Plans for BRICS to overhaul the G7 are lacking in substance
In the ever-evolving landscape of global finance, the G7 continues to hold a significant position, despite the rising influence of the Brics+ bloc. This dominance can be attributed to the G7's deep-rooted control over key financial infrastructures and institutions.
According to data from Statista and the IMF World Economic Outlook, the G7's share of global GDP in Purchasing Power Parity was 44.9% in 1995. Today, while the Brics countries have surpassed the G7 with a 32.1% share, the financial realm remains heavily skewed towards the G7.
The G7's financial institutions, particularly those in London, New York, and Tokyo, serve as the backbone of global money markets, banking centers, and financial governance through multilateral institutions like the IMF and World Bank. Despite efforts by the Brics+ bloc to replace these institutions, they have yet to effectively replicate or match the G7's influence [1].
One of the key factors reinforcing the G7’s financial supremacy is the dollar's role as the dominant global reserve currency. The U.S.'s powerful geopolitical influence and the ability to "weaponize" the dollar through sanctions serve to limit alternatives proposed by Brics+ [4].
Moreover, stable macroeconomic conditions and coordinated monetary policy easing among G7 countries support investor confidence and capital market activity in their financial centers. Regulatory bodies like the European Securities and Markets Authority ensure consistent valuation and reporting standards, boosting transparency and trust, further strengthening G7 market leadership [2][3].
In contrast, the Brics+ bloc faces internal divisions, geopolitical friction with the West, and challenges in creating a unified alternative financial governance system. The recent expansion of Brics has complicated consensus, limiting a coherent challenge to G7-dominated global financial rules and institutions [5].
The international banking market, as per the 2024 International Monetary Institute's Bank Internationalisation Index, is dominated by US, British, Japanese, German, French, and other European banks. China, despite its economic might, has a smaller share in international activities compared to G7 banks [6].
The Brics Interbank Cooperation Mechanism is being discussed as a potential mechanism for financing in local currencies, and the Strategy for Brics Economic Partnership 2030 aims to consolidate mandates and guiding principles for the cooperation of the Brics group on various global issues. However, these initiatives are still in the planning stages, and China has not yet committed to taking on a more active role in global finance [7][8].
In summary, the G7's dominance persists because it controls the key infrastructure of global finance—capital markets, reserve currency status, and governance institutions—while Brics+ is still primarily an economic force lacking the integrated financial systems, regulatory coherence, and geopolitical leverage essential to supplant the established order [1][4][5].
- A significant portion of global finance is governed by the G7, with their financial institutions, like those in London, New York, and Tokyo, serving as the backbone of global money markets and financial governance in institutions like the IMF and World Bank.
- The G7's financial supremacy is reinforced by the dollar's role as the dominant global reserve currency, along with stable macroeconomic conditions and coordinated monetary policy easing among G7 countries, which support investor confidence and capital market activity.
- In contrast, the Brics+ bloc faces internal divisions and geopolitical friction with the West, making it challenging for them to create a unified alternative financial governance system and replicate the G7's dominant influence in global finance.
- Research and sustainable finance initiatives have yet to gain significant momentum within the Brics+ bloc, as compared to the G7, where regulatory bodies like the European Securities and Markets Authority ensure consistent valuation and reporting standards, boosting transparency and trust.
- Global finance continues to be heavily skewed towards the G7, even though the Brics countries have a larger GDP share, due to the intricacies of global finance, the role of key infrastructures, and the geopolitical levers that the G7 holds.
