Posted on 08/28/2023 9:05:27 AM PDT by SeekAndFind
Are the BRICS a threat to the U.S.?
The summit of the so-called BRICS (Brazil, Russia, India, China, and South Africa) has closed with an invitation to join the group extended to the Emirates, Egypt, Iran, Saudi Arabia, Argentina, and Ethiopia.
The summit has generated a lot of headlines about the impact of this widespread group of nations, including speculation about the end of the U.S. dollar as a global reserve currency if this group is perceived as a threat to the United States or even the International Monetary Fund.
Several things need to be clarified.
Many political analysts believe that China lends, invests, or supports in return for nothing. China is a major economic power, but it has no interest in being a global reserve currency. Its currency is currently used in only 5% of global transactions, according to the Bank of International Settlements.
China and Russia have capital controls. It is impossible to have a global reserve currency without freedom of capital movement. More requirements are needed than solid gold reserves to have a stable fiat currency. It is essential to guarantee economic freedom, investment, legal security, and the free movement of capital, as well as an open, transparent, and diversified financial system.
China and Russia are much more demanding and rigorous lenders than many politicians think. It seems that some emerging market politicians think that joining China and Russia will be a kind of free money panacea.
Another problem with creating a BRICS currency is that, logically, neither China nor Russia has the slightest intention of losing their national currency to dilute it alongside a group of issuers who have a doubtful track record in controlling their monetary imbalances. Over the past ten years, the currencies of the BRICS guest countries have depreciated significantly against the U.S. dollar. The Argentine peso has fallen by 98%, the Egyptian pound by 78%, the Indian rupee by 35%, the Ethiopian birr by 68%, the Brazilian real by 55%, according to Bloomberg, and the Iranian rial has collapsed by 90%, according to The Economist. Putting together weak currencies does not create a strong currency.
We must not forget that the performance of the Russian ruble (-68% against the U.S. dollar, according to Bloomberg) in the last decade has also been poor despite having a relatively prudent central bank.
The best “BRICS and guests” currency against the U.S. dollar in the last 10 years is the Chinese yuan, with a depreciation of only 14%.
For a fiat currency to be stable, it is necessary that the issuer defend it as a reserve of value, a generally accepted payment method, and a unit of measure. Freedom of capital and independent institutions that provide legal security to domestic and international investors are needed. Having a strong military power does not guarantee a currency accepted as a reserve of value, as demonstrated by the disastrous Soviet kopek, despite the USSR’s influence on half the world.
Moreover, China has no interest in taking on all the challenges required to be a global reserve currency, starting with a financial and monetary system with a high level of independence from political power. Many analysts ignore that what has made the Federal Reserve a success as the world’s central bank is that it is not under total state control or public management. The Fed may not be completely independent, but it is as independent as a central bank for a fiat currency can be.
Joining countries with governments that advocate monetizing uncontrolled public spending and massively increasing monetary imbalances cannot create a stable currency unless they implement the example of the euro. In the euro, Germany, the country with the most prudent and responsible fiscal policy, dictated the main lines of the monetary and fiscal rules for the rest. Unfortunately, the eurozone and the ECB, in trying to play to be the US and the Federal Reserve, have lost most of their options to be a real alternative to the U.S. dollar. And the euro is the greatest fiat monetary success in the post-Bretton Woods era; let us not deprive it of its merit.
The BRICS alternative starts with a major Achilles heel. China and Russia are going to have major difficulties imposing fiscal and monetary policy restrictions on their partners. Let us not forget that several of these partners have joined the group, thinking that from now on they will be able to continue printing money and spending without control, but their monetary imbalances will be distributed to other nations.
The euro has been a success because liberal democracies with independent institutions and broad economic freedom and legal certainty agreed to align their policies for the common good, creating a solid currency that avoided the debacle created by the inflationary spirals that were the norm in Europe historically when governments devoted themselves to transferring their imbalances to citizens’ wages and savings through monetary destruction. This does not seem easily replicable with BRICS and guests.
China, however, can increase its control over all these countries by implementing rigorous monetary and fiscal policies. It is the strongest lender of all the BRICS, but it is unlikely to take on the role of the euro’s Germany, willing to absorb the excesses of others in exchange for a common project. China is going to increase its control over the countries in the group, but it is not likely to jeopardize the stability and security of its enormous population by sinking the currency. The Chinese government is probably analyzing how the euro is losing monetary prudence and reaching the conclusion that it cannot take that same risk with some of these new partners. However, China will probably make the most of its financial strength to lend, increase their domestic and international growth options, and access abundant and cheap commodities.
China is the big winner of the BRICS summit. The Chinese government probably knows that many of its partners are going to continue increasing their imbalances, and this may allow China to strengthen its leadership position. However, I find it hard to believe that China will agree to the creation of a currency that others can use to trigger inflationary imbalances.
Meanwhile, in the U.S., the government may jeopardize the credibility of the U.S. dollar if it continues to generate deficits of two trillion dollars a year, more than a $14 billion estimated deficit by 2030, and with an increasing number of irresponsible advisers saying that it can create all the money it wants without risk. The fiscal credibility, institutional independence, and economic freedom of the U.S. dollar, the most widely used currency in the world, cement its leadership. If the government undermines these strengths, the dollar will lose its reserve status.
The end of the U.S. dollar, if it comes, will not arrive through competition from another fiat currency, as the temptation of governments to destroy the purchasing power of the issued currency is too strong. It will probably come from independent currencies.
free market currency will always be the back up currency of the world... the dollar deviating from that opens the door for others, but one controlled by china? hehehe, that’s a joke.
It will take a long time for these countries to dethrone the dollar simply on demographic levels alone they are headed for economic stagnation.
I see BRICS as a framework for these countries when economies become more regionalized after the eventual collapse the world will feel from these demographic bombs.
There are not enough kids in China, Russia, Brazil, ect. They are not wealthy enough nations to do what Japan is doing with investment economies either.
The Ethiopia and South African diversity hires are hilarious.
BRICS is the Globalists’ back-up plan in case the plebes won’t submit to their Great Reset.
Time will tell, but....
"...the euro is the greatest fiat monetary success in the post-Bretton Woods era; let us not deprive it of its merit." It affected us, and our Deutschmarks -- as a value related to the USD -- when converted automatically to the Euro, dropped in purchasing power rather quickly. So "success" is a word with different meaning to different people.
And it seems muddled to conclude, "The end of the U.S. dollar, if it comes, will not arrive through competition from another fiat currency, as the temptation of governments to destroy the purchasing power of the issued currency is too strong. It will probably come from independent currencies."
There will be NO "end of the U.S. dollar" as the phrase goes. There will likely come an end to the SWIFT system as the unipolar money transfer system, as competition is created and trade handled between non-US nations in other non-US currencies. Ditto for the Euro.
There will be a dollar, and likely a Euro unless the EU breaks apart and ECB debt challenged. But trade conducted in other currencies is the issue and likely coming reality.
Oddly, that is what I personally experienced decades ago, when I was paid in Pounds sterling, French and Belgian and Swiss francs, Guilders, Deutschmarks and more. I "traded" in multiple currencies. And sometimes brought currency between countries without the services of bank transfers. It should not be too far fetched to imagine the "past" being made "new" again.
With competition to the SWIFT system and BIC, the question is one simply of "economic sanctions" no longer being what these last very few decades have become -- weapons.
Yes, the all poor countries like the BRICS have the same problem. Either you impose tight restrictions on your currency and limit its trading (like China and India) or your see regular cycles of hyperinflation and devaluation like Russia and Brazil.
They are all small boats on the sea that is the US dollar. Either they stay in port or accept being hit by storms.
A basket of bad currencies is still not better than the dollar.
Honestly, they would be better off using Bitcoin.
No, but DemocRATs will.
Except the IMF and other global (US controlled entities) are gunning for Bitcoin and other cryptos....
"The regulatory fabric is being woven, and a pattern is expected to emerge. But the worry is that the longer this takes, the more national authorities will get locked into differing regulatory frameworks. This is why the IMF is calling for a global response that is (1) coordinated, so it can fill the regulatory gaps that arise from inherently cross-sector and cross-border issuance and ensure a level playing field; (2) consistent, so it aligns with mainstream regulatory approaches across the activity and risk spectrum; and (3) comprehensive, so it covers all actors and all aspects of the crypto ecosystem."
REGULATING CRYPTO
ADITYA NARAIN, MARINA MORETTI
IMF
SEPTEMBER 2022
Source: https://www.imf.org/en/Publications/fandd/issues/2022/09/Regulating-crypto-Narain-Moretti
It seems those not in favor of competition are actively working to quash competition.
Good point, but even SWIFT isn’t that important. The main source of the dollars power is that any currency other than the USD comes with a certain risk premium.
If you are a corporation that sells around the world, you don’t want to hang on to rupees, reals, or rubles.
If you have a billion in reals sitting on your books you either
1) accept the risk that they could drop by 10% next month
2) Pay $50 million a month for a currency hedge to cover that danger
3) Dump them for USD or Euros as soon as you can
Almost every corporation chooses option 3, and there isn’t much that could change that.
Before BRICS can dethrone the Dollar, they will have to settle on which currency they will use. The Yuan? The Rupee? The Ruble? The Euro? The Brazilian Dollar?
For a currency to be a world currency there has to be enough of it. Originally, I thought the various BRICS countries would trade their own currencies for one backed by gold that they bought. But there seems to be no way to operationalize such a scheme. Who would supply the gold and at what price? Who would hold onto the gold and at what cost? Then there’s the politics. China wants the power that controlling BRICS would give them. India will fight that to the death. Russia is looking for a way to use BRICS in their war and nobody else in BRICS, including China, wants the knock-on effect of sanctions they’d get from the rest of the world for dealing with Russia. What comes to mind is two drunks helping each other cross the road. The weaker economies like Iran, Brazil and others, are simply looking for a free ride. This is a pointless diplomatic exercise.
33 trillion in debt Hello!!! No our idiotic government dethroned it
"...the dollar's share of global foreign-exchange reserves fell below 59 percent in the final quarter of last year, extending a two-decade decline, according to the IMF's Currency Composition of Official Foreign Exchange Reserves data. In an example of the broader shift in the composition of foreign exchange reserves, the Bank of Israel recently unveiled a new strategy for its more than $200 billion of reserves. Beginning this year, it will reduce the share of US dollars and increase the portfolio's allocations to the Australian dollar, Canadian dollar, Chinese renminbi and Japanese yen."
"Dollar Dominance and the Rise of Nontraditional Reserve Currencies" IMF June 1, 2022
Source: https://www.imf.org/en/Blogs/Articles/2022/06/01/blog-dollar-dominance-and-the-rise-of-nontraditional-reserve-currencies
I think that the West -- includes us and our USD and Euro accounts (I also at one time had a UK account when I worked there) -- have done a foolish thing with "economic sanctions." When a contract -- trade is about contracts and trust after all -- becomes voided by some sort of "confiscation," as various kinds of recent sanctions, but also a long history of the nationalization of assets by socialist policies, then trust drops. We are closing our Euro account as the signs of recession grow there, and we want use of our assets close to us (and dispersed across a number of institutions and real estate), even as a recession might come here.
All fiat currencies are subject to political control and Lacalle writes an excellent article describing how the BRICS governments are worse and even more rapacious, then the US Government
BUT - the BRICS summit did not propose an alternative currency. Nothing even close. They pushed off consideration of it well into the future. So Western talk of it is just blather.
So what the BRICS really are doing is a vast PR exercise, combined with a loose political alliance. Its goals are limited at the moment - but they are nonetheless targeted at the US Empire.
They’ve tried this before. One I remember was a “gold backed” effort with very alloyed “gold” coins. It fizzled.
The trouble is they want all the liberties of a fiat currency, but the stability of a gold backed one. So their own greed kills their scheme.
Indeed, and BRICS governments are even more controlling and political than even Fed.gov is.
BRICS are simply creating an informal alliance - waiting for the US to destroy itself. Our DC deep-state is indeed doing the job for them: going all-in with Ukraine, arresting former Presidents, promoting sexual degeneracy for political purposes, blowing-out government debt - all the BRICS have to do is sit back, watch our own woke-marxists tear the USA apart and protect themselves from the fall-out
BRICS is not about fighting the USA. It's about preparing for the post-USA world as best they can. The key concept is not to get dragged down.
Meanwhile, in the U.S., the government may jeopardize the credibility of the U.S. dollar if it continues to generate deficits of two trillion dollars a year, more than a $14 billion estimated deficit by 2030, and with an increasing number of irresponsible advisers saying that it can create all the money it wants without risk.
Shouldn't that billion be trillion?
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