhicheng,
“International System in a Process of Multi-polarization,” Contemporary International Relations, no.
7, 2014.
60. He adds that the only realistic alternative is global disorder and instability. Andrei Kortunov,
“The Inevitable, Weird World: Prospect for the Liberal World Order,” no. 4, Russia in Global Affairs
(October/December 2016). See also Cynthia Roberts (ed.), “Forum: Challengers or Stakeholders?
BRICs and the Liberal World Order,” Polity 42, no. 1 (January 2010); and T. V. Paul (ed.),
Accommodating Rising Powers (Cambridge, UK: Cambridge University Press, 2016).
61. On China provoking a power transition, see John Mearsheimer, “The Rise of China Will Not
be Peaceful At All,” The Australian, 18, no. 11 (2005); and idem., “The Gathering Storm: China’s
Challenge to US Power in Asia,” Chinese Journal of International Politics 3, no. 4 (2010): 381–396.
See also Aaron Friedberg, A Contest for Supremacy: China, America, and the Struggle for Mastery in
Asia (New York: Norton, 2012); and Martin Jacques, When China Rules the World: The End of the
Western World and the Birth of a New Global Order (New York: Penguin, 2009). On power
transitions theory, see Gilpin, War and Change; A. F. K. Organski and Jacek Kugler, The War Ledger
(Chicago: University of Chicago Press, 1981); Ronald L. Tammen, et al., Power Transitions:
Strategies for the 21st Century (New York: Chatham House Publishers of Seven Bridges Press,
2000).
62. Brad Setser, “China Can Now Organize Its Own (Financial) Coalitions of the Willing,”
Council on Foreign Relations, New York, September 18, 2016; and Joshua Kurlantzick, Charm
Offensive: How China’s Soft Power Is Transforming the World (New Haven, CT: Yale University
Press, 2007).
63. Charles A. Kupchan, No One’s World: The West, the Rising Rest, and the Coming Global Turn
(New York: Oxford University Press, 2012); Ian Bremmer, Every Nation for Itself: Winners and
Losers in a G-Zero World (New York: Penguin, 2012); and Stewart Patrick, “Irresponsible
Stakeholders? The Difficulties of Integrating Rising Powers,” Foreign Affairs 89, no. 6 (November–
December 2010): 44–53.
64. Joseph S. Nye, The Future of Power (New York: PublicAffairs, 2011); and Robert Jervis, The
Meaning of Nuclear Revolution: Statecraft and the Prospect of Armageddon (Ithaca, NY: Cornell
University Press, 1989).
65. Notwithstanding its forcible annexation of Crimea, Russia has been retreating, not expanding,
from its past imperial and Soviet positions, and is in a long-term struggle with the classic gap
between its Great Power ambitions and actual resources.
66. See especially Randall W. Stone, Controlling Institutions: International Organizations and the
Global Economy (New York: Cambridge University Press, 2011); and Mastanduno, “System Maker
and Privilege Taker.”
67. Axel Dreher, Jan-Egbert Sturm, and James R. Vreeland, “Global Horse Trading: IMF Loans
for Votes in the United Nations Security Council,” European Economic Review 53, no. 7 (2009):
742–757; and Ilyana Kuziemko and Eric Werker, “How Much Is a Seat on the Security Council
Worth? Foreign Aid and Bribery at the United Nations,” Journal of Political Economy 114, no. 5
(2006): 905–930.
68. Throughout this period, Japan remained a loyal client of the hegemon despite some domestic
resistance. Shintaro Ishihara, The Japan That Can Say No: Why Japan Will Be First Among Equals
(New York: Simon & Schuster, 1991); Kent E. Calder, “Japanese Foreign Economic Policy
Formation: Explaining the Reactive State,” World Politics 40, no. 4 (1988): 517–541; and Saori N.
Katada, “Two Aid Hegemons: Japanese-US Interaction and Aid Allocation to Latin America and the
Caribbean,” World Development 25, no. 6 (1997): 931–945.
 69. Tonya L. Putnam, “Courts without Borders: Domestic Sources of US Extraterritoriality in the
Regulatory Sphere,” International Organization 63, no. 3 (July 2009): 459–490; and Martin Gilman,
“Towards a Segmented World Order?” Russia in Global Affairs, April 12, 2016.
70. Kirshner, American Power After the Financial Crisis; and Eric Helleiner and Jonathan
Kirshner (eds.), The Future of the Dollar (Ithaca, NY: Cornell University Press, 2009).
71. Randall L. Schweller and David Priess, “A Tale of Two Realisms: Expanding the Institutions
Debate,” Mershon International Studies Review 41, supplement 1 (1997): 1–32, at 13.
72. Schweller and Pu, “After Unipolarity.”
73. This observation applies only to global governance, not security orders, where Russia has
sought to upend the post–Cold War order dominated by the United States and Euro-Atlantic
institutions in which Moscow has been only a peripheral player. Russian interventions in Ukraine and
Georgia, threats against NATO members, violations of arms control agreements, attacks on Western
democratic institutions, as well as its support of political actors opposed to European unity on matters
important to Moscow, show that Russia prefers European disorder to the Western dominated regimes
that expanded after 1991. China also shows signs of seeking regional dominance.
74. Richard Cornes and Todd Sandler, The Theory of Externalities, Public Goods, and Club
Goods, 2nd ed. (New York: Cambridge University Press, 1996), 333–334. For the classic statement,
see James M. Buchanan, “An Economic Theory of Clubs,” Economica 32, no. 125 (1965): 1–14.
75. Cornes and Sandler, Theory of Externalities, 353–354.
76. Mancur Olson, The Logic of Collective Action (Cambridge, MA: Harvard University Press,
1965), 39; Cornes and Sandler, Theory of Externalities, 353–354. The theory of clubs used here
assumes that “exclusion” is possible when applied to the organization of membership or sharing
arrangements. Buchanan, “An Economic Theory,” 13.
77. Cornes and Sandler, Theory of Externalities, 370. Drezner assumes a homogeneous
membership.
78. Buchanan, “Economic Theory,” 13; Todd Sandler and John Tschirhart, “Club Theory: Thirty
Years Later,” Public Choice 93 (1997): 335–355.
79. Olson, Logic, 34–43; and Frank H. Page and Myrna Wooders, “Networks and Clubs,” Journal
of Economic Behavior & Organization 64, no. 3 (2007): 406–425.
80. Richard H. Steinberg, “In the Shadow of Law or Power? Consensus-Based Bargaining and
Outcomes in the GATT/WTO,” International Organization 56, no. 2 (2002): 339–374; Drezner, All
Politics Is Global; and Stone, Controlling Institutions.
81. Lipscy, “Explaining Institutional Change”; W. Brian Arthur, Increasing Returns and Path
Dependence in the Economy (Ann Arbor: University of Michigan Press, 1994); Jack A. Goldstone,
“Initial Conditions, General Laws, Path Dependence, and Explanation in Historical Sociology,”
American Journal of Science 104, no. 3 (1988): 829–845.
82. See especially Krasner, “Global Communications and National Power”; Stone, Controlling
Institutions; and Gruber, Ruling the World.
83. Gruber, Ruling the World.
84. Stephen G. Brooks and William C. Wohlforth, “Reshaping the World Order: How Washington
Should Reform International Institutions,” Foreign Affairs 88, no. 2 (March/April 2009), 50.
85. Drezner, All Politics Is Global, Chap. 3.
86. Robert O. Keohane and Joseph S. Nye, Jr., “The Club Model of Multilateral Cooperation and
Problems of Democratic Legitimacy,” in Power and Governance in a Partially Globalized World, ed.
Robert O. Keohane (New York: Routledge, 2002), Chap. 10, 232.
 87. Keohane and Nye, “The Club Model,” 220. For similar arguments, see Anne Marie Slaughter,
A New World Order (Princeton, NJ: Princeton University Press, 2009).
88. Drezner, All Politics Is Global; Andrew Baker, The Group of Seven: Finance Ministries,
Central Banks, and Global Financial Governance (New York: Routledge, 2006); and Robert D.
Putnam and Nicholas Bayne, Hanging Together: Cooperation and Conflict in the Seven-Power
Summits (Cambridge, MA: Harvard University Press, 1987).
89. Keohane and Nye, “The Club Model,” 223.
90. Robert L. Rothstein, Global Bargaining: UNCTAD and the Quest for a New International
Economic Order (Princeton, NJ: Princeton University Press, 2015).
91. Yong Wook Lee, “The Japanese Challenge to Neoliberalism: Who and What Is ‘Normal’ in the
History of the World Economy?” Review of International Political Economy 15, no. 4 (2008): 506–
534.
92. Ian Hurd, “Legitimacy and Authority in International Politics,” International Organization 53,
no. 2 (1999): 379–408.
93. Lipscy, “Explaining Institutional Change;”Jakob Vestergaard and Robert H. Wade, “Protecting
Power: How Western States Retain the Dominant Voice in the World Bank’s Governance,” World
Development 46 (June 2013): 153–164; Kahler, “Rising Powers and Global Governance.”
94. Drezner, All Politics Is Global, 121.
95. Ibid., Chap. 5.
96. Andrew Baker and Brendan Carey, “Flexible ‘G Groups’ and Network Governance in an Era
of Uncertainty and Experimentation,” Handbook of International Political Economy of Governance,
ed. Anthony Payne and Nicola Phillips (Cheltenham, UK: Edward Elgar, 2014), 92–94.
97. Putnam and Bayne, Hanging Together; and David Andrews (ed.), International Monetary
Power (Ithaca, NY: Cornell University Press, 2005).
98. Harold James, International Monetary Cooperation Since Bretton Woods (Washington, DC:
International Monetary Fund, 1996); Louis W. Pauly, Who Elected the Bankers? Surveillance and
Control in the World Economy (Ithaca, NY: Cornell University Press, 1997); Robert Gilpin, Global
Political Economy: Understanding the International Economic Order (Princeton, NJ: Princeton
University Press, 2001).
99. The Bill Clinton administration initially pushed to include Russia in part of the G7 summits as
a side-payment for accepting NATO enlargement and a stimulus to sell liberal reforms. However,
when it became clear that Russia would become a regular participant, Treasury Secretary Robert
Rubin made it clear that the G7 would have to reconstitute itself to do its important financial business
outside the new G8 process. Cynthia A. Roberts, Russia and the European Union: The Sources and
Limits of “Special Relationships” (Carlisle, PA: Strategic Studies Institute, 2007), 86, note 4. See
also Vladimir A. Orlov and Miriam Fugfugosh, “The G8 Strelna Summit and Russia’s National
Power,” The Washington Quarterly 29 (Summer 2006): 35–48.
100. Cynthia Roberts, “A Useful and Limited Engagement,” Moscow Times, July 14, 2006; and
interviews.
101. Kenneth N. Waltz, Theory of International Politics (Reading, MA: Addison-Wesley, 1979);
G. John Ikenberry and Charles A. Kupchan, “Socialization and Hegemonic Power,” International
Organization 44, no. 3 (1990): 283–315.
102. Brendan Vickers, “The Role of the Brics in the WTO: System-Supporters or Change Agents
in Multilateral Trade?” Oxford Handbook on the World Trade Organization, ed. Martin Daunton,
Amrita Narlikar, and Robert M. Stern (New York: Oxford University Press, 2015), 261.
103. Russia joined the WTO only in December 2011, after 18 years of negotiations.
 104. Amrita Narlikar and Diana Tussie, “The G-20 at the Cancun Ministerial: Developing
Countries and Their Evolving Coalitions in the WTO,” The World Economy 27, no. 7 (July 2004):
947–966; Andrew Hurrell and Amrita Narlikar, “The New Politics of Confrontation: Developing
Countries at Cancún and Beyond,” Global Society 20, no. 4 (2006): 415–433; and Hopewell,
“Different Paths to Power.”
105. Narlikar and Tussie, “The G-20 at the Cancun Ministerial,” 962.
106. Vickers, “The Role of the Brics in the WTO,” 262, 264.
107. Sergei Ryabkov, speech at the VIIth BRICS Academic Forum, May 22, 2015,
http://en.brics2015.ru/news/20150522/107920-print.html.
108. Zhu Guangyao, “BRICs,” Jingji Ribao, February 15, 2016.
109. Author’s interview with Alexander Kramarenko, Russian Ministry of Foreign Affairs, June
2008. See also Slaughter, A New World Order.
110. See the discussion in Chap. 3.
111. Ikenberry, After Victory; and Lake, Hierarchy in International Relations.
112. Erik Berglöf, Mike Burkhart, Guido Friebel, and Elena Paltseva, “Club-in-the-Club: Reform
Under Unanimity,” Journal of Comparative Economics 40, no. 3 (August 2012): 492–507.
113. Erik Voeten, “Outside Options and the Logic of Security Council Action,” American Political
Science Review 95, no. 4 (December 2001): 845–858; Allison Carnegie, “States Held Hostage:
Political Hold-up Problems and the Effects of International Institutions,” American Political Science
Review 108, no. 1 (February 2014): 54–70.
114. Stone, Controlling Institutions, 224.
115. Voeten, “Outside Options,” and Carnegie, “States Held Hostage.”
116. Gary Saxonhouse, “Regionalism and US Trade Policy in Asia,” in The Economics of
Preferential Trade Agreements, ed. Arvind Panagariya and Jagdish Bhagwati (Washington, DC: AEI
Press, 1996), 108–135. Vinod K. Aggarwal with Kun-Chin Lin, “Strategy Without Vision: The U.S.
and Asia-Pacific Economic Cooperation,” in APEC: The First Decade, ed. Jürgen Rüland, Eva
Manske, and Werner Draguhn (London: Curzon Press, 2002), 91–122.
117. Many scholars date the shift to 2009, in connection with the global financial crisis of that
time. See, for example, Suisheng Zhao, “A New Model of Big Power Relations? China-US Strategic
Rivalry and Balance of Power in the Asia-Pacific,” Journal of Contemporary China 24, no. 93
(2015): 377–397; and Shao Binhong (ed.), The World in 2020 According to China: Chinese Foreign
Policy Elites Discuss Emerging Trends in International Politics, vol. 2 (Leiden, Netherlands, and
Boston: Brill, 2014).
118. Michael A. Glosny, “China and the BRICs: A Real (but Limited) Partnership in a Unipolar
World,” Polity 42, no. 1 (2010): 100–129; see also Chap. 4 of this book.
119. This strategy is explained by several Chinese scholars; for example, Hu Shisheng,
“Reflections on International Order Transition,” Contemporary International Relations, no. 7, 2014;
and Wang and Zhu, “Conclusion,” Contemporary International Relations.

CHAPTER 2

1. Christopher Layne, “US Hegemony in a Unipolar World: Here to Stay or Sic Transit Gloria?”
International Studies Review 11, no. 4 (2009): 784–787, at 785; idem.,“This Time It’s Real: The End
of Unipolarity and the Pax Americana,” International Studies Quarterly 56, no. 1 (2012): 203–213;
and John J. Mearsheimer, The Tragedy of Great Power Politics (New York: W.W. Norton, 2001).
Joseph Nye contends that in “economic power among states, the world is multipolar,” as quoted in
Serge Schmemann, “The Seesaw of Power,” The New York Times, June 23, 2011.
2. Stephen G. Brooks and William C. Wohlforth, World out of Balance: International Relations
and the Challenge of American Primacy (Princeton, NJ: Princeton University Press, 2008); and
William C. Wohlforth, “The Stability of a Unipolar World,” International Security 24, no. 1 (Summer
1999): 5–41.
3. Michael Beckley, “China’s Century? Why America’s Edge Will Endure,” International Security
36, no. 3 (Winter 2011/2012): 41–78; and Stephen G. Brooks and William C.Wohlforth, “The Rise
and Fall of the Great Powers in the Twenty-first Century: China’s Rise and the Fate of America’s
Global Position,” International Security 40, no. 3 (2016): 7–53.
4. Brooks and Wohlforth, “The Rise and Fall of the Great Powers,” 14.
5. Randall L Schweller and Xiaoyu Pu, “After Unipolarity: China’s Visions of International Order
in an Era of US Decline,” International Security 36, no. 1 (2011): 41–72; and Charles A. Kupchan,
“The Normative Foundations of Hegemony and the Coming Challenge to Pax Americana,” Security
Studies 23, no. 2 (2014): 219–257.
6. For a perceptive discussion in the security context, see Thomas J. Christensen, “Posing
Problems Without Catching Up: China’s Rise and Challenges for U.S. Security Policy,” International
Security 25, no. 4 (Spring 2001): 5–40.
7. In the 1960s, French Minister of Finance Giscard d’Estaing described the benefits accruing to
the U.S. dollar as the world’s reserve currency in this way. Barry Eichengreen, Exorbitant Privilege:
The Rise and Fall of the Dollar and the Future of the International Monetary System (Oxford, UK:
Oxford University Press, 2011).
8. Mikko Huotari and Thilo Hanemann, “Emerging Powers and Change in the Global Financial
Order,” Global Policy 5, no. 3 (2014): 298–310; Daniel H. Rosen and Thilo Hanemann, China’s
Changing Outbound Foreign Direct Investment Profile: Drivers and Policy Implications, Policy
Brief 09-14, Peterson Institute for International Economics, Washington, DC (June 2009); and Brad
Setser, “China Can Now Organize Its Own (Financial) Coalitions of the Willing,” Council on Foreign
Relations, New York, September 18, 2016.
9. David A. Baldwin, “Power in International Relations,” in Handbook of International Relations,
ed. Walter Carlsnaes, Thomas Risse, and Beth A. Simmons (Thousand Oaks, CA: Sage Publications,
2013), 177–91; Robert Dahl, “The Concept of Power,” Behavioral Science 2 (July 1957): 201–215.
10. Robert O. Keohane and Joseph Nye, Power and Independence: World Politics in Transition
(Boston: Little Brown, 1977); and Albert O. Hirschman, National Power and the Structure of
Foreign Trade (Berkeley: University of California Press, 1980).
11. Michael Mastanduno, “Do Relative Gains Matter? America’s Response to Japan’s Industrial
Strategy,” International Security 16, no. 1 (Summer 1991): 73–113; John Mearsheimer, The Tragedy
of Great Power Politics (New York: W.W. Norton, 2001); Robert D. Blackwill and Jennifer M.
Harris, War by Other Means: Geoeconomics and Statecraft (Cambridge, MA: Harvard University
Press, 2016).
12. The classic statement of this position is Dahl, “The Concept of Power”; see also David A.
Baldwin, Economic Statecraft (Princeton, NJ: Princeton University Press, 1985).
13. Joseph S. Nye Jr., Bound to Lead: The Changing Nature of American Power (New York: Basic
Books, 1990), 188.
14. David M. Andrews (ed.), International Monetary Power (Ithaca, NY: Cornell University Press,
2006); Benjamin J. Cohen, Currency Power: Understanding Monetary Rivalry (Princeton, NJ:
Princeton University Press, 2015).
 15. Lloyd Gruber, Ruling the World: Power Politics and the Rise of Supranational Institutions
(Princeton, NJ: Princeton University Press, 2000); Susan Strange, States and Markets (London:
Pinter Publishers, 1988), 31.
16. Strange, States and Markets, 24–25.
17. Bachrach and Baratz termed this the “second face” of power. See Peter Bachrach and Morton
S. Baratz, “Two Faces of Power,” American Political Science Review 56, no. 4 (1962): 947–952.
18. Strange, States and Markets, 88.
19. Zeev Maoz, Networks of Nations: The Evolution, Structure, and Impact of International
Networks, 1816–2001 (Cambridge, UK: Cambridge University Press, 2011); Thomas Oatley, W.
Kindred Winecoff, Andrew Pennock, and Sarah Baerle Danzman, “The Political Economy of Global
Finance: A Network Model,” Perspectives on Politics 11, no. 1 (March 2013): 133–166.
20. Robert Gilpin, War and Change in World Politics (Cambridge, UK: Cambridge University
Press, 1981).
21. Michael Mastanduno, “System Maker and Privilege Taker,” World Politics 61, no. 1 (January
2009): 121–154; Eric Helleiner and Jonathan Kirshner, “The Politics of China’s International
Monetary Relations,” in The Great Wall of Money: Power and Politics in China’s International
Monetary Relations, ed. Eric Helleiner and Jonathan Kirshner (Ithaca, NY: Cornell University Press,
2014), 8; and Gilpin, War and Change.
22. On Darwinian competition among currencies, see Cohen, Currency Power, 9, 11, 14.
23. The critiques usually target Waltz and Mearsheimer for emphasizing relative material
capabilities, but these two are the most widely read and cited texts in international relations. Kenneth
N. Waltz, Theory of International Politics (New York: McGraw Hill, 1979) and John Mearsheimer,
The Tragedy of Great Power Politics (New York: W.W. Norton, 2001).
24. G. John Ikenberry, Michael Mastanduno, and William C. Wohlforth, “Introduction:
Unipolarity, State Behavior, and Systemic Consequences,” World Politics, 61, no. 1 (January 2009):
1–27.
25. Scholars and foreign policy analysts also make such calculations. See, for example, Robert J.
Lieber, Power and Willpower in the American Future: Why the United States Is Not Destined to
Decline (Cambridge, UK: Cambridge University Press, 2012); Carla Norrlof, “Dollar Hegemony: A
Power Analysis,” Review of International Political Economy 21, no. 5 (April 2014): 1042–1070. For
Chinese perspectives, see Yan Xuedong, “Why a Bipolar World Is More Likely than a Unipolar or a
Multipolar One,” New Perspectives Quarterly 32 (2015): 52–56; idem., “Power Shift and Change in
the International System,” and China 2020 Research Team, “Repositioning China in 2020,” both in
The World in 2020 According to China: Chinese Foreign Policy Elites Discuss Emerging Trends in
International Politics, ed. Shao Binhong (Leiden, Netherlands: Brill, 2014), chaps. 5 and 7,
respectively.
26. International Monetary Fund (IMF), World Economic Outlook database; International
Monetary Fund, World Economic Outlook: Gaining Momentum? Washington, DC, April 2017;
Stephen S. Roach, “Global Growth—Still Made in China by Stephen S. Roach—Project Syndicate,
August 29, 2016. Roach’s estimates predate the IMF’s revised 2016 forecast of lower U.S. growth.
27. U.S. National Intelligence Council (NIC), Global Trends 2025: A Transformed World
(Washington, DC: U.S. Government Printing Office, 2008), iv–vii; and Global Trends 2030:
Alternative Worlds (Washington, DC, U.S. Government Printing Office, 2012), 15.
28. Richard Dobbs et al., Urban World: Cities and the Rise of the Consuming Class, McKinsey
Global Institute (MGI), 2012.
29. For example, Bruce Jones, Still Ours to Lead: America, Rising Powers, and the Tension
Between Rivalry and Restraint (Washington, DC: Brookings Institution Press, 2014).
 30. EU-28 figures here include the United Kingdom. After Brexit (the United Kingdom's planned
withdrawal from the European Union), the EU will rank even lower in relative power rankings, as
Britain accounted for 17.5 percent of the EU economy in 2015, a figure projected to decline in out
years.
31. IMF, World Economic Outlook (WEO) database, April 2016 and April 2017; World Bank,
World Development Indicator (WDI) database, http:/data.worldbank.org/data-catalog/world-
development-indicators (accessed March 2017). Paul Kennedy estimates that the United States
commanded 40 percent of the global economy in 1945, in “The (Relative) Decline of America,”
Atlantic Monthly (August 1987). See also Cynthia Roberts, “Measuring the Chinese Economy,”
posted on “H-Diplo: Lieber Roundtable: Is the US Declining?” August 31, 2013, http://h-
net.msu.edu/cgi-bin/logbrowse.pl?trx=vx&list=h-
diplo&month=1308&week=e&msg=kJRPDYSL2jIX9A7YHOjFPw&user=&pw=.
32. IMF, World Economic Outlook, April 2017.
33. Credit Suisse, Global Wealth Report 2015 (October 2015): 16–17. However, Russia’s sharp
downturn since 2014 has erased a sizeable portion of the gains from the previous decade.
34. World Bank, Global Economic Prospects, January 2016, Chap. 3. See also p. 4ff for a list of
emerging market economies and an explanation how the World Bank distinguishes them from other
categories.
35. Euro Area GDP Annual Growth Rate, 1995–2016, http://www.tradingeconomics.com/euro-
area/gdp-growth-annual.
36. Russia is ranked sixth based on a PPP basis but fell to thirteenth based on market rates. World
Bank, “2015 GDP Ranking Table,” World Development Indicators, October 11, 2016.
37. Figures here are calculated from the IMF, WEO Database (April 2016).
38. Data from IMF WEO (April 2016).
39. Jim O’Neill, “Dreaming with BRICs: The Path to 2050,” Global Economics Paper No. 99,
October 1, 2003.
40. Dominic Wilson, Kamakshya Trivedi, Stacy Carlson, and José Ursúa, “The BRICs 10 Years
On: Halfway Through the Great Transformation,” Global Economics Paper No. 208, December 7,
2011.
41. Åsa Johansson et al., “Looking to 2060: Long-Term Global Growth Prospects: A Going for
Growth Report,” OECD Economic Policy Papers, No. 3, OECD Publishing, 2012.
42. Xiaodong Zhu, “Understanding China’s Growth: Past, Present, and Future,” Journal of
Economic Perspectives 26, no. 4 (Fall 2012): 103–124, at 106; IMF Country Report No. 16/270,
People’s Republic of China (August 2016).
43. See, for example, Arvind Subramanian, Eclipse: Living in the Shadow of China’s Economic
Dominance (Washington, DC: Peterson Institute for International Economics, 2011).
44. Eswar Prasad, “China’s Efforts to Expand the International Use of the Renminbi,” Report
prepared for the U.S.-China Economic and Security Review Commission, February 4, 2016, 28.
However, since mid-2014, pressures on the RMB have reversed, leading the People’s Bank of China
to intervene (at a cost of about 12 percent of foreign exchange reserves) to prevent a rapid
depreciation (ibid., 27).
45. Ruchir Sharma, “Broken BRICs: Why the Rest Stopped Rising,” Foreign Affairs (2012): 2–7;
and idem., Breakout Nations: In Pursuit of the Next Economic Miracles (New York: W. W. Norton,
2012). For a contrary argument that is similar to the one made here, see “Catching the Eagle,” The
Economist, November 21, 2013; and also Subramanian, Eclipse.
46. The theory holds that as a result of faster per capita growth, GDP per capita will converge over
time to the level of the most advanced economies. As per capita income converges, per capita growth
will slow to the rate that economies experience when operating at the technological frontier.
However, convergence is conditional because it depends on supportive conditions and growth-
oriented policies, which helps to explain why most developing countries have actually diverged from
advanced economies. See, for example, Lant Pritchett, “Divergence, Big Time,” Journal of Economic
Perspectives 11, no. 3 (1997): 3–17.
47. Lant Pritchett and Lawrence H. Summers, Asiaphoria Meets Regression to the Mean, NBER
Working Paper No. 20573, National Bureau of Economic Research, October 2014.
48. This point adapts the insight that the United States as hegemon is both “system-maker and
privilege-taker” in creating and paying to maintain the international order while also taking a
disproportionate share of the benefits. Michael Mastanduno, “System Maker, Privilege Taker: U.S.
Power and the International Political Economy,” World Politics 61, no. 1 (January 2009): 121–154.
49. Zhu, “Understanding China’s Growth,” 103.
50. Richard Dobbs, James Manyika, and Jonathan Woetzel, No Ordinary Disruption: The Four
Global Forces Breaking All the Trends (New York: PublicAffairs, 2015), 18.
51. World Bank, WDI data.
52. Zhu, “Understanding China’s Growth,” 103–124; Development Research Center of the State
Council (DRC) and World Bank, China 2030: Building a Modern, Harmonious, and Creative Society
(Washington, DC: World Bank Publications, 2013); and Stephen Roach, Unbalanced: The
Codependency of America and China (New Haven, CT: Yale University Press, 2014).
53. Nicholas R. Lardy, Markets over Mao: The Rise of Private Business in China (Washington,
DC: Peterson Institute for International Economics, 2014).
54. Ibid., 138–141.
55. Japan, South Korea, and Taiwan did not slow down until after productivity topped 60 percent.
China could still do much to correct distortions in its domestic market, including misallocation of
capital, not to mention implementing more ambitious governance reforms and liberalizing financial
markets, as discussed later. Zhu, “Understanding China’s Growth,” 108–109, 121. See also DRC and
World Bank, China 2030.
56. Sean Miner, “Tracking China’s Service Sector,” Peterson Institute for International Economics,
November 7, 2016.
57. World Bank, China Economic Update (July 2015).
58. Quoted in IMF Country Report No. 16/270, The People’s Republic of China (August 2016), 4.
59. See DRC and World Bank, China 2030; World Bank, Global Financial Development Report
2013: Rethinking the Role of the State in Finance; and World Bank, Global Financial Development
Report, 2015/2016: Long-Term Finance.
60. Richard Dobbs, Susan Lund, Jonathan Woetzel, and Mina Mutafchieva, “Debt and (Not Much)
Deleveraging,” MGI, February 2015;“Asian Nations Swimming in Debt at Risk From Fed Rate
Hikes,” Bloomberg News, April 10, 2017, https://www.bloomberg.com/news/articles/2017-04-10/fed-
rate-hikes-raise-risks-for-asian-nations-swimming-in-debt; and IMF Country Report No. 16/270.
61. Dobbs et al., “Debt and (Not Much) Deleveraging”; World Bank, China Economic Update; and
Eswar Prasad, Testimony Before the U.S. China Economic and Security Review Commission, April
27, 2016.
62. 2016 Global Manufacturing Competitiveness Index, 1, 13.
63. World Bank, Global Economic Prospects (January 2016), 195.
64. Of the 192 countries in the IMF database, 144 have per capita incomes that are less than half of
U.S. per capita GDP, while in 102 countries, including China, per capita GDP is less than 25 percent
of the U.S. level. Steve Johnson, “Emerging Markets to Slow as Convergence Theory Takes Hold,”
Financial Times, June 2, 2016.
65. World Bank, China Economic Update, June 2015, 22.
66.Global Growth: Can Productivity Save the Day in an Aging World? MGI, January 2015.
67. World Bank, Global Development Horizons 2011—Multipolarity: The New Global Economy;
Justin Yifu Lin, “Are We Prepared for a Multipolar World Economy?” Project Syndicate, June 2,
2011; Jamus Lim, “A New Multipolar World Economy,” World Bank Blog, May 17, 2011. Note the
World Bank’s multipolarity index is calculated as the normalized Herfindahl-Hirschman index of
GDP and contribution to global growth shares of the top fifteen economies, computed over five-year
rolling averages.
68. This assumes that South Africa’s region is southern Africa. On the continent as a whole,
Nigeria is more populous and has a larger GDP. However, Nigeria suffers from even more severe
governance problems, so it is in no position to serve as a regional leader.
69. “Strategy for BRICS Economic Partnership,” BRICS Summit, Ufa, Russia, July 8–9, 2015.
70. IMF, WEO Database (October 2015); DRC and World Bank, China 2030; and Zhu,
“Understanding China’s Growth.”
71. WTO, “Trade Growth to Remain Subdued in 2016 as Uncertainties Weigh on Global
Demand,” Press release, April 7, 2016, http://www.wto.org/english/news_e/pres16_e/pr768_e.htm.
72. Richard Baldwin, The Great Convergence: Information Technology and the New Globalization
(Cambridge, MA: Harvard University Press, 2016).
73. Richard Baldwin and Javier Lopez‐Gonzalez, “Supply‐Chain Trade: A Portrait of Global
Patterns and Several Testable Hypotheses,” World Economy 38, no. 11 (2015): 1682–1721.
74. This paragraph draws primarily on Hiau Looi Kee and Heiwai Tang, “Domestic Value Added
in Exports: Theory and Firm Evidence from China,” American Economic Review 106, no. 6 (2015):
1402–1436.
75. Ibid. See also Xiaolan Fu, China’s Path to Innovation (Cambridge, UK: Cambridge University
Press, 2015).
76. Shawn Donnan, “‘Peak Trade’ and China’s Role in 5 Charts,” Financial Times, November 19,
2014.
77. Jason Dedrick, Kenneth L. Kraemer, and Greg Linden, “Who Profits from Innovation in
Global Value Chains? A Study of the iPod and Notebook PCs,” Industrial and Corporate Change 19,
no. 1 (2010): 81–116; Baldwin and Lopez‐Gonzalez, “Supply‐Chain Trade”; and Brooks and
Wohlforth, “The Rise and Fall of the Great Powers.”
78. Baldwin and Javier Lopez‐Gonzalez, “Supply‐Chain Trade,” 1714. See also David Autor et al.,
Foreign Competition and Domestic Innovation: Evidence from U.S. Patents, NBER Working Paper
No. 22879, December 2016.
79. World Bank, Global Development Horizons, Capital for the Future: Saving and Investment in
an Interdependent World, 2013.
80. Spencer Lake, “China Set to Overtake the US as an Outward Investor,” Financial Times, June
30, 2015.
81. Simeon Djankov, “The Rationale Behind China’s Belt and Road Initiative,” in China’s Belt and
Road Initiative: Motives, Scope, and Challenges, ed. Simeon Djankov and Sean Miner, Peterson
Institute for International Economics, March 2016, 6.
82. David Dollar, “China as a Global Investor,” in China’s New Sources of Economic Growth. Vol.
1: Reform, Resources, and Climate Change, ed. Ligang Song et al. (Canberra: Australian National
University Press, 2016), 197–214.
 83. Jonathan Woetzel et al., “The China Effect on Global Innovation,” McKinsey & Company
(2015).
84. Ibid.
85. Ibid., 18; and “Commercial Drones: Up,” The Economist, April 11, 2015.
86. Ibid., 15–20.
87. Jacopo Dettoni, “Chinese R&D Goes Global,” Financial Times, August 31, 2016.
88. Caroline Freund, Rich People, Poor Countries: The Rise of Emerging-Market Tycoons and
Their Mega Firms (Washington, DC: Peterson Institute for International Economics, 2016), 67.
89. Ibid., 65–66.
90. In addition to those cited earlier in this chapter, see Sean Starrs, “American Economic Power
Hasn’t Declined—It Globalized! Summoning the Data and Taking Globalization Seriously,”
International Studies Quarterly 57, no. 4 (2013): 817–830; and Michael Beckley, “China’s Century?
Why America’s Edge Will Endure,” International Security 36, no. 3 (Winter 2011/2012): 41–78.
91. Michael Ringel et al., The Most Innovative Companies 2016: Getting Past “Not Invented
Here,” BCG, January 2017, https://www.bcgperspectives.com/most-innovative-companies-2016/.
92. Dobbs et al., No Ordinary Disruption, 11, 14, 50, 54.
93. Ibid.
94. “The New China Playbook,” Boston Consulting Group (December 2015).
95. Niu Xinchun, “Sino-U.S. Relations: Ideological Clashes and Competitions,” in Shao, The
World in 2020 According to China, 298–299.
96.Fortune, Global 500, 2015.
97. Dobbs et al., No Ordinary Disruption.
98. Richard K. Betts, “Wealth, Power, and Instability: East Asia and the United States After the
Cold War,” International Security 18, no. 3 (1993): 34–77.
99. Ibid., 36.
100. Barry R. Posen, “Command of the Commons: The Military Foundation of US Hegemony,”
International Security 28, no. 1 (2003): 5–46; and John W. Lewis and Xue Litai, “China’s Security
Agenda Transcends the South China Sea,” Bulletin of the Atomic Scientists 72, no. 4 (June 2016):
212–221.
101. International Institute for Strategic Studies (IISS), The Military Balance 2016; and Stockholm
International Peace Research Institute (SIPRI), Trends in World Military Expenditure 2016 (April
2017).
102. Jonathan Ablett and Andrew Erdmann, “Strategy, Scenarios, and the Global Shift in Defense
Power,” MGI (2013).
103. IISS, The Military Balance; SIPRI, Trends in World Military Expenditure 2016.
104. In 2000, Japan’s defense spending was twice the size of China’s. Anthony H. Cordesman with
Joseph Kendall, Chinese Strategy and Military Modernization in 2016, CSIS, 2016.
105. Jane’s Annual Defence Report, 2016.
106. 2016 Global R&D Funding Forecast, R&D Magazine, Winter 2016; and National Science
Foundation (NSF), “International Comparisons of R&D Performance,” NSF Statistics, 2014.
107. Ablett and Erdmann, “Strategy, Scenarios, and the Global Shift.”
108. Betts, “Wealth, Power, and Instability,” 36–37; Daniel W. Drezner, “Military Primacy Doesn’t
Pay (Nearly as Much as You Think),” International Security 38, no. 1 (2013): 52–79. See also the
updated debate on U.S. grand strategies of retrenchment and deep engagement, including Barry R.
Posen, Restraint: A New Foundation for US Grand Strategy (Ithaca, NY: Cornell University Press,
2014); and Stephen Brooks and William Wohlforth, America Abroad: The United States’ Global Role
in the 21st Century (New York: Oxford University Press, 2016).
109. Brooks and Wohlforth, America Abroad; Jeffry Frieden, Global Capitalism: Its Fall and Rise
in the Twentieth Century (New York: W. W. Norton, 2006); Dani Rodrik, The Globalization Paradox
(New York: W. W. Norton, 2012); and Michael Mandelbaum, The Case for Goliath: How America
Acts as the World’s Government in the 21st Century (New York: Public-Affairs, 2006).
110. See Juan Zarate, Treasury’s War: The Unleashing of a New Era of Financial Warfare (New
York: PublicAffairs, 2013); and Blackwill and Harris, War by Other Means.
111. On global trade, see Kristen Hopewell, Breaking the WTO: How Emerging Powers Disrupted
the Neoliberal Project (Stanford, CA: Stanford University Press, 2016).
112. Markus Jaeger, “BRIC Outward FDI: The Dragon Will Outpace the Jaguar, Tiger, and Bear,”
Transnational Corporations Review 1, no. 3 (2009): 2.
113. A shares are denominated in RMB and were restricted to domestic investors until 2002. B
shares are listed in foreign currency (e.g., in U.S. dollars on the Shanghai exchange) for trading
primarily by foreign investors.
114. According to MSCI, at its launch in 1988, there were only ten countries in the MSCI
Emerging Markets index, representing less than 1 percent of world market capitalization. Since then,
the index has evolved to cover more than 800 securities across twenty-three emerging markets and
represents approximately 11 percent of world market capitalization. The BRICs represent 42 percent
of the MSCI Emerging Markets index. “MSCI Emerging Markets,” https://www.msci.com/emerging-
markets.
115. Jennifer Hughes, “MSCI and China: A-shares Decision Day,” Financial Times, June 14,
2016; and Chris Wright, “China A-shares Set for MSCI Index Breakthrough,” Euromoney, March
2016.
116. Peter Wells and Jennifer Hughes, “Will Foreign Investors Bite at China’s Shenzhen Link?”
Financial Times, November 15, 2016. In its May 2016 index review, MSCI also added new Chinese
growth drivers from the new economy to its American Depositary Receipts diluting the exposure of
state-owned enterprise (SOE) old-economy sectors. “How China Is Dominating Emerging Market
Funds,” Morningstar, October 24, 2016.
117. Funds to “private” firms, in most countries’ accountings, include bank and capital markets
financing going to autonomously managed SOEs.
118. The United States, United Kingdom, France, and Japan prefer not to report this indicator on
the grounds that financial intermediation in their economies is too sophisticated to be measured
properly.
119. Actually, inexpensive medium- and long-term credit for Brazilian borrowers is available.
However, it originates with the national industrial development bank, BNDES, not with commercial
banks.
120. “China’s Financial System: The Coming Debt Bust,” The Economist, May 7, 2016; Don
Weinland and G. Wildau, “China Financial Regulator Clamps Down on Shadow Banking,” Financial
Times, May 2, 2016.
121. Spencer Lake, “China Takes Strides Toward Opening Bond Market,” Blogs.ft.com, November
5, 2015.
122. Standard Chartered, “RMB Investors Forum White Paper: Rise of Next-Generation China
Access” (May 2016).
123. Elaine Moore and Jennifer Hughes, “World Bank to Sell China Bonds in Renminbi Boost,”
Financial Times, August 12, 2016.
 124. The IMF data set draws on most of the same underlying data as in the World Bank data set
used for Table 2.3, while the World Bank and WEF data sets used in Table 2.4 are based on surveys
of international businesspersons.
125. The IMF data set distinguishes between financial “institutions” (mainly commercial banks),
and “financial markets,” referring to the stock and bond markets.
126. Carla Norrlof, “Dollar Hegemony: A Power Analysis,” Review of International Political
Economy 21, no. 5 (2014): 1042–1070.
127. Raghuram G. Rajan and Luigi Zingales, “The Great Reversals: The Politics of Financial
Development in the Twentieth Century,” Journal of Financial Economics 69, no. 1 (2003): 5–50; and
idem., Saving Capitalism from the Capitalists: Unleashing the Power of Financial Markets to Create
Wealth and Spread Opportunity (Princeton, NJ: Princeton University Press, 2004).
128. See, for example, Dani Rodrik, The Globalization Paradox: Democracy and the Future of the
World Economy (New York: W. W. Norton, 2011).
129. Quoting Markus Rodlauer, deputy director of the IMF’s Asia-Pacific department. “China
Regulatory Fragmentation ‘Dangerous,’ Says IMF,” GlobalCapital, October 11, 2016.
130. For example, International Monetary Institute (IMI), RMB Internationalization Report 2015,
Renmin University, Beijing (July 2015); and the discussion of Justin Yifu Lin’s speech and other
Chinese economists in Eswar S. Prasad, Gaining Currency: The Rise of the Renminbi (New York:
Oxford University Press, 2016), 175–176.
131. According to Prasad, the policy of internationalizing the RMB has led to a loosening of many
of the restrictions on cross-border capital flows. Prasad, “China’s Efforts to Expand,” 11–13.
132. By comparison, China’s capital account is “becoming increasingly open in de facto terms,”
showing significant gross external assets ($6.4 trillion—about 62 percent of GDP) and liabilities ($5
trillion—about 44 percent of GDP) in 2014, with a ratio over 100 percent. China’s gross external
position exceeds that of other emerging markets, while as a share of GDP, it lags behind reserve
currency economies. In short, China’s measure of openness is “relatively high, exceeding the levels
of countries such as Brazil and India.” Ibid., 11–12.
133. The underlying data used in Table 2.6 are from a variety of publicly available sources,
principally the World Bank’s World Development Indicators, available at www.worldbank.org.
134. This measure follows that in Arvind Subramanian, “Renminbi Rules: The Conditional
Imminence of Reserve Currency Transition,” Working Paper #11/14, (Peterson Institute for
International Economics (PIIE), Washington, DC: Peterson Institute, September 2011). Countries
with a current account surplus hold zero percent.
135. The role of exchange rate levels—that is, deliberate currency undervaluation—in generating
large current account surpluses is not addressed here. The problem is that determination of the
“correct” valuation of a national currency is extremely controversial. A substantial body of opinion—
especially in the United States, in recent decades a chronically deficit country—claims that the mere
presence of large current account surpluses or deficits is itself sufficient evidence of currency
misalignment. See William R. Cline, “Estimating Consistent Fundamental Equilibrium Exchange
Rates,” Working Paper No. 08/6, (Peterson Institute for International Economics, Washington, DC:
Peterson Institute, July 2008).
136. Armijo et al. calculate the “home financial market” as the sum of commercial bank loans
outstanding, stock market capitalization, and the stock of corporate and government debt. See Leslie
Elliott Armijo, Daniel C. Tirone, and Hyoung-kyu Chey, “Global Finance Meets Neorealism, and a
Dataset,” unpublished paper and dataset, January 2017.
137. Cohen, Currency Power.
 138. See http://www.longfinance.net/global-financial-centre-index-19/976-gfci-19-the-overall-
rankings.html for the GFCI 2016; and
http://www.sh.xinhuanet.com/shstatics/zhuanti2014/zsbg/en.pdf for the Xinhua-Dow Jones 2014
Index.
139. Steven Liao and Daniel McDowell, “Redback Rising: China’s Bilateral Swap Agreements
and Renminbi Internationalization,” International Studies Quarterly 59, no. 3 (2015): 401–422. For
debates over the RMB’s future as a regional or global currency, see especially Barry Eichengreen and
Domenico Lombardi, RMBI or RMBR: Is the Renminbi Destined to Become a Global or Regional
Currency? NBER Paper No. w21716. National Bureau of Economic Research (NBER), 2015.
140. Liao and McDowell, “Redback Rising”; Steven Liao and Daniel McDowell, “No
Reservations: International Order and Demand for the Renminbi as a Reserve Currency,”
International Studies Quarterly 60, no. 2 (2016): 272–293; IMF, RMB Internationalization Report.
141. Benjamin J. Cohen, The Future of Sterling as an International Currency (London:
Macmillan, 1971); C. Fred Bergsten, The Dilemmas of the Dollar: The Economics and Politics of
United States International Monetary Policy (New York: New York University Press, 1975).
142. James T. Areddy and Lingling Wei, “Foreign Companies Face New Clampdown for Getting
Money out of China,” Wall Street Journal, December 1, 2016; Keith Bradsher, “China Tightens
Controls on Overseas Use of Its Currency,” New York Times, November 29, 2016; and Lucy Hornby,
“Beijing Battles to Close Capital Flight Loopholes,” Financial Times, November 29, 2016.
143. Prasad, Gaining Currency, 104.
144. “Half of China’s Total Trade To Be Settled in Yuan by 2020,” Reuters, March 26, 2015.
145. Thilo Hanemann and Mikko Huotari, “Chinese FDI in Europe and Germany: Preparing for a
New Era of Chinese Capital,” Mercator Institute and Rhodium Group (June 2015), 5. For current
OFDI figures, see People’s Bank of China (PBOC), State Administration of Foreign Exchange
(SAFE); CEIC.
146. Society for Worldwide Interbank Financial Telecommunication (SWIFT) data. Andrew
Capon, “Inside Investment: Rights and Responsibilities of the Renminbi,” Euromoney, July 15, 2015.
Kimberley Long, “Trade Finance: RMB Expansion Catches up with China GDP,” Euromoney,
January 23, 2015.
147. Thilo Hanemann, “New Neighbors 2017 Update: Chinese FDI in the United States by
Congressional District,” Rhodium Group and the National Committee on U.S.-China Relations,
(April 2017).
148. James Kynge, “China’s Ambitions for Asia Show Through in ‘Silk Road’ Lending,”
Financial Times, April 1, 2016. See also the discussion in Chap. 4.
149. Qu Hongbin et al., Rise of the Redback V, HSBC Global Research (March 2016); and Prasad,
“China’s Efforts to Expand.”
150. Cohen, Currency Power; see also Norrlof, “Dollar Hegemony: A Power Analysis.”
151. Cohen, Currency Power, 244.
152. Robert A. Mundell, “EMU and the International Monetary System: A Transatlantic
Perspective,” Working Paper 13 (Vienna: Austrian National Bank, 1993), 10.
153. Eichengreen, Exorbitant Privilege, 121; Cohen, Currency Power; Jonathan Kirshner,
American Power After the Financial Crisis (Ithaca, NY: Cornell University Press, 2014).
154. Cohen, Currency Power, Chap. 1.
155. Prasad, Gaining Currency; and Prasad, “China’s Efforts to Expand.”
156. Charles Clover, “Trade Propels Renminbi on Route to Global Reserve Currency,” Financial
Times, July 29, 2015.
 157. For an insightful account, see Yu Yongding, “Revisiting the Internationalization of the Yuan,”
in Shao, The World in 2020 According to China, 231–258.
158. IMF, China Economic Update 2016; World Bank, China 2030; Prasad, “China’s Efforts to
Expand.”
159. IMF, China Economic Update 2016; and Ming Zhang, “Internationalization of the Renminbi:
Developments, Problems, and Influences,” Paper prepared for conference at American University,
Washington, DC, October 8, 2014. See also Chap. 4.
160. Elliot Wilson, “India: Globalizing the Rupee,” Euromoney, March 2016.
161. PBOC; Michael Vrontamitis, “CIPS a ‘Game Changer’ But Needs Careful Planning,”
Standard Chartered.
162. Gabriel Wildau, “China Launch of Renminbi Payments System Reflects Swift Spying
Concerns,” Financial Times, October 8, 2015; and “‘Follow the Money’: NSA Spies on International
Payments,” Spiegel Online, September 15, 2013.
163. Gabriel Wildau, “China Overtakes Eurozone as World’s Biggest Bank System,” Financial
Times, March 5, 2017.
164. Simeon Djankov, “Introduction,” in Djankov and Miner, China’s Belt and Road Initiative, 4.
165. Setser, “China Can Now Organize Its Own (Financial) Coalitions of the Willing.”
166. Prasad, Gaining Currency; Cohen, Currency Power.
167. See, for example, several chapters in Shao, The World in 2020 According to China; and
Suisheng Zhao, “A New Model of Big Power Relations? China-US Strategic Rivalry and Balance of
Power in the Asia-Pacific,” Journal of Contemporary China 24, no. 93 (2015): 377–397.

CHAPTER 3

1. Kahler (722) notes, “After four summits, there is little evidence that the BRICS governments
have forged any common collective action in global forums; given their divergent national interests
in many key negotiations, the group is unlikely to craft an effective programme of action.” Miles
Kahler, “Rising Powers and Global Governance: Negotiating Change in a Resilient Status Quo,”
International Affairs 89, no. 3 (2013): 711–729.
2. Benn Steil and Robert E. Litan, Financial Statecraft: The Role of Financial Markets in
American Foreign Policy (New Haven, CT: Yale University Press, 2006); Leslie Elliott Armijo and
Saori N. Katada (eds.), The Financial Statecraft of Emerging Powers: Shield and Sword in Asia and
Latin America (New York: Palgrave Macmillan, 2014); David M. Andrews, “Monetary Power and
Monetary Statecraft,” in International Monetary Power, ed. David Andrews (Ithaca, NY: Cornell
University Press, 2006); Benjamin J. Cohen, Currency Power: Understanding Monetary Rivalry
(Princeton, NJ: Princeton University Press, 2015).
3. Thus, financial statecraft is most often understood as a subset of economic statecraft, which
Hirschman (xv) described as the use of “quotas, exchange controls, capital investment, and other
instruments” as instruments of economic warfare. Albert O. Hirschman, National Power and the
Structure of Foreign Trade (Berkeley: University of California Press, 1945). See also David A.
Baldwin, Economic Statecraft (Princeton, NJ: Princeton University Press, 1985); Gary C. Hufbauer,
Jeffrey Schott, and Kimberly Ann Elliott, Economic Sanctions Reconsidered, 3rd ed. (Washington,
DC: Peterson Institute for International Economics, 2009).
4. See the distinction between negative and positive sanctions or inducements in Baldwin,
Economic Statecraft, 20–42.
5. Leslie Elliott Armijo and John Echeverri-Gent, “Absolute or Relative Gains? How Status Quo
and Emerging Powers Conceptualize Global Finance,” in Handbook of International Monetary
Relations, ed. Thomas Oatley and William Winecoff (Cheltenham, UK: Edward Elgar, 2014), 144–
165; Rawi Abdelal, Capital Rules: The Construction of Global Finance (Cambridge, MA: Harvard
University Press, 2007); Beth A. Simmons, “The International Politics of Harmonization: The Case
of Capital Markets Regulation,” International Organization 55, no. 3 (2001): 589–620.
6. Robert Jervis, “Cooperation under the Security Dilemma,” World Politics 30, no. 2 (1978): 167–
214.
7. Moscow Interfax September 30, 2015; and author’s interviews.
8. Surprisingly, many otherwise excellent scholarly treatments of the G20 and its role in revising
international financial regulation following the 2002–2009 crisis fail to mention the role of the
BRICS. For example, see Tony Porter (ed.), Transnational Financial Regulation After the Crisis
(New York: Routledge, 2014).
9. Harry Eckstein, “Case Study and Theory in Political Science,” in Strategies of Inquiry, ed. Fred
Greenstein and Nelson Polsby (Reading, MA: Addison-Wesley, 1975), 79–138; Gary King et al.,
Designing Social Inquiry: Scientific Inference in Qualitative Research (Princeton, NJ: Princeton
University Press, 1994). In a general sense, these are “crucial cases” for the argument that BRICS
matter.
10. “No Consensus on Immediate Setting up of BRICS Rating Agency,” Business Standard,
October 16, 2016; “Goa Declaration,” 8th BRICS Summit, Ministry of External Affairs, Government
of India, October 16, 2016, http://mea.gov.in/bilateral-documents.htm?
dtl/27491/Goa_Declaration_at_8th_BRICS_Summit. For all BRICS summits, see also BRICS
Official Documents and Meetings (BRICS Information Centre, University of Toronto; accessible at
www.brics.utoronto.ca).
11. Devesh Kapur and Arvind Subramanian, “Wanted: A Truly International Monetary Fund,”
Forbes, March 29, 2009.
12. IMF, “Historic Quota and Governance Reforms Become Effective,” January 27, 2016; IMF
Quotas Factsheet, July 13, 2016; IMF Finance Department, “Quota and Voting Shares Before and
After Implementation of Reforms Agreed in 2008 and 2010,” Table, March 3, 2011,
https://www.imf.org/external/np/sec/pr/2011/pdfs/quota_tbl.pdf.
13. World Bank Group, “2015 Shareholding Review: Report to Governors,” DC2015-0007,
September 28, 2015, 5.
14. Edwin M. Truman, “Rearranging IMF Chairs and Shares: The Sine Qua Non of IMF Reform,”
in Reforming the IMF for the 21st Century, ed. Edwin M. Truman (Washington, DC: Peterson
Institute, 2006), 201–232.
15. IMF, “IMF Quota and Governance Reform: Elements of an Agreement,” October 31, 2010.
16. Robert H. Wade and Jakob Vestergaard, “Why Is the IMF at an Impasse, and What Can Be
Done About it?” Global Policy 6, no. 3 (2015): 290–296. See also Ngaire Woods, The Globalizers:
The IMF, the World Bank, and Their Borrowers (Ithaca, NY: Cornell University Press, 2006), Chap.
1.
17. Bob Davis, “Developing Nations Try to Build Long-Term Leverage at the IMF,” Wall Street
Journal, April 27, 2009.
18. See, in particular, “IMF Quota and Governance Reform: Elements of an Agreement, Updated
Tables,” 2010; “Quota Formula Review—Data Update and Further Considerations—Statistical
Appendix,” from the Secretary to Members of the Executive Board, SM/12/163, Supplement 2, for
Official Use, July 2, 2012; IMF, “Quota Formula: Data Update and Further Considerations,” Policy
Paper (August 2014). See also additional updates of the statistical appendix, prepared by the IMF
staff on June 19, 2015; and “IMF Quotas,” July 13, 2016.
 19. IMF, “Outcome of the Quota Formula Review—Report of the Executive Board to the Board of
Governors,” policy paper (January 2013); IMF, “Historic Quota and Governance Reforms Become
Effective,” Press Release No. 16/25, January 27, 2016.
20. Johan A. Lybeck, A Global History of the Financial Crash of 2007–10 (Cambridge, UK:
Cambridge University Press, 2011); Jonathan Kirshner, American Power After the Financial Crisis
(Ithaca, NY: Cornell University Press, 2014).
21. With this reform, China’s voting power increased from 2.78 percent to 4.42 percent, while
India’s increased from 2.78 percent to 2.92 percent. See also Jakob Vestergaard and Robert H. Wade,
“Establishing a New Global Economic Council: Governance Reform at the G20, the IMF, and the
World Bank,” Global Policy 3, no. 3 (2012): 257–269.
22. The Obama administration’s commitment waned over time, and it was unwilling to spend
political capital in pushing the reforms, failing even to submit the capital increase request to
Congress after 2011.
23. IMF Dataset, http://www.imf.org/external/np/sec/pr/2011/pdfs/quota_tbl.pdf; IMF Quota and
Governance Publications, http://www.imf.org/external/np/fin/quotas/pubs/index.htm.
24. Robert H. Wade, “Emerging World Order: From Multipolarity to Multilateralism in the World
Bank, IMF, and G20,” Politics & Society 39, no. 3 (2011): 362; Marina V. Larionova et al.,
“Vozmozhnosti sotrudnichestva v BRIKS dlya formirovaniia reshenii BRIKS i «dvadtsatki» po
klyuchevym napravleniiam reformy mezhdunarodnoi finansovo-ekonomicheskoi arkhitektury v
interesakh Rossii,” Vestnik mezhdunarodnykh organizatsii 4 (2012): 199–238.
25. Wade, “Emerging World Order.”
26. Larionova et al., “Vozmozhnosti sotrudnichestva v BRIKS,” 199–238.
27. Joachim A. Koops and Dominik Tolksdorf, “The European Union’s Role in International
Economic Fora, Paper 4: The IMF,” European Parliament Think Tank (October 2015); and author’s
interviews.
28. Sergei Guriev, “BRICS Proposals for IMF Reforms Are Not Radical Enough,” East Asia
Forum, July 20, 2012; and L. M. Grigoriev and A. K. Morozkina, “Reformirovanie mirovoi
finansovoi arkhitektury,” in Strategiia Rossii v BRIKS: Tseli i Instrumenty, ed. V.A. Nikonov and G.
D. Toloraia (Moscow: 2013), 287–301.
29. Guriev, “BRICS Proposals for IMF Reforms.”
30. IMF, “Quota Formula Review—Initial Considerations.”
31. Mick Silver, “IMF Applications of Purchasing Power Parity Estimates,” IMF Working Paper,
WP/10/253, Washington, DC, November 2010.
32. Grigoriev and Morozkina, “Reformirovanie,” 292.
33. Larionova, “Vozmozhnosti sotrudnichestva v BRIKS%.”
34. Truman, “Rearranging IMF Chairs and Shares,” Edwin M. Truman, “What Next for the IMF?”
Policy Memo No. PB15-1, Peterson Institute for International Economics (January 2015). See also
Vijay Kelkar, Vikash Yadav, and Praveen Chaudry, “Reforming the Governance of the International
Monetary Fund,” The World Economy 27, no. 5 (2004): 727–743.
35. Miles Kahler, “The United States and the International Monetary Fund: Declining Influence or
Declining Interest?” in The United States and Multilateral Institutions: Patterns of Changing
Instrumentality and Influence, ed. Margaret P. Karns and Karen A. Mingst (London: Routledge,
1990), 91–114, at 97; and Ngaire Woods, “Good Governance in International Organizations,” Global
Governance 5, no. 1 (1999): 39–61.
36.Indian Express, March 14, 2016.
37.India Today, April 17, 2016.
 38.Interfax, September 4, 2016.
39. Truman, “What Next for the IMF?” 3.
40. Gregory Chin, “China’s Rising Monetary Power,” in The Great Wall of Money: Power and
Politics in China’s International Monetary Relations, ed. Eric Helleiner and Jonathan Kirshner
(Ithaca, NY: Cornell University Press, 2014), 184–212. See also Jin Renquing (then-governor of the
People’s Bank of China), speech at the World Bank/IMF Annual Meeting, September 24, 2005.
41. Chin, “China’s Rising Monetary Power.” He insightfully discusses the advocacy of the
People’s Bank of China (PBOC) on behalf of the Special Drawing Right (SDR) and concerns about
the U.S. dollar.
42. The BRICs even sought to create a secondary market for SDR-denominated loans to give
themselves the market power to counterbalance their weaker institutional power.
43. Lester Pimentel and Valerie Rota, “BRICs Buy IMF Debt to Join Big Leagues, Goldman
Says,” Bloomberg, June 11, 2009; Chris Giles, “Ministers Back Boost for IMF,” Financial Times,
March 15, 2009.
44. Ibid.
45.Reuters, September 3, 2009.
46. Davis, “Developing Nations.”
47. Author’s interviews with unnamed senior officials in the Ministry of Foreign Affairs of the
Russian Federation, Moscow, June 2012 and June 2013.
48. Alan Beattie and Amy Kazmin, “BRICS Ready to Pay EU Loans Only via IMF,” Financial
Times, October 31, 2011.
49. Benn Steil, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the
Making of A New World Order (Princeton, NJ: Princeton University Press, 2013). Given the greater
importance of the IMF, the United States initially planned to lead it but had to switch with the
Europeans at the last minute, when it was discovered that the designated candidate, Harry Dexter
White, the U.S. chief negotiator at the Bretton Woods conference, was a Soviet agent.
50. Arvind Subramanian and Devesh Kapur, “Who Should Lead the World Bank?” Project
Syndicate, February 17, 2012, www.project-syndicate.org.
51. Point 5 of the statement reads: “We believe that, if the Fund is to have credibility and
legitimacy, its Managing Director should be selected after broad consultation with the membership. It
should result in the most competent person being appointed as Managing Director, regardless of his
or her nationality. We also believe that adequate representation of emerging market and developing
members in the Fund’s management is critical to its legitimacy and effectiveness.” IMF Executive
Directors, “Statement by the IMF Executive Directors Representing Brazil, Russia, India, China, and
South Africa on the Selection Process for Appointing an IMF Managing Director,” IMF, May 24,
2011, http://www.imf.org/external/np/sec/pr/2011/pr11195.htm.
52. Interfax, May 18, 2011. Marchenko’s reputation was as a successful technocrat who favored
creating balanced budgets, adhering to international financial standards, combating corruption, and
diversifying the Kazakh economy. Sebastien Peyrouse, “The Kazakh Neopatrimonial Regime:
Balancing Uncertainties Among the Family, Oligarchs, and Technocrats,” in Kazakhstan in the
Making: Legitimacy, Symbols, and Social Changes, ed. Marlene Laruelle (Lanham, MD: Lexington
Books, 2016), 48.
53.Rossiyskaia Gazeta, May 25, 2011.
54. News conference with Medvedev, May 28, 2011, http://www.kremlin.ru; and Sergei Lavrov,
interview, June 3, 2011, Ministry of Foreign Affairs of the Russian Federation, http://www.mid.ru.
55. RIA Novosti, June 7, 2011.
 56. Ren Xiao, “A Reform-Minded Status Quo Power? China, the G20, and Reform of the
International Financial System,” Third World Quarterly 36, no. 11 (2015): 2023–2043.
57. Tosovsky reportedly had the support of other countries, although Strauss-Kahn had the backing
of the European Union, which included the Czech Republic. Vidya Ram, “Josef Tosovsky: Caught up
in Controversy,” Forbes.com, August 22, 2007.
58. In an interview with the Financial Times, Mozhin declared, “The whole process of selecting
the IMF managing director is deeply flawed.” He added, “We believe the IMF is facing a severe
crisis of legitimacy and that if you want to make the IMF relevant to the needs of developing
countries we must select the best candidate… . If the developing countries do not have the feeling
that they are playing a role in the selection process then they will simply turn their backs on the
IMF.” Edward Luce, “Russia Says IMF Candidate Lacks Key Skills,” Financial Times, August 25,
2007. Two years after his abrupt departure from the IMF in 2011 in the wake of scandal, Strauss-
Kahn was appointed to the supervisory board of the Russia Regional Development Bank, owned by
the oil producer OAO Rosneft.
59. Mirren Gidda, “The Trials of an IMF Powerplayer,” Irish Examiner, January 23, 2016.
60. “Next IMF boss likely to come from outside Europe-deputy head,” Reuters, July 25, 2015,
http://www.reuters.com/article/imf-leader-idUSL5N10504H20150725.
61. Interview with José Antonio Ocampo, San Juan, Puerto Rico, May 2015.
62. Shawn Donnan, “Jim Yong Kim Heading for a Second Term as World Bank President,”
Financial Times, September 15, 2016.
63. It is true that for the first time, neither the head of the IMF nor the World Bank was a
Caucasian male—something of a breakthrough.
64. Robert Wade, “The Art of Power Maintenance: How Western States Keep the Lead in Global
Organizations,” Challenge 56, no. 1 (2013): 29.
65. Xinhua News Agency, July 9, 2016.
66. Kevin Gallagher, Ruling Capital: Emerging Markets and the Reregulation of Cross-Border
Finance (Ithaca, NY: Cornell University Press, 2015); Armijo and Echeverri-Gent, “Absolute or
Relative Gains?,” 144–165; Cornel Ban and Mark Blyth, “Dreaming with the BRICS? The
Washington Consensus and the New Political Economy of Development: Special Issue,” Review of
International Political Economy 20, no. 2 (2013).
67. John Williamson, “What Washington Means by Policy Reform,” in Latin American
Adjustment: How Much Has Happened? ed. John Williamson (Washington, DC: Institute for
International Economics, 1990), 5–20; John Williamson, “A Short History of the Washington
Consensus,” in The Washington Consensus Reconsidered: Towards a New Global Governance, ed.
Narcis Serra and Joseph E. Stiglitz (New York: Oxford University Press, 2008).
68. For example, “Joint Communiqué of the II Meeting of BRICS Finance Ministers,” Horsham,
UK, March 14, 2009.
69. Abdelal challenges “the argument linking U.S. hegemony to the emergence of a liberal
international financial system,” tracing the norm of capital mobility to European rule-makers within
the EU and the Organisation of Economic Cooperation and Development (OECD), not a “Wall
Street-Treasury Complex,” which was largely a “passive beneficiary” of the regime. Abdelal, Capital
Rules, 25. But contrast this with Kirshner, American Power After the Financial Crisis, especially 56–
58 and 62–66. See also Ethan Kaplan and Dani Rodrik, “Did the Malaysian Capital Controls Work?”
in Preventing Currency Crises in Emerging Markets, ed. Sebastian Edwards and Jeffrey A. Frankel
(Chicago: University of Chicago Press, 2002), 393–440; Leslie Elliott Armijo, “The Terms of the
Debate: What’s Democracy Got to Do with It?” Debating the Global Financial Architecture, ed.
Leslie Elliot Armijo (Albany, NY: SUNY Press, 2002); Ilene Grabel, “The Rebranding of Capital
Controls in an Era of Productive Incoherence,” Review of International Political Economy 22, no. 1
(2015): 10–11.
70. Gallagher, Ruling Capital, 146.
71. Ibid. See also IMF staff papers on this topic; e.g., Jonathan D. Ostry et al., “Managing Capital
Inflows: What Tool to Use,” IMF Staff Discussion Note, SDN/11/06, April 2011.
72. Jonathan D. Ostry, Prakash Loungani, and Davide Furceri, “Neoliberalism: Oversold,” Finance
& Development 53, no. 2 (2016): 38–41; Maurice Obstfeld, “Evolution not Revolution: Rethinking
Policy at the IMF,” IMF, June 2, 2016,
http://www.imf.org/external/pubs/ft/survey/so/2016/POL060216A.htm; and IMF, “The Liberalization
and Management of Capital Flows: An Institutional View,” November 14, 2012.
73.Bloomberg, September 2, 2016.
74. Morris Goldstein and Nicholas R. Lardy (eds.), Debating China’s Exchange Rate Policy
(Washington, DC: Peterson Institute for International Economics, 2008).
75. Ben S. Bernanke, “The Global Savings Glut and the U.S. Current Account Deficit,” Sandridge
Lecture, Virginia Association of Economists, Richmond, VA, March 10, 2005.
76. Gregory T. Chin, “Understanding Currency Policy and Central Banking in China,” Journal of
Asian Studies 72, no. 3 (2013): 519–538; Rosemary Foot and Andrew Walter, China, the United
States, and Global Order (Cambridge, UK: Cambridge University Press, 2010), Chap. 3, 79–132.
77. Christian Brütsch and Mihaela Papa, “Deconstructing the BRICS: Bargaining Coalition,
Imagined Community, or Geopolitical Fad?” Chinese Journal of International Politics 6, no. 3
(2013): 17–18; BRIC Finance Ministers’ Communiqué, March 13, 2009, Horsham, UK.
78. BRICS, “BRICS 5th Summit Declaration,” last modified March 23, 2013,
http://brics5.co.za/about-brics/summit-declaration/fifth-summit/.
79. This section draws on background provided by former U.S. officials and other informed
participants. For a compilation of the documentary record of US sanctions against Russia since 2014,
see “Ukraine-/Russia-related Sanctions,” Office of Foreign Assets Control, U.S. Department of the
Treasury, https://www.treasury.gov/resource-center/sanctions/Programs/pages/ukraine.aspx.
80. Hufbauer et al., Economic Sanctions Reconsidered.
81. Ibid.; and Daniel W. Drezner, “Targeted Sanctions in a World of Global Finance,”
International Interactions 41, no. 4 (Aug. 2015): 755–764.
82. Robert D. Blackwill and Jennifer M. Harris, War by Other Means: Geoeconomics and
Statecraft (Cambridge, MA: Harvard University Press, 2016), 197.
83. For the directives and official US government guidance on the sanctions, see the documents
posted on the US Treasury site, https://www.treasury.gov/resource-
center/sanctions/Programs/pages/ukraine.aspx.
84. For the EU Council regulations on sanctions against Russia see the document No. 833/2014,
July 31, 2014, http://eur-lex.europa.eu/legal-content/EN/TXT/?
uri=uriserv:OJ.L_.2014.229.01.0001.01.ENG; also see the documents contained in “EU sanctions
against Russia over Ukraine crisis,” http://europa.eu/newsroom/highlights/special-coverage/eu-
sanctions-against-russia-over-ukraine-crisis_en.
85. Richard Connolly, “The Impact of EU Sanctions on Russia,” in On Target? EU Sanctions as
Security Policy Tools, EU Institute for Security Studies, Report No. 25 (2015), 29–38.
86. Clifford G. Gaddy and Barry W. Ickes, “Can Sanctions Stop Putin?” Brookings Brief, 2014;
Igor Yurgens, “Targeted Sanctions with an Unclear Target,” in Costs of a New Cold War: The U.S.-
Russia Confrontation over Ukraine, ed. Paul J. Saunders (Washington, DC: Center for the National
Interest, 2014), 45–47.
 87. Ben Aris, “Russia Bond Boom Gathers Pace,” BNE Intellinews, August 24, 2016.
88. “EU Renews Sanctions on Russia, but Kremlin Hopes to Break Europe’s Unity,” Russia Direct,
March 10, 2016; “German Minister Aims to Get Russian Sanctions Lifted,” Radio Free Europe,
Radio Liberty, March 18, 2016;“EU Should Drop Russia Sanctions, Slovak PM Says After Meeting
Putin,” Reuters, August 26, 2016.
89. “U.S. Seeks Asian Backing for Sanctions on Russia,” Wall Street Journal, July 30, 2014; and
Anna Andrianova and Elena Mazneva, “Japan Makes Arctic Gas Move With $400 Million Yamal
LNG Loan,” Bloomberg, September 1, 2016, https://www.bloomberg.com/news/articles/2016-09-
02/japan-makes-arctic-gas-move-with-400-million-yamal-lng-loan.
90. For example, the “Goa Declaration,” at the 8th BRICS Summit.
91. Alexander Gabuev, “Russia’s China Dreams Are Less of a Fantasy Than You Think,” Carnegie
Moscow Center report, June 28, 2016; John C. K. Daly, “Russian-Chinese Joint Ventures in Russia’s
Far East,” Eurasia Daily Monitor 14 no. 48, April 7, 2017; “ONGC signs deal to acquire additional
11% stake in Russia’s Vankorneft,” LiveMint, April 18, 2017,
http://www.livemint.com/Industry/U9I5hhLVbaq7QiFM8DxzyI/ONGC-signs-deal-to-acquire-
additional-11-in-Russias-Vankor.html; and Olesya Astakhova, Denis Pinchuk and Oksana Kobzeva,
“UPDATE 1-Russia plans to produce more than 70 mln tonnes of LNG a year in Arctic,” Reuters,
March 29, 2017, http://uk.reuters.com/article/russia-novatek-lng-idUKL5N1H65GQ.
92. On both points, see Drezner, “Targeted Sanctions in a World of Global Finance”; and Elizabeth
Rosenberg et al., “The New Tools of Economic Warfare: Effects and Effectiveness of Contemporary
U.S. Financial Sanctions,” Center for a New American Security report, April 15, 2016.
93. Ibid.; Ian Bremmer and Cliff Kupchan, “Top Risks 2016,” Eurasia Group, 3; and Rachel
Evans, “Russia Sanctions Accelerate Risk to Dollar Dominance,” Bloomberg Business, August 6,
2014.
94. “Russia to respond to possible disconnection from SWIFT—PM,” TASS, January 27, 2015.
95. Vladimir Putin, Interview with ITAR-TASS, July 15, 2014,
http://en.kremlin.ru/events/president/news/46218.
96. Excerpts from transcript of the plenary session of the First Media Forum of Independent
Regional and Local Media with Vladimir Putin, April 24, 2014, St. Petersburg,
http://special.kremlin.ru/events/president/transcripts/20858.
97. Alexey Parshin, “Russia’s National Payments System: The Journey So Far,” Finance Digest,
June 3, 2016; Charles Clover, “Western Sanctions ‘Pushing Russia Towards Closer ties with China,’”
Financial Times, April 17, 2016.
98. Gabriel Wildau, “China Launch of Renminbi Payments System Reflects SWIFT Spying
Concerns,” Financial Times, October 8, 2015.
99. Paul Golden, “China Looks Forward to Second Phase of CIPS,” Euromoney, September 8,
2016.
100. “BRICS May Set up Ratings Agency for Emerging Markets,” Economic Times Online, May
16, 2016; Kathrine Hille, “Russia and China Plan Own Rating Agency to Rival Western Players,”
Financial Times, June 3, 2014. For a useful scholarly treatment, see Rawi Abdelal and Mark Blyth,
“Just Who Put You in Charge? We Did: CRAs and the Politics of Ratings,” in Ranking the World, ed.
Alexander Cooley and Jack Snyder (New York: Cambridge University Press, 2015), 39–59.
101. “IMF Governance,” Bretton Woods Project, February 8, 2016.
102. An assistant secretary of the Treasury for international affairs observed in 2006, “We came to
the view a while ago that if we do not take action to recognize the growing role of emerging
economies, the IMF will become less relevant and we will all be worse off.” Statement by the Hon.
Clay Lowery, Temporary Alternate Governor of the Fund and the Bank for the United States, Boards
of Governors, 2006 Annual Meetings of the IMF and World Bank Group, Singapore, Press Release
No. 59, September 19–20, 2006.
103. Gregory T. Chin, “The BRICS-Led Development Bank: Purpose and Politics Beyond the
G20,” Global Policy 5, no. 3 (2014): 368.
104. Otaviano Canuto, “Liquidity Glut, Infrastructure Finance Drought, and Development Banks,”
Capital Finance International, September 19, 2014, http://cfi.co/africa/2014/09/liquidity-glut-
infrastructure-finance-drought-and-development-banks/
105. Asian Development Bank (ADB), Infrastructure for a Seamless Asia (Tokyo: Asian
Development Bank Institute, 2009).
106. Vivien Foster and Cecilia Briceño-Garmendia (eds.), Africa’s Infrastructure: A Time for
Transformation (Washington, DC: World Bank Publications, 2010). These estimates vary based on
their respective calculation assumptions. According to the recent estimates by the Division on
Investment and Enterprise of the United Nations Conference on Trade and Development (UNCTAD),
the infrastructure investment needs of the entire emerging market economies range from $1.6 to 2.5
trillion per year. James Zhan, “Investment, Infrastructure, and Financing the Sustainable
Development Goals.” Workshop on Aid for Trade and Infrastructure: Financing the Gap, WTO,
February 16, 2015.
107. Henry Laurence, “Japan and the New Financial Order in East Asia: From Competition to
Cooperation,” in Debating the Global Financial Architecture, ed. Leslie E. Armijo (Albany, NY:
SUNY Press, 2002), 214–235.
108. By 2009, the Bank of the South had seven member-states, including Brazil, although
deterioration in the economy of its key promoter meant that it never made any loans.
109. United Nations General Assembly, “Report of the Commission of Experts of the President of
the United Nations General Assembly on Reforms of the International Monetary and Financial
System,” United Nations, September 21, 2009,
http://www.un.org/ga/econcrisissummit/docs/FinalReport_CoE.pdf.
110. This collective text was never formally published; it was supplied to one of this book’s
authors by a senior finance ministry official in Brasília by means of an electronic file labeled
“version 16.” See Nicholas Stern and Joseph Stiglitz, “An International Development Bank for
Fostering South-South Investment: Promoting the New Industrial Revolution, Managing Risk and
Rebalancing Global Savings,” September 2009.
111. Tang Lingxiao, Ouyang Yao, and Huang Zexian, “The Foundation for the Establishment of
the BRICS New Development Bank: Immediate Impetus and Theoretical Rationale,” Social Sciences
in China 36, no. 4 (2015): 40–56; and Mzukisi Qobo and Mills Soko, “The Rise of Emerging Powers
in the Global Development Finance Architecture: The Case of the BRICS and the New Development
Bank,” South African Journal of International Affairs 22, no. 3 (2015): 277–288.
112. “BRICS and Africa: Partnership for Development, Integration, and Industrialisation.”
[eThekwini Declaration], March 27, 2013, http://www.brics5.co.za/about-brics/summit-
declaration/fifth-summit/
113. Simon Romero, “Emerging Nations Bloc to Open Development Bank,” The New York Times,
July 15, 2014.
114. Theresa Robles, “A BRICS Development Bank: An Idea Whose Time Has Come?”
Rajaratnam School of International Studies, November 14, 2012, http://www.rsis.edu.sg/rsis-
publication/cms/1872-a-brics-development-bank-an-i/#.WB6BjeErJok.
115. Aditya Tejas, “BRICS Nations Open New Development Bank in Shanghai as ‘Alternative’ to
IMF, World Bank,” International Business Times, July 21, 2015.
 116. Gabriel Wildau, “New Brics Bank in Shanghai to Challenge Major Institutions,” Financial
Times, July 21, 2015.
117. Stephany Griffith-Jones, “A BRICS Development Bank: A Dream Coming True?” Discussion
Paper No. 215, UNCTAD, 2014; Chris Dixon, “The New BRICS Bank: Challenging the International
Financial Order?” Policy Paper No. 28, Global Policy Institute, 2015.
118. Helmut Reisen, “Will the AIIB and the NDB Help Reform Multilateral Development
Banking?” Global Policy 6, no. 3 (2015): 297–304; Article 19 of the Agreement on the New
Development Bank specifies the possibility of cofinancing (July 15, 2014, Fortaleza, Brazil). See
also New Development Bank (NDB), “CAF and New Development Bank Sign Cooperation
Agreement,” NDB Press Release, September 9, 2016; NDB, “New Development Bank and China
Construction Bank Signed Memorandum of Understanding on Strategic Cooperation,” NDB Press
Release, June 8, 2016.
119. Nicolette Cattaneo, Mayamiko Biziwick, and David Fryer, “The BRICS Contingent Reserve
Arrangement and Its Position in the Emerging Global Financial Architecture,” Policy Insight 10
(2015).
120. Sid Verma, “BRICS Bank: Requiem for a Dream,” Euromoney, September 2014.
121. “The BRICS Bank Announces First Set of Loans,” BRICS Post, April 16, 2016.
122. News and reports for the NDB are available on its website: http://ndb.int/index.php.
123. Katya Golubkova, “‘BRICS Bank’ Says to Issue Bonds in Members’ Local Currencies,”
Reuters, June 20, 2016, http://www.reuters.com/article/us-russia-forum-brics-bank-
idUSKCN0Z61FF.
124. Han Yi, “NDB to Issue Yuan-Denominated Bond in Its Maiden Fundraiser,” Caixin Online,
July 15, 2016.
125. Thus, Beijing has described One Belt, One Road (OBOR) “as the most important mid- to
long-term strategy to foster China’s economic restructuring and boost the country’s slowing
economic growth.”Li Qiaoyi, “Making It Work: High Hopes for ‘One Belt, One Road’ Initiative,”
Global Times, March 10, 2015, http://www.globaltimes.cn/content/911258.shtml.
126. Zhang Yangpeng, “China Development Bank Overseas Loan Hits $328.2 Billion,” China
Daily, December 16, 2015. See also the CDB’s website,
http://www.cdb.com.cn/english/andeximbank.gov.cn/en/.
127. Wang Liwei and Coco Feng, “AIIB vs. NDB: Can New Players Change the Rules of
Development Financing?” Caixin Online, September 8, 2016.
128. Simeon Djankov, “The Rationale Behind China’s Belt and Road Initiative,” in China’s Belt
and Road Initiative: Motives, Scope, and Challenges, ed. Simeon Djankov and Sean Miner, PIEE,
March 2016, 6; Jane Perlez, “Remaking Global Trade in China’s Image,” New York Times, May 14,
2017, A1.
129. See the Silk Road Fund website,
http://www.silkroadfund.com.cn/enweb/23775/23767/index.html.
130. Yong Wang, “Offensive for Defensive: The Belt and Road Initiative and China’s New Grand
Strategy,” The Pacific Review 29, no. 3 (2016): 455–463.
131. Liwei and Feng, “AIIB vs NDB.”
132. Scott Morris, “Responding to AIIB: U.S. Leadership at the Multilateral Development Banks
in a New Era,” Council on Foreign Relations, August 2016.
133. Ibid., 11–13.
134. Asian Development Bank, Infrastructure for a Seamless Asia (Manila, Philippines: Asian
Development Bank, 2009).
 135. Shawn Donnan and Demetri Sevastopulo, “AIIB Head Vows to be Clean, Lean, and Green—
and Fast,” Financial Times, October 25, 2015.
136. Shintaro Hamanaka, “Insights to Great Powers’ Desire to Establish Institutions: Comparison
of ADB, AMF, AMRO, and AIIB,” Global Policy 7, no. 2 (2016): 1–6.
137. Tom Mitchell, “Concerns Remain over Chinese Rival to Asian Development Bank,”
Financial Times, October 24, 2014.
138. U.S. President Barack Obama’s government actively lobbied against the AIIB, demonstrating
his concern about transparency and governance of the institution. He stated, “It could be a positive
thing, but if it’s not run well, it could be a negative thing.” Obama’s speech at the time of Japanese
Prime Minister Shinzo Abe’s visit on April 28, 2015. The White House, Office of the Press Secretary,
Remarks by President Obama and Prime Minister Abe of Japan in Joint Press Conference, April 28,
2015, https://www.whitehouse.gov/the-press-office/2015/04/28/remarks-president-obama-and-prime-
minister-abe-japan-joint-press-confere.
139. Sid Verma, “Brics Take the Road Less Travelled,” Euromoney, September 2015.
140. Given the AIIB’s decision-making rules, and according to the Articles of Agreement (Article
28), China’s voting share of 26.1 percent will give Beijing veto power on important issues that would
require a supermajority of votes (above 75 percent), such as an increase in total capital subscription,
the election of its president, and termination of bank operations. Masahiro Kawai, “Asian
Infrastructure Investment Bank in the Evolving International Financial Order,” and Yun Sun, “China
and the Evolving Asian Infrastructure Investment Bank,” in Asian Infrastructure Investment Bank:
China as Responsible Stakeholder? ed. Daniel Bob (Washington, DC: Sasakawa Peace Foundation
USA, 2015), 5–26, 27–42.
141. Alexander Gabuev, “Why Did It Take Russia So Long to Join the Asian Infrastructure
Investment Bank?” Eurasia Outlook, Carnegie Moscow Center, March 30, 2015.
142. Sabrina Valle and Denyse Godoy, “Petrobras Gets $10 Billion Chinese Loan in Oil Supply
Deal,” Bloomberg, February 29, 2016.
143. Barry Eichengreen, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of
the International Monetary System (Oxford, UK: Oxford University Press, 2011).
144. Jonathan Kirshner, “Regional Hegemony and an Emerging RMB Zone,” in The Great Wall of
Money: Power and Politics in China’s International Monetary Relations, ed. Eric Helleiner and
Jonathan Kirshner (Ithaca, NY: Cornell University Press: 2014), 222.
145. Yu Yongding, “China Can Break Free of the Dollar Trap,” Financial Times, August 4, 2011.
Yu first discussed China’s avoiding the “dollar trap” or “dollar pitfall” by carefully moving away
from overreliance on the U.S. dollar. See also Yu Yongding, “Revisiting the Internationalization of
the Yuan,” in The World in 2020 According to China: Chinese Foreign Policy Elites Discuss
Emerging Trends in International Politics, ed. Shao Binhong (Leiden, Netherlands: Brill, 2014),
231–258; and Eswar S. Prasad, The Dollar Trap: How the US Dollar Tightened Its Grip on Global
Finance (Princeton, NJ: Princeton University Press, 2015).
146. Eric Helleiner and Jonathan Kirshner (eds.), The Future of the Dollar (Ithaca, NY: Cornell
University Press, 2012).
147. Larionova, “Vozmozhnosti sotrudnichestva v BRIKS%.”
148. Ibid.
149. “Currency Exchange Protects Trade with China,” Linha Direta, June 26, 2012, http://www.pt-
sp.org.br/noticia/p/?acao=vernoticia&id=13767.
150. “Dmitri Medvedev Addressed the World Economic Forum in Davos,” President of Russia,
January 26, 2011, http://en.kremlin.ru/events/president/news/10163.
 151. Owen Fletcher, “China, France to Launch Yuan SDR Task Force,” Wall Street Journal,
August 26, 2011.
152. “China Moves Closer to Renminbi Inclusion in SDR,” CentralBanking.com, as cited in
Larionova, “Vozmozhnosti sotrudnichestva v BRIKS%.”
153. From then through August 2015, when it had its own mini–financial crisis, China’s currency
continued to be close to the value of the U.S. dollar, with a modest nominal appreciation, after which
the yuan fell, again modestly.
154. A senior Brazilian trade negotiator and a highly placed economic official each made this point
to one of the authors in interviews in mid-2015.
155. Alena Chechel, Scott Rose, and Jack Jordan, “Putin Denounces American Parasite While
Russia Increases Treasuries 1,600%,” Bloomberg, August 18, 2011,
http://www.bloomberg.com/news/2011-08-18/putin-slams-u-s-parasite-after-1-600-jump-in-russia-
holdings.html.
156. Note that Russia’s total international reserves (including gold) skyrocketed from 12,948
(January 31, 2000) to a high of 596,566 (July 31, 2008), recovering after the global financial crisis to
545,012 again on August 31, 2011. (Sums are equivalent to millions of U.S. dollars.) Central Bank of
the Russian Federation data, http://www.cbr.ru/. Although the U.S. Treasury does not fully report
foreign holdings of securities, it also appears that in March 2014, in response to the threat of
sanctions, Russia may have shifted a significant percentage of its holdings of U.S. debt into a
custodial foreign account to avoid repatriating them into rubles or having them seized by
Washington.
157. The yen also is problematic due to Japan’s ongoing economic problems and long-standing
reluctance to promote its international use, and Switzerland is too small a country to provide a widely
used international currency.
158. Arvind Subramanian, Eclipse: Living in the Shadow of China’s Economic Dominance
(Washington, DC: Peterson Institute for International Economics, 2011).
159. Prasad broadly concurs, arguing, “The renminbi will become a competitive reserve currency
within the next decade, eroding but not displacing the dollar’s dominance.” Prasad, The Dollar Trap,
261.
160. IMF Currency Composition of Official Exchange Reserves (COFER) data,
http://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A4&ss=1408243036575.
161. Zhou Xiaochuan, “Reform the International Monetary System,” BIS Review, March 23, 2009,
http://www.bis.org/review/r090402c.pdf.
162. The U.S. dollar dominates the allocation of the SDR basket at 42 percent. Prior to the RMB’s
inclusion in Oct. 2016, the euro was at 37 percent, the yen at 9 percent, and the pound sterling at 11
percent (the difference between this total and 100 percent is from rounding).
163. Eric Helleiner, “The IMF and the SDR: What to Make of China’s Proposals?” (Waterloo,
Canada: The Centre for International Governance Innovation, 2009), 18. See also James Kynge and
Josh Noble, “China: Turning Away from the Dollar,” Financial Times, December 9, 2014.
164. See Article XXX (f). IMF, “Articles of Agreement.”
165. Agnès Bénassy-Quéré and Damien Capelle, “On the Inclusion of the Chinese Renminbi in the
SDR Basket,” International Economics 139 (2014): 136.
166. Jagannath Panda, “Ufa Could Be the Yuan Moment,” The Hindu, July 7, 2015,
http://www.thehindu.com/opinion/columns/brics-summit-in-ufa-ufa-could-be-the-yuan-
moment/article7392524.ece.
167. “IMF Survey: Chinese Renminbi to Be Included in IMF’s Special Drawing Right Basket,”
December 1, 2015, http://www.imf.org/external/np/sec/pr/2015/pr15543.htm.
 168. Elaine Moore and Jennifer Hughes, “World Bank to Sell China Bonds in Renminbi Boost,”
Financial Times, August 12, 2016.
169. “Half of China's Total Trade To Be Settled in Yuan by 2020—HSBC CEO,” Reuters, March
26, 2015, http://uk.reuters.com/article/uk-china-yuan-offshore-idUKKBN0MM0EL20150326. Also
see the discussion in Chap. 2.
170. Zhang citing the article “How Far Is the RMB from the Global Reserve Currency?” in
Financial Times China, August 27, 2014, http://www.ftchinese.com/story/001057888. Ming Zhang,
“Internationalization of the Renminbi: Developments, Problems and Influences” Series on New
Thinking and the New G20, Paper No. 2 (Waterloo, Canada: Centre for International Governance
Innovation, 2015), 9.
171. Ulrich Volz, “All Politics Is Local: The Renminbi’s Prospects to Become a Global Currency,”
in Armijo and Katada, Financial Statecraft of Emerging Powers; Mattias Vermeiren, “Foreign
Exchange Accumulation and the Entrapment of Chinese Monetary Power: Toward a Balanced
Growth Regime?” New Political Economy 18, no. 5 (2013): 680–714; H. Gao, “Convertibility as a
Step for the RMB Internationalization,” Economic Change and Restructuring 46, no. 1 (2013): 71–
84.
172. China is facing an “impossible trinity” of stable exchange rate, macroeconomic autonomy,
and free capital movement. As the Chinese authorities liberalize its capital account and still pursue a
pegged exchange rate, they lose monetary autonomy.
173. Kahler also notes no sign of resistance or challenge by any of the BRICS to the global
financial regulatory regime. Miles Kahler, “Rising Powers and Global Governance.”
174. “Revisiting Sovereign Bankruptcy,” Brookings Institution, October 2, 2013,
http://www.brookings.edu/research/reports/2013/10/sovereign-debt.
175. Foot and Walter, China, the United States, and Global Order. On Russia, the Basel
Committee noted that “several aspects of the domestic rules . . . are more rigorous than required
under the Basel framework.” See “Basel III Implementation Assessments of Russia and Turkey,”
published by the Basel Committee, March 15, 2016. See also Zhenbo Hou, Jodie Keane, and Dirk
Willem te Velde, “Will the BRICS Provide the Global Public Good the World Needs?” ODI Report,
June 2014.
176. “China’s BRICS Trade Pact Idea Finds No Takers,” The Hindu, September 10, 2016.
177. For the suggestion that BRICS prefer a Concert structure for relations among great powers,
see Cynthia Roberts, “Are the BRICS Building a Non-Western Concert of Powers?” The National
Interest, July 2015, http://nationalinterest.org/feature/are-the-brics-building-non-western-concert-
powers-13280.
178. John J. Kirton, “Changing Global Governance for a Transformed World,” in The G8–G20
Relationship in Global Governance, ed. Marina Larionova and John J. Kirton (London: Ashgate,
2015), Chap. 2.
179. Randall L. Schweller and David Priess, “A Tale of Two Realisms: Expanding the Institutions
Debate,” Mershon International Studies Review 41, Supplement 1 (1997): 1–32.

CHAPTER 4

1. See especially Daniel W. Drezner, All Politics Is Global: Explaining International Regulatory
Regimes (Princeton, NJ: Princeton University Press, 2007), Chap. 5. ; Randall W. Stone, Controlling
Institutions: International Organizations and the Global Economy (Cambridge, UK: Cambridge
University Press, 2011); and Richard H. Steinberg, “In the Shadow of Law or Power? Consensus-
Based Bargaining and Outcomes in the GATT/WTO,” International Organization 56, no. 2 (Spring
2002): 339–374.
2. Margaret P. Karns and Karen A. Mingst, International Organizations: The Politics and
Processes of Global Governance (Boulder, CO: Lynne Rienner, 2004), 29.
3. Roman Grynberg et al., Toward a New Pacific Regionalism: An Asian Development Bank-
Commonwealth Secretariat Joint Report to the Pacific Islands Forum Secretariat, vol. 1 (executive
summary, Asian Development Bank, 2005).
4. Leslie Elliott and John Echeverri-Gent, “Absolute or Relative Gains? How Status Quo and
Emerging Powers Conceptualize Global Finance,” in Handbook of International Monetary Relations,
ed. Thomas Oatley and William Winecoff (Cheltenham, UK: Edward Elgar, 2014), 144–165.
5. Jonathan Kirshner, American Power After the Financial Crisis (Ithaca, NY: Cornell University
Press, 2014), 1–17.
6. Evidence for such practices is discussed in Catherine Weaver, Hypocrisy Trap: The World Bank
and the Poverty of Reform (Princeton, NJ: Princeton University Press, 2008); Steinberg, “In the
Shadow of Law or Power?”; and Mlada Bukovansky, “Institutionalized Hypocrisy and the Politics of
Agricultural Trade,” in Constructing the International Economy, ed. Rawi Abdelal, Mark Blyth, and
Craig Parsons (Ithaca, NY: Cornell University Press, 2010), 68–90.
7. See Michael A. Glosny, “China and the BRICs: A Real (but Limited) Partnership in a Unipolar
World,” Polity 42, no. 1 (2010): 100–129.
8. Geoffrey Garrett, “G2 in G20: China, the United States, and the World After the Global
Financial Crisis,” Global Policy 1, no. 1 (2010): 29–39.
9. The phrase was first promoted by Xi Jinping at the time of his meeting with U.S. president
Barack Obama at Sunnylands, California, in March 2013, at which time Xi emphasized three points:
(1) no conflict or confrontation, and an emphasis on dialogue; (2) mutual respect, including respect
for each other’s core interests and major concerns; and (3) mutually beneficial cooperation and
advancement in areas of mutual interest.
10. The United Nations (UN), G20, BRICS, and Shanghai Cooperation Organization (SCO) were
the only four international institutions mentioned as the focus of China’s engagement efforts in the
18th CCP Congress Report published in 2012, which outlined China’s grand strategy for years to
come. Minghao Zhao, “China’s Pivotal BRICS Strategy,” BRICS Post, October 10, 2013,
http://thebricspost.com/chinas-pivotal-brics-strategy/#.WOANzmtMSpo.
11. Jin Zhongxia, “The Chinese Delegation at the 1944 Bretton Woods Conference: Reflections for
2015” (London, UK: Official Monetary and Financial Institutions Forum, 2015), 8.
12. Eric Helleiner and Bessma Momani, “The Hidden History of China and the IMF,” in The Great
Wall of Money: Power and Politics in China’s International Monetary Relations, ed. Eric Helleiner
and Jonathan Kirshner (Ithaca, NY: Cornell University Press, 2014), 56.
13. Harold Jacobson and Michel Oksenberg, China’s Participation in the IMF, the World Bank,
and GATT: Toward a Global Economic Order (Ann Arbor: University of Michigan Press, 1990),
Chap. 3.
14. Rosemary Foot and Andrew Walter, China, the United States, and Global Order (Cambridge,
UK: Cambridge University Press, 2010), 106–107. Also see Ann E. Kent, Beyond Compliance:
China, International Organizations, and Global Security (Palo Alto, CA: Stanford University Press,
2007).
15. Scott L. Kastner, Margaret M. Pearson, and Chad Rector, “Invest, Hold up, or Accept? China
in Multilateral Governance,” Security Studies 25, no. 1 (2016): 142–179.
16. Foot and Walter, China, the United States, and Global Order, Chap. 3.
 17. Ben S. Bernanke, “The Global Saving Glut and the US Current Account Deficit” (lecture,
Virginia Association of Economists, Richmond, VA, March 10, 2005).
18. Kastner, Pearson, and Rector, “Invest, Hold up, or Accept?”
19. Elizabeth Economy, “The Game Changer: Coping with China’s Foreign Policy Revolution,”
Foreign Affairs 89, no. 6 (2010): 142–152.
20. A speech made by Jin Renqing, then-governor of the People’s Bank of China (PBOC) at the
World Bank IMF Annual Meeting, September 24, 2005.
21. Raghuram G. Rajan, Fault Lines: How Hidden Fractures Still Threaten the World Economy
(Princeton, NJ: Princeton University Press, 2011).
22. Shaun Breslin, “Chinese Financial Statecraft and the Response to the Global Financial Crisis,”
in Unexpected Outcomes: How Emerging Economies Survived the Global Financial Crisis, ed. Carol
Wise, Leslie Elliott Armijo, and Saori N. Katada (Washington, DC: Brookings Institution Press,
2015), 25–47.
23. Deborah Bräutigam and Kevin P. Gallagher, “Bartering Globalization: China’s Commodity‐
Backed Finance in Africa and Latin America,” Global Policy 5, no. 3 (2014): 346–352; Deborah
Bräutigam, “China, Africa, and the International Aid Architecture,” Working Paper 107, African
Development Bank, 2010; and Takatoshi Ito et al., “China’s Impact on the Rest of the World: Editors’
Overview,” Asian Economic Policy Review 9, no. 2 (2014): 163–179.
24. The loans extended by these two Chinese banks in 2009 and 2010 exceeded that of the World
Bank. Geoff Dyer and Jamil Anderlini, “China’s Lending Hits New Heights,” Financial Times,
January 18, 2011. China concluded more than thirty bilateral RMB swap arrangements with
developing countries from 2008 through 2015.
25. See, for example, Anastasia Nesvetailova and Ronen Palan, “The End of Liberal Finance? The
Changing Paradigm of Global Financial Governance,” Millennium-Journal of International Studies
38, no. 3 (2010): 797–825.
26. Randall L. Schweller and Xiaoyu Pu, “After Unipolarity: China’s Visions of International
Order in an Era of US Decline,” International Security 36, no. 1 (2011): 41–72.
27. Xi Jinping’s address at the conference marking the 60th anniversary of the Five Principles of
Peaceful Coexistence, cited in Yang Jiemian, “China’s “New Diplomacy Under the Xi Jinping
Administration,” China Quarterly of International Strategic Studies 1, no. 1 (2015): 7.
28. Shi Yinhong, “China’s Complicated Foreign Policy,” European Council on Foreign Relations,
March 31, 2015; and Zhang Baohui, “Xi Jinping, ‘Pragmatic’ Offensive Realism and China’s Rise,”
Global Asia 9, no. 2 (Summer 2014): 71–79. For context prior to Xi, see also Qian Qichen, Ten
Episodes in China’s Diplomacy (New York: HarperCollins, 2006), a translation of the former vice
premier/foreign minister’s Waijiao shiji [Ten Stories of a Diplomat] (Beijing: Shijie zhishi
chubanshe, 2003).
29. For the difficulties that China is facing with its investment deals with Venezuela, see “China
Rethinks Developing World Largesse as Deals Sour,” Financial Times, October 13, 2016.
30. Gregory Chin, “China’s Bold Economic Statecraft,” Current History 114, no. 773 (2015): 220–
221.
31. Shaun Breslin, “China and the Global Order: Signaling Threat or Friendship?” International
Affairs 89, no. 3 (2013): 629.
32. Helleiner and Momani, “The Hidden History of China and the IMF”; Peter Ferdinand and Jue
Wang, “China and the IMF: From Mimicry Towards Pragmatic International Institutional Pluralism,”
International Affairs 89, no. 4 (2013): 895–910.
33. Foot and Walter, China, the United States, and Global Order, 111, citing a speech by then-
premier Wen Jiabao on May 17, 2005.
 34. Breslin, “China and the Global Order,” 631. See also “China’s Development Finance,” IDS
Policy Briefing, Issue 92, April 2015, http://www.ids.ac.uk/publication/china-s-development-finance-
ambition-impact-and-transparency.
35. Qin (cited in Cheng 2015, 366–367) lists three important conditions for cooperation among
incumbent powers and emerging powers: (1) emerging powers must be given their due share of
power in the reform of the international system, (2) the legitimate interests and demands of the
emerging powers must be respected, and (3) the emerging powers’ request for consultation on an
equal basis must be met. Joseph Y. S. Cheng, “China’s Approach to BRICS,” Journal of
Contemporary China 24, no. 92 (2015): 357–375.
36. China Institutes of Contemporary International Relations (CICIR), Strategic and Security
Review, 2014/15, 68.
37. CICIR, Strategic and Security Review, 63. As discussed in Chap. 3, quota reform and RMB
inclusion in the SDR were both finally achieved in fall 2015 after China and the BRICS engaged in
proactive lobbying and introduced their outside options of the NDB and the AIIB, which came into
existence in 2015.
38. Wang Jisi, “Study Projects Glittering US-China Economic Relations in 2022,” China-US
Focus, July 24, 2013, http://www.chinausfocus.com/finance-economy/study-projects-glittering-us-
china-economic-relations-in-2022.
39. Kenneth Lieberthal and Wang Jisi, Addressing U.S.-China Strategic Distrust (Brookings
Institution, Washington, DC, March 2012). See also Cui Liru, “Big Power Game/Cooperation in the
Asia-Pacific,” CIR 23, no. 2 (March/April 2013): 90–100.
40. Chien-peng Chung, China’s Multilateral Co-operation in Asia and the Pacific:
Institutionalizing Beijing’s Good Neighbour Policy (London: Routledge, 2010), 16.
41. For the Chinese discussion on how the BRICS group has been considered in the context of the
G20, see Cheng, “China’s Approach to BRICS,” 366.
42. Wang Ying and Li Jiguang. “G20 yŭ zhōngguó (G20 and China),” Contemporary International
Relations 22, no. 4 (July/August 2012): 44–49, http://www.cicir.ac.cn/chinese/Article_3930.html.
43. Grieco first theorized a “neorealist voice opportunities hypothesis” in the formation of the
European Union. Joseph M. Grieco, “State Interests and Institutional Rule Trajectories: A Neorealist
Interpretation of the Maastricht Treaty and European Economic and Monetary Union,” Security
Studies 5, no. 3 (1996): 261–306. Of course, China and Russia would prefer to keep their incumbent
status in the United Nations by opposing the UN Security Council (UNSC) expansion; hence, they
are not genuinely “democratic” players in the international system, either.
44. Even though China was invited to join the G7/G8 Summit as early as the early 2000s, it
declined, as it was uncomfortable being identified as joining the group of rich Western powers, which
is against its self-identification as a developing country and its fundamental foreign policy principles.
Ren Xiao, “A Reform-Minded Status Quo Power? China, the G20, and Reform of the International
Financial System,” Third World Quarterly 36, no. 11 (2015): 2023–2043.
45. For example, Injoo Sohn, “Asian Financial Cooperation: The Problem of Legitimacy in Global
Financial Governance,” Global Governance: A Review of Multilateralism and International
Organizations 11, no. 4 (2005): 487–504.
46. Katharina Gnath and Claudia Schmucker, “The Role of the Emerging Countries in the G20:
Agenda-Setter, Veto Player, or Spectator?” European Yearbook of International Economic Law
(Berlin and Heidelberg: Springer, 2012), 667–681.
47. Gregory Chin, “The Emerging Countries and China in the G20: Reshaping Global Economic
Governance,” Studia Diplomatica 63, no. 2 (2010): 105–123.
 48. IMF quota reform was finally agreed upon at Gyeongju, Korea, during the G-20 finance
ministers and central bank governors meeting in October 2010, prior to the Seoul G20 Summit in
November.
49. Injoo Sohn, “Learning to Co-operate: China’s Multilateral Approach to Asian Financial Co-
operation,” China Quarterly 194 (2008): 309–326.
50. Gottwald and Bersick argue that China was not fully ready for the challenge in 2008, as
evidenced by then-president Hu Jintao’s speeches at the G20 Washington Summit, which were
devoid of specifics. Jörn-Carsten Gottwald and Sebastian Bersick, “The Domestic Sources of China’s
New Role in Reforming Global Capitalism,” International Politics 52, no. 6 (2015): 785.
51. Evan S. Medeiros, “Is Beijing Ready for Global Leadership?” Current History 108, no. 719
(2009): 252.
52. The term pengsha literally means “killing with praise.” Wang Yong and Louis Pauly, “Chinese
IPE Debates on (American) Hegemony,” Review of International Political Economy 20, no. 6 (2013):
1181–1182, citing Yuan Li in “G2 gainian shi zai pengsha zhongguo (The Concept of G2 is to Flatter
and Destroy China),” Guoji jinrong bao (International Financial News), June 11, 2009, 6. The same
concern is reported by Shambaugh as “a dangerous trap aimed at tying China down, burning up its
resources, and retarding its growth.” David Shambaugh, “Coping with a Conflicted China,”
Washington Quarterly 34, no. 1 (2011): 13. Also see Thomas J. Christensen, The China Challenge:
Shaping the Choices of a Rising Power (New York: W.W. Norton, 2015), 118–120.
53. Pan Wei, “Western System Versus Chinese System,” Paper No. 61, China Policy Institute,
University of Nottingham, Nottingham, UK (July 2010).
54. Benjamin J. Cohen, “The International Monetary System: Diffusion and Ambiguity,”
International Affairs 84, no. 3 (2008): 456.
55. Chin, “China’s Rising Monetary Power.”
56. Robert B. Zoellick, “Whither China: From Membership to Responsibility?” NBR Analysis 16,
no. 4 (2005): 5.
57. Breslin, “China and the Global Order,” 621.
58. Gregory Chin and Ramesh Thakur, “Will China Change the Rules of Global Order?” The
Washington Quarterly 33, no. 4 (2010): 119–138.
59. The economic locomotive power of the Chinese economy for the rest of the world during the
post–global financial crisis years is also clearly demonstrated by how China’s economic slowdown in
the last few years has affected the global economy in terms of commodity prices and equity markets.
60. On Chinese aid to Africa, see Deborah Brautigam, The Dragon’s Gift: The Real Story of China
in Africa (New York: Oxford University Press, 2009).
61. An anonymous Chinese financial expert emphasized the importance of diversifying China’s
investment around the world and in different institutions. Interview, November 2015.
62. China’s foreign exchange reserves reached $1 trillion in late 2006 and expanded rapidly to
reach $3 trillion in 2011. Despite some decline in reserves in the aftermath of China’s economic
downturn in the summer of 2015, the level of reserves is still above $3 trillion at the end of 2015.
Data, People’s Bank of China (PBOC).
63. Miller notes that with such vast financial resources, China is now experimenting with the best
way to use them. Ken Miller, “Coping with China’s Financial Power,” Foreign Affairs 89, no. 4
(2010): 96–109.
64. Kal Raustiala and David G. Victor, “The Regime Complex for Plant Genetic Resources,”
International Organization 58, no. 2 (2004): 277–309.
65. Wihtol notes the different speeds at which the AIIB and the NDB initially started moving,
where China’s pet project, the AIIB, began moving much more quickly than the NDB. Robert
Wihtol, “Beijing’s Challenge to the Global Financial Architecture,” Georgetown Journal of Asian
Affairs (Spring/Summer 2015): 7–15.
66. Adriana Erthal Abdenur, “China and the BRICS Development Bank: Legitimacy and
Multilateralism in South-South Cooperation,” IDS Bulletin 45, no. 4 (2014): 85–101.
67. Abdenur, “China and the BRICS Development Bank,” 94.
68. China also increases its investment in infrastructure in new partner countries to provide
contracts to Chinese construction companies and relieve China’s currency pressure. Gregory T. Chin,
“The BRICS‐Led Development Bank: Purpose and Politics Beyond the G20,” Global Policy 5, no. 3
(2014): 366–373.
69. Stephany Griffith-Jones, “A BRICS Development Bank: A Dream Coming True?” (Lecture
No. 215, United Nations Conference on Trade and Development, 2014).
70. Joshua Kurlantzick, Charm Offensive: How China’s Soft Power Is Transforming the World
(New Haven, CT: Yale University Press, 2007); Wang Jisi, “China’s Search for a Grand Strategy: A
Rising Great Power Finds Its Way,” Foreign Affairs 90, no. 2 (2011): 68–79.
71. Leslie Elliott Armijo and Cynthia Roberts, “The Emerging Powers and Global Governance:
Why the BRICS Matter,” in Handbook of Emerging Economies, ed. Robert Looney (New York:
Routledge, 2014), 520.
72. Breslin, “China and the Global Order,” 621.
73. Evan S. Medeiros, “Is Beijing Ready for Global Leadership?” Current History 108, no. 719
(2009): 250–256.
74. Ferdinand and Wang, “China and the IMF.”
75. China was an aid recipient from the World Bank’s concessional arm, the International
Development Association (IDA) until 1999, and still receives some concessional loans. Abdenur,
“China and the BRICS Development Bank.”
76. For example, Chinese nationals constitute only 1.5 percent of high ranking (B01-05) staff in
the IMF much lower than its (low) prereform voting quota of 3.81 percent. IMF, IMF Diversity
Annual Report, 2014.
77. Michael A. Glosny, “China and the BRICs: A Real (but Limited) Partnership in a Unipolar
World,” Polity 42, no. 1 (2010): 112.
78. Cheng, “China’s Approach to BRICS,” 373.
79. A large part of the funding sources for the banks in the future will come from them issuing
bonds in the capital market. In order for these banks to acquire high credit rating (hence the lower
cost of raising money), the banks have to have high-quality governance and a lending portfolio.
80. The “Chinese Dream” embodies much more than these elements, which is beyond the scope of
the discussion here. For information on what the Chinese Dream means to the Chinese public, see
David S. G. Goodman, “Middle Class China: Dreams and Aspirations,” Journal of Chinese Political
Science 19, no. 1 (2014): 49–67.
81. Zhu defines “performance legitimacy” as the government’s reliance of its legitimacy on its
accomplishment of concrete goals, including economic growth, social stability, increase in national
power, and government’s competence and accountability. Yuchao Zhu, “‘Performance Legitimacy’
and China’s Political Adaptation Strategy,” Journal of Chinese Political Science 16, no. 2 (2011):
123–140.
82. Breslin, “China and the Global Order,” 623.
83. Kejin Zhao and Xin Gao, “Pursuing the Chinese Dream: Institutional Changes of Chinese
Diplomacy Under President Xi Jinping,” China Quarterly of International Strategic Studies 1, no. 1
(2015): 35–57.
 84. Hong Yousheng and Fang Quin, “Global Economic Governance Power Shift: The G20 and
Strategies,” Contemporary International Relations 22, no. 3 (2012): 38–46,
http://www.cicir.ac.cn/chinese/Article_3714.html.
85. Yongnian Zheng, Rongfang Pan, and P. D. D’Costa, “From Defensive to Aggressive Strategies:
The Evolution of Economic Nationalism in China,” Globalization and Economic Nationalism in Asia
(2012): 84; Mattias Vermeiren, “Foreign Exchange Accumulation and the Entrapment of Chinese
Monetary Power: Towards a Balanced Growth Regime?” New Political Economy 18, no. 5 (2013):
680–714.
86. Yang Jiang, “The Limits of China’s Monetary Diplomacy,” in The Great Wall of Money, 165.
87. Such challenges include the publication of multiple books surrounding the “currency wars,” for
example.
88. Suisheng Zhao, “Chinese Foreign Policy Under Hu Jintao: The Struggle Between Low-Profile
Policy and Diplomatic Activism,” The Hague Journal of Diplomacy 5, no. 4 (2010): 357–378.
89. Ulrich Volz, “All Politics Is Local: The Renminbi’s Prospects as a Future Global Currency,” in
Financial Statecraft of Emerging Powers: Shield and Sword in Asia and Latin America, ed. Leslie
Elliott Armijo and Saori N. Katada (New York: Palgrave Macmillan, 2014), 103–137. Tsugami
characterizes this process as the “sublimation” of Chinese nationalism in a positive direction. In
psychology, the term sublimation refers to a mature type of defense mechanism where socially
unacceptable impulses are transformed into socially acceptable actions or behavior. Toshiya Tsugami,
Kyoryu no Kutou: Chugoku, GDP sekai ichii no gensou (Tokyo: Kadokawa Shinsho, 2015), 180–
181.
90. Suisheng Zhao, “Foreign Policy Implications of Chinese Nationalism Revisited: The Strident
Turn,” Journal of Contemporary China 22, no. 82 (2013): 539.
91. Yang, “The Limits of China’s Monetary Diplomacy,” 160.
92. An extensive discussion of the question of whether China is a status quo or revisionist power
in various realms of international relations is beyond the scope of this book. For a good summary of
the literature, see Scott L. Kastner and Phillip C. Saunders, “Is China a Status Quo or Revisionist
State? Leadership Travel as an Empirical Indicator of Foreign Policy Priorities,” International
Studies Quarterly 56, no. 1 (2012): 167.
93. Xiao, “A Reform-Minded Status Quo Power?”
94. Evan Feigenbaum, “The New Asian Order,” Foreign Affairs, February 2, 2015,
https://www.foreignaffairs.com/articles/east-asia/2015-02-02/new-asian-order.
95. David Shambaugh, “Coping with a Conflicted China,” The Washington Quarterly 34, no. 1
(2011): 7–27.
96. David Pilling, “A Bank Made in China and Better than the Western Model,” Financial Times,
May 27, 2015.
97. This quotation is also in Pilling, “A Bank Made in China.” Authors’ interviews, Washington,
DC, November 2015. Negative examples can be found in Ngaire Woods,“How to Save the World
Bank,” World Finance, March 31, 2016; Barry Eichengreen and Ngaire Woods, “The IMF’s Unmet
Challenges,” Journal of Economic Perspectives 30, no. 1 (2016): 29–51; Mark Magnier, “How China
Plans to Run AIIB: Leaner, with Veto,” Wall Street Journal, June 8, 2015; and Gabriel Wildau, “New
BRICS Bank in Shanghai to Challenge Major Institutions,” Financial Times, July 21, 2015.
98. Wang Jisi also asks why China should be bound by rules that were established by the Western
powers if they are not willing to understand China’s aspirations. Wang, “China’s Search for a Grand
Strategy,” 79.
99. Abdenur, “China and the BRICS Development Bank,” 88.
 100. For such a view from India, see Akshay Mathur, “Incubating an Alternative Financial
Architecture Within BRICS” (7th BRICS Academic Forum, Moscow, 2015).
101. Georgii Toloraya, “BRICS: Future Checkpoints,” Russia in Global Affairs (July 2014);
Cynthia Roberts, “Russia’s BRICs Diplomacy: Rising Outsider with Dreams of an Insider,” Polity
42, no. 1 (2010): 38–73; Georgii Toloraia, “Zachem Rossii BRIKS?” Rossiia v Global’noi Politike,
no. 1 (January–February 2015); and Armijo and Roberts, “The Emerging Powers and Global
Governance: Why the BRICS Matter.” This case study of Russia is also informed by numerous
interviews with Russian officials, elites, and academics from 2006–2016.
102. Roberts, “Russia’s BRICs Diplomacy”; Georgii Toloraia, “Rossiia i BRIKS: Strategiia
vzaimodeistviia,” Strategiia Rossii, no. 8 (August 2011).
103. Dmitri Trenin, “Russia Leaves the West,” Foreign Affairs 85, no. 4 (July–August 2006): 87–
96; Angela E. Stent, The Limits of Partnership: US-Russian Relations in the Twenty-First Century
(Princeton, NJ: Princeton University Press, 2015); and Cynthia A. Roberts, Russia and the European
Union: The Sources and Limits of “Special Relationships” (Carlisle, PA: Strategic Studies Institute,
2007).
104. Bobo Lo, Axis of Convenience: Moscow, Beijing, and the New Geopolitics (Washington, DC:
Brookings Institution Press, 2009); Stephen Kotkin, “The Unbalanced Triangle: What Chinese-
Russian Relations Mean for the United States,” Foreign Affairs 88, no. 5 (September/October 2009):
130–138; and Alexander Gabuev, “Friends with Benefits? Russian-Chinese Relations After the
Ukraine Crisis” (Moscow: Carnegie Endowment for International Peace, 2016).
105. Toloraia, “Rossiia i BRIKS”; and Dmitri V. Trenin, Post-imperium: A Eurasian Story
(Washington, DC: Brookings Institution Press, 2011).
106. Daniel Treisman, The Return: Russia’s Journey from Gorbachev to Medvedev (New York:
Simon and Schuster, 2012).
107. IMF data, BPM6, Russian Federation, 2016. Starting from 2012, the Russian balance of
payments is compiled according to the framework of the IMF’s Balance of Payments (BOP) and
International Investment Position (IIP) Manual, sixth edition (BPM6) and the CBR has revised
historical data (going back to 2000Q1 for BOP, and to 2004Q1 for IIP), consistent with BPM6;
Martin Gilman, “Like It or Not, Russia Is a Global Financial Power,” Moscow Times, April 9, 2013;
and M. Y. Golovnin, “Rol’ stran BRIKS v reformirovanii mirovoi valiutno-finansovoi sistemy,” in
Strategiia Rossii v BRIKS: Tsely i Instrumenty, ed. V. A. Nikonov and G. D. Toloraia (Moscow:
Rossiiskii Universitet Druzhby Narodov, 2013).
108. Toloraya, “BRICS: Future Checkpoints,” International Affairs, special issue (Moscow: 2015);
Toloraia, “Rossiia v BRIKS.”
109. Toloraia, “Rossiia i BRIKS.”2011.
110. V. V. Putin, “Rossiia i meniaiushchisiia mir,” Moskovskiie Novosti, February 27, 2012,
http://www.mn.ru/politics/78738.
111. Russian president’s address, March 29, 2012, http://eng.news.kremlin.ru/transcripts/3608/.
112. Interview with Dmitry Medvedev, Channel One, June 19, 2009.
113. “Rossiia v BRIKS: Strategicheskie tsely i sredstvikh dostizheniia [Russia in the BRICS:
Strategic Objectives and Means for Their Realization] Marked “For official use,” Russian National
Committee on BRICS Research, analytical report (Moscow: March 2013).
114. “Russian Presidency Aims at Transforming BRICS into Full-Fledged Cooperation Tool,” NKI
BRIKS, Rossiia, January 16, 2015; “Rossiia v BRIKS.” The Russian Academy of Sciences has
participated in producing numerous expert studies, such as B. A. Kheifets, Rossiia I BRIKS. Novyie
vozmozhnosti dlia vzaimnykh investitsii (Moscow: Dashkov i K, 2014); V. A. Sadovnichii et al.,
Kompleksnoe modelirovanie i prognozirovanie razvitiia stran BRIKS v kontekste mirovoi dinamiki
(Moscow: Nauka, 2014); and Nikonov and Toloraia, Strategiia Rossii v BRIKS: Tsely i Instrumenty.
115. Toloraia, “Zachem Rossii BRIKS?”
116. Viktoriya Panova and Georgii Toloraia, “Strany BRIKS gotovy sami nachat’ formirovat’
pravila mirnogo ustroistva,” MGIMO, May 22, 2015; Georgii Toloraya, “BRICS Looks to the
Future,” International Affairs, special issue: BRICS (2015): 45–56; and interviews.
117. Gabuev, “Friends with Benefits”; Toloraia, “Zachem Rossii BRIKS?” Putin and Medvedev
have called for new reserve currencies and an increase in trade using national currencies. Both also
supported a supranational global currency to reduce dependence on the U.S. dollar, although many
senior economic officials dismissed the idea as unrealistic. See, for example, Medvedev’s speech to
the SCO meeting, June 16, 2009, http://en.kremlin.ru/events/president/transcripts/6411.
118. “Pravila igry,” Kommersant, September 2, 2015.
119. Toloraia, “Zachem Rossii BRIKS”; and Gabuev, “Friends with Benefits.”
120. Andrei Shleifer and Daniel Treisman, Without a Map: Political Tactics and Economic Reform
in Russia (Cambridge, MA: MIT Press, 2000); Joel S. Hellman, “Winners Take All: The Politics of
Partial Reform in Postcommunist Transitions,” World Politics 50, no. 2 (1998): 203–234; and
Timothy Frye, Building States and Markets After Communism: The Perils of Polarized Democracy
(Cambridge, UK: Cambridge University Press, 2010).
121. For example, Strategiia-2020: Novaiia Model’ Rosta—Novaiia Sotsial’naia Politika [Strategy
2020: A New Growth Model, a New Social Policy] (Moscow: Russian Government, 2012) and
Gaidar Forum debates, Moscow, January 2016.
122. Igor Yurgens contends that although the liberal cohort is “being squeezed,” “completely
incompetent decisions” are still being blocked by serious policymakers. Andrei Lipsky, “Igor’
Iurgens: Seichas my v retsessii i skoro budem v svobodnom padenii,” Novaia Gazeta, November 19,
2014.
123. Summaries of their views are recounted and critiqued in Vladimir Mau, “Russia’s Economic
Policy in 2015–2016: The Imperative of Structural Reform,” Post-Soviet Affairs (August 2016); and
Dmitry Dokuchaev, “Liberals and Statists Battle for Russia’s Economic Future,” Russia Direct,
August 5, 2016.
124. For example, Sergei Guriev, “BRICS Proposals for IMF Reforms Are Not Radical Enough,”
East Asia Forum, July 20, 2012; and the chapters in Strategiia Rossii v BRIKS by M. Yu. Golovnin
on “The Role of the BRICS in the Reform of the Global Monetary the Financial System,” Chap. 3.1;
and by L. M. Grigor’ev and A. K. Morozkina on “Reforming the World Financial Architecture,”
Chap. 3.6, and “Development Banks,” Chap. 3.5. See also Peter Rutland, “The Place of Economics in
Russian Identity Debates,” in The New Russian Nationalism, ed. Pal Kolsto and Helge Blakkisrud
(Edinburgh: Edinburgh University Press, 2016), 336–361; and Rutland, “Neoliberalism in Russia,”
Review of International Political Economy 20, no. 2 (April 2013): 332–362.
125. Yegor Gaidar, Gibel’ Imperii: Uroki dlya sovremennoi Rossii (Moscow: ROSSPEN, 2006).
See also Stephen Kotkin, Armageddon Averted: The Soviet Collapse, 1970–2000 (New York: Oxford
University Press, 2008).
126. GKO is short for Gosudarstvennoe Kratkosrochnoe Obiazatel’stvo. Randall W. Stone,
Lending Credibility: The International Monetary Fund and the Post-Communist Transition
(Princeton, NJ: Princeton University Press, 2002), 12.
127. Ibid., Chap. 6 and 177, 124.
128. Stone, Lending Credibility, 147. This section draws on Randall W. Stone, Abbigail Chiodo,
and Michael T. Owyang, “A Case Study of a Currency Crisis: The Russian Default of 1998,” The
Federal Reserve Bank of St. Louis,” Review 84 (November/December 2002).
 129. James M. Goldgeier and Michael McFaul, Power and Purpose: US Policy Toward Russia
After the Cold War (Washington, DC: Brookings Institution Press, 2003).
130. This is as reflected in Putin’s speeches; Vladimir Mau, “Challenges of Russian Economic
Growth: Reconstruction or Acceleration?” No. 196, Gaidar Institute for Economic Policy, revised
2014; Anders Aslund, “Why Could Growth Rates Decrease in Emerging Market Economies?”
Economic Policy (2014): 7–34; Simeon Djankov, “Russia’s Economy Under Putin: From Crony
Capitalism to State Capitalism,” PIIE brief, September 2015; and Sergei Guriev and Andrei
Rachinsky, “The Role of Oligarchs in Russian Capitalism,” Journal of Economic Perspectives 19, no.
1 (2005): 131–150.
131. Anders Aslund and Simeon Djankov (eds.), The Great Rebirth: Lessons from the Victory of
Capitalism over Communism (Washington, DC: Peterson Institute for International Economics,
2014); Petr Aven and Alfred Kokh, Gaidar’s Revolution: The Inside Account of the Economic
Transformation of Russia (London: I. B. Tauris, 2015).
132. Petr Aven, “1990s: Back to the USSR?” The World Today 71, no. 3 (2015): 37–38; Aven and
Kokh, Gaidar’s Revolution; and Gaidar, Gibel’ Imperii.
133. International Reserves of the Russian Federation, Central Bank of Russia.
134. Lilas Demmou and Andreas Wörgötter, “Boosting Productivity in Russia: Skills, Education,
and Innovation,” OECD Economics Department Working Papers, No. 1189 (Paris: OECD, 2015),
10–11; and Indermit S. Gill, Ivailo Izvorski, Willem Van Eeghen, and Donato De Rosa, Diversified
Development: Making the Most of Natural Resources in Eurasia (Washington, DC: World Bank,
2014), 164 and Annex 3C.
135. Aleksei Kudrin and Evsei Gurvich, “A New Growth Model for the Russian Economy,”
Russian Journal of Economics 1, no. 1 (2015): 30–54; Vladimir Mau and Aleksei Uliukaev, “Global
Crisis and Challenges for Russian Economic Development,” Russian Journal of Economics 1, no. 1
(March 2015): 4–29; World Bank, Global Economic Prospects (Washington, DC: World Bank,
January 2016).
136. Neil Buckley and Martin Arnold, “Herman Gref, Sberbank’s Modernising Sanctions
Survivor,” Financial Times, January 31, 2016; and author’s interviews, Moscow, 2016.
137. “VTB Capital Investment Forum ‘Russia Calling,’ ” October 12, 2016,
http://kremlin.ru/events/president/news/53077.
138. Clifford G. Gaddy and Barry W. Ickes, “Can Sanctions Stop Putin?” Washington, DC:
Brookings Institution, June 2014.
139. For example, “Kudrin—RBK: Glavnaia Problema—Polnoe Otsutstuvie Doveriia i Politikie,”
January 12, 3015. http://www.rbc.ru/interview/economics/12/01/2015/54b2557e9a794738fd73a3ff.
140. IMF Staff Report for the Russian Federation, Article IV Consultation, No. 16/229, July 2016,
7; Richard Connolly, “The Empire Strikes Back: Economic Statecraft and the Securitisation of
Political Economy in Russia,” Europe-Asia Studies (2016): 1–24.
141. Neil Buckley, “Gazprom Lost Friends and Ceded Influence over European Gas,” Financial
Times, January 20, 2016.
142. Connolly, “The Empire Strikes Back”; and Alexander Gabuev, “Russia’s ‘China Dreams’ Are
Less of a Fantasy than You Think,” June 28, 2016, Carnegie Moscow Center; John C. K. Daly,
“Russian-Chinese Joint Ventures in Russia’s Far East,” Eurasia Daily Monitor 14 no. 48, April 7,
2017.
143. Levada Center polls on Russia and the West, June 26, 2015, http://www.levada.ru/26-06-
2015/rossiia-zapad-vospriiatie-drug-druga-v-predstavleniiakh-rossiyan; and “Russians See Western
Sanctions as Plot to Weaken Them, Poll Shows,” Moscow Times, June 29, 2015.
 144. Elizabeth Rosenberg et al., “The New Tools of Economic Warfare: Effects and Effectiveness
of Contemporary U.S. Financial Sanctions,” Center for a New American Security, April 15, 2016, at
13.
145. Vladimir Mau, “Between Crises and Sanctions: Economic Policy of the Russian Federation,”
Post-Soviet Affairs (2015): 9.
146. “Russia Suspended from G8 Club of Rich Countries,” Daily Telegraph, Business Insider,
March 24, 2014.
147. “Russia to respond to possible disconnection from SWIFT—PM,” TASS, January 27, 2015,
http://tass.com/russia/773628.
148. “Cutting Russia out of SWIFT Banking System Would Mean ‘War’—Head of VTB,” RT,
December 4, 2014, https://www.rt.com/business/211291-swift-banking-russia-vtb/; and Gillian Tett
and Jack Farchy, “Russian Banker Warns West over Swift,” Financial Times, January 23, 2015.
149. Meeting of the Valdai International Discussion Club, October 24, 2014,
http://en.kremlin.ru/events/president/news/46860.
150. Daniel W. Drezner, The Sanctions Paradox: Economic Statecraft and International Relations
(Cambridge, UK: Cambridge University Press, 1999).
151. For example, Vladimir Putin’s interview with Vladimir Solovyev, “The World Order,” Russia
Channel 1, December 20, 2015; Interview with German television channel ARD and TsDF, May 5,
2005, http://kremlin.ru/events/president/news/copy/33284; and Putin’s 2011 Izvestia article discussed
later in this chapter.
152. Russian authorities use the terms Eurasian Economic Union and Eurasian Union to refer to
this entity. The economic union is underpinned by a military security arrangement to which all its
members belong, the Collective Security Treaty Organization. On comparisons to the European
Union, see Rilka Dragneva and Kataryna Wolczuk, “European Union Emulation in the Design of
Integration,” in The Eurasian Project and Europe, ed. David Lane (London: Palgrave Macmillan
UK, 2015), 135–152.
153. According to Ruslan Grinberg, director of Russia’s Institute on the Economy, the population
of a single economic space should be 200–250 million people in order to function effectively.
154. Dmitri V. Trenin, Post-imperium: A Eurasian Story (Washington, DC: Brookings Institution
Press, 2011).
155. Anatoly Chubais, “Missia Rossii v 21 Veke,” Nezavisimaia Gazeta, October 1, 2003,
http://www.ng.ru/ideas/2003-10-01/1_mission.html.
156. Vladimir Putin, “Novyi Internatsionnyi Proekt dlya Evrazii—Budushchee, Kotoroe
Rozhdaetsia Sevodnia,” Izvestia, October 3, 2011, http://izvestia.ru/news/502761.
157. Ibid.
158. Fozil Mashrab, “Eurasian Union’s Expansion Falters amid Russia’s Economic Woes,”
Eurasia Daily Monitor 13, no. 42, March 2, 2016.
159. Rilka Dragneva and Kataryna Wolczuk, “Eurasian Economic Integration: Institutions,
Promises and Faultlines,” The Geopolitics of Eurasian Economic Integration, Special Report 19
(2014): 8–22 at 15; and Alexander Cooley, Great Games, Local Rules: The New Great Power
Contest in Central Asia (New York: Oxford University Press, 2012).
160. Randall Newnham, “Oil, Carrots, and Sticks: Russia’s Energy Resources as a Foreign Policy
Tool,” Journal of Eurasian Studies 2, no. 2 (July 2011): 134–143.
161. Martinne Geller, Neil Maidment and Polina Devitt, “Belarussian Oysters Anyone? EU Food
Trade Looks to Sidestep Russian Ban,” Reuters, August 17, 2014; Serghei Golunov, “How Russia’s
Food Embargo and Ruble Devaluation Challenge the Eurasian Customs Union,” PONARS Policy
Memo No. 363, June 2015.
 162. Cooley, Great Games; and Drezner, The Sanctions Paradox.
163. Cooley Great Games; and Juliet Johnson, “The Russian Federation: International Monetary
Reform and Currency Internationalization,” No. 4, Asian Development Bank (June 2013): 10–11.
164. Nicu Popescu, “Eurasian Union Uncertainties,” PONARS Eurasia Policy Memo No. 385
(September 2015), 2–3.
165. Mike Bird, “Russia’s New Eurasian Economic Union Could Get Its Own Single Currency,”
Business Insider, March 20, 2015; Alexander Kim, “Common Currency for the Eurasian Economic
Union: Testing the Ground?” Eurasia Daily Monitor 12, no. 57, March 27, 2015.
166. Nouriel Roubini, “Eurasian Vision,” Project Syndicate, August 1, 2014; Robert A. Mundell,
“A Theory of Optimum Currency Areas,” American Economic Review 51, no. 4 (1961): 657–665.
167. Juliet Johnson, “The Ruble and the Yuan: Allies or Competitors?” PONARS Eurasia Policy
Memo No. 254, June 2013.
168. These statistics come from DG Trade Policy, European Commission,
http://ec.europa.eu/trade/policy/countries-and-regions/, accessed December 28, 2016.
169. Strategiia-2020: Novaiia Model’ Rosta—Novaiia Sotsial’naia Politika [Strategy 2020: A New
Growth Model, a New Social Policy] (Moscow: Russian Government, 2012).
170. Johnson, “The Russian Federation: International Monetary Reform.”
171. Gabuev, “Friends with Benefits,” 10, 20–22.
172. Elena Mazneva, Ilya Arkhipov, and Anna Baraulina, “Putin Said to Weigh $11 Billion
Rosneft Sale to China, India,” Bloomberg, June 20, 2016, and Stephen Bierman, Matthew Campbell,
and Irina Reznik, “Putin Helped Save His Oil Giant. Now Rosneft Returns the Favor,” Bloomberg,
October 20, 2016. In December, Russian banks helped the Anglo–Swiss multinational company
Glencore and the Qatar Investment Authority finance a 19.5% stake in Rosneft. Financial Times,
December 10, 2016.
173. Gabuev, “Friends with Benefits,” 26; Kathrin Hille, “Putin-Xi Embrace Masks Misgivings on
Belt and Road Project,” Financial Times, May 14, 2017.
174. On Schelling’s strategies, see Cynthia A. Roberts, “The Czar of Brinkmanship,” May 5, 2014,
https://www.foreignaffairs.com/articles/russia-fsu/2014-05-05/czar-brinkmanship.
175. Evgenia Pismennaia et al., “Putin’s Secret Gamble on Reserves Backfires into Currency
Crisis,” Bloomberg, December 17, 2014.
176. Report on Foreign Portfolio Holdings of U.S. Securities, Department of the Treasury, Federal
Reserve Bank of New York, and Board of Governors of the Federal Reserve System, as of June 30,
2008; https://www.treasury.gov/resource-center/data-chart-center/tic.
177. Helen Thompson, China and the Mortgaging of America: Economic Interdependence and
Domestic Politics (London: Palgrave Macmillan, 2010), 104–107. Setser and Pandey estimate
China’s total holdings of U.S. assets as $1.7 trillion in November 2008, of which $550–$600 billion
is attributed to agency bonds. Brad W. Setser and Arpana Pandey, China’s $1.7 Trillion Bet: China’s
External Portfolio and Dollar Reserves (New York: Council on Foreign Relations, Center for
Geoeconomic Studies, 2009).
178. The most comprehensive account is Daniel W. Drezner, “Bad Debts: Assessing China’s
Financial Influence in Great Power Politics,” International Security 34, no. 2 (2009): 7–45.
179. Thompson, China and the Mortgaging of America, 1–3; 112–113.
180. Henry M. Paulson, Jr., On the Brink: Inside the Race to Stop the Collapse of the Global
Financial System (New York: Business Plus, 2010), 160; Krishna Guha, “Paulson Claims Russia
Tried to Foment Fannie-Freddie Crisis,” Financial Times, January 29, 2010.
 181. Thompson, China and the Mortgaging of America, chaps. 5–6; Drezner, “Bad Debts, 35–36”;
and Brad Setser, “Sovereign Wealth and Sovereign Power: The Strategic Consequences of American
Indebtedness,” Council on Foreign Relations, Report No. 37, New York, September 2008.
182.Vedomosti, February 1, 2010; and Michael McKee and Alex Nicholson, “Paulson Says Russia
Urged China to Dump Fannie, Freddie Bonds,” Bloomberg, January 29, 2010.
183. W. Scott Frame et al., “The Rescue of Fannie Mae and Freddie Mac,” Federal Reserve Bank
of New York Staff Report No. 719 (March 2015): 14.
184. Ibid., 1; and Drezner, “Bad Debts.”
185. Aseema Sinha, “Partial Accommodation Without Conflict: India as a Rising Link Power,” in
Accommodating Rising Powers: Past, Present, and Future, ed. T. V. Paul (Cambridge, UK:
Cambridge University Press, 2016), 222–245, especially 226–229.
186. On Indian foreign policy, see Vidya Nadkarni, “India—An Aspiring Global Power,” in
Emerging Powers in a Comparative Perspective: The Political and Economic Rise of the BRIC
Countries, ed. Vidya Nadkarni and Norma C. Noonan (New York: Bloomsbury, 2012), 131–161;
Sumit Ganguly (ed.), Engaging the World: India Foreign Policy Since 1947 (Oxford, UK: Oxford
University Press, 2015); David M. Malone, C. Raja Mohan, and Srinath Ragavan (eds.), Oxford
Handbook of Indian Foreign Policy (Oxford, UK: Oxford University Press, 2015); and Fareed
Zakaria, The Post-American World, 2.0 (New York: W. W. Norton, 2012), 145–183.
187. Kalyani Shankar, Nixon, Indira, and Indian Politics: Politics and Beyond (New Delhi:
Macmillan India Ltd., 2010).
188. The accord was only operationalized in mid-2015, when the United States and India agreed to
what one commentator bluntly termed “a mutually agreed fudge on India’s civil nuclear liability
law.” See Sanjaya Baru, “An Agreement That Was Called a Deal,” The Hindu, August 15, 2015.
189. For example, Shyam Saran, “Paying for Multilateralism,” Centre for Policy Research column,
April 7, 2015, http://www.cprindia.org.
190. “About IBSA—Introduction,” IBSA, accessed February 20, 2016, http://www.ibsa-
trilateral.org/.
191. Matthew Stephen, “Rising Regional Powers and International Institutions: The Foreign Policy
Orientations of India, Brazil, and South Africa,” Global Society 26, no. 3 (2012): 289-309; on the
WTO, see Aseema Sinha, Globalizing India: How Global Rules and Markets Are Shaping India’s
Rise to Power (Cambridge, UK: Cambridge University Press, 2016).
192. D. Chakraborty and S. Sundria, “Russia Deals Deepen India Hold in China Oil-Buying
Backyard,” Bloomberg, March 21, 2016.
193. Tellingly, it was China, not India or Brazil, that pushed for South African inclusion in the
BRICs.
194. For example, Mukul G. Asher, “Promote International Financial Services in India,” Pragati,
the Indian National Interest Review, February 15, 2013.
195. Eric Helleiner, The Forgotten Foundations of Bretton Woods: International Development and
the Making of the Postwar Order (Ithaca, NY: Cornell University Press, 2014).
196. Opposition by nongovernmental organizations (NGOs) to the dams within India initially
centered on insufficient compensation for indigenous and very poor communities that were forced to
relocate. To make common cause with foreign NGOs, the environmental destruction theme later
dominated.
197. Jane Monahan, “LatAm Banks Take CSR Plunge,” The Banker, July 7, 2009.
198. V. K. Reddy, “Future of Globalization of Finance and Global Regulation of Finance,” The
Mint (India), November 10, 2009.
 199. Eswar Prasad, “Comment—India Must Lead the G20 Agenda,” Financial Times, April 7,
2009.
200. “India to Press G-20 for Deadline to Cut Remittance Costs,” The Mint, December 5, 2014.
201. Government of India, Ministry of Finance, “Report of the High-Powered Expert Committee
on Making Mumbai an International Financial Centre” (New Delhi: Ministry of Finance, 2007).
“West Asia” is India’s term for what the West calls the “Middle East.”
202. Government of India, Planning Commission, “A Hundred Small Steps: Report of the
Committee on Financial Sector Reforms” (New Delhi: Planning Commission, 2008).
203. Mathur, “Incubating an Alternative Financial Architecture Within BRICS.” See also Manjeet
Kripalani, “BRICS Headquarters in Mumbai,” November 7, 2014, at http://www.gatewayhouse.in.
204. Victor Mallet and James Crabtree, “India’s Raghuram Rajan Urges IMF and World Bank
Reforms,” Financial Times, October 7, 2015.
205. Theresa Robles, “A BRICS Development Bank: An Idea Whose Time Has Come?” S.
Rajaratnam School of International Studies (RSIS), Nanyang Technological University, November
14, 2012, http://www.rsis.edu.sg.
206. Mathur, “Incubating an Alternative Financial Architecture,” 4.
207. India’s national security doctrine clearly promises “no first use” of nuclear weapons—their
role is only as a deterrent. Although India has not modified its position, in 2006, U.S. president
George W. Bush and Prime Minister Singh agreed a deal that would end most sanctions.
208. Mathur, “Incubating an Alternative Financial Architecture,” 4.
209. Kanti Bajpai, “Five Approaches to the Study of Indian Foreign Policy,” in Oxford Handbook
of Indian Foreign Policy, ed. David M. Malone, C. Raja Mohan, and Srinath Ragavan (Oxford, UK:
Oxford University Press, 2015), 21–34.
210. James Lamont, “India Resists Bank Tax to Seek Financial Inclusion,” Financial Times, July
20, 2010.
211. Alok Sheel, “Unraveling of the Bretton Woods Twins,” Economic and Political Weekly 49,
no. 42 (2014): 26.
212. George J. Gilboy and Eric Heginbotham, Chinese and Indian Strategic Behavior: Growing
Power and Alarm (Cambridge, UK: Cambridge University Press, 2012); C. Raja Mohan, “India’s
Foreign Policy Transformation,” Asia Policy 14 (2012): 108–110; John Echeverri-Gent, “Economic
Interdependence and Strategic Interest: China, India, and the United States in the New Global Order”
(South Asia Center, University of Virginia, February 28, 2014); and Herbert Wulf and Tobias Debiel,
“India’s ‘Strategic Autonomy’ and the Club Model of Global Governance: Why the Indian BRICS
Engagement Warrants a Less Ambiguous Foreign Policy Doctrine,” Strategic Analysis 39, no. 1
(2015): 27–43.
213. The tradition of fraught China/India comparisons by Indian scholars includes, among its most
sophisticated entries, Jean Drèze and Amartya Sen, Hunger and Public Action (Oxford, UK: Oxford
University Press, 1989). The dust jacket of a recent comparative volume notes that it is “unusual” in
not focusing on “lags” and “competition” between the two giants. Delia Davin and Barbara Harriss-
White (eds.), China-India, Pathways of Economic and Social Development (Oxford, UK: Oxford
University Press, 2014).
214. Sanjaya Baru, “India and China in a Multipolar World,” The Hindu, May 11, 2015. See also
G. Parasarathy, “Uncertainties Prevail: China Offers No Concessions to U.S.,” The Tribune, February
1, 2011.
215. Ajith Vijay Kumar, “BRICS Development Bank: What’s in It for India?” Zee News, July 16,
2014, http://zeenews.india.com.
 216. Akshay Mathur, “Shyam Saran: BRICS Must Deliver a Development Ban”; interview with
former foreign secretary, March 15, 2013. Available at http://www.gatewayhouse.in.
217. Rajrishi Singhal, “New Concepts for BRICS,” October 7, 2015, http://www.gatewayhouse.in.
218. Anoop Singh, “SDR: Renminbi Must Reform Further,” December 10, 2015,
http://www.gatewayhouse.in.
219. Indrani Bagchi, “US-China Currency War a Power Struggle,” Times of India, November 14,
2010.
220. Reuters, “China Keeping Currency Low ‘Hurts’ India: RBI,” Reuters, February 8, 2011.
221. Shyam Saran, “An IMF Boost for China’s Currency,” Business Standard (India), June 9,
2015.
222. P. Vaidyanathan Iyer, “Why BRICS Trade in Local Currency Doesn’t Work for India,” Indian
Express, July 13, 2015.
223. James Crabtree and Josh Noble, “Fearful Chinese Investors Look to India,” Financial Times,
July 28, 2015; “Wrong to Blame China Entirely for Global Rout: India Central Bank Chief,” BRICS
Post, August 26, 2015.
224. Mathur, “Incubating an Alternative Financial Architecture,” 6.
225. Jane Perlez, “US-India Ties Deepen: China Takes It in Stride,” The New York Times, January
27, 2015.
226. Victor Mallet, “China-India Border Standoff Overshadows Xi Jinping’s Deals,” Financial
Times, September 18, 2014.
227. Modi was also responding to pressure from the Mumbai private financial community that he
not yield too easily. See Manjeet Kripalani, “Guest Post: Mumbai Should Host the BRICS Bank,”
Financial Times, July 14, 2014.
228. D. A. Mahapatra, “India in an Expanded SCO,” September 9, 2015. Available at
http://www.gatewayhouse.in.
229. Jeffry A. Frieden, Debt, Development, and Democracy: Modern Political Economy and Latin
America, 1965–1985 (Princeton, NJ: Princeton University Press, 1992); Peter R. Kingstone, “Brazil:
Short Foreign Money, Long Domestic Political Cycles,” in Financial Globalization and Democracy
in Emerging Markets, ed. Leslie E. Armijo (New York: Palgrave, 2001), 151–176.
230. Philippe Faucher and Leslie E. Armijo, “Crises Cambiais e Estrutura Decisória: A Política de
Recuperação Econômica na Argentina e no Brasil,” Dados 47, no. 2 (2004): 297–334.
231. For example, the paper that sparked the term “Washington Consensus” was written by a DC-
based Brazil specialist. John Williamson, “What Washington Means by Policy Reform,” in Latin
American Adjustment: How Much Has Happened? ed. John Williamson (Washington, DC: Peterson
Institute for International Economics, 1990), non-paginated version posted at https://piie.com.
232. Antonia E. Stolper, “Argentina’s Debt: A Conflict of Principles,” Americas Quarterly, Winter
2015.
233. Peter Spiegel, “Latin American countries rail over Greek bailout,” Financial Times, July 31,
2013.
234. See the archive of Canuto’s regular contributions on the subject of the BRICS and emerging
economies’ finances at the website of the London-based Capital Finance International (http://cfi.co).
235. On the enduring themes of Brazilian foreign policy, see G. Dupas and T. Vigevani (eds.), O
Brasil e as Novas Dimensões da Segurança Internacional (São Paulo: Alfa-Omega, 1999); Sean
Burges, Brazilian Foreign Policy After the Cold War (Gainesville: University of Florida, 2009); Sean
Burges, Brazil in the World: The International Relations of a South American Giant (Manchester,
UK: Manchester University Press, 2016); Oliver Stuenkel and Matthew M. Taylor (eds.), Brazil on
the Global Stage: Power, Ideas, and the Liberal International Order (New York: Palgrave
Macmillan, 2015); and Adriana Erthal Abdenur, “Brazil as a Rising Power: Coexistence Through
Universalism,” in The BRICS and Coexistence: An Alternative Vision of World Order, ed. C. de
Coning, T. Mandrup, and L. Odgaard (London: Routledge, 2015).
236. Reuters, “Brazil, India, and South Africa: Form G3 to Counter G8,” The Hindu, June 7, 2003.
237. Brazilians conceive of the BRICS as “South-South” cooperation.
238. Eliane Cantanhêde, “Celso Amorim: ‘Sempre Digo que Pelé só Teve um; Igual a Lula Não
Vai Ter,’” Folha de São Paulo, November 15, 2010.
239. Burges, Brazil in the World, 59–64; Xenia Avezov, “January 13: ‘Responsibility While
Protecting’: Are We Asking the Wrong Questions?” http://www.sipri.org, January 13, 2013.
240. For example, Paulo Enrique Amorim, “Lula Sobre Irã: Obama Traiu!” Conversa Afiada, July
18, 2010; Clóvis Rossi, “EUA Deveriam Ter Levado a Sério Acordo Entre Brasil, Turquia e Irã,”
Folha de São Paulo, April 4, 2015.
241. For example, see Daniel Flemes and Miriam Gomes Saraiva, “Potencias Emergentes na
Ordem da Redes: O Caso do Brasil,” Revista Brasileira de Política Internacional 57, no. 2 (2014):
214–232, especially see p. 227; Daniel Flemes, “O Brasil na Iniciativa BRIC: Soft Balancing Numa
Ordem Global em Mudança,” Revista Brasileira de Política Internacional 53, no. 1 (2010): 141–156.
242. “Interview Transcript: President Luiz Inácio Lula da Silva,” Lionel Barber and Jonathan
Wheatley, Financial Times, November 8, 2009.
243. Oliver Stuenkel, “Why Brazil Has not Criticized Russia over Crimea,” Policy Brief,
Norwegian Centre for Conflict Resolution-NOREF, May 2014.
244. Interview, Miriam Saraiva, Rio de Janeiro, June 2015.
245. Cantanhêde, “Celso Amorim.”
246. A senior Brazilian trade negotiator, interviewed in São Paulo, Brazil, in June 2015, made this
point emphatically. See also Martin Wolf, “Currencies Clash in New Age of Beggar-My-Neighbor,”
Financial Times, September 28, 2012.
247. See Wise et al. (eds.), Unexpected Outcomes; and Leslie Elliott Armijo and John Echeverri-
Gent, “Brave New World? The Politics of International Finance in Brazil and India,” in The
Financial Statecraft of Emerging Powers: Shield and Sword in Asia and Latin America, ed. Leslie E.
Armijo and Saori N. Katada (New York: Palgrave Macmillan, 2014).
248. Jonathan Wheatley, “Guido Mantega: Interventionist Basking in New Economic Orthodoxy,”
Financial Times, July 6, 2009; see also “Carteira do BNDES na América do Sul Soma $US 15.6
Bilhões,” Valor Econômico, August 27, 2009.
249. Matthew M. Taylor, “Brazil in the Crucible of Crisis,” Current History 115, no. 778 (2016):
68–74.
250. Carlos Pereira, Timothy J. Power, and Eric D. Raile, “Presidentialism, Coalitions, and
Accountability,” in Corruption and Democracy in Brazil: The Struggle for Accountability, ed. T. J.
Power and M. M. Taylor (Notre Dame, IN: University of Notre Dame Press, 2011).
251. “The New Trade Routes: Brazil and China,” Financial Times, May 23, 2011.
252. Andre César Cunha Leite, “O Que Esperar das Relações Comerciais Entre Brasil e China
Diante o Cenário Atual?” Opera Mundi, February 7, 2014.
253.Reuters, “Brazil Landowners’ Group Contests Limits on Foreign Land Purchases,” April 17,
2015. Posted at http://www.producer.com, an agribusiness news aggregator.
254. “China Ready to Lend Brazil More Money, Yuans, However, not Dollars,” Brazzil, May 24,
2009.
255. Jonathan Wheatley, “Brazil and China in Plan to Ax Dollar,” Financial Times, May 19, 2009.
 256. “Lula Quer Parceria Com a China Para Produzir Biocombustíveis na África,” O Estado de
Sao Paulo, May 20, 2009.
257. Madison Marriage and Joe Leahy, “The Big Picture: Problems at Petrobras as Investors Seek
Damages,” Financial Times, April 5, 2015.
258. Levy, although he himself was very popular with financial market actors, resigned in
December 2015, taking personal responsibility for Brazil’s sovereign debt downgrade. President
Rousseff, apparently concluding that her brief attempt at fiscal orthodoxy had not worked, replaced
Levy with Planning Minister Nelson Barbosa, who in early 2016 announced a new round of
government spending to stimulate Brazil’s economy, which shrank by 3.7 percent in 2015.
259. Parcerias Preveem Investimentos de Mais de US$ 53 Bilhões,” O Estado de São Paulo, May
19, 2015.
260. Eliane Cantanhêde, “De Pires na Mão,”O Estado de Sào Paulo, May 20, 2015.
261. Richard Lapper, “Increase of Trade Reveals Beijing’s Growing Profile in Latin America,”
Financial Times, March 9, 2005.
262. Julia Leite and Paula Sambo, “Petrobras’s China Cash Stems Bond Tumble, but Comes with a
Stigma,” Bloomberg, April 5, 2015; Lucinda Elliott, “Brazil Faces IPO Shutdown,” EM Squared blog
of online Financial Times, December 11, 2015.
263. Daniela Lima, Valdo Cruz, and Machado da Costa, “Serra Promote Mudança Radical e
Política Externa sem Partidarísmo,” Folha de São Paulo, May 18, 2016.
264. Adriana Erthal Abdenur and Mariara Folly, “The New Development Bank and the
Institutionalization of the BRICS,” Revolutions 3, no. 1 (2015).
265. China in 2009 replaced the United States as Brazil’s major trading partner. Nonetheless,
Brazil’s trade remains geographically diversified (and intentionally so), with 19 percent of exports in
2015 going to China, but 17 percent to the United States, 24 percent to other Asian countries, 19
percent to Western Europe, and 19 percent to Latin America, according to the Ministry of
Development, Industry, and Commerce (MDIC) website.
266. Francis A. Korengay, Jr., “South Africa, the Indian Ocean, and the IBSA-BRICS Equation:
Reflections on Geopolitical and Geostrategic Dimensions” (Observer Research Foundation, New
Delhi, 2011).
267. Elizabeth Sidiropoulus, “Modi’s African Safari,” South African Institute of International
Affairs, July 4, 2016, http://www.saiia.org.za/. In his July 2016 visit to five African countries,
including South Africa, Prime Minister Modi tried to convince President Zuma’s government to take
India’s side in its bid to join the Nuclear Suppliers’ Club, despite it not adhering to the Non-
Proliferation Treaty (NPT). This bid was supported by most UNSC members, including the United
States, but China opposed it. South Africa has demurred.
268. In South Africa, as in Brazil and to a lesser extent in India, the BRICS club is almost always
conceptualized as constituting links among the Global South.
269. Janis van der Westhuizen, “Class Compromise as Middle Power Activism? Comparing Brazil
and South Africa,” Government and Opposition 48, no. 1 (January 2013): 80–100.
270. South African news reports were remarkably silent on the “BRICS leaders–Africa Dialogue
Forum” retreat held on March 27, 2013, in Durban, noting only that “African leaders” had met with
Xi. Only the Chinese Foreign Ministry saw fit to publish the actual list of attendees. See Ministry of
Foreign Affairs of the PRC, “President Xi Jinping Attends BRICS Leaders–Africa Dialogue Forum,
Calling for the Building of Partnership for a Better Future,” Ministry of Foreign Affairs of the
People’s Republic of China, March 28, 2013.
271. Pascal Fletcher, “BRICS ‘Big Five’ Find It Hard to Run as a Herd,” Reuters, March 27, 2013.
 272. See, for example, the editorial in Business Day, “Brics Reflects a Changing World,” July 17,
2014; and Mzukisi Qobo and Mills Soko, “The Rise of Development Finance Institutions: South
Africa, BRICS, and Regional Strategy” (South African Institute of International Affairs,
Johannesburg, 2015), 3–4.
273. Hillary Joffe, “Forget the Brics Aspirations, Try Exporting Instead,” Business Day, July 16,
2014.
274. This is from the online blurb introducing a set of research papers from the South African
Institute of International Affairs (SAIIA). See Memory Dube, “Collection: South Africa Beyond the
BRICS,” South African Institute of International Affairs, April 20, 2015, http://www.saiia.org.za/.
275. Sanusha Naidu, “South Africa and FOCAC: Enabling a Partnership for Global Economic
Governance Beyond the BRICS?” (South African Institute of International Affairs, Johannesburg,
October 2015); Elizabeth Sidiropoulos and Chris Alden, “Modi’s New Foreign Policy Agenda and
the Implications for Africa” (South African Institute of International Affairs, Johannesburg, January
2016).
276. Thebe Mabanga, “What Brics Can Do for South Africa and Africa,” Mail and Guardian, July
7, 2015.
277. Jamie Smyth, “South Africa Warns of Cracks in Landmark Bali Trade Agreement,” Financial
Times, July 20, 2014.
278. South Africa’s relatively benign view of the Bretton Woods institutions may stem partly from
the fact that it is overrepresented in the IMF rather than underrepresented (see Chap. 3).
279. See David Pilling, “Lunch with the FT: Julius Malema,” Financial Times, February 5, 2016.
280. Stella Mapenzauswa, “African Powers Back Okonjo-Iweala for World Bank Position,”
Business Day, March 23, 2012.
281. Linda Ensore, “Call for BRICS Not to Rely on IMF Funds,” Business Day Live, April 30,
2015.
282. Mackensie Weinger, “Nene and the Rand Take a Tumble,” Financial Times, December 10,
2015.
283. Natasha Marrian, “‘I Had to Step Down,’ Says Nene,” Business Day, February 6, 2016.
284. Wyndham Hartley, “Mboweni and Maasdorp Off to Brics Bank,” Business Day, June 29,
2015; “Editorial: Zuma’s Cynical Take on Markets,” Business Day, January 12, 2016.
285. Lean Alfred Santos, “Maasdorp on BRICS’ Bank’s ‘Openness’ and Unique Place in the MDB
World,” Development Experience Blog, July 4, 2016.
286. Francis A. Kornegay, Jr., “The BRICS of a New Global Economic Order,” Diplomatist,
August 2014.
287. Peter Draper and Mzukizi Qobo, “South Africa Needs a Concrete BRICS Strategy,” Business
Day, July 7, 2015.
288. Mabanga, “What BRICS Can Do.”

CHAPTER 5

1. Note that Summers also raised the issue of U.S. hypocrisy and the frustration of other countries
“when US officials ask them to adjust their policies—then insist that American state regulators,
independent agencies, and far-reaching judicial actions are beyond their control.” He also questioned
whether the dollar’s primacy can be maintained if Washington is “too aggressive about limiting its
use in pursuit of particular security objectives.”Lawrence Summers, “Time US Leadership Woke Up
to New Economic Era,” Financial Times, April 5, 2015; also at
http://larrysummers.com/2015/04/05/time-us-leadership-woke-up-to-new-economic-era/.
2. Charles A. Kupchan, No One’s World: The West, the Rising Rest, and the Coming Global Turn
(Oxford, UK: Oxford University Press, 2012); and Ian Bremmer, Every Nation for Itself: Winners
and Losers in a G-Zero World (New York: Penguin, 2012).
3. For an illustrative example of such assertions, see Shi Yinhong, “China’s Contemporary Foreign
Strategy: Ideology, Basic Platform, Current Challenges, and Chinese Characteristics,” in China in the
World: A Survey of Chinese Perspectives on International Politics and Economics, ed. Shao Binhong
(Leiden, Netherlands: Brill, 2014), 44; and editorial on Donald Trump, Global Times, December 13,
2016, http://www.globaltimes.cn/content/1023308.shtml.
4. “Asia: Good News for a Multilateral Future,” Euromoney, May 2016,
http://www.euromoney.com/Article/3551618/Asia-Good-news-for-a-multilateral-future.html; Ma Jun
and Simon Zadek, “The G20 Embraces Green Finance,” Project Syndicate, September 5, 2016,
https://www.project-syndicate.org/commentary/g20-embraces-green-finance-by-ma-jun-and-simon-
zadek-2016-09?barrier=accessreg; and Stephany Griffith-Jones, Li Xiaoyun, and Stephen Spratt,
“The Asian Infrastructure Investment Bank: What Can It Learn From, and Perhaps Teach to, the
Multilateral Development Banks?” Institute of Development Studies (IDS) Evidence Report No. 179
(Brighton, UK: IDS, 2016).
5. See the statements and documents from the BRICS summits, BRICS Information Centre,
University of Toronto, www.brics.utoronto.ca.
6. For a pessimistic perspective, see Alexander Cooley, “Countering Democratic Norms,” Journal
of Democracy 26, no. 3 (2015): 49–63; and idem.,Great Games, Local Rules: The New Great Power
Contest in Central Asia (New York: Oxford University Press, 2012). If India joins the SCO, this
could add some counterbalance.
7. China 2020 Research Team, “Repositioning China in 2020,” in Shao, China in the World, 89–
128.
8. See, for example, World Bank, World Development Indicators, Global Economic Prospects
(January 2016 and June 2016); IMF World Economic Outlook World Economic Outlook (October
2016); World Bank individual BRICS country reports; IMF Country Reports—Article IV
Consultations for the individual BRICS; and World Bank, Doing Business reports.
9. See Chap. 2 of this book; Rakesh Kochhar, “Despite Poverty’s Plunge, Middle-Class Status
Remains out of Reach for Many,” Pew Research Center, July 8, 2015; and V. Anantha Nageswaran
and Gulzar Natarajan, The Missing Middle: Labor and Economic Growth, Washington, DC: Carnegie
Endowment for International Peace, November 16, 2016.
10. For the classic statements on backwardness, see Alexander Gerschenkron, Economic
Backwardness in Historical Perspective (Cambridge, MA: Harvard University Press, 1962); and
Barrington Moore, Social Origins of Dictatorship and Democracy (Boston: Beacon Press, 1966).
11. Fukuyama cites among the authoritarian modernizers, inter alia, Imperial Germany, Meiji
Japan, Brazil after its military takeover in 1964, and the “new industrializing economies” in Asia
(e.g., Taiwan and South Korea). Francis Fukuyama, The End of History and The Last Man (New
York: Simon and Schuster, 2006), 123–124.
12. Adam Przeworski and Fernando Limongi, “Political Regimes and Economic Growth,” Journal
of Economic Perspectives 7, no. 3 (1993): 51–69; Adam Przeworski, Michael E. Alvarez, José
Antonio Cheibub, and Fernando Limongi, Democracy and Development: Political Institutions and
Well-Being in the World, 1950–1990 (Cambridge, UK: Cambridge University Press, 2000); William
Easterly, The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor (New
York: Basic Books, 2013); Leslie E. Armijo and Carlos Gervasoni, “Two Dimensions of Democracy
and the Economy,” Democratization 17, no. 1 (2010): 143–174; and Dani Rodrik, “Institutions for
High-Quality Growth: What They Are and How to Acquire Them,” Studies in Comparative
International Development 35, no. 3 (Fall 2000): 3–31.
13. Francis Fukuyama, “China’s ‘Bad Emperor’ Problem,” The American Interest, May 28, 2012,
http://www.the-american-interest.com/2012/05/28/chinas-bad-emperor-problem/
14. Daniel Bell, The China Model: Political Meritocracy and the Limits of Democracy (Princeton,
NJ: Princeton University Press, 2015); Justin Yifu Lin, Fang Cai, and Zhou Li, The China Miracle:
Development Strategy and Economic Reform, rev. ed. (Hong Kong: Chinese University Press, 2003);
Justin Yifu Lin and Fan Zhang, “Sustaining Growth of the People’s Republic of China,” Asian
Development Review 32, no. 1 (2015): 31–48; Joshua Cooper Ramo, The Beijing Consensus
(London: Foreign Policy Centre, 2004). For a popular account, see Stefan Halper, The Beijing
Consensus: How China’s Authoritarian Model Will Dominate the Twenty-First Century (New York:
Basic Books, 2010).
15. See John Williamson, “What Washington Means by Policy Reform” in Latin American
Adjustment: How Much Has Happened? ed. John Williamson (Washington, DC: Institute for
International Economics, 1990). Edward Steinfeld, Playing Our Game: Why China’s Economic Rise
Doesn’t Threaten the West (New York: Oxford University Press, 2010); Yang Yao, “The End of
Beijing Consensus—Can China’s Model of Authoritarian Growth Survive?” Foreign Affairs, online,
February 2, 2010, https://www.foreignaffairs.com/articles/china/2010-02-02/end-beijing-consensus;
and Nicholas R. Lardy, Markets over Mao: The Rise of Private Business in China (Washington, DC:
Peterson Institute for International Economics, 2014).
16. This paragraph draws on Kellee S. Tsai and Barry Naughton, “Introduction: State Capitalism
and the Chinese Economic Miracle,” in State Capitalism, Institutional Adaptation, and the Chinese
Miracle, ed. Barry Naughton and Kellee S. Tsai (Cambridge, UK: Cambridge University Press,
2015), 1–24; Margaret Pearson, “The Business of Governing Business in China,” World Politics 57
(January 2005): 296–322; Roselyn Hsueh, China’s Regulatory State: A New Strategy for
Globalization (Ithaca, NY: Cornell University Press, 2011); and Jean C. Oi (ed.), Going Private in
China: The Politics of Corporate Restructuring and System Reform (Washington, DC: Brookings
Institution, 2011). See also Christopher A McNally, “Sino-Capitalism: China’s Reemergence and the
International Political Economy,” World Politics 64, no. 4 (2012): 741–776; Yasheng Huang,
Capitalism with Chinese Characteristics: Entrepreneurship and the State (New York: Cambridge
University Press, 2008); and Chalmers Johnson, MITI and the Japanese Miracle: The Growth of
Industrial Policy, 1925–1975 (Stanford, CA: Stanford University Press, 1982).
17. Sheng Hong and Zhao Nong, China’s State-Owned Enterprises: Nature, Performance, and
Reform, Series on Chinese Economics Research, vol. 1 (Singapore and Hackensack, NJ: World
Scientific, 2013).
18. Tsai and Naughton, “Introduction: State Capitalism,” 15–18.
19. Kellee S. Tsai, Capitalism Without Democracy: The Private Sector in Contemporary China
(Ithaca, NY: Cornell University Press, 2007).
20. Harley Balzer and Jon Askonas, “The Triple Helix After Communism: Russia and China
Compared,” Triple Helix, 3, no. 1 (2016). Some experts also emphasize the predatory nature of
Chinese corruption. See Minxin Pei, China’s Trapped Transition: The Limits of Developmental
Autocracy (Cambridge, MA: Harvard University Press, 2009); and idem., China’s Crony Capitalism
(Cambridge, MA: Harvard University Press, 2016). For a persuasive alternative perspective, see
Andrew Wedeman, Double Paradox: Rapid Growth and Rising Corruption in China (Ithaca, NY:
Cornell University Press, 2012).
21. For example, Robert J. Barro, Determinants of Economic Growth: A Cross-Country Empirical
Study, No. w5698, National Bureau of Economic Research, 1996;Ricardo Hausmann, Dani Rodrik,
and Andrés Velasco, “Growth Diagnostics,” The Washington Consensus Reconsidered: Towards a
New Global Governance (2008): 324–355; and Michael Spence, The Growth Report: Strategies for
Sustained Growth and Inclusive Development, Final Report (Washington, DC: Commission on
Growth and Development, 2008).
22. Dale Jorgenson, The World Economy: Growth or Stagnation? (Cambridge University Press,
2016).
23. Lant Pritchett and Lawrence Summers, “Asia-phoria Meet Regression to the Mean,” in
Proceedings of the Federal Reserve Bank of San Francisco (November 2013): 1–35.
24. Some scholars stress the interaction of innovation and institutions. See Yiping Huang, “Can
China Rise to High Income?” in Asia and the Middle-Income Trap, ed. Francis E. Hutchinson and
Sanchita Basu Das (New York: Routledge, 2016), 81–100; and Barry Naughton, Growing out of the
Plan: Chinese Economic Reform, 1978–1993 (Cambridge, UK: Cambridge University Press, 1996).
25. David Dollar, “Institutional Quality and Growth Traps,” in Hutchinson and Basu, Asia and the
Middle-Income Trap, 170–172.
26. According to Morgan Stanley, this is twice the level in the United States during the debt-fueled
housing bubble that triggered the global financial crisis. “China’s Growth Sucks in More Debt Bucks
for Less Bang,” Reuters, July 23, 2016, http://www.reuters.com/article/us-china-economy-debt-
idUSKCN10400K; and David Dollar, “Sino Shift,” Finance & Development, 51, no. 2 (June 2014):
10–13.
27. David Dollar, “Institutional Quality and Growth Traps,” in Hutchinson and Basu, Asia and the
Middle-Income Trap, 159–178.
28. Indermit Gill and Homi Kharas, “The Middle-Income Trap Turns Ten,” Policy Research
Working Paper 7403 (Washington, DC: World Bank, 2015),
http://documents.worldbank.org/curated/en/291521468179640202/The-middle-income-trap-turns-
ten. Between 1960 and 2008, only 13 economies escaped this trap, including Hong Kong, Ireland,
Israel, South Korea, Singapore, and Taiwan, while four times that number remained trapped. “Focus:
The Middle-Income Trap,” The Economist, March 27, 2012,
http://www.economist.com/blogs/graphicdetail/2012/03/focus-3.
29. Personal communication, São Paulo, 2011.
30. See the impassioned defense of state-led industrial catch-up strategies in Ha-Joon Chang,
Kicking away the Ladder: Development Strategies in Historical Perspective (London: Anthem Press,
2003).
31. Richard F. Doner and Ben Ross Schneider, “The Middle-Income Trap: More Politics than
Economics,” World Politics 68, no. 4 (October 2016), 608–644.
32. World Bank, Worldwide Governance Indicators, 2015.
33. Dollar, “Institutional Quality.”
34. Sergei Guriev, “Whither the Russian Economy?” speech to the Oxford Guild, January 27,
2016.
35. Aleksei Kudrin and Evsei Gurvich, “A New Growth Model for the Russian Economy,”
Russian Journal of Economics 1, no. 1 (2015): 30–54; Vladimir Mau and Aleksei Ulyukaev, “Global
Crisis and Challenges for Russian Economic Development,” Russian Journal of Economics 1, no. 1
(March 2015): 4–29.
36. Francis Fukuyama, The Origins of Political Order from Prehuman Times to the French
Revolution (New York: Farrar, Straus, and Giroux, 2011) and idem., Political Order and Political
Decay (New York: Farrar, Straus, and Giroux, 2014); Douglass C. North, John Joseph Wallis, and
Barry R. Weingast, Violence and Social Orders (Cambridge, UK: Cambridge University Press,
2009); and Daron Acemoglu and James A. Robinson, Why Nations Fail: The Origins of Power,
Prosperity, and Poverty (New York: Crown, 2012).
 37. Wedeman, Double Paradox; and Pritchett and Summers, “Asia-phoria Meet Regression to the
Mean,” 36.
38. The problems of lack of rule of law and corruption in Russia and China have been extensively
analyzed and are beyond the scope of this investigation. See, for example, Andrei Shleifer and Robert
W. Vishny, The Grabbing Hand: Government Pathologies and Their Cures (Cambridge, MA:
Harvard University Press, 2002); Daniel Treisman, “Postcommunist Corruption,” in Political
Economy of Transition and Development: Institutions, Politics, and Policies, ed. Nauro F. Campos
and Jan Fidrmuc (Norwell, MA: Kluwer Academic Publishers, 2003), 201–226. Timothy Frye,
“Property Rights and Development,” in Emerging Trends in the Social and Behavioral Sciences: An
Interdisciplinary, Searchable, and Linkable Resource, eds. Robert A. Scott, Marlis C. Buchmann, and
Stephen M. Kosslyn (Wiley Online Library, 2015); Pei, China’s Crony Capitalism.
39. Besides the large literature on the relationship of property rights with economic development,
it is notable that they also figured in the Washington Consensus. See Williamson, “What Washington
Means by Policy Reform.”
40. Fareed Zakaria, “The Rise of Illiberal Democracy,” Foreign Affairs 76, no. 6 (1997): 22–43.
41. Meghana Ayyagari, Asli Demirgüç-Kunt, and Vojislav Maksimovic, “Formal Versus Informal
Finance: Evidence from China,” Review of Financial Studies 23, no. 8 (2010): 3048–3097.
42. On the importance of informal institutions in analyzing comparative politics, particularly in the
regions outside the North Atlantic, see Gretchen Helmke and Steven Levitsky, “Informal Institutions
and Comparative Politics: A Research Agenda,” Perspectives on Politics 2, no. 4 (2004): 725–740.
See also Susan Rose-Ackerman and Bonnie J. Palifka, Corruption and Government: Causes,
Consequences, and Reform (Cambridge, UK: Cambridge University Press, 2016) and Daniel C.
Mattingly, “Elite Capture. How Decentralization and Informal Institutions Weaken Property Rights in
China,” World Politics 68, no. 3 (July 2016): 383–412.
43. Mattingly, “Elite Capture,” 385.
44. Saul Estrin and Martha Prevezer, “The Role of Informal Institutions in Corporate Governance:
Brazil, Russia, India, and China Compared,” Asia Pacific Journal of Management 28, no. 1 (2011):
41–67.
45. See, for example, Bill B. Francis, Iftekhar Hasan, and Xian Sun, “Political Connections and the
Process of Going Public: Evidence from China,” Journal of International Money and Finance 28, no.
4 (2009): 696–719; and Katharina Pistor, “The Governance of China’s Finance,” in Capitalizing
China, ed. Joseph P. H. Fan and Randall Morck (Chicago: University of Chicago Press, 2012), 35–
60.
46. Alena V. Ledeneva, Can Russia Modernise? Sistema, Power Networks, and Informal
Governance (Cambridge, UK: Cambridge University Press, 2013); Karen Dawisha, Putin’s
Kleptocracy: Who Owns Russia? (New York: Simon and Schuster, 2014); and Thane Gustafson,
Capitalism Russian-Style (Cambridge, UK: Cambridge University Press, 1999).
47. Cooley, “Countering Democratic Norms;”Nkunde Mwase and Yongzheng Yang, BRICs’
Philosophies for Development Financing and Their Implications for LICs, International Monetary
Foundation (IMF) Working Paper 12/74 (Washington, DC: IMF, 2012).
48. Jamil Anderlini, “Lunch with the FT: Jin Liqun,” Financial Times, April 21, 2016; and Jane
Perlez, “A Banker Inspired by Western Novelists Seeks to Build Asia,” New York Times, January 13,
2017.
49. David M. Andrews, “Capital Mobility and State Autonomy: Toward a Structural Theory of
International Monetary Relations,” International Studies Quarterly 38, no. 2 (1994): 193–218.
50. Geoffrey Garrett, “Global Markets and National Politics: Collision Course or Virtuous Circle?”
International Organization 52, no. 4 (1998): 793. See also Benjamin J. Cohen, “Phoenix Risen: the
Resurrection of Global Finance,” World Politics 48, no. 2 (1996): 268–296.
51. A good summary of the two sides of the debate can be found in Hongbin Cai and Daniel
Treisman, “Does Competition for Capital Discipline Governments? Decentralization, Globalization,
and Public Policy,” American Economic Review 95, no. 3 (2005): 817–830.
52. Ibid.
53. Kenneth W. Abbott and Duncan Snidal, “Hard and Soft Law in International Governance,”
International Organization 54, no. 3 (2000): 421–456; Stephan Haggard and Mathew D. McCubbins,
“Introduction: Political Institutions and the Determinants of Public Policy,” and Gary W. Cox and
Mathew D. McCubbins, “The Institutional Determinants of Economic Policy Outcomes,” both in
Presidents, Parliaments, and Policy, ed. Stephan Haggard and Mathew D. McCubbins (Cambridge,
UK: Cambridge University Press, 2001), 1–63.
54. Grieco invokes the “relative capability shift” thesis to discuss the idea that such dynamics were
the reason why the Asia-Pacific saw very little of regional institutions throughout the 1990s, despite
their dynamic economic integration. Joseph M. Grieco, “Systemic Sources of Variation in Regional
Institutionalization in Western Europe, East Asia, and the Americas,” in The Political Economy of
Regionalism, ed. Edward E. Mansfield and Helen V. Milner (New York: Columbia University Press,
1997), 164–187. See also Donald Crone, “Does Hegemony Matter? The Reorganization of the
Pacific Political Economy,” World Politics 45, no. 4 (1993): 501–525; and Andrew Moravcsik, “The
Origins of Human Rights Regimes: Democratic Delegation in Postwar Europe.” International
Organization 54, no. 2 (2000): 217–252.
55. Charles Krauthammer, “The Unipolar Moment,” Special Issue: America and the World,
Foreign Affairs 70, no. 1 (1990): 23–33. For the competing view that unipolarity persists, see
Stephen G. Brooks and William C. Wohlforth, World out of Balance: International Relations and the
Challenge of American Primacy (Princeton, NJ: Princeton University Press, 2008); G. John
Ikenberry, Michael Mastanduno, and William C. Wohlforth, “Unipolarity, State Behavior, and
Systemic Consequences,” World Politics 61, no. 1 (January 2009): 1–27; and Stephen G. Brooks and
William C. Wohlforth, “The Rise and Fall of the Great Powers in the Twenty-first Century: China’s
Rise and the Fate of America’s Global Position,” International Security 40, no. 3 (2016): 7–53.
56. Jonathan Kirshner, American Power After the Financial Crisis (Ithaca, NY: Cornell University
Press, 2014).
57. Fareed Zakaria, The Post-American World: Release 2.0 (New York: W.W. Norton, 2012).
58. See Robert O. Keohane and Joseph S. Nye, “The Club Model of Multilateral Cooperation and
Problems of Democratic Legitimacy,” in Efficiency, Equity, and Legitimacy: The Multilateral
Trading System at the Millennium, ed. Robert B. Porter, Pierre Sauvé, Arvind Subramanian, and
Americo Beviglia Zampetti (Washington, DC: Brookings Institution, 2001), 264–294. This
discussion of clubs draws on Chap. 1 of this book.
59. Randall W. Stone, Controlling Institutions: International Organizations and the Global
Economy (Cambridge, UK: Cambridge University Press, 2011); Beth A. Simmons, “The
International Politics of Harmonization: The Case of Capital Markets Regulation,” International
Organization 55, no. 3 (Summer 2001): 589–620.
60. Christophe Jaffrelot, “BRICS and Walls,” Indian Express, October 22, 2016,
http://indianexpress.com/article/opinion/columns/brics-summit-goa-india-brazil-russia-china-south-
africa-3095585/. For all summit declarations, see BRICS Official Documents and Meetings, BRICS
Information Centre, University of Toronto. Accessible at http://www.brics.utoronto.ca.
61. See, for example, John Kay, Other People’s Money: The Real Business of Finance (New York:
PublicAffairs, 2015), 20–21, and 96–97; and Rawi Abdelal and Mark Blyth, “Just Who Put You in
Charge? We Did: CRAs and the Politics of Ratings,” in Ranking the World, ed. Alexander Cooley
and Jack Snyder (New York: Cambridge University Press, 2015), 39–59.
 62. Andreas Nölke, “International Financial Regulation and Domestic Coalitions in State-
Permeated Capitalism: China and Global Banking Rules,” International Politics 52, no. 6 (November
2015): 743–759.
Index

Note: Numbers in italics indicate tables and figures.

Abbott, Kenneth W., 237n53
Abdelal, Rawi, 203n5, 207n69, 209n100, 238n61
Abdenur, Adriana Erthal, 219nn66–67, 219n75, 221n99, 230n235, 231n264
Abe, Shinzo, 147
Ablett, Jonathan, 198n102
Academy of Sciences (Russia), 78
Acemoglu, Daron, 236n36
Acharya, Amitav, 233n5
ADB. See Asian Development Bank
African National Congress, 157, 158, 159
African Regional Centre (NDB), 160
African Union, 161, 162
African Union Summit, 162
agenda-setting, 13, 15, 168
Aggarwal, Vinod K., 192n116
AIIB. See Asian Infrastructure Investment Bank
al-Assad, Bashar, 144
ALBA. See Bolivarian Alternative for the Americas
Alden, Chris, 232n275
Alfonsín, Raúl, 150
Alibaba, 39, 40
al-Qadafi, Muammar, 151
Alvarez, Michael E., 234n12
Amorim, Celso, 150, 152
Amorim, Paulo Enrique, 230n240
ANC. See African National Congress
Anderlini, Jamil, 216n24, 237n48
Andrews, David M., 27, 176, 191n97, 193n14, 203n2, 237n49
Andrianova, Anna, 208n89
APEC. See Asia Pacific Economic Cooperation
Areddy, James T., 201n142
Argentina, third-party financial sanctions and, 149
Aris, Ben, 208n87
Arkhipov, Ilya, 226n172
Armijo, Leslie Elliott, 184n8, 186n29, 201n136, 203n2, 203n5, 207n66, 207n69, 215n4, 219n71,
221n101, 229n230, 230n247, 234n12
Arnold, Martin, 224n135
Arthur, W. Brian, 190n81
Article IV consultations, 87, 114, 116
Asher, Mukul G., 227n194
Asia: financial crisis in (1997–1998), 86, 93; military spending in, 42
Asian Development Bank, 11, 85, 93, 210n105, 211n134;
AIIB and, 98;
portfolio of, 97
Asian Infrastructure Investment Bank, 4, 10, 11, 20, 41, 116, 120, 121, 147, 179, 219n65;
aspirations for, 176;
BRICS’ reaction to, 97;
founding of, 70, 97–99;
impetus for, 57;
infrastructure focus of, 98;
NDB and, 95;
Obama administration lobbying against, 212n138;
portfolio of, 97;
prominence of, 99;
voting shares in, 99, 212n140
Asian Monetary Fund, 11, 93, 211n136
Asia-Pacific Economic Cooperation, 18, 115, 192n116
Askonas, Jon, 235n20
Aslund, Anders, 223nn130–31
asset-backed securities, 137–138
Astakhova, Olesya, 209n91
authoritarian states, growth paths for, 172
autocracies, growth in, 170
autonomy, 26–27, 69, 110, 139–141
Autor, David, 197n78
Aven, Petr, 223–24nn131–32
Avezov, Xenia, 230n239
Ayyagari, Meghana, 236n41

Bachrach, Peter, 27, 194n17

backwardness, exploiting, 170, 172
bad emperor problem, 170
Bagchi, Indrani, 229n219
Baidu, 40
Bajpai, Kanti, 228n208
Baker, Andrew, 190n87, 191n96
balance of payments, 89, 95, 116, 160
Baldwin, David A., 193n9, 193n12, 203nn3–4
Baldwin, Richard, 37, 197nn71–72, 197n77
Balzer, Harley, 235n20
Ban, Cornel, 207n66
Bank for International Settlements, 14
Bank of Russia. See Central Bank of Russia
Bank of the South, 93, 210n108
Baratz, Morton S., 194n17
Baraulina, Anna, 226n172
Barber, Lionel, 230n242
Barbosa, Nelson, 231n258
bargaining power, 5, 12, 16–17, 20, 21, 23, 80–81, 109, 135–136, 168
Barrett, Morton, 27
Barrionuevo, Alexei, 184n12
Barro, Robert J., 235n21
Baru, Sanjaya, 146, 227n188, 228n214
Basel Committee on Banking Supervision, 68, 106
Basel III accord, 106, 168, 176
Basu, Kaushik, 85
Batista, Paulo Nogueira (PNB), 84, 93, 149, 156
Bayne, Nicholas, 190n87, 191n97
BCBS. See Basel Committee on Banking Supervision
Beattie, Alan, 206n48
Beckley, Michael, 192n3, 198n90
Beijing Consensus, 170, 171
Bell, Daniel, 234n14
Bénassy-Quéré, Agnès, 213n165
benevolent autocrats, 170
Berglöf, Erik, 192n112
Bergsten, C. Fred, 201n141
Bernanke, Ben S., 93, 208n75, 216n17
Bersick, Sebastian, 218n50
Betts, Richard K., 41, 187n41, 187n49, 198n98, 199n108
Bharat Forge, 39
Bharatia Janata Party (India), 140
BIC trade coalition, 16–17
Bierman, Stephen, 226n172
Bird, Mike, 226n165
Birdsall, Nancy, 85
Biziwick, Mayamiko, 211n119
BJP. See Bharatia Janata Party (India)
Blackwill, Robert D., 193n11, 199n110, 208n82
blat networks, 176
Blyth, Mark, 207n66, 209n100, 238n61
BNDES. See Brazilian Economic and Social Development Bank
Bolivarian Alternative for the Americas, 150
Bradsher, Keith, 201n142
Bräutigam, Deborah, 216n23, 219n60
Brazil: ascent of, 1;
bargaining power of, 16;
bilateral financial relations with China, 100;
in Bolivarian Alternative for the Americas, 150;
business investments in, 48–49;
capital markets in, volatility of, 148;
commitment of, to BRICS, 157;
corporate governance in, 175;
corruption in, 153, 154, 155, 172;
debt ratings of, 155;
diplomacy of, 150–51;
dismissed as unimportant, 149;
 domestic politics of, 152–154;
economic performance of, 28, 29, 31–32, 36, 153, 155;
financial statecraft of, 148;
foreign bond ownership in, 54;
foreign direct investment by, 44;
foreign policy of, 23, 149–152, 156;
global investment and, 38;
industrialization of, 172;
informal institutions in, 175;
institutional quality of, 174;
international financial institutions and, 148;
lacking historical ties to other BRICs, 2;
lending to the IMF, 152;
loans in, 50;
military spending in, 42;
motivations of, for BRICS participation, 148–157;
privatization in, 155;
public debt of, redefined, 148;
relations with China, 153–157, 231n265;
RMB’s role and, 152;
soft-balancing in, 151;
South-South cooperation and, 16, 23, 150–151, 156;
statements of, on BRICS financial statecraft, 152;
supporting Russia in resisting sanctions, 151;
underrepresented in global governance institutions, 74;
universalism of, 148;
Z-scores in, 50
Brazilian Central Bank, 154
Brazilian Economic and Social Development Bank, 95, 153, 154
Bremmer, Ian, 189n63, 209n93, 233n2
Breslin, Shaun, 184n9, 216n22, 216n31, 217n34, 218n57, 219n72, 220n82
Bresser-Pereira, Luiz Carlos, 172
Bretton Woods Conference, 113
Bretton Woods institutions, 3;
fixed exchange rate system, collapse of, 15;
history of, 14, 113;
leadership of, 82–83;
legitimacy of, 143;
not serving developing countries, 145;
steering groups in, 14. See also International Monetary Fund; World Bank
BRIC Index (Morgan Stanley Capital International), 185n17
Briceño-Garmendia, Cecilia, 210n106
BRICS (BRICs): acting separately, 105–106;
AIIB and, 70;
ambitions of, for addressing global economic issues, 24;
analytical work by, 78–80;
averse to Western imposition, 116;
banking system development in, 49–50;
bargaining power of, 12, 80–81;
bargaining with the US and G7, 70, 108;
Bretton Woods institutions’ reforms and, 107 (See also International Monetary Fund; World
Bank);
buying IMF bonds, 81–82;
capability distribution within, 26, 112;
capital controls and, 86;
capitalism in, varieties of, 12;
capital markets in, 50;
as change agents, 108;
China’s position in, 13, 19–20, 34, 111–112;
as a club, 5, 21–22, 70, 77, 109;
coevolution of, 16–17;
collaboration among, 3–5, 11, 70, 110, 111;
collective financial statecraft by, 12, 17–18, 23, 24 (See also collective financial statecraft);
common aversions and, 6–8, 106, 110;
concerned about international monetary system, 63, 81, 135;
contributing to European rescue programs, 86;
cooperative actions of, assessment of, 107;
coordination games, logic of, 8;
corporate governance in, 175;
corruption in, 169 (See also corruption);
cost-benefit analysis for, of collective financial statecraft, 109–110;
as creditors, 81–82;
creating new financial institutions, 17;
creation of, 1, 17;
credit rating agency for, 92, 106;
credit rating institutions and, 72;
currencies of, 101–102 (See also renminbi; ruble);
currency swap agreements of, 104;
defense spending of, 24;
development bank for, 142;
diminishing US economic and financial power, 138;
dismissal of, in US academia, 28;
diversifying international relations, 25;
diversity of, 168–169;
domestic appeal of, 111;
domestic institutions in, 45–52, 56, 169, 170;
economic gaps among, 19;
economic performance of, 29–32, 72, 169, 177;
economic potential of, 32–33;
emergence of, 5, 16;
on Eurozone lending, 82;
external trade and, 52–54;
financial capabilities of, 26, 44, 92–100;
financial openness of, 52–54;
financial statecraft of, 4;
foreign direct investment by, 44–45;
foreign policy goals of, 67;
foreign reserves of, 7, 57, 179;
framework agreements for, 106;
free trade agreement for, 106;
future of, 23;
global current account surplus and, 56, 57;
global economic influence of, 36, 37, 58–59;
global financial centers in, 57–58;
global GDP of, 42;
global governance system and, 8–12;
global growth and, 28;
global power shift toward, 22;
governance of, 170–77;
G20, 11, 119;
and the IMF, 9, 11, 72–74, 82–85, 120;
importance of, in global financial markets, 58–59;
incentives of, for supporting collective action, 5–6;
India’s participation in, 139, 140;
industrial tycoons in, 39;
informal rules and, 174–176;
infrastructure investments in, 93;
inside reforms and, 108;
institutional gains by, 23;
institutional quality of, 173, 174;
institutional reforms for, 36;
interest in, 2;
international assets and, 54–58;
lending in local currencies, 101;
long-term threat to, 169;
lopsidedness in, 19;
members’ bad behavior and, 169;
middle-income trap in, 36, 118, 172;
military strength of, 41–42;
monetary capabilities of, 44;
motivations of, for collective financial statecraft, 109–112;
offensive financial statecraft by, 169;
opposing Russian sanctions, 23, 71, 88, 90–92;
origins of, 125–126;
outdistancing economic performance of the G7, 32;
outside options and, 70, 80, 92, 108;
parallel financial institutions for, 19;
payment systems, parallel structures for, 72;
persuasion by, 80;
power asymmetry in, 18, 107, 120, 178–179;
predictions about, 183–84n3;
protecting against US shocks, 45;
pursuing reforms of Bretton Woods institutions, 72, 76–87;
on quantitative easing, 87;
regional benefits for, of collaboration, 111;
regional power and, 7;
remaining neutral, 105;
reserve currencies for, 61;
reserves for, 101;
resources of, 65;
 as Rising (Great) Powers Club, 125, 127;
rise of, 1–2, 24, 28, 35–36, 171;
rivalries within, 111;
Russia attempting to strengthen, 125, 126, 127, 130;
security challenge of, 63;
seeking greater regional autonomy, 11;
skepticism about, 2;
South Africa joining, 4, 158–159;
as sovereignty hawks, 110–111;
stock markets in, 45, 46–47;
summits of, 3, 70, 72, 81, 87, 90, 95, 101, 104, 126, 142, 158;
supporting internationalization of China’s currency, 100;
term coined, 1;
trade liberalization in, 53–54;
trade presence of, 55–56;
US monetary policy concerns of, 100–102;
on US dollar hegemony, 8, 101–105;
values of, 5;
as veto players, 118;
world financial crisis and, 2–3. See also Brazil; China; India; Russia; South Africa
BRICS Development Bank, 4. See New Development Bank
Brooks, Stephen G., 25, 185n20, 190n84, 192–93nn2–4, 199nn108–9, 238n55
Brown, Gordon, 144
Brütsch, Christian, 208n77
Buchanan, James M., 12, 190n74, 190n76, 190n78
Buckley, Neil, 224n135, 224n141
Bukovansky, Mlada, 215n6
Burges, Sean, 230n235, 230n239
Burkhart, Mike, 192n112
Bush, George W., 140, 228n207
BWIs. See Bretton Woods institutions

CAF. See Development Bank of Latin America

Cai Fang, 234n14
Cai Hongbin, 237nn51–52
Cai Jin-Yong, 85
Calder, Kent E., 189n68
Cameron, David, 185n17
Campbell, Matthew, 226n172
Cantanhêde, Eliane, 230n238, 230n245, 231n260
Canuto, Otaviano, 149, 209n104
capabilities, interstate distribution of, 28
Capelle, Damien, 213n165
capital accounts, liberalization of, 86, 142
capital controls, 69, 86
capital stock, developing countries’ share of, 38
Capon, Andrew, 202n146
Cardoso, Fernando Henrique, 150, 152, 154
Carey, Brendan, 191n96
Carlson, Stacy, 195n40
Carnegie, Allison, 186n37, 192n113, 192n115
Carstens, Agustín, 83
Cattaneo, Nicolette, 211n119
CCP. See Chinese Communist Party
CDB. See China Development Bank
Central Bank of Russia, 81, 91, 130–131, 138
central banks, 44, 57, 57, 58, 62, 81, 105, 127, 154. See also Central Bank of Russia; European
Central Bank; Federal Reserve Bank; Reserve Bank of India
chairs and shares negotiations, 72–80, 107
Chakraborty, D., 227n192
Chang Ha Joon, 236n30
charm offensive, 121
Chaudry, Praveen, 205n34
Chávez, Hugo, 150
Chechel, Alena, 213n155
Cheibub, José Antonio, 234n12
Cheng, Joseph Y. S., 217n35, 217n41, 220n78
Chey, Hyoung-kyu, 201n136
Chiang Mai Initiative, 118, 120
Chiang Mai Initiative Multilaterization, 95
Chin, Gregory T., 184n9, 205nn40–41, 208n76, 209n103, 216n30, 218n47, 218n55, 218n58, 219n68
China: accession of, to the WTO, 34;
AIIB voting share of, 212n140;
autonomy of, 113, 117;
bad emperor problem in, 174;
bargaining power of, 16;
bilateral financial relations with other BRICS, 100;
Bretton Woods institutions and, 9, 75, 85, 113–114;
in BRICS’ new financial institutions, 96–97;
BRICS providing cover for, 121, 123;
business investments in, 49;
capital account of, 59–60, 61, 63, 200n132, 214n172;
capital controls in, 86;
capital mobility in, 48;
central bank in, 81;
charm offensive of, 121;
competitiveness of, in knowledge-intensive sectors, 39;
contribution of, to global growth, 28, 37;
costs to, of asserting financial power, 124;
creditor status of, 25, 38–39, 121–122;
currency of, 3, 4, 7, 19, 23, 26, 59–64 (See also renminbi);
debt burden of, 35;
dollar holdings of, 57;
dollar trap for, 100;
domestic expectations for, 122–123;
domestic financial sector in, 50, 52, 56;
dominance of, within BRICS, 2, 5, 13, 19–20, 32, 34, 106, 119–120;
in East and South China Seas, 4, 11, 41;
economic performance of, 19, 29–36;
economic reforms in, 24;
economic significance of, worldwide, 218n59;
financial power of, 120;
financial reforms in, 48, 103, 105, 123;
financial statecraft of, 111–125;
financial system in, transitional, 52–53;
foreign aid of, 117, 120;
foreign bond ownership in, 54;
foreign exchange reserves of, 56–57, 97, 154, 179, 219n62;
foreign investment and, 39, 44–45, 56;
foreign policy of, 23, 111–112, 115–116, 122;
Fortune Global 500 companies in, 40;
forum shopping by, 120;
frustration of, with the US, 117;
funding for CRA, 95;
future capabilities of, 40;
during global financial crisis, 115;
global current account surplus and, 56, 57;
global influence of, 2, 39, 41, 65, 112–113, 117–122, 218n59;
global investment and, 38;
Great Power leadership of, 123;
group making by, 118;
growth of, 1, 2, 63, 114, 119–120, 171–172;
in the G20, 118;
IMF and, 20, 77, 116–117, 120, 168;
industrial ecosystem of, 39;
informal institutions in, 175;
innovative capacity of, 39–40;
institutional quality of, 174–175;
intellectual property in, 39;
international assets of, 55;
international infrastructure initiatives of, 97–98;
international payments system in, 62–63;
investing in dollar-denominated assets, 87;
invited to join G7/G8 summit, 217–18n44;
as joiner, 8;
as leader in collective financial statecraft, 38–39;
leadership in, new approaches of, 19, 20;
middle-income trap of, 118;
military capabilities of, 37, 42;
monetary nationalism of, 122;
motivations of, for working with BRICS, 113, 116–125;
move to new power relations with the US, 19;
moving up the value chain, 38;
multilateralism and, 113, 118, 120;
nationalism of, 220n89;
NDB and, 94;
new normal in, 34–35;
offshore assets of, 60;
oil futures markets in, 136;
outbound foreign direct investment by, 60;
 outside options of, 20, 70, 124;
outward direct investment by, 120;
overseas revenues and, 40;
“peaceful rise” strategy of, 9, 19, 121;
per capita GDP in, 41;
political and economic reforms in, 115;
preparing parallel governance arrangements, 12;
private sector in, 34, 40;
productivity of, 34;
pursuing independent interests, 33;
quotas in, 63;
R&D in, 39, 42;
rating firms in, 96;
relations with Brazil, 153–157;
relations with India, 113, 145–147;
relations with Russia, 90, 113;
relations with South Africa, 157–158;
rise of, 22, 25;
savings glut in, 114;
seeking protection from dominance of US dollar, 81;
self-image of, in international finance, 113;
services sector in, 34–35;
sovereign wealth funds in, 63, 97, 103, 120;
state capitalism of, 34, 40, 61–62, 97, 171;
stock exchanges in, 45–48;
structural problems in, 35;
supporting cooperation among BRICS members, 113;
surpluses of, cumulative, 38;
sympathizing with developing countries and emerging markets, 117;
total factor productivity in, 34;
trade and investment liberalization in, 38;
trade of, 38, 87, 90, 115, 179;
underrepresented in global governance institutions, 74;
as US’ principal global competitor, 24;
as veto player in the WTO, 187n51;
workforce in, 36;
world’s largest energy consumer and importer, 97;
world’s largest middle class in, 29
China-Africa Summit, 158
China Chengxin Credit Rating Group, 96
China Development Bank, 95, 97, 100, 115, 154, 155–156
China Institutes of Contemporary International Relations, 217nn36–37
China Interbank Bond Market, 50
China Investment Corporation, 120
China Lianhe Credit Rating Co., 96
China Miracle, 170
China Model, 170, 171
China 2020 Research Team, 194n25, 233n7
“China threat” thesis, 121
Chinese Communist Party, 113–114, 122
Chinese Dream, 122, 123, 220n80
Chiodo, Abbigail, 223n128
CHIPS. See Clearing House Interbank Payments System
Christensen, Thomas J., 184n10, 186n34, 193n6, 218n52
Chubais, Anatoly, 134, 225n155
Chung Chien-peng, 217n40
CIBM. See China Interbank Bond Market
CICIR. See China Institutes of Contemporary International Relations
CIPS. See Cross-border Interbank Payment System
Clearing House Interbank Payments System, 63
clientelism, 175
Cline, William R., 201n135
Clinton, Bill, 129
Clinton administration, 127, 129–130, 191n99
Clover, Charles, 201n145, 202n156, 209n97
club goods, 12
club model, 13–14, 15, 109
clubs: advantages of, 178;
economics’ meaning of, 12–13;
within formal institutions, 12–14;
formation of, incentives for, 17;
hegemons in, 18;
membership in, 13;
outside options for, 18;
power distribution in, 13, 18;
powers of, 15
club theory, 15
CMI. See Chiang Mai Initiative
CMIM. See Chiang Mai Initiative Multilaterization
CNPC. See National Petroleum Corp.
Cohen, Benjamin J., 27, 61, 119, 193n14, 194n22, 201n137, 201n141, 202nn150–51, 202n153,
202n154, 203n2, 218n54, 237n50
collective financial statecraft, 179–181;
assessment of, 107;
cost-benefit analysis for, 109–110;
as foreign policy choices, 110;
motivations for, 109–112, 162–166;
noncollaboration in, 71;
time-inconsistency problem with, 107;
types of action for, 69;
venues for, 69, 71. See also Contingent Reserve Arrangement; New Development Bank; renminbi,
internationalization of; Russia, sanctions against
Collective Security Treaty Organization, 225n152
color revolutions, 6, 186n30
common aversions, 6–8, 23, 106, 110, 151, 163, 168
common interests, 6, 23, 70, 109, 110, 168
Common Market of the South (Mercosur), 150
Commonwealth of Independent States, 133
Concert structure, 133, 181
conditionality (IMF), 7, 82, 86, 116–117, 129, 160, 163
Congress Party (India), 140
Connolly, Richard, 208n85, 224n140, 224n142
Contemporary International Relations (China), 188n59
Contingent Reserve Arrangement, 4, 21, 23, 39, 62, 70, 71, 139;
establishment of, 107;
funding for, 95;
IMF and, 95–96;
opening of, 94;
South Africa and, 160
convergence, economic, 33
Cooley, Alexander, 134, 225n159, 225nn162–63, 233n6, 237n47
Cordesman, Anthony H., 199n104
Cornes, Richard, 190nn74–77
Corporación Andina de Fomento, 95
corporate governance, 175
corruption, 154, 155, 169, 172, 174–175
CRA. See Contingent Reserve Arrangement
Crabtree, James, 228n204, 229n223
credit rating agencies, 72, 92
credit ratings, 220n79
Credit Suisse, 195n32
creditors, BRICS as, 25, 38–39, 44, 63, 80–82, 101, 127, 162–163
Crimea, Russia’s annexation of, 4, 16, 42, 88, 90, 91, 132
crisis liquidity, 39
Crone, Donald, 238n
crony capitalism, 12, 130, 172
cronyism, 175
Cross-border Interbank Payment System (China), 62–63, 92, 106
Cruz, Valdo, 231n263
Cui Liru, 184n11, 217n39
Cunha Leite, Andre César, 231n252
currency: local, 8;
manipulation of, 116, 119;
usability of, 104, valuation of, 201n135 (See also dollar; renminbi; ruble)
currency swaps, 113, 115
currency unions, 135
currency wars, 102, 136, 146, 152
current account surpluses, global, 56, 57
Customs Union, 133

da Costa, Machaado, 231n263

Dahl, Robert, 193n9, 193n12
Daly, John C. K., 209n91, 224n143
Danzman, Sarah Baerle, 194n19
da Silva, Luiz Inácio (Lula), 3, 83, 148, 150, 151, 154
da Silva government (Brazil), 149, 152
Davin, Delia, 228n213
Davis, Bob, 204n17, 205n46
Dawisha, Karen, 237n46
D’Costa, P. D., 220n85
Debiel, Tobias, 228n212
debtors, BRICS as, 79. See also conditionality
Dedrick, Jason, 197n77
Demirgüç-Kunt, Asli, 236n41
Demmou, Lilas, 224n134
democratic states, growth paths for, 172
Deng Xiaoping, 24, 114, 170
De Rosa, Donato, 224n134
d’Estaing, Giscard, 193n7
Dettoni, Jacopo, 198n87
Development Bank of Latin America, 95
Development Research Center of the State Council, 196n52, 196n55, 196n59, 197n70
Devitt, Polina, 225n161
distributional conflict, 7
Dixon, Chris, 210n117
Djankov, Simeon, 198n81, 202n164, 211n127, 223nn130–31
Dobbs, Richard, 194n28, 196n50, 196–97nn60–61, 198nn92–93, 198n97
Dokuchaev, Dmitry, 223n123
Dollar, David, 124, 172, 174, 198n82, 235nn25–27, 236n33
dollar (US): alternative to, 101;
China’s holdings of, 57;
concern about, 3, 8, 11;
declining status of, 60–61, 81, 103;
dominance of, 25, 44, 65, 71–72, 92, 100–101, 104, 117, 152;
preference for, 57;
value of, BRICS’ interest in, 102–103
Doner, Richard F., 236n31
Donnan, Shawn, 197n76, 207n62, 211n135
Dow Jones Global Financial Centres Index, 59
Dragneva, Rilka, 134, 225n152, 225n159
Draper, Peter, 233n287
DRC. See Development Research Center of the State Council
Dreher, Axel, 189n67
Drèze, Jean, 228n213
Drezner, Daniel W., 15, 91, 186n39, 190n80, 190n85, 190n87, 191nn94–95, 199n108, 208n81,
209nn92–93, 214n1, 225n150, 225n162, 226n178, 226n181, 227n184
Dube, Memory, 232n274
Dupas, G., 230n235
Dyer, Geoff, 216n24

East Asia, balance of power in, 41

East China Sea, 4, 11, 41
Easterly, William, 170, 234n12
Echeverri-Gent, John, 203n5, 207n66, 215n4, 228n212, 230n247
Eckstein, Harry, 203n9
ECLAC. See United Nations: Economic Commission on Latin America and the Caribbean
economic clubs, potential power of, 31–33
economic resources, fungibility of, 26
economic statecraft, 203n3
Economy, Elizabeth, 216n19
EDRB. See European Bank for Reconstruction and Development
EEU. See Eurasian Economic Union
Eichengreen, Barry, 61, 184n14, 193n7, 201n139, 202n153, 212n143, 221n97
Elliott, Kimberly Ann, 203n3
Elliott, Lucinda, 231n262
emerging markets: Fortune 500 and, 39–40;
growth slowing in, 36;
infrastructure investment needs of, 210n106
Emerging Markets index (MSCI), 199n114, 199n116
emerging powers, cooperating with incumbent powers, 217n35
Ensore, Linda, 232n281
Equator Principles, 141
Erdmann, Andrew, 198n102
Estrin, Saul, 175, 237n44
EU. See European Union
Eurasian Development Bank, 96
Eurasian Economic Union (Eurasian Union), 133–135, 137, 225n152
euro, in allocated reserves, 103
Europe: decline in, 42, 22, 66;
defense spending of, 42;
financial centers in, 59;
global R&D expenditures of, 42;
overrepresented in global governance institutions, 72, 73;
quota shares of, in IMF, 76–77;
Russian sanctions and, 89–90
European Bank for Reconstruction and Development, 76, 98
European Central Bank, 44, 62
European Commission, 75
European Union, 11, 125;
China as second-largest export market for, 62;
economic performance of, 29;
as model for the Global South, 151;
quota shares of, in IMF, 72–74
Eurozone: debt crisis in, 82, 120;
economic performance of, 30–31
Evans, Rachel, 209n93
Evans, Tony, 185n19
exchange rates, 4, 87
exorbitant privilege, for the US, 25, 45, 100, 117
Export-Import Bank of China, 97, 115
Export-Import Bank of the United States, 154

Falk, Richard, 186n34

Fang Quin, 220n84
Fannie Mae securities, 137–138
Farchy, Jack, 225n
Faucher, Philippe, 229n230
FDI. See foreign direct investment
Federal Reserve Bank (US), 39, 44, 76, 101
Feigenbaum, Evan, 221n94
Feng Coco, 211n127, 211n131
Ferdinand, Peter, 217n32, 219n74
financial centers, global, 58–59
financial coalitions of the willing, 65
financial crisis (2008–2009). See global financial crisis
financial globalization, 25, 57, 142, 176. See also globalization
financial openness, 52–53
Financial Stability Board, 68, 106, 142
financial statecraft: assumptions about, 67–68;
defensive, 180;
defined, 4;
offensive, 169;
as subset of economic statecraft, 203n3;
uses for, 68–69. See also collective financial statecraft
Fischer, Stanley, 83
Fitch Ratings, 106, 155
Five Principles of Peaceful Coexistence (China), 115
Flemes, Daniel, 230n241
Fletcher, Owen, 212n151
Fletcher, Pascal, 232n271
FOCAC. See Forum on China-Africa Cooperation
focal point, for BRICS collaboration, 8, 17, 70, 105, 126
Folly, Mariara, 231n264
Foot, Rosemary, 208n76, 214n175, 215n14, 216n16, 217n33
foreign direct investment, 39, 44
foreign exchange reserves, 56–57. See also individual countries’ holdings of
formalizing arrangements, 177
formal rules, 175, 177
Fortune 500, 39–40
Forum on China-Africa Cooperation, 157–158, 159
forum shopping, 13, 20
Foster, Vivien, 210n106
Foxconn, 39
Frame, W. Scott, 227nn183–84
Francis, Bill B., 237n45
Freddie Mac securities, 137–138
Freund, Caroline, 39, 198nn88–89
Friebel, Guido, 192n112
Friedberg, Aaron, 188n61
Frieden, Jeffry A., 199n109, 229n229
Frye, Timothy, 222n120, 236n38
Fryer, David, 211n119
FSB. See Financial Stability Board
Fu Xiaolan, 197n75
Fugfugosh, Miriam, 191n99
Fukuyama, Francis, 169, 174, 234n11, 234n13, 236n36
Furceri, Davide, 207n71
Fusile, Lungiza, 160

G groups, 17
G2, 112, 136
G5: capital markets in, 50;
currencies of, 57;
domestic financial development in, 51–52;
external trade and, 52–54;
financial openness of, 52–54;
financial sophistication of, 48;
fixed investment and, 48;
global current account surplus and, 56;
global power shift away from, 22;
international assets of, 55–57;
trade liberalization in, 53–54;
trade presence of, 55–56
G6, 15, 17
G7, 1, 2, 7–8, 125;
AIIB as challenge to, 98;
as club, 10, 13;
Concert structure, 181;
economic performance of, 32;
IMF quota shares of, 72–74;
global financial centers and, 57–58;
global power shift away from, 22, 38;
innovations of, spreading globally, 37–38;
meetings of, 15–16;
negotiating with BRICS, 82;
resistant to change, 15;
skewed power distribution in, 18;
special relationships in, 15;
stock markets in, 45–48;
US economic power in, 19;
world income and, 38
G8, 15–16, 17, 101, 125, 127, 132, 150
G8+5, 15, 184n6
G20, 1, 2, 6, 16, 31, 70, 74, 77, 86, 104, 108, 112, 115, 117–121, 142, 144, 178, 149
G24 (Intergovernmental Group of Twenty-Four on International Monetary Affairs and
Development), 84, 86, 93
G77, 93
Gabuev, Alexander, 209n91, 212n141, 221n104, 222n117, 222n119, 224n142, 226n171, 226n173
Gaddy, Clifford G., 131, 208n86, 224n138
Gaidar, Yegor, 129, 223n125
Gallagher, Kevin, 86, 207n66, 207n70, 216n23
Gandhi, Indira, 139
Gandhi, Mohandas, 157
Gandhi, Rajiv, 139
Ganguly, Sumit, 227n186
Gao H., 214n171
Gao Xin, 220n83
Garrett, Geoffrey, 215n8, 237n50
Gateway House (India), 143
GATT. See General Agreement on Tariffs and Trade
Gazprom, 100, 132
Geithner, Timothy, 17, 82
Geller, Martinne, 225n161
General Agreement on Tariffs and Trade, 14, 16, 18
geoeconomics, 26, 29, 39
geoeconomic statecraft, 133, 168
geopolitical statecraft, 133, 168
Germany: capital markets in, 50;
global current account surplus and, 56;
R&D spending in, 42
Gerschenkron, Alexander, 234n10
Gervasoni, Carlos, 234n12
Gidda, Mirren, 207n59
Gilboy, George J., 228n212
Giles, Chris, 205nn43–44
Gill, Indermit S., 224n134, 236n28
Gilman, Martin, 189n69, 222n107
Gilpin, Robert G., 10, 188n56, 188n61, 191n98, 194nn20–21
GKOs (Gosudarstvennye Kratkosrochnye Obiazatel’stva), 129
Glazyev, Sergei, 128
Gleneagles Summit, 184n6
global banking system, access to, 7
global economic governance, BRICS affecting, 14, 21, 34, 67, 70, 96, 112, 117, 119, 122, 157, 177–
180
global financial crisis, 2–3, 11, 16, 45, 76;
BRICS contributing to IMF during, 9;
BRICS’ currencies and, 102;
central banks and, 44;
China’s economy and, 115;
G20 and, 70;
power diffusion and, 28–29;
raising questions about regulation, 11
global governance system: BRICS and, 2, 3, 8–12;
creditors’ influence in, 39;
integration into, of systemically important states, 8–9;
necessities for, 10;
participation in, 6, 8;
reforms in, 4 (See also International Monetary Fund; World Bank)
globalization, 37–38, 115, 176
Global Manufacturing Competitiveness Index, 36
global order. See global governance; international order
global reserve currency system, alternatives to, 103
global trade, China’s contribution to, 37
Glosny, Michael A., 192n118, 215n7, 219n77
Gnath, Katharina, 218n46
Godoy, Denyse, 212n142
Golden, Paul, 209n99
Goldgeier, James M., 223n129
Goldman Sachs, 1, 32, 33, 185n17
Goldman Sachs Global Economics Group, 183n3
Goldstein, Morris, 208n74
Goldstone, Jack A., 190n81
Golovnin, M. Yu, 222n107, 223n124
Golubkova, Katya, 211n123
Golunov, Serghei, 225n161
Goodman, David S. G., 220n80
Gordhan, Pravin, 160
Gottwald, Jörn-Carsten, 218n50
government effectiveness, as governance indicator, 172
Grabel, Ilene, 207n69
Grasso, Carla, 85
Great Convergence, 38
Great Divergence, 37–38
Green Financial Bond, 96
green room, 13, 27, 126, 168
Gref, German, 130, 131
Grieco, Joseph M., 185n15, 185n19, 217n43, 237–38n54
Griffith-Jones, Stephany, 210n117, 219n69, 233n4
Grigoriev, L. M., 205n28, 205n32, 223n124
Grinberg, Ruslan, 225n153
Gruber, Lloyd, 13, 27, 190n83, 193n15
Grynberg, Roman, 215n3
guanxi, 176
Guha, Krishna, 226n180
Guriev, Sergei, 78, 205nn28–29, 223n124, 223n130, 236n34
Gurvich, Evsei, 224n135, 236n35
Gustafson, Thane, 237n46

Haggard, Stephan, 185n25, 237n53

Halper, Stefan, 234n14
Hamanaka, Shintaro, 211n136
Hanemann, Thilo, 193n8, 202n147
Han Yi, 211n124
hard rules, 177
Harris, Jennifer M., 193n11, 199n110, 208n82
Harriss-White, Barbara, 228n213
Hartley, Wyndham, 232n284
Hasan, Iftekhar, 237n45
Hausmann, Ricardo, 235n21
hegemons, 27
Heginbotham, Eric, 228n212
Heiwai Tang, 197nn74–75
Helleiner, Eric, 187n50, 189n70, 194n21, 212n145, 213n163, 215n12, 217n32, 227n195
Hellman, Joel S., 222n120
Helmke, Gretchen, 175, 237n42
Hiau Looi Kee, 197nn74–75
Hille, Kathrine, 209n100
Hirschman, Albert O., 7, 185n15, 186n36, 193n10, 203n3
Hong Yousheng, 220n84
Hopewell, Kristen, 187n51, 191n104, 199n111
Hormats, Robert, 2, 184n5
Hornby, Lucy, 201n142
Hou Zhenbo, 214n175
Hsueh, Roselyn, 234–35n16
Huang, Yasheng, 235n
Huang Yiping, 235n24
Huang Zexian, 210n111
Hufbauer, Gary C., 203n3, 208nn80–81
Hughes, Jennifer, 199nn115–16, 213n168
Hu Jintao, 154, 155, 186n30, 218n50
humanitarian missions, intervention and, 6
Huotari, Mikko, 193n8
Hurd, Ian, 191n92
Hurrell, Andrew, 191n104
Hu Shisheng, 188n59, 192n119
Hu Weixing, 188n59

IAFS. See India-Africa Summit Forum

IBRD. See International Bank for Reconstruction and Development
IBSA. See India-Brazil-South Africa Dialogue Forum
ICICI. See Industrial Credit and Investment Corporation of India Bank
Ickes, Barry W., 131, 208n86, 224n138
IDA. See International Development Association
IFC. See International Finance Corporation
IFIs. See international financial institutions
IISS. See International Institute for Strategic Studies
Ikenberry, G. John, 8, 27–28, 187n41, 188n59, 191n101, 192n111, 194n24, 238n55
imbalances, global, 74, 85–87, 114, 127
IMF. See International Monetary Fund
IMF Staff (authors), 185n17
IMI. See International Monetary Institute
INC. See Indian National Congress
incumbent order, 8, 11, 12, 25, 80, 124, 127, 169
incumbent powers, 1, 4, 11, 16, 19, 26, 27, 69, 85, 108, 110–111, 122–123, 177–180, 217n35. See
alsoG7; International Monetary Fund; United States; World Bank
India: bargaining power of, 16, 147;
Bretton Woods institutions and, 85, 141;
business investments in, 49;
capital controls in, 86;
capital markets in, 52;
currency of, 62;
desiring autonomy, 139–141;
domestic financial reforms in, 143;
economic performance of, 30–33, 35–36;
economic schools of thought converging in, 143;
foreign bond ownership in, 54;
foreign policy of, 23, 139–140;
in global governance, 141–144;
global investment and, 38;
government of (as author), 228nn201–2;
 growth in, 2, 171;
informal institutions in, 175;
international development advocacy of, 139;
migrants’ remittances and, 142;
military spending in, 42;
motivations in, for BRICS participation, 140–147;
national politics in, 139–140;
national security doctrine of, 228n207;
NDB and, 94–95;
opposing Russian sanctions, 144;
opposing Western regime-change interventions, 140, 144;
per capita GDP in, 41;
R&D spending in, 42;
relations with China, 100, 113, 145–147;
relations with Russia, 113, 140–141;
relations with South Africa, 157;
relations with United States, 139, 140;
resisting Western financial clout, 144–145;
roles of, in BRICS, 139;
sanctions against, 144;
as sovereignty hawks, 144;
stock exchanges in, 48;
supporting the ANC, 157;
underrepresented in global governance institutions, 74
India-Africa Summit Forum, 157, 159
India-Brazil–South Africa Dialogue Forum, 16, 140, 150
Indian National Congress, 140
Industrial Credit and Investment Corporation of India Bank, 143
Industrial Revolution, pace of, 34
influence, power and, 26, 67
informal institutions, role of, 175
informal rules, viii, 23, 27, 75, 80, 174–177
infrastructure, financing of, 20, 38–39, 80, 93, 96, 141–142, 156, 161. See also Asian Infrastructure
Investment Bank
inside reforms, 12, 23, 69, 71, 106, 107, 108, 152, 179
Institutional Quality Index, 172–174
institutions: formal, 12, 175;
informal, 175;
parallel, 5, 12, 23, 92, 93, 113, 167;
as venue for collective financial statecraft, 69, 71;
weak, 169
Inter-American Development Bank, 148
interdependence, international, 26
International Bank for Reconstruction and Development, 74, 76
international club, 26, 179. See also clubs
International Development Association, 76
international economy, size of, 30
International Finance Corporation (World Bank), 76, 78, 85, 141
international financial institutions, 4, 15, 22, 65. See also International Monetary Fund; World Bank
international governance institutions, informal rules in, 80
international governmental organizations, 178
international influence, financial, 54–55
International Institute for Strategic Studies, 198n101, 199n103
International Monetary Fund, 7–8, 44, 68, 195n32, 204n12, 204n15, 204nn18–19, 205n30, 207n72,
219n76, 233n8;
board membership and, 75;
BRICS pursuing reform of, 72, 76–87;
BRICS’ contribution to, during financial crisis, 9;
capital account liberalization and, 142;
challenges to, 14–15;
China and, 9, 20, 77, 116–117, 120, 168;
CRA and, 95–96;
decision-making in, 80;
early years of, 14;
economic policies of, 85–87;
Europeans as bloc in, BRICS’ view of, 77, 82;
favoring Western powers, 75;
14th General Review of Quotas, 74, 76;
15th General Review of Quotas, 75–76, 79, 80;
during global financial crisis, 76, 81;
including RMB in SDRs, 61, 62;
leadership of, 75, 82–84, 206n58;
negative example of, 124;
neoliberalism of, 85–86 (See also neoliberalism);
reforms in, 12, 17–18, 23, 71, 75–82, 118, 218n48;
requiring capital account liberalization, 54;
Russia and, 9–10, 127, 131–132;
staff autonomy in, 129;
steering groups in, 12;
surveillance by, 85–87;
trade imbalances and, 87;
2008 Quota and Voice Reforms, 76;
US influence on, 11;
voting shares in, 127
International Monetary Institute, 200n130
international order. See also global governance; global order
international relations: democratization of, 117;
openness to trade, 52;
power shifts in, 14–15, 24–25, 27–28
interstate system: conceptualizations of, 22, multipolarity in, 1, 2
investment activity, developing countries’share of, 38
Iran, 88, 90, 106, 132, 144, 151
Ishihara, Shintaro, 189n68
Ito, Takatoshi, 216n23
Iyer, P. Vaidyanathan, 146–147, 229n222
Izvorski, Ivailo, 224n134

Jacobson, Harold, 215n13

Jacques, Martin, 188n61
Jaeger, Markus, 199n112
Jaffrelot, Christophe, 238n60
Jaitley, Arun, 80
James, Harold, 191n98
Japan, 11;
challenging Washington Consensus, 14;
decline of, 22, 42, 66;
economic performance of, 34;
foreign bond holdings in, 54;
global R&D expenditures of, 42;
military spending in, 42
Japan Credit Bureau International, 91–92
Jervis, Robert, 186n32, 189n64, 203n6
Jia Qingguo, 187n46
Jiang Zemin, 117
Jiang Yang, 220n86, 220n91
Jin Liqun, 98, 176
Jin Renqing, 187n51, 205n40, 216n20
Jin-Yong Cai, 85
Jin Zhongxia, 215n11
Joffe, Hillary, 232n273
Johansson, Åsa, 195n41
Johnson, Chalmers, 235n
Johnson, Juliet, 135, 225n163, 226n167, 226n170
Johnson, Steve, 197n64
Johnston, Alastair Iain, 187n
joiners, in global governance system, 8–11
Jonathan, Goodluck, 160
Jones, Bruce, 194n29
Jordan, Jack, 213n155
Jorgenson, Dale, 171, 235n22

Kahler, Miles, 187n41, 191n93, 203n1, 205n35, 214n173

Kamath, Kundapur Vaman, 95, 96, 143–144
Kaplan, Ethan, 207n69
Kapur, Devesh, 204n11, 206n50
Karns, Margaret P., 215n2
Kastner, Scott L., 215n15, 216n18, 220–21n92
Katada, Saori N., 189n68, 203n2
Kato, Takatoshi, 85
Kawai, Masahiro, 212n140
Kay, John, 238n61
Kazmin, Amy, 206n48
Keane, Jodie, 214n175
Kee Hiau Looi, 197nn74–75
Kelkar, Vijay, 205n34
Kendall, Joseph, 199n104
Kennedy, Paul, 195n31
Kent, Ann E., 215n14
Keohane, Robert O., 5, 14, 185n22, 188n57, 190nn86–87, 190n89, 193n10, 238n58
Kharas, Homi, 236n28
Kheifets, B. A., 222n114
Kim, Jim Yong, 84
Kim Sung Eun, 186n33
Kindleberger, Charles P., 187nn43–44
King, Gary, 203n9
Kingstone, Peter R., 229n229
Kirshner, Jonathan, 184n8, 189n70, 194n21, 202n153, 204n20, 207n69, 212n144, 212n145, 215n5,
238n56
Kirton, John J., 214n178
Kobzeva, Oksana, 209n91
Kochhar, Rakesh, 234n9
Kokh, Alfred, 223–24n131–32
Kong Xiangxi, 113
Koops, Joachim A., 205n27
Korengay, Francis A., Jr., 161, 231n266, 233n286
Kortunov, Andrei, 188n60
Kostin, Andrei, 133
Kotkin, Stephen, 221n104, 223n125
Kraemer, Kenneth L., 197n77
Kramarenko, Alexander, 192n109
Krasner, Stephen D., 185n19, 187n43, 190n82
Krauthammer, Charles, 238n55
Kripalani, Manjeet, 228n203, 229n227
Kudrin, Aleksei, 83, 127, 131, 224n135, 236n35
Kugler, Jacek, 188n61
Kumar, Ajith Vijay, 229n215
Kupchan, Charles A., 189n63, 191n101, 193n5, 233n2
Kupchan, Cliff, 209n93
Kurlantzick, Joshua, 189n62, 219n70
Kuziemko, Ilyana, 189n67
Kynge, James, 202n148

Lagarde, Christine, 76, 80, 83–84, 85, 107

Lake, David, 8, 187n42, 187n45
Lake, Spencer, 198n80, 200n121
Lamont, James, 228n210
Lapper, Richard, 231n260
Lardy, Nicholas R., 34, 196nn53–54, 208n74, 234n15
Larionova, Marina V., 204–5n24, 205n26, 205n33, 212nn147–48, 212n152
Laurence, Henry, 210n107
Lavrov, Sergei, 83, 206n54
Layne, Christopher, 192n1
Leahy, Joe, 231n257
Ledeneva, Alena V., 237n46
Lee Kuan Yew, 170
Leite, Julia, 231n262
Levitsky, Steven, 175, 237n42
Levy, Joaquim, 85, 155, 231n258
Lewis, John W., 198n199
Liao, Steven, 59, 201nn139–40
liberal order: alternative to, 10;
US-led, 5. See also Bretton Woods institutions
LIBOR. See London Interbank Offered Rate
Lieber, Robert J., 194n25
Lieberthal, Kenneth, 184nn10–11, 217n39
Li Jiguang, 217n42
Li Keqiang, 35, 61, 103, 155
Li Yuan, 218n52
Lim, Jamus, 197n67
Lima, Daniela, 231n263
Limongi, Fernando, 234n12
Lin, Justin Yifu, 36, 85, 197n67, 200n130, 234n14
Lin Kun-Chin, 192n116
Linden, Greg, 197n77
Lipscy, Phillip Y., 184n14, 190n81, 191n93
Lipsky, Andrei, 223n122
Lipton, David, 84, 85
Li Qiaoyi, 211n125
Litan, Robert E., 186n38, 203n2
Liwei, Wang, 211n127, 211n131
Li Xiaoyun, 233n4
Li Zhou, 234n14
Lo, Bobo, 221n104
Lombardi, Domenico, 201n139
London Interbank Offered Rate, 3
Long, Kimberley, 202n146
Lopez-Gonzalez, Javier, 197n73, 197n77
Lou Jiwei, 95
Loungani, Prakash, 207n72
Lowery, Clay, 209n102
Luce, Edward, 206n58
Lula. See da Silva, Luiz Inácio
Lund, Susan, 196–97nn60–61
Lybeck, Johan A., 204n20

Maasdorp, Leslie, 96, 160–161

Mabanga, Thebe, 232n276, 233n288
Magnier, Mark, 221n97
Mahapatra, D. A., 229n228
Maidment, Neil, 225n161
Ma Jun, 62, 233n4
Maksimovic, Vojislav, 236n41
Malema, Julius, 159
Mallet, Victor, 228n204, 229n226
Malone, David M., 227n186
Mandela, Nelson, 157, 158
Mandelbaum, Michael, 185n21, 187n45, 199n10
Mantega, Guido, 81, 102, 149, 152, 153, 155
Manyika, James, 196n50
Maoz, Zeev, 194n19
Mao Zedong, 9, 170
Mapenzauswa, Stella, 232n280
Marchenko, Grigorii, 83–84
Maritime Silk Road, 97
market-based authoritarian states, 170
markets, as venue for collective financial statecraft, 69, 71
Marriage, Madison, 231n257
Marrian, Natasha, 232n283
Martin, Lisan, 187n45
masala bonds, 62
Mashrab, Fozil, 225n158
Mastanduno, Michael, 27–28, 185n19, 187n49, 189n66, 193n11, 194n21, 194n24, 196n48, 238n55
MasterCard, 91
material power, 25–26
Mathur, Akshay, 143, 147, 221n100, 228n203, 228n206, 228n208, 229n216, 229n224
Mattingly, Daniel C., 175, 237nn42–43
Mau, Vladimir, 223n123, 223n130, 224n135, 224n145, 236n35
Mazneva, Elena, 208n89, 226n172
Mbeki, Thabo, 157
Mboweni, Tito, 160–161
McCubbins, Mathew D., 237n53
McDermott, Roger, 186n30
McDowell, Daniel, 59, 201nn139–40
McFaul, Michael, 233n129
McKinsey Global Institute, 28
McNally, Christopher A., 235n
MDBs. See multilateral development banks
Mearsheimer, John J., 185n19, 188n61, 192n1, 193n11, 194n23
Medeiros, Evan S., 218n51, 219n73
Medvedev, Dmitri, 3, 83, 91, 101, 126, 128, 133, 135, 184n13, 206n54, 222n112, 222n117
Mercosur. See Common Market of the South
Merkel, Angela, 89
MGI. See McKinsey Global Institute
middle-income trap, 23, 36, 118, 172, 174, 235nn24–25, 235n27, 236n28, 236n31
migrants’ remittances, 142
military spending, 41–42
Miller, Ken, 219n63
Miner, Sean, 196n56
Mingst, Karen A., 215n2
Minsk II peace plan, 92
Mitchell, Tom, 211n137
Mittelman, James, 186n34
Mobutu (Sese Seko), 170
Modi, Narendra, 80, 90, 92, 140, 143, 147, 157, 229n227, 231–32n267
Mohan, C. Raja, 227n186, 228n212
Momani, Bessma, 188n53, 187n50, 215n12, 217n32
Monahan, Jane, 227n197
Moody’s Investor Service, 3, 72, 106
Moore, Elaine, 200n123, 213n168
Moravcsik, Andrew, 238n
Morgan Stanley Capital International, Emerging Markets index, 48, 186n17, 186n114, 186n115,
186n116
Morozkina, A. K., 205n28, 205n32, 223n124
Morris, Scott, 211nn132–33
Motlanthe, Kgalema, 157
Mozhin, Aleksei, 84, 206n58
MSCI. See Morgan Stanley Capital International
Mukerjee, Pranab, 145
multilateral development banks, 98
multipolarity, 1, 5, 26, 27, 37, 64, 81, 82, 125, 130, 139, 197n67, 204n24
multipolarity index (World Bank), 197n67
multipolarization, 25
Mumbai, promoted as financial center, 142, 143
Mundell, Robert A., 61, 135, 202n152, 226n166
Mutafchieva, Mina, 196–97nn60–61
mutually beneficial cooperation, 10
Mwase, Nkunde, 237n47

NAB. See New Arrangements to Borrow

Nabiullina, Elvira, 128
Nadkarni, Vidya, 227n186
Nageswaran, V. Anantha, 234n9
Naidu, Sanusha, 232n275
NAM. See Non-Aligned Movement
Narlikar, Amrita, 191nn104–5
Natarajan, Gulzar, 234n9
National Intelligence Council (US), 28
National Petroleum Corp. (China), 91, 136
National Science Foundation, 199n106
National Wealth Fund, 131–132
NATO. See North Atlantic Treaty Organization
Naughton, Barry, 234n16, 235n18, 235n24
NDA. See New Democratic Alliance
NDB. See New Development Bank
Nehru, Jawaharlal, 139, 140
Nene, Nhlanhla, 160
neoliberalism, 75, 86–86, 115, 154, 157, 176
NEPAD. See New Partnership for African Development
Nesvetailova, Anastasia, 216n25
network power, 27
New Arrangements to Borrow, 76
New Democratic Alliance (India), 140
New Development Bank, 4, 10, 19, 20, 21, 23, 39, 70, 71, 113, 116, 120, 121, 139, 141–142, 162,
179, 211n118, 217n37, 219n65;
AIIB and, 95;
BRICS’ reaction to, 94, 97;
China’s financial backing of, 97;
founding of, 94, 95, 99, 107;
funding renewable energy projects, 96;
impetus for, 57;
 issuing bonds in national currencies, 96;
leadership of, 94–95, 143–144;
loans from, 95–97;
location of, 94, 143, 147;
South Africa and, 160;
voting shares in, 94
New International Economic Order, 14, 140
Newnham, Randall, 225n160
New Partnership for African Development, 162
NGOs. See nongovernmental organizations
NIC. See National Intelligence Council
NIEO. See New International Economic Order
Nikonov, V. A., 222n114
Niu Xinchun, 198n95
Nixon, Richard, 9, 139
Noble, Josh, 229n223
Nölke, Andreas, 238n62
Non-Aligned Movement, 140
nongovernmental organizations, 141, 227n196
nonintervention, as foreign policy, 140, 151, 156
Norrlof, Carla, 52, 194n25, 200n126
North, Douglass C., 236n36
North American Free Trade Agreement, 18
North Atlantic Treaty Organization, 14, 42, 125
North-South production sharing, 38
Nuclear Non-Proliferation Treaty (NPT), 144
NWF. See National Wealth Fund
Nye, Joseph S., Jr., 14, 26, 189n64, 190nn86–87, 190n89, 192n1, 193n10, 193n13, 238n58

Oatley, Thomas, 194n19

Obama, Barack, 13, 76, 131, 132, 212n138, 215n9
Obama administration, 17, 76, 85, 88, 90, 108, 131, 168, 204n22, 212n138
OBOR. See One Belt, One Road
Obstfeld, Maurice, 207n72
Ocampo, José Antonio, 84, 149, 207n61
ODI. See Overseas Development Institute
Odling-Smee, John, 188n52
OECD. See Organisation for Economic Co-operation and Development
offense, financial statecraft used for, 68–69, 133
offense-defense mix, in financial statecraft, 137–138
Oi, Jean C., 235n
Okonjo-Iweala, Ngozi, 84, 160
Oksenberg, Michel, 215n13
Olson, Mancur, 190n76, 190n79
One Belt, One Road initiative (China), 20, 38, 39, 41, 60, 65, 97, 116, 137, 147, 211n125
O’Neill, Jim, 1–2, 32, 183n3, 184n6, 185n17, 195n39
openness, affecting IMF quotas, 75
Organisation for Economic Co-operation and Development, 33
organized hypocrisy, 13
Organski, A. F. K., 188n61
Orlov, Vladimir A., 191n99
Orwell, George, 25
Ostry, Jonathan D., 207nn71–72
outside options, vii, viii, 5, 12, 18–20, 22–23, 33, 69, 70–71, 80, 92, 96, 100, 106, 108, 111, 119, 124,
147, 152, 165, 167, 178–181, 184n14, 192n113, 192n115, 217n37
Ouyang Yao, 210n111
Overseas Development Institute, 97
Owyang, Michael T., 223n128

Page, Frank H., 190n79

Palan, Ronen, 216n25
Palifka, Bonnie J., 237n42
Paltseva, Elena, 192n112
Pan Rongfang, 220n85
Panda, Jagannath, 213n166
panda bonds, 62
Pandey, Arpana, 226n177
Panova, Viktoriya, 222n116
Pan Wei, 218n53
Papa, Mihaela, 208n77
Parasarathy, G., 228n214
Parshin, Alexey, 209n97
Patrick, Stewart, 189n63
Paul, T. V., 188n60
Paulson, Henry M., Jr., 138, 226n180
Pauly, Louis W., 191n98, 218n52
PBOC. See People’s Bank of China
peaceful rise, 9, 19, 121
Pearson, Margaret M., 215n15, 216n18, 234n16
Pei, Minxin, 235n20, 236n38
Pennock, Andrew, 194n19
People’s Bank of China, 85, 101, 103
Pereira, Carlos, 231n250
performance legitimacy, 220n81
Perlez, Jane, 229n225, 237n48
persuasion, 80
Petrobras, 100, 153–156
Peyrouse, Sebastien, 206n52
Pilling, David, 221nn96–97, 232n279
Pimentel, Lester, 205nn43–44
Pinchuk, Denis, 209n91
Pismennaia, Evgenia, 226n175
Pistor, Katharina, 237n45
PNB. See Batista, Paulo Nogueira
Popescu, Nicu, 225n164
Porter, Tony, 203n8
Posen, Barry R., 198n100, 199n108
power, 64;
competition and, 27;
conceptualizing, 25–28;
 diffusion of, 8, 10, 11, 14, 25, 28–29;
relational, 26–27, 44;
shifts in, 10–11;
structural, 5, 7, 13, 19, 22, 25–28, 44, 64, 65, 66, 69, 130, 138
Power, Timothy J., 231n250
power-as-autonomy, 119
Power of Siberia gas pipeline, 132, 136
Prasad, Eswar S., 33, 82, 142, 143, 195n44, 200nn130–31, 201n143, 202n155, 202n158, 202n166,
212n145, 213n159, 228n199
preponderant powers, 27
Prevezer, Martha, 175, 237n44
Priess, David, 11–12, 189n71, 214n179
Primakov, Yevgeny, 125
Pritchett, Lant, 33, 196nn46–47, 235n23, 236n37
Przeworski, Adam, 170, 234n12
PT. See Workers’ Party, Brazil
Pu, Xiaoyu, 186n40, 186n72, 193n5, 216n26
public goods, 9, 12, 14, 41, 119–121
Purushothaman, Roopa, 183n3
Putin, Vladimir, 80, 89, 90, 91, 100, 103, 125–126, 128, 132–138, 176, 186n30, 209nn95–96,
222n110, 222n117, 225n151, 225nn155–56, 226n174
Putnam, Robert D., 190n87, 191n97
Putnam, Tonya L., 189n69

QFII. See Qualified Foreign Institutional Investors

Qian Qichen, 216n28
Qin Yaqing, 217n35
Qobo, Mzukisi, 210n111, 232n272, 233n287
Quad incumbent powers, 16–17
Qualified Foreign Institutional Investors (China), 50
quantitative easing, 101
Qu Hongbin, 202n149
Quin, Fang, 220n84

Rachinsky, Andrei, 223n130

Ragavan, Srinath, 227n186
Raile, Eric D., 231n250
Rajan, Raghuram G., 62, 85, 142–143, 147, 200n127, 216n21
Ram, Yidya, 206n57
Ramo, Joshua Cooper, 234n14
rating agencies, BRICS’ challenge to, 106
Raustiala, Kal, 219n64
RBI. See Reserve Bank of India
Rector, Chad, 215n15, 216n18
redback, 26. See also renminbi
Reddy, V. K., 93, 142, 143, 227n198
regionalism, 7
regional power, 7
Reisen, Helmut, 211n118
relational power, 26–27, 44
relative capabilities, power as, 64
relative capability shift thesis, 237n38n54
renminbi (RMB; China), 26, 56;
bilateral currency swaps in, 115;
devaluation of, 105;
future of, 59–65;
Indian concerns about, 146–148;
internationalization of, 3, 20, 59–62, 65, 72, 86, 92, 100–105, 107, 122, 146, 147, 161, 177, 179;
markets in, 105;
pressures on, 195n44;
prominence of, growing, 213n159;
as reserve currency, 20;
revaluation of, 114;
included in the SDR, 85, 101, 104, 123, 146
Renminbi-Qualified Institutional Investors (China), 50, 63
Ren Xiao, 124, 188n58, 206n56, 218n44, 221n93
research and development (R&D) spending, 42
Reserve Bank of India, 62
reserve currencies, 101
RESh. See Russian Economic School
resistance, soft forms of, 25
responsible stakeholder, 9, 81, 119
revisionist, 8, 11, 12, 88, 110, 123, 124, 125, 167, 180, 181
Reznik, Irina, 226n172
RICs. See Russia-India-China
Ringel, Michael, 198n91
rise of the rest, 178
“rise from within” strategies, 12
rising powers, 27
RMB. See renminbi
Roach, Stephen S., 194n26, 196n52
Roberts, Cynthia A., 184n8, 184n13, 185n14, 186n26, 186nn28–29, 186n31, 188n60, 191nn99–100,
195n31, 214n177, 219n71, 221nn101–3, 226n174
Robinson, James A., 236n36
Robles, Theresa, 210n114, 228n205
Rodlauer, Markus, 200n129
Rodrik, Dani, 170, 199n109, 200n128, 207n69, 234n12, 235n21
Romero, Simon, 210n113
Rose, Scott, 213n155
Rose-Ackerman, Susan, 237n42
Rosen, Daniel H., 193n8
Rosenberg, Elizabeth, 209nn92–93, 224n144
Rosneft, 89, 90, 91, 132, 136
Rossi, Clóvis, 230n240
Rota, Valerie, 205nn43–44
Rothstein, Robert L., 190n90
Roubini, Nouriel, 226n166
Rousseff, Dilma, 100, 148, 153–155, 231n258
Rousseff government (Brazil), 149, 152, 156
RQFII. See Renminbi-Qualified Institutional Investors
Rubin, Robert, 129, 191n99
ruble: collapse of, 88, 100;
devaluation of, 8, 129–130;
internationalization of, 135–136, 166;
role of, 8, 101, 130
Ruggie, John Gerard, 10, 188nn54–55
rule of law, 174
Rule of Law Index, 172
rules. See formal rules; informal rules
rupee, internationalization of, 62
Russia: AIIB and, 100;
arms sales by, 91;
autonomy of, 130–133;
bond market in, 129;
bond maturities in, 50;
and Bretton Woods institutions, return to, 75, 127;
business investments in, 49;
capital controls in, 86–87;
capital markets in, 50;
Central Bank in, 127;
chairing BRICS, 70;
China’s rise and, 127, 135–137;
collective financial statecraft for, as counteroffensives, 132;
commercial banks in, 50;
considered too big to fail, 129;
corporate governance in, 175;
and creation of BRICS, 17;
crony capitalism in, 130;
currency of, 7, 128–130, 135–136 (See also ruble);
default of, 129;
diminishing US economic and financial power, 138;
economic performance of, 28, 29, 31–33, 125–126, 129, 130, 131, 135–136;
economic statecraft of, unilateral, 135;
economic structure of, 131;
embargoing Western food products, 134;
in Eurobond markets, 89;
financial centers in, 59;
financial openness of, 52–53, 54;
financial reforms in, 130;
financial statecraft of, 126–138, 133;
fiscal policies of, 130;
foreign bond ownership in, 54;
foreign currency reserves of, 130–131, 137;
foreign investment in, 132;
foreign policy of, 4, 23;
free-floating exchange rate in, 131;
in the G8, 17;
geopolitical influence of, 41;
global investment and, 38, 126;
globalization and, 130;
hiring Western economists and consultants, 128;
 holdings of, in Fannie Mae and Freddie Mac securities, 137–138;
IMF and, 9, 76, 77, 81, 83–84, 168;
imperialist positions of, 189n65;
institutional quality of, 174;
international partnerships of, 125, 126;
international payments system in, 62;
international reserves of, 213n156;
intervening in Ukraine (see Ukraine, Russian intervention in);
as joiner, 9–10;
joining G7, 15–16;
military capabilities of, 37, 42;
motivations of, for BRICS participation, 126–138;
national payment card system in, 91–92;
oil futures markets in, 136;
recession in, 36;
regional position of, 127, 133–135;
relations with China, 90–91, 100, 136–138;
renationalization of business in, 131;
resilience of, 1, 131;
sanctions against, 7, 23, 71, 88–92, 107, 126, 128, 131–134;
share of, in the world economy, 127;
sovereign debt and, 132;
sovereignty of, 130–133;
state capitalism in, 130;
stock exchanges in, 48;
SWIFT and, 132–133;
transforming BRICS, 125, 126, 127;
US debt holdings of, 103;
workforce in, 36;
Z-scores in, 50
Russia-India-China, 125
Russian Economic School, 78
Rutland, Peter, 223n124
Ryabkov, Sergei, 17, 191n107

Sadovnichii, V. A., 222n114

SAFE. See State Administration of Foreign Exchange
SAFE Investment Company, 120
SAIIA. See South African Institute of International Affairs
Sambo, Paula, 231n262
sanctions, 4;
BRICS’ aversion to, 7 (See also Russia: sanctions against);
effectiveness of, 88–91
Sandler, Todd, 190nn74–78
Santos, Lean Alfred, 233n285
Saraiva, Miriam Gomes, 230n241, 230n244
Saran, Shyam, 146, 227n189, 229n221
Sardar Samovar Dam (India), 141
Sarkozy, Nicolas, 16, 86
Sarney, José, 150
Saunders, Phillip C., 220–21n92
Saxonhouse, Gary, 192n116
Schelling, Thomas, 91, 226n174
Schmemann, Serge, 192n1
Schmucker, Claudia, 218n46
Schneider, Ben Ross, 236n31
Schott, Jeffrey, 203n3
Schweller, Randall L., 11–12, 186n40, 187n41, 189nn71–72, 193n5, 214n179, 216n26
SCO. See Shanghai Cooperation Organization
SDR. See Special Drawing Rights
SDR-denominated bonds, 81
SDRM. See Sovereign Debt Restructuring Mechanism
security dilemma, 69
Sen, Amartya, 228n213
Seoul Development Consensus for Shared Growth, 121
Serra, José, 156
Setser, Brad W., 65, 189n62, 193n8, 202n165, 226n177, 226n181
Sevastopulo, Demetri, 211n135
Shambaugh, David, 124, 186n30, 186n34, 218n52, 221n95
Shanghai Cooperation Organization, 11, 118, 147, 168
Shankar, Kalyani, 227n187
Shao Binhong, 192n117, 202n157, 202n167, 233n7
shared goods, 12
Shared Growth Agenda, 118
shares and chairs negotiations, 72–80, 107
Sharma, Ruchir, 195n45
Sharma, Shyam, 146
Sheel, Alok, 145, 228n211
Sheng Hong, 235n17
Shenzhen–Hong Kong Stock Connect, 48
shirkers, in global governance system, 8, 10–11
Shi Yinhong, 216n28, 233n3
Shleifer, Andrei, 222n120, 236n38
Sidiropoulos, Elizabeth, 231n267, 232n275
Siliuanov, Anton, 78
Silk Road, 97
Silk Road Fund (China), 91, 97
Silver, Mick, 205n31
Simmons, Beth A., 5, 203n5, 238n59
Singh, Anoop, 229n218
Singh, Manmohan, 94, 121, 139, 140, 142, 228n207
Singhal, Rajrishi, 229n217
Singh government (India), 142
Single Economic Space, 133
Sinha, Aseema, 227n185, 227n191
SIPRI. See Stockholm International Peace Research Institute
Slaughter, Anne Marie, 17, 190n87
Smyth, Jamie, 232n277
Snidal, Duncan D., 186n27, 187n43, 237n53
Snowden, Edward, 63
Snyder, Jack, 186n30, 209n100, 238n61
Society for Worldwide Interbank Financial Telecommunication (SWIFT) network, 60, 62–63, 72, 91,
92, 106, 144, 169
SOEs. See state-owned enterprises
soft-balancing, 151, 156
soft power, 26, 43
soft rules, 177
Sohn, Injoo, 218n45, 218n49
Soko, Mills, 210n111, 232n272
Solovyev, Vladimir, 225n151
South Africa, 2, 4;
anticolonialism of, 157;
bond maturities in, 50;
Bretton Woods institutions and, 159;
BRICS involvement of, 161–162;
business investments in, 49;
corruption in, 172;
domestic financial development in, 50–52;
economic weakness of, 36;
financial openness of, 54;
foreign bond ownership in, 54;
foreign policy of, 23, 157;
on global financial governance, 159–161;
industrialization of, 172;
influence in, competition for, 157;
institutional quality of, 174;
joining BRICS, 158–159;
motives of, for BRICS participation, 157–162;
opposing Russian sanctions, 161;
quota shares of, in IMF, 76, 78;
relations with China, 100, 157–158;
relations with India, 157;
on RMB internationalization, 161
South African Airlines, 160
South African Institute of International Affairs, 159
South China Sea, 11, 41, 97, 115
South Korea: economic performance of,34;
R&D spending in, 42
South-South cooperation, 23, 121, 149, 150, 158
Sovereign Debt Restructuring Mechanism, 106
sovereignty, BRICS’ sensitivity to, 176. See also autonomy
sovereignty hawks, 6, 110, 144
sovereign wealth funds, 63, 97, 103, 120, 137
Soviet Union, collapse of, 5, 9–10, 125, 127–128
S&P. See Standard & Poor’s
Special Drawing Rights, 18, 50;
composition of, 104, 135;
expansion of, 62;
RMB in, 61, 62, 101, 104 (See also renminbi)
Spence, Michael, 235n21
Spiegel, Peter, 229n233
spoilers, in global governance system, 8, 10–11, 181
Spratt, Stephen, 233n4
Stalin, Joseph, 186n30
Standard Chartered, 200n122
Standard & Poor’s, 72, 106, 155
Starrs, Sean, 40, 198n90
State Administration of Foreign Exchange (China), 81
state-owned enterprises, 34, 35, 123, 168, 171
state power, types of, 69
Steil, Benn, 186n38, 203n2, 206n49
Stein, Arthur A., 186n27
Steinberg, Richard H., 13, 190n80, 214n1, 215n6
Steinfeld, Edward, 234n15
Stent, Angela E., 221n103
Stephen, Matthew, 227n191
Stern, Nicholas, 93–94, 210n110
Stiglitz, Joseph, 93–94, 210n110
Stiglitz Commission (UNGA), 93, 142
Stockholm International Peace Research Institute, 198n101, 199n103
stock markets, 45–48
Stolper, Antonia E., 229n232
Stone, Randall W., 129, 189n66, 190n80, 190n82, 192n114, 214n1, 223n126, 223n128, 238n59
Storchak, Sergei, 83, 103
Strange, Susan, 27, 193nn15–16, 194n18
Strategy 2020 (Russian government), 136
Strauss-Kahn, Dominique, 76, 83, 84, 206nn57–58
structural power, 13, 19, 27, 64, 69
Stuenkel, Oliver, 230n235, 230n243
Sturm, Jan-Egbert, 189n67
Subbarao, Duvvari, 146
Subramanian, Arvind, 195n43, 196n, 201n134, 204n11, 206n50, 213n158
Summers, Lawrence, 33, 93, 99, 129, 167, 181, 196n47, 233n1, 235n23, 236n37
Sun Xian, 237n45
Sun Yun, 212n140
Sundria, S., 227n192
Sung Eun Kim, 186n33
SWFs. See sovereign wealth funds
SWIFT.See Society for Worldwide Interbank Financial Telecommunication

Taiwan, 9
Tammen, Ronald L., 188n61
Tang Heiwai, 197nn74–75
Tang Lingxiao, 210n111
Taylor, Matthew M., 230n235, 230n249
Tejas, Aditya, 210n115
Temer, Michel, 156
Tencent, 40
Tett, Gillian, 184n4, 225n
te Velde, Dirk Willem, 214n175
TFP. See total factor productivity
Thakur, Ramesh, 218n58
Thompson, Helen, 226n177, 226n179, 226n181
Tirone, Daniel C., 201n136
Tobin, James, 144
Tobin tax, 144
Tolksdorf, Dominik, 205n27
Toloraia [Toloraya], Georgii, 221nn101–2, 221n105, 222nn108–9, 222nn114–17, 222n119
Tosovsky, Josef, 84, 206n57
total factor productivity, 34
TPP. See Trans-Pacific Partnership
trade: club system of politics in, 14;
flow of, 55;
globalization of, 37–38;
imbalances in, 87;
plurilateral agreements in, 17;
RMB and, 104–105
trade balances, 106
trade liberalization index (Heritage Foundation), 53–54
transactions currencies, 101
Transoceanic Railway (South America), 155
Trans-Pacific Partnership, 11, 17, 18, 108
Treisman, Daniel, 221n106, 222n120, 236n38, 237nn51–52
Trenin, Dmitri V., 221n103, 221n105, 225n154
Trivedi, Kamakshya, 195n40
Truman, Edwin M., 204n14, 205n34, 205n39
Trump, Donald, 233n3
Trump administration, 12, 65
Tsai, Kellee S., 234n16, 235nn18–19
Tschirhart, John, 190n78
Tsugami, Toshiya, 220n89
Tussie, Diana, 191nn104–5

Ukraine, Russian intervention in, 4, 7, 11, 16, 23, 42, 88–89, 91, 133
Uliukaev [Ulyukaev], Aleksei, 128, 224n135, 236n35
UN. See United Nations
UNASUR. See Union of South American Nations
Union of South American Nations, 150
UnionPay (China), 92
unipolarity, 5, 7
unipolar moment, 178
unitary rational actor assumption, 110
United Kingdom: capital markets in, 52;
domestic financial development in, 51;
financial power of, declining, 57
United Nations, 6;
Conference on Trade and Development, 14;
Economic Commission on Latin America and the Caribbean, 148;
General Assembly, 210n109;
Security Council, 6, 90, 112, 217n43, 232n
United Progressive Alliance (India), 140
United States: AIIB’s effect on, 99;
capital markets in, 50;
challenges to, 4;
China’s rise and, 108;
counter-hegemonic bloc against, 6;
credibility of, 91;
decline of, 25;
domestic financial development in, 51;
dominance of, 24–25, 43–44, 66, 100–102;
facilitating joiners in financial system, 9–10;
financial power of, declining, 57;
financial system of, access to, 44;
foreign bond holdings in, 54;
foreign policy of, 43, 144;
G7 and, 1;
global corporations and, 40;
global current account surplus and, 56;
global defense spending shifting away from, 42;
government-sponsored enterprises, 137, 169;
hard balancing against, 5;
liberal hegemony of, 9;
monetary policy of BRICS’ concerns about, 100–102;
multilateral development banks and, 98;
outside options for, 18–19;
as percentage of G7 economies, 32;
as portion of world economy, 29–31;
power of, veiled, 80;
preventing allies from acting as equal partners, 11;
protecting Russia from IMF policies, 129–130;
pursuing independent interests, 11–12, 33;
share in world economy declining, 43–44;
soft power of, 43;
structural power of, 19, 22, 27, 66;
trade deficits of, 87;
in unipolar system, 3, 25;
underrepresented in global governance institutions, 73, 74;
veto power of, in World Bank and IMF, 75;
as world’s financial hegemon, 7
universalism, 148, 156
UNSC. See United Nations: Security Council
UPA. See United Progressive Alliance
Urpelainen, Johannes, 185n19, 186n33
Ursúa, José, 195n40
U.S. National Intelligence Council, 194n27

Valle, Sabrina, 212n142

value chains, global, 37–38
van der Westhuizen, Janis, 232n269
Van Eeghen, Willem, 224n134
Vankorneft, 91
Velasco, Andrés, 235n21
Verma, Sid, 211n120, 212n139
Vermeiren, Mattias, 214n171, 220n85
Vestergaard, Jakob, 191n93, 204n16, 204n21
Vickers, Brendan, 191n102, 191n106
Victor, David G., 219n64
Vigevani, T., 230n235
Visa, 91
Vishny, Robert W., 236n38
Voeten, Erik, 5–6, 185nn23–25, 192n113, 192n115
Volz, Ulrich, 214n171, 220n89
Vreeland, James R., 189n67
Vrontamitis, Michael, 202n161

Wade, Robert H., 85, 191n93., 204n16, 204n21, 204n24, 205n25, 207n64
Wallis, John Joseph, 236n36
Walter, Andrew, 208n76, 214n175, 215n14, 216n16, 217n33
Waltz, Kenneth N., 191n101, 194n23
Wang Jue, 217n32, 219n74
Wang Jisi, 3, 117, 184nn10–11, 188n59, 192n119, 217nn38–39, 219n70, 221n98
Wang Liwei, 211n127, 211n131
Wang Wenfeng, 188n59
Wang Yi, 9, 187n48
Wang Ying, 217n42
Wang Yong, 184n9, 211n130, 218n52
Washington Consensus, 14, 86, 159, 170–171
Weaver, Catherine, 215n6
Wedeman, Andrew, 235n20, 236n37
WEF. See World Economic Forum
WEG, 39
Wei Lingling, 201n142
Weingast, Barry R., 236n36
Weinger, Mackensie, 232n282
Weinland, Don, 200n120
Weixing Hu, 188n59
Wells, Peter, 199n116
Wen Jiaobao, 3
Werker, Eric, 189n67
Western defense spending, declines in, 42
Western powers, IMF favoring, 75
Wheatley, Jonathan, 230n242, 230n248, 231n255
White, Harry Dexter, 206n49
Wihtol, Robert, 219n65
Wildau, Gabriel, 200n120, 202nn162–63, 209n98, 210n116, 221n97
Williamson, John, 207n67, 229n231, 234n14, 236n39
Wilson, Dominic, 183n3, 195n40
Wilson, Elliott, 202n160
Wilson, Peter, 185n19
Winecoff, W. Kindred, 194n19
Wise, Carol, 216n22, 230n247
Woetzel, Jonathan, 196n50, 196–97nn60–61, 198nn83–86
Wohlforth, William C., 25, 27–28, 185n20, 190n84, 192–93nn2–4, 194n24, 199nn108–9, 238n55
Wolczuk, Kataryna, 134, 225n152, 225n159
Wolf, Martin, 230n246
Wooders, Myrna, 190n79
Woods, Ngaire, 184n14, 204n16, 205n35, 221n97
Wörgötter, Andreas, 224n134
Workers’ Party (PT; Brazil), 152, 153, 156, 165
World Bank, 36, 195n32, 196n52, 196n55, 196n57, 196n59, 197n63, 197n67, 197n70, 198n79,
202n158, 224n135, 233n8;
AIIB and, 98;
BRICS pursuing reform of, 23, 71, 72, 76–77, 80, 84–85;
challenges to, 14–15;
China and, 9, 50;
India borrowing from, 141;
issuing SDR-denominated bonds, 104;
leadership of, 82, 84–85;
lending priorities of, 98;
loan processing at, 95;
multipolarity index of, 197n67;
negative example of, 124;
refocusing of, 141;
voice reform at, 76;
voting shares in, 80
World Bank Group, 204n13
World Economic Forum on Africa, 162
World Social Forum, 150
World Trade Organization, 6, 7, 18, 140, 159;
China as veto player in, 187n51;
China’s accession to, 34;
clubs in, 13;
Doha round, 16, 140, 159;
steering groups in, 12
Worldwide Government Indicators, 172
Wright, Chris, 199n115
WTO. See World Trade Organization
Wulf, Herbert, 228n212
Wu Zhicheng, 188n59

Xi Jinping, 65, 90, 97, 112, 115–116, 122, 136, 137, 147, 158, 179, 215n9, 216n27, 232n270
Xiaomi, 40
Xue Litai, 198n100

Yadav, Vikash, 205n34

Yamal Liquefied Natural Gas project (Russia), 91
Yan Xuedong, 194n25
Yang Shaolin, 85
Yang Yongzheng, 237n47
Yang Jiang, 220n86, 220n91
Yang Jiemian, 216n27
Yanukovych, Viktor, 134
Yao Yang, 186n30, 234n15
Yeltsin, Boris, 125, 129
Yong Wook Lee, 190n91
yuan. See renminbi
Yurgens, Igor, 208n86, 223n122
Yu Yongding, 202n157, 212n145

Zadek, Simon, 233n4

Zakaria, Fareed, 184n7, 227n186, 236n40, 238n57
Zarate, Juan C., 186n35, 199n110
Zhan, James, 210n106
Zhang Fang, 234n14
Zhang Ming, 202n159, 214n170
Zhang Baohui, 216n28
Zhang Tao, 85
Zhang Yangpeng, 211n126
Zhao, Kejin, 220n83
Zhao, Minghao, 215n10
Zhao Suisheng, 192n117, 202n167, 220n88, 220n90
Zhao Nong, 235n17
Zheng, Yongnian, 220n85
Zhou Xiaochuan, 3, 61, 104, 213n161
Zhu, Yuchao, 220n81
Zhu Feng, 188n59, 192n119
Zhu Guangyao, 17, 192n108
Zhu Min, 84, 85
Zhu, Xiaodong, 195n42, 196n49, 196n52, 196n55, 197n70
Zingales, Luigi, 200n127
Zoellick, Robert B., 187n47, 218n56
Z-scores, 50
Zuma, Jacob, 157–160
Zuma government (South Africa), 159, 160, 231–32n267