Dilma Rousseff, the president of the New Development Bank (NDB), gives a speech at the Eighth Annual Meeting of the NDB hosted in Shanghai, China, May 30, 2023. /VCG
Editor's note: Matteo Giovannini, a special commentator on current affairs for CGTN, is a finance professional at the Industrial and Commercial Bank of China in Beijing and a member of the China Task Force at the Italian Ministry of Economic Development. The article reflects the author's views, and not necessarily those of CGTN.
Over the last few months, BRICS has gained prominence on mainstream media, in part for the reopening of China to the rest of the world as well as a convergence of interests that could lead to significant global repercussions.
According to news reports, the New Development Bank (NDB), which aims at "mobilizing resources for infrastructure and sustainable development projects" in emerging markets and developing countries, has been in concrete talks with Saudi Arabia regarding the possibility of membership.
If successful, the country would become the ninth member to be admitted by the multilateral development institution after a first batch of nations — United Arab Emirates, Egypt, Bangladesh, and Uruguay — joined the founding members Brazil, Russia, India, China, and South Africa.
The addition of this Middle Eastern country, which is the world's second-largest oil producer after the United States, cannot be underestimated as it could help to raise the status of the NDB on international capital markets becoming a serious alternative, alongside the Asian Infrastructure Investment Bank, to a group of Western-led institutions represented by the International Monetary Fund and the World Bank.
The inclusion of Saudi Arabia to the NDB could also secure the bank new avenues of funding at a time when the organization is finding it hard to mobilize its own resources due to the impact of Western sanctions on Russia. In this sense, the participation of the Kingdom could serve as a way to hedge the Russian geopolitical risk by leveraging the growing economic and financial influence of a well-off additional shareholder.
Considering that multilateral banks' business depends on a mix of high credit ratings and low financing costs in order to be able to lend money for development projects at a cheaper rate, the acceptance of a country characterized by a strong balance sheet such as Saudi Arabia could boost the NDB's overall financial strength while improving the bank's creditworthiness on global markets.
A night view of Al Mamlaka tower in Riyadh, Saudi Arabia, May 28, 2018. /VCG
Timing is key to understanding the move, as it can be seen as the result of a combination of China's diplomatic efforts in the Middle Eastern region and Saudi Arabia's aspiration to deepen its ties with some of the world's largest developing economies in the Global South.
It is no coincidence that last week, the Industrial and Commercial Bank of China opened a new branch in the Saudi city of Jeddah, with the intent of increasing financial cooperation between the two nations, in a bilateral trade that in 2022 hit a record high of $116 billion, while promoting the utilization of the Chinese currency, the yuan, in trade and transactions.
As BRICS nations are ramping up de-dollarization efforts to utilize local currencies to settle cross-border trade, the inclusion of Saudi Arabia, which is a heavyweight in global energy markets, could have impactful effects on the international currency exchange system. A gradual but irreversible reduction in the level of oil and gas deals made in U.S. dollars among BRICS nations will pave the way for China's yuan to become a go-to currency for energy trade settlements.
Taking into account that the Kingdom has the most oil reserves of any nation in the world, a stronger financial cooperation with BRICS nations could lead to a polarization of power in the energy industry with the opportunity for BRICS to have a greater say in terms of policies, production quotas and pricing.
In other words, Saudi Arabia's decision to tie its destiny to that of the countries belonging to BRICS might result in a power rebalancing in both Asia and the Middle East and in a shift in the geopolitical landscape as we know it, with the European Union that could be forced to make the historical decision of dumping the U.S. dollar in energy sector transactions in favor of yuan-priced oil contracts.
Economic factors and geopolitical considerations might have had a meaningful role in the decision of Saudi Arabia, a country that has historically maintained strong alliances with Western powers, to request admission to the Shanghai Cooperation Organization in the past and to become part of BRICS in the near future.
The resolution to join the NDB could reveal itself as a key milestone within a broader strategy that marks the beginning of a new financial order where global influence is rapidly shifting from the West to the East.
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