Posted on 06/13/2009 6:16:43 AM PDT by TigerLikesRooster
BRICs Launch Assault on Dollar's Global Status
Brazil, Russia, India and China, sometimes lumped together as BRIC to represent fast-growing developing economies, are selling off their U.S. Treasury Bond holdings. Russia announced earlier this month it will sell U.S. Treasury Bonds, while China and Brazil have announced plans to cut the amount of U.S. Treasury Bonds in their foreign currency reserves and buy bonds issued by the International Monetary Fund instead.
The BRICs are also soliciting public support for a "super currency" capable of replacing what they see as the ailing U.S. dollar. The four countries account for 22 percent of the global economy, and their defection could deal a severe blow to the greenback.
If the BRICs sell their U.S. Treasury Bond holdings, the price will drop and yields rise, and that could prompt the central banks of other countries to start selling their holdings to avoid losses too. A sell-off on a grand scale could trigger a collapse in the value of the dollar, ending the appeal of both dollars and bonds as safe-haven assets.
The moves are a challenge to the power of the dollar in international financial markets. Goldman Sachs economist Alberto Ramos in an interview with Bloomberg News on Thursday said the decision by the BRICs to buy IMF bonds should not be seen simply as a desire to diversify their foreign currency portfolios but as a show of muscle.
The BRICs countries plan their first summit in the Russian town of Yekaterinburg on Tuesday, where their leaders will discuss the status of the global financial crisis and measures to reform international finance and trade. The so-called "super currency," which Russian President Dmitry Medvedev proposed during the G-20 summit in London in April, is expected to be a major topic of discussion. Russia claims that a supranational super currency is needed to prevent another global economic crisis. China has proposed turning the IMF's special drawing rights (SDRs) into a globally-recognized super currency, and Brazil also supports the use of SDRs.
The BRICs have a total of US$1.711 trillion worth of Treasury Bonds, accounting for 33 percent of the total $3.27 trillion worth of American overseas debt. In the worst-case scenario, their sell-off could launch central banks around the world into a selling frenzy. This could lead to the collapse of the dollar following hyper-inflation as the depreciation of the U.S. currency causes raw materials prices to soar.
But Park Jong-kyu, chief economist at the Korea Institute of Finance, said the BRICs will not begin selling off their Treasury Bonds any time soon, since the collapse of the dollar would mean a steep decline in the value of their foreign currency reserves as well. Park predicted a prolonged tug of war between the BRICs and the U.S., which will try to prevent a sell-off.
According to the Bank of Korea, the foreign currency reserves of the BRICs countries amounts to $2.78 trillion.
Ping!
With B Hussein Obama’s policies undermining the value of the dollar, I really can’t blame these people for wanting to divest themselves of greenback based investments.
Printing money for short term gain while screwing the long term totally.
Brilliant plan...
Ping!
and they want to replace the dollar by which currency? the euro? (because it´s the only currency which “could” replace the dollar as global currency). How would this make any difference for them?
Full Blown Economic War Begins !
i think you are correct. i can not see a single currency that will achieve new global status. so the chicoms might dream about the Yuan as the new global currency but this will never happen. US and EU will never accept that. but i do think the time of the dollar hegemony is soon to be over too.
Inneresting....
Alledgedly these BRIC nations are not saddled with tons of debt and are willing to strike out on their own. They are nations that concentrate on commodities, buying and selling them. They have much smaller paper (meaning phony) economies. Much less parasitic financiers living off the fat of the land
They probably view the USA as financiers and money manipulators trying to rip off their hard word
fewer parasitic financiers living off the fat of the land
They are just trying to jawbone their own currencies higher, while still buying treasuries to the full extent their export surpluses will bear. But this isn't sexy enough to sell a newspaper, so nobody reports it (Barron's excepted).
You nailed it
I'll bet that most banks in India and China will give you a passbook savings account and that is it
Plus the stock and bond markets in BRIC countries are a smaller part of the economy
The number of people employed in --->>>
Finance
Insurance
Real
Estate
is much smaller
Thanks for the ping.
We would not recover if they pull this one off...
We would not recover if they pull this one off...
Think of it this way -- ever wonder why creepy little poverty stricken countries like Haiti can't just "print more money"?
They can't do it because they aren't a reserve currency. We are. And the Chinese are scared to death they're going to be paying for GM, bad housing loans, unreformed Social Security etc.
Really - think about it - take away the reserve currency status and we're like Haiti - overnight poor.
as i said i think the dollar is doomed the day most of the world has not to buy dollars any more to pay their oil. this is the biggest threat to your country (bigger then iran, north korea...) because you would lose all the “benefits” beeing a reserve currency. but on the other side i can not see for example the EU would be willing to take over this role of a reserve currency if possible (because it would definitely benefit “us” the short way but in the long way it would be the same. the Euro would be held hostage instead of the dollar from the rest of the world). and more important neither EU nor China has a serious personal interesst in a poor US. a little bit weaker? definitely yes. but doomed. Hell no. so i don´t think this will happen anyway
greetings
We took our national ‘nuts’ and placed them in China’s hands. Now China is banding with other nations to squeeze.
Well, I told folks so... here we are.
Being a debtor nation comes with risks. If foreign concerns stop buying our treasuries, good luck...
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