The Import of Institutions to the Brics Countries

Author:M. Zharikov
Position:Financial University under the Government of the Russian Federation (Moscow, Russia)
Pages:27-58
BRICS LAW JOURNAL Volume VII (2020) Issue 1
THE IMPoRT oF InSTITuTIonS To THE BRICS CounTRIES
MIKHAIL ZHARIKOV,
Financial University under the Government of the Russian Federation
(Moscow, Russia)
https://doi.org/10.21684/2412-2343-2020-7-1- 27-58
This article explores the potential approaches to optimising the way the institutions of
mutual common use by the BRICS countries are constructed. The topic is time-relevant,
for it reveals the need to work out a new institutional basis to understand the workings
of the BRICS institutions as a result of recent transformations, such as Brexit, in the
phenomenon of international and regional economic integration. The article is founded
on the hypothesis that the impor t of institutions by the BRICS may be a more eective
approach to the member countries’ convergence than the conventional approach. The
originality of the theme lies in the fact that the modern economic literature has not studied
to the full extent the impact of this exogenous factor on nancial integration. There is
also a need for the further development of the least-studied areas of regional monetary
integration, namely the lack of the ability of current world institutions to manage the
common monetary policies and debt of the member countries. The author proposes
principles for creating and operating a virtual contractual republic of the BRICS contrary
to the exploitation-state model of the EU. The article rediscovers the institutionalist idea
about democratic decisions by a group of subjects such as the member countries of
a particular integration agreement. The author maintains that the new institutions of
the BRICS may cause dramatic changes in the world monetary system, international
liquidity and international reserves. The general conclusions of the article encompass the
signicance of creating integration institutions on the basis of the experience of the BRICS
as a way to more economic and nancial stability in the world. The results contribute to
the search for opportunities of optimal operation of the BRICS regional debt market. In
his closing remarks, the author outlines the prospects of settling the debt problems in the
BRICS based on the virtual debt market.
Keywords: BRICS intergovernmental institutions; contractual state (republic); consensual
economic policies; regional integration agreement; virtual market; vir tual common
BRICS LAW JOURNAL Volume VII (2020) Issue 1 28
monetary instruments; common debt market; common payment infrastructure; common
currency; exploitation state.
Recommended citation: Mikhail Zharikov, The Import of Institutions to the BRICS
Countries, 7(1) BRICS Law Journal 27–58 (2020).
Table of Contents
Introduction: International Economic Integration Today
1. Theoretical Background
1.1. History of the BRICS Countries’ Approaches to Importing Institutions
1.2. What Should the BRICS Do Dierently from the EU?
2. The Model
2.1. The Model We Propose for the BRICS to Optimise Their Decision-Making
2.2. What Makes the BRICS so Eective Compared to Other Groupings?
2.3. Assessment of the Performance of the BRICS’s Institutions
Conclusion: The Results of the Research and Recommendations
Introduction: International Economic Integration Today
The early 21st century has seen a number of country groupings come into
being that do not classify as regional integration agreements (RIAs) as they were
understood by academics in the 1950s and 1960s when, for example, the European
Economic Community was created. In the 2000s, economists, professional traders,
equity and fund managers, policymakers and others have been quite inventive
in creating acronyms for such groupings, such as the BRIC, which encompassed
Brazil, Russia, India and China (later renamed the BRICS when South Africa became
a member country), Next-11, IBSA, etc. These groupings came into existence as
a response to a series of economic and nancial crises the world suered in the rst
decade of the 21st centur y, namely the dotcom bust and the sub-prime mor tgage
crisis that later spilled over into the world economic and nancial crisis, as well as
from repercussions related to acts of global terrorism. It was as if the very emergence
of these groupings questioned the world economic order in the way it was structured
after the Second World War.1
The post-war era was characterised by liberalisation, decentralisation, easy cross-
border trade, investment and various sorts of other global economic transactions.
1 Pierre-Olivier Gourinchas & Maurice Obstfeld, Stories of the Twentieth Century for the Twenty-First, 4(1)
American Economic Journal: Macroeconomics 226, 237 (2012).
MIKHAIL ZHARIKOV 29
After years of harsh separatism, countries came closer together and loosed a mania
which resulted in hundreds of RIAs that were thought to be a sort of panacea for
prosperity and economic growth. However, the challenges of the early 21st century
made people realise that there was something wrong in the globalisation and
integration trends, and that there were limitations. The limitations of the RIAs were
put in place by neoclassical market fundamentalism.2
These limitations involve several contradictions. For example, capitalism requires
free enterprise, free competition and well-established property rights. However, the
RIA in Europe supposes that the European Union (EU) countries will band together
to provide nancial stability facilities to support and bail out weaker member
states such as Greece or Portugal.3 This common policy means there must be some
elements of a command economy present to, in eect, make the rich EU countries
pay for the poor countries, which is certainly not capitalism, rather something
closer to communism or socialism. Such common policies eventually constrain
national sovereignty. Additionally, international and regional integration as part of
globalisation bring with it a couple of surprises for economists to think about.
First, the world was shocked by the great European debt crisis that revealed
the nancial weaknesses of the regional economic integration in Europe. The crisis
damaged the image of the euro as a currency that could rival the supremacy of the
U.S. dollar in the international monetary system. The euro turned out to be a real
disappointment for many traders who had invested heavily in assets denominated
in the euro since the start of the 21st century. The euro also disappointed many
countries that had diversied their ocial foreign exchange reserves in currencies
other than the U.S. dollar.
As soon as the global nancial crisis of 2008 broke out, most countries of the
world increased the share of the dollar assets in their portfolios fearing a steeper
downturn in the global nancial system. They put more trust in the U.S. authority
in international nancial aairs than in the collective European body (the European
Central Bank) that does not even have the authority to issue the common currency
(euro). Countries nally decided that at the end of the day a national government
is more responsible for keeping the currency safe than a number of governments
that have the authority to print the euro all on their very own. As a result, the dollar
strengthened as the world’s reserve currency, whereas the euro has come to be seen
by many as a currency that no one is willing to guarantee as a safe-haven asset.4
2 Menzie D. Chinn & Hiro Ito, A New Measure of Financial Openness, 3(10) Journal of Comparative Policy
Analysis: Research and Practice 309, 319 (2008).
3 Jacques Miniane, A New S et of Measures on Capital Account Restrictions, 51(2) IMF Sta Papers 276,
301 (2004).
4 Wilhelm Hankel & Rober t Isaak, Brave New World Economy: Global Finance Threatens Our Future
(Hoboken, N.J.: Wiley, 2011).

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