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The summit of the so-called BRIC states – Brazil, Russia, India and China – concluded Tuesday in Yekaterinburg, Russia, with a joint declaration that called for more clout for emerging economies in global financial institutions. Though no agreement was reached on detailed initiatives, the meeting itself attracted considerable attention.

Russian President Dmitry Medvedev hailed the summit as a “historic event.” Indeed, it was the first summit meeting of the group of four, held in the historical city in the Ural Mountains. The BRIC countries got together for the first time just over a year ago, in May 2008, when their foreign ministers met in the same Russian city.

The BRIC acronym was coined by investment banking firm Goldman Sachs in 2001 to refer to the four fast-growing developing economies of Brazil, Russia, India and China. Goldman Sachs claimed that by 2050 the combined economies of these four countries could eclipse the combined economies of the current richest countries of the world.

Through the summit and their signed declaration, the BRIC nations hoped to gain a bigger voice in a world financial system currently dominated by the United States and Europe. In fact, investors worldwide were watching the meeting for clues as to how the countries would manage their foreign reserves.

The value of the U.S. dollar quickly fell by 0.9 percent after Medvedev suggested the dollar should be replaced by an international currency. But this idea failed to win the support of the group; instead the final document simply called for a "diversified, stable and predictable currency" system.

The four leaders did indicate they would shift some of their foreign reserves – many of which are now held in U.S. Treasury bonds – into International Monetary Fund bonds instead. They also pledged to promote regional currencies, including by investing part of their reserves in each other’s bonds, to lessen dependence on the dollar. The official statement didn’t mention this possibility, however.

It is unlikely that the one-day summit will actually bring any “historical” changes in the global financial system, or greatly impact the crippled world economy. It will certainly take a much longer time for the system dominated by the developed countries to be overridden or replaced.

Indeed, the collective power of the four countries – all emerging market economies with very large populations – is considerable. According to Chinese statistics, the BRIC countries account for 42 percent of the world’s population and 12.8 percent of total world trade. When calculated by purchasing power parity, their contribution to the world economy could be as high as 50 percent.

Despite this potential power, in reality it is not being effectively harnessed. The four countries might be united by their dissatisfaction with the current system dominated by the U.S. dollar, and with the role played so far by the G8 nations, which have ignored the gap between the North and the South. But their alliance is still in its early stages.

The BRIC do not have a comprehensive plan for regulating the global market, let alone mechanisms in place to do that. They lack a coordinated approach, even as to how to use their combined clout of US$2.8 trillion in reserves.

It is certain that none of the BRIC currencies will replace the U.S. dollar, the euro or the Japanese yen any time soon. Among the four, China has the greatest financial clout, yet it is also the biggest holder of U.S. Treasury bonds, meaning it stands to lose the most if the U.S. dollar is scrapped. What’s more, the Chinese yuan is not even a convertible currency.

China’s holdings in Western debt – particularly U.S. bonds – have raised a great deal of controversy within China and around the world. Strong nationalistic voices within China oppose this arrangement. They complain that China has only been allowed to participate in the “soft market” by purchasing securities – for the benefit of the other side – while being excluded from the “hard market” – investment in or purchase of valuable assets overseas.

The recent decision of the Australian mining company, Rio Tinto Group, to refuse investment from Chinalco, China’s largest aluminum company, is seen as a case in point. The deal would have given the Chinese company an 18 percent stake in the Australian company, and control of certain copper and iron ore mines. Four years ago the same thing happened when China’s CNOOC tried to buy the U.S. oil company UNOCAL. Both deals broke down due to political opposition.

Additional challenges face the BRIC nations due to their geographical locations. Spread out across the globe in Asia, Europe and Latin America, they are not an easily integrated market like Europe.

More importantly, they have different national interests that cannot be brushed aside. These include the border conflict between China and India, strategic rivalry between Russia and China, and other issues including immigration, smuggling, competition for resources, and even issues regarding climate change.

As for the world financial system, the United States is still the actual arbitrator of the major institutions including the World Bank and the International Monetary Fund. Western management has infused these institutions with a Western mindset, as well as Western regulations, practices and technologies. While there are increasing calls to adjust this, reforms are not likely to be immediate.

In an interdependent world no single country or group of countries, nor an economic or military superpower, can manage global issues alone. The efforts and contributions of all nations are required, as well as long-term, viable and sustainable policies under the framework of the United Nations.

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(Dr. Zhang Quanyi is associate professor at Zhejiang Wanli University in Ningbo, China, and a guest researcher at the Center for the Study of Non-traditional Security and Peaceful Development at Zhejiang University in Hangzhou. His research interest revolves around the creation of a world state. He can be contacted at qyzhangupi@gmail.com. ©Copyright Zhang Quanyi.)