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.
The United States imposed sanctions upon Russia only after Russia had broken our trust, and the trust of the rest of the Free World: By launching a massive invasion of Ukraine, grabbing land, and thus completely abrogating the post-WWII security order.
This is like reneging on an I.O.U. written to your neighbor after your neighbor has murdered the newspaper boy.
Regards,
It is not in anybody’s interest to “destroy the dollar,” — that’s nuts — too many dollars in National reserves out there.
However, it is in everyone’s best interest (accept for the deep=state Banking Cabal) to move from a unipolar petrodollar world into a multi-polar currency and commodity pricing/exchange world.
Hopefully, the move to a multi-polar world will be gradual and as peaceful as possible.
This is the real WWIII battle the media will never tell you about.
“with an invitation to join the group extended to the Emirates, Egypt, Iran, Saudi Arabia, Argentina, and Ethiopia”
That’s it! With such economic and stable power-houses joining in I’m going to get rid of every dollar I have.
The dollar, under the control of the Uniparty, is working hard to dethrone itself. All part of the plan to globalize the world.
People that should know better sometimes do, and sometimes don’t. The lessons of the Weimar Republic should shout out pretty loud.
“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....”
I think this is exactly what USA is doing, hence other nations are forced to seek shelter in other solutions -
The premise of inevitability and invincibility of US dollar as reserve currency rests on non-violability of BRICS or other currencies to be global reserve currency. Why does world need global currency or global reserve in the first place? It has never existed in the history of world, and kingdoms were still able to trade bilaterally, In a multi-polar world, nations will find ways to trade bilaterally and regionally by creating bilateral and regional arrangements. Resourceful nations will try to become self-sufficient so they would need only minimal international trade to meet their domestic needs. More nations are going to reject globalism and global trade, and they are heading in that direction
Correct. In the moment. One of the problems in trying to get a grip on changing situations is that it is as in navigation, "maneuvering relative to another vessel."
"Meanwhile, the U.S. share of the world economic output has fallen from 32% in 1980 to 24% in 2020<, according to calculations by the U.S. Federal Reserve, while the country's share of global trade dropped from 14% to 11% in the same period. Yet in other respects the dollar's grip is as tight as ever. The dollar was on one side of 88% of all foreign exchange trades in April last year, according to the Bank for International Settlements. The Fed estimates that between 1999 and 2019 the dollar accounted for 96% of trade invoicing in the Americas, 74% in the Asia-Pacific region, and 79% in the rest of the world. Banks used the greenback for around 60% of all international deposits and loans."So the dollar is strong because other nations are using it in trade, and the BIC and other big banks make profit thereby. Yet we fall in economic output as in share of global trade. These issue seem separate, but they are not long term. We as citizens are not synonymous with the U.S. Federal Reserve or Bank for International Settlements. At least my wife and I are not. You may own shares....In "Why the dollar keeps winning in the global economy," Reuters, 28 February 2023.
Source: https://www.reuters.com/breakingviews/global-markets-breakingviews-2023-02-28/
As share of global productivity and trade fall, the US in these ways weakens. And, as with maneuvering relative to another vessel, our "strength" in the currency will change. One month after the above citation, one reads:
"The role of the dollar in global trade is even more pronounced, accounting for 96% of trade transactions in the Americas, 74% in the Asia-Pacific region, and 79% in the rest of the world, excluding Europe where the euro dominates, according to Federal Reserve data for 1999-2019."As to the Fed:In "China Begins to Erode US Dollar Dominance in Global Trade Agreements," Gro Intelligence," 16 May 2023
Source: https://www.gro-intelligence.com/insights/china-begins-to-erode-us-dollar-dominance-in-global-trade-agreements
"The U.S. Government does not own shares in the Federal Reserve System or its component banks, but does receive all of the system's annual profits after a statutory dividend of 6% on their capital investment is paid to member banks and a capital account surplus is maintained. The government also exercises some control over the Federal Reserve by appointing and setting the salaries of the system's highest-level employees." WikiSo the government receives income from the Fed, making the government, in a way, both the fox and the hen house.Source: https://en.wikipedia.org/wiki/Structure_of_the_Federal_Reserve_System
The above citations from February and then May suggest change is going on. If the IMF and BIC see changes, via competing entities offering other kinds of "settlements" and slipping out of the reach of a unipolar control, then much is up for grabs.
This is in part why your statement is important, "Actual trade is still what matters," and, as above, our US trade is lessened because other trade is growing as a share of global trade. With Saudi Arabia and Iran showing willingness to work outside the so-called "petrodollar," things could change more quickly.
What seems interesting is that "competition" to a unipolar world is increasing. The sanctions erected over these last years are not assisting in increasing trade throughout the world. They are annoying other nations -- rightly or wrongly -- and that will give impetus fir those annoyed to seek alternatives.
Agreed. There is another side to the lesson of the Weimar Republic as to the lunacy of Zimbabwe. In each there were politicians aplenty who said the actual outcome would never happen until it did, and/or it was "worth it" after it happened.
A HardTalk BBC interview from years ago comes to mind. A minister in the Clement Attlee government was the guest, and the interviewer asked about the 23 percent unemployment when he was in government back then. The jackass' response, "Yes, but WE WERE IN CHARGE." That was his point. Not remorse for citizens, but pride that he held that position.
I went looking for articles on what Obama did to the US money supply, the M2 number. Holy smoke, there was article after article about how Obama rescued the economy from certain death. What bunk. Here’s my memory. Obama doubled the M2 number, the amount of US money in existence. That turned every dollar into fifty cents. Then, because that did nothing to the economy, he did it again. So, from fifty cents to twenty-five cents. Then, he added 87 billion dollars per month. What proportion that was to the overall total I don’t know. We didn’t feel the impact right away because inflation is too much money chasing too few goods. That money didn’t get down to the level of us and the grocery store right away for a number of reasons. The banks who got the cash, did not lend it out or otherwise put it into circulation. What did they do? They bought stock.
The other day I had to buy a bottle of alcohol. It used to be .79. I paid $3.98. Look around at the things you buy. Prices have gone way up. The thing that has saved us from Weimar levels of inflation has been Covid and the collapse of the Chinese economy.
The economy is complicated. Despite what wags tell us, it’s nothing like the household economy. That’s because the households can’t print money. Also, the prices we see are affected by the world at large and, in general, that has softened things. For example, because the US market was going up and the EU gave Cypress a haircut on their bank accounts, everyone who had money to invest dumped it in the US market, which makes things cheaper for us. Thirteen cents on the dollar is a guess. But things Obama did will haunt the US consumer for the rest of our lives.
From another thread, a Hemingway quote: “How did you go bankrupt? Two ways. Gradually, then suddenly.” From The Sun Also Rises, 1926.
Is that how it’s happening with the USD & US economy?
The US Treasury bond market is a major reason that the dollar is the reserve currency. There is no rival currency with anything like it, and BRICS won’t have it either.
There are wild differences between M1, M2, and M3. Also, you get a totally different graph if the numbers are adjusted for inflation. Each graph needs to be read in context. When it’s produced, who produced it and what year dollars it’s referenced too all count. It’s more complicated than a few posts on FR will cover. But ask yourself, are you better off with the government printing money because the president wants to look better? The reason we recovered under Trump was investors took a total of 30 trillion dollars out of circulation and held it in cash. This is because Obama fired the head of GM and gave the “secured” bond holders a haircut. He gave, communist style, part of GM to “the workers.” The investors took their money off the market because they no longer believed in the rules. Trump came in and they dumped it back into the economy. Now we have Biden, which is Obama with even less charm and more hair sniffing.
It never existed before because nations (and certainly not private corporations) didn't conduct financial transactions of anywhere near the order of magnitude of modern transactions (not even in relative terms).
And even when they did conduct large transactions (still miniscule in comparison with modern-day transactions - see above), they didn't use fiat currency. (Well, debased specie did eventually come into circulation, but...)
Instead, they bartered (e.g., slaves for land, wheat for olive oil, etc.) - with all the concomitant inefficiencies.
We need a large-volume currency (a.k.a. global reserve currency) because it would be economically inefficient to do otherwise.
Imagine, if you will, a small, isolated town where the only currency is I.O.U.s that anyone can write up in his own name. Some "regular joe" wants to purchase a plot of land from you. Question: Would you rather accept the I.O.U.s of this "rando" - or the bonafide I.O.U.s of the town's "Mr. Potter" or "Miss Gulch" character, who controls half the county?
Or suppose you're a simple grocer: Would you rather that your 400 regular customers EACH pay with their own individual I.O.U.s? (Imagine what your bookkeeping would look like!) Or with the single currency of the I.O.U.s of the local "Bill Gates?"
Regards,
There have been plenty of assertions, devoid of references and citations, to say plenty of things. I tend to cite something and "show my work," while many hesitate to do so.
Might I suggest a peek at Shadow Stats, just for another view to things. Or one can always believe what government tells you. Or the media. Or even a Freeper.
https://www.shadowstats.com/
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.