The Weaponization of the Financial System: Debates from the BRICS and G20 Meetings in Rio de Janeiro

Fernando Brancoli

Abstract: As Brazil takes on the G20 presidency in 2024, it emphasizes themes of social inclusion, combating hunger, energy transitions, sustainable development, and global governance reform. Amid these initiatives, the "State of the Future" summit, held in Rio de Janeiro, critically examined the weaponization of the financial system—a concept referring to the strategic use of economic tools by powerful nations to exert geopolitical influence. During my participation in this summit, I observed key discussions led by figures such as Aloisio Mercadante and Dilma Rousseff, which highlighted the long-standing concerns of the Global South regarding financial sovereignty and the need for more equitable global financial practices. These debates underscored the urgency of developing alternative mechanisms within international coalitions like BRICS to address economic challenges and ensure global stability.     

In 2024, Brazil took over the Presidency of the Group of 20, the main forum for economic cooperation among the world’s top economies. As the country prepares for the G20’s main Summit in late November 2024, it has been convening a series of key discussions in Rio de Janeiro. Under the stewardship of President Luiz Inácio Lula da Silva, the Brazilian government is highlighting themes of social inclusion, combating hunger, advancing energy transitions, promoting sustainable development, and reforming global governance institutions. In addition, Brazil has advocated imposing taxes on the global mega-rich as part of its broader efforts to address economic inequality and generate resources for social programs.

However, amid these broader goals, one particular issue has come to dominate the discussions in the last weeks: the weaponization of the financial system. This concept refers to the strategic use of economic tools—such as sanctions, trade restrictions, and financial barriers—by powerful nations, mainly the United States, to exert geopolitical influence and constrain the behavior of other countries without resorting to military force. 

This topic was critically examined during the "State of the Future'' summit, a parallel forum held alongside the G20 meetings in Rio de Janeiro, from July 22 to 26, 2024. The event occurred in the Brazilian Development Bank (BNDES) facilities and convened politicians, scholars, and professionals from thirteen different countries, mostly from the Global South. Brazil initially had extended invitations to these participants to engage in discussions about the future of the global economy. However, pressing geopolitical issues, such as the war in Ukraine, sanctions against Russia, the rivalry between the United States and China, and the crisis in the Middle East, shifted the focus of the debates. Consequently, the discussions primarily centered on the use of economic tools as instruments of geopolitical power and explored how new international coalitions, such as BRICS¹, could develop mechanisms to more effectively address these economic challenges.

During my participation in these meetings, it became evident that discussions about economic warfare are tied to the broader issues that relate to promoting an alternative global economic agenda that works for all countries. Though there were a range of perspectives, participants generally agreed on the urgent need for reform and highlighted the destabilizing impact that economic warfare is having on the most vulnerable economies. 

Financial Sovereignty and Global Power: Highlights from the "State of the Future" Event

The discussions surrounding weaponizing the financial system have highlighted long-standing concerns within the Global South about the current global financial architecture. Over the years, leaders from developing countries have frequently raised the issue of financial sovereignty and the strategic use of economic tools to exert geopolitical influence. These debates reflect broader frustrations with the dominance of Western financial institutions and the need for more equitable alternatives. For instance, Celso Amorim, former Brazilian Minister of Foreign Affairs and currently Special Advisor for the Brazilian Presidency, has suggested that developing countries explore creating alternatives to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) to reduce dependency on Western-dominated financial systems. Similarly, at the third South Summit in 2024, Ugandan President Yoweri Museveni emphasized the need for international financial institutions to revise their lending terms to support developing countries without imposing restrictive conditions, advocating for a reformed global financial system that better serves the interests of the Global South. Additionally, during the Voice of the Global South Summit in 2023, Indian Prime Minister Narendra Modi called for a comprehensive reform of global governance structures to make them more inclusive and responsive to the challenges faced by developing nations. ​

Michael Hudson has described the International Monetary Fund (IMF) and the World Bank as instruments of "financial colonialism" whose policies often led to economic dependency rather than inclusive human development. ​ 

Despite Brazil's argument that the G20 should serve as a platform to bridge the gap between developing and developed nations, the events under President Lula's leadership have been notably critical of the Global North. Aloisio Mercadante and Dilma Rousseff made significant contributions to the extensive discussion of financial sovereignty at the "State of the Future" event.

Mercadante, the President of the BNDES, has been a vocal critic of the existing financial systems that, in his view, perpetuate inequities and hinder the development of emerging economies. The BNDES is a key institution in Brazil's economic landscape, playing a crucial role, with financial disbursements amounting to approximately USD 19 billion annually. BNDES also engages in international activities: it has established partnerships with various international institutions to finance projects in Africa, Latin America, and the Caribbean. The Bank, created during the 1950s in Brazil’s developmentalist era provides long-term financing to enhance economic competitiveness and enable structural transformation across Brazil’s industries. Today, BNDES supports a wide range of sectors, including infrastructure, energy, and social development projects, reflecting the bank's commitment to fostering sustainable and inclusive growth in Brazil.

In his address, Mercadante stated, "The Global South needs to do something; the Global North, in the past, used to kick away the ladder, and now they want to destroy the whole building." In conversations with participants after the event, many highlighted Mercadante's speech as one of the day's standout moments. A longtime friend, an Indian diplomat working in Brasília who took advantage of his vacation in Rio de Janeiro to attend the event, emphasized that Mercadante was publicly expressing sentiments he had already heard from Brazilian politicians behind closed doors. The ladder analogy, popularized by development economist Ha-Joon Chang, describes the phenomenon where developed countries, having attained economic success, withdraw the very policies and strategies (Chang specifically referred to industrial policy) that facilitated their progress, thereby impeding developing countries from pursuing a similar trajectory. His plea for comprehensive changes and more fiscal independence mirrors a wider trend among emerging countries to want fairer involvement in the global economy.

Mercadante also pointed out that the conditionalities attached to loans from institutions such as the International Monetary Fund (IMF) often force Global South countries to structure their economies according to models favored by the Global North. This, he argued, is detrimental, as it imposes a one-size-fits-all approach that does not take into account the unique socio-economic contexts of developing nations. Such conditionalities can lead to economic policies that prioritize fiscal austerity and liberalization at the expense of social investment and development goals, further entrenching inequality and dependency.

This critique ties into the broader academic discourse on the weaponization of the financial system: historically, these measures have served as a form of economic statecraft, influencing state behavior without direct military intervention. Scholars like Thomas Biersteker and Peter Andreas have explored the implications of economic sanctions, noting their capacity to affect state actions while also leading to unintended economic and humanitarian consequences. Today, this discourse emphasizes how these tools perpetuate global power imbalances, particularly between the Global North and South.

Dilma Rousseff’s Critique: Exposing Financial Inequities

Echoing Mercadante's sentiments, Dilma Rousseff, the former President of Brazil and current President of the BRICS Bank, stated directly that the global financial system was “created by the Global North to meet their interests.” The BRICS Bank, officially known as the New Development Bank (NDB), supports infrastructure and sustainable development projects in BRICS nations and other emerging economies. The NDB was established to counterbalance the influence of traditional Western financial institutions. Its name became synonymous with the challenge to the West and rising multipolarity.      

However it’s role is not just symbolic. As of 2024, the NDB has financed projects amounting to approximately USD $32.8 billion, supporting various sectors, including transport infrastructure, clean energy, water and sanitation, and social infrastructure. These projects are distributed among BRICS member countries—Brazil, Russia, India, China, and South Africa—as well as other emerging economies like Bangladesh, Egypt, the United Arab Emirates, and Uruguay. For instance, some notable projects include the Delhi-Ghaziabad-Meerut Regional Rapid Transit System in India, the Beijing Gas Tianjin Nangang LNG Emergency Reserve Project in China, and various infrastructure projects in Brazil.

Rousseff clearly views the NDB as a key actor in promoting the developmental interests of all nations, not just the developed ones, and aligns with the broader BRICS agenda of promoting more democratic and equitable global governance structures.

The NDB promotes itself as being an alternative to the World Bank and IMF both in terms of substance of its work as well as governance processes. By providing an alternative source of funding, the NDB aims to empower its member countries and reduce their dependence on the conditional loans often associated with the Bretton Woods institutions. The Bank claims a more democratic decision-making process, distributing voting power equally among its members, a stark contrast to the Bretton Woods institutions' weighted voting systems. The design of this structure prioritizes the consideration of all member countries, thereby fostering a more inclusive approach to global financial governance. However, skepticism is warranted regarding certain aspects of this framework. The notion of equal voting power can be complicated by the economic and political clout of member countries, particularly China. Beijing´s significant financial contributions and its Belt and Road Initiative might afford it disproportionate influence within the NDB, potentially leading to internal power imbalances similar to those seen in Western-dominated financial institutions​​. Additionally, the operational transparency and accountability mechanisms of the NDB have yet to be fully tested: concerns about the effectiveness and efficiency of its project implementations, especially in politically and economically volatile regions, remain. The Bank’s capacity to navigate geopolitical tensions, such as those between China and India, or the ongoing fallout from the Russia-Ukraine conflict, also pose challenges.​

While the critiques by Mercadante and Rousseff shed light on significant inequities within the global financial system, it's important to recognize that these narratives adopt a binary perspective, framing the Global North and South in opposition. This perspective overlooks the internal hierarchies and complexities within South-South relations. For instance, China, with its considerable economic clout and expansive Belt and Road Initiative, plays a dominant role within the BRICS coalition. China’s dominance in particular has led to a huge debate about unequal development within the Global South. Such internal dynamics suggest that while striving for a more equitable global financial architecture, it is also crucial to address and navigate the power asymmetries that exist within these emerging coalitions to ensure that all member states benefit equitably.

Rousseff further connected these financial issues to broader themes of peace and security, arguing that economic sovereignty and equitable financial systems are essential for global stability. She posited that the imposition of sanctions often exacerbates conflicts and undermines peace efforts, as economically constrained nations are more vulnerable to instability and less able to pursue sustainable development. By advocating for fairer financial practices and instruments, Rousseff linked economic justice to the foundation of lasting global peace and security. 

CIPS and the Geopolitical Role of BRICS Financial Alternatives

The Russia-Ukraine conflict was another point frequently addressed by Dilma Rousseff. She emphasized that the BRICS coalition has played a crucial role in stabilizing the Russian ruble since the onset of the war. Rousseff emphasized that the financial mechanisms developed within the BRICS framework, along with Russia's strengthened trade and financial ties with partners such as China and Brazil, have been instrumental in mitigating Russia's economic downturn. These efforts include the increased use of the Chinese yuan for transactions, which has supplanted the dollar as Russia's most traded currency. This approach by the BRICS is not merely about ensuring equal distribution of financial resources among its members; it signifies a deliberate geopolitical strategy to challenge and offset the economic dominance exerted by Western powers through sanctions and other economic tools. By promoting alternative financial systems and currencies, the BRICS coalition is actively working to create a multipolar economic landscape, reducing the influence of Western economic policies and increasing the financial sovereignty of its member nations​

Rousseff was not the only one discussing the Russia-Ukraine war. Nearly all speakers underscored its profound impact on global financial systems and particularly the negative impact of Western sanctions on the Russian economy. 

For BRICS nations, including Russia and China, these developments highlight the vulnerability of their economies to Western-dominated financial systems, in particular the power and reach of the US Dollar. According to various reports, these measures have disrupted Russia's access to international financial markets, reduced its ability to engage in trade, and limited its access to critical technologies with the goal of reducing its capacity to sustain prolonged military engagements.

However, the repercussions of these sanctions extend beyond Russia as the global economy has experienced disruptions in supply chains, particularly in energy and commodity markets. Their impact has catalyzed a broader debate about the role of international governance in mitigating against the downturns caused by increasing economic warfare .                

CIPS: A Viable Alternative to the Western SWIFT System? 

One of the key strategies being considered is the establishment of a BRICS payment system, which would enable member countries to conduct trade and financial transactions using their own currencies. This system aims to bypass traditional financial networks dominated by the US dollar, reducing vulnerability to sanctions and promoting economic sovereignty. Additionally, the BRICS nations are discussing the creation of a common BRICS currency to further facilitate intra-BRICS trade and investment.

The development of alternative financial market infrastructures is a critical component of the BRICS strategy to reduce dependency on Western-dominated systems. Currently, cross-border payments rely predominantly on networks of international correspondent banks that use messaging protocols managed by SWIFT. In recent years, China has made significant strides in this area with initiatives such as the establishment of offshore clearing centers and the launch of the Cross-Border Interbank Payment System (CIPS) by the People’s Bank of China (PBOC) in 2017.

CIPS, a real-time gross settlement system, allows national and international banks to access the official China National Advanced Payment System. Although CIPS collaborates with SWIFT for messaging, it can operate independently, offering an alternative in the event of disruptions to SWIFT connections. The use of CIPS has grown rapidly, with a 31.4% increase in message traffic in the third quarter of 2023 compared to the previous year. Despite this growth, over 11,000 financial institutions worldwide still use SWIFT, making CIPS relatively small.

There have also been efforts to develop alternative market infrastructures for securities settlements. The Moscow Exchange has proposed creating an international depository for the BRICS, and the Hong Kong Monetary Authority aims to turn its Central Money Markets Unit into an international central securities depository for Asia. Similarly, the UAE's Arab Monetary Fund has launched the Buna cross-border payment system, which provides settlement services in multiple currencies and could potentially lead to the establishment of an international central securities depository in Abu Dhabi.     

CONCLUSION

While these initiatives are still in their nascent stages, they represent significant steps towards reducing the reliance on Western financial infrastructures. The entrenched advantages of existing systems, such as multiple currency settlement capacity and economies of scale, present challenges. However, the commitment of BRICS nations to developing these alternatives highlights their determination to achieve greater financial independence and resilience.     

In the next few weeks, I will attend a series of high-level meetings in Rio de Janeiro focusing on BRICS military cooperation, which also has huge financial implications. In addition, I will be watching G20-related activist and political rallies. In November, I will cover the G20 leaders' meeting. These interactions will provide an assessment of how financial efforts are inextricably interwoven with military and political cooperation, offering an integrated perspective of changing multilateral policies.

By closely analyzing these interactions, I aim to elucidate the ways in which BRICS nations are navigating and negotiating their positions within the broader geopolitical and economic landscape. This will include a critical assessment of the efficacy and challenges of the Cross-Border Interbank Payment System (CIPS) and other financial mechanisms as tools for enhancing sovereignty and reducing dependence on Western financial systems. The insights gained from these events will contribute to a deeper understanding of the strategic imperatives driving BRICS and G20 countries as they strive for greater financial and political autonomy on the global stage.

Footnote:

1: BRICS stands for Brazil, Russia, India, China, and South Africa, an association of five major emerging economies. The group is currently undergoing an expansion process, with several states in the process of being integrated.