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BRICS currency - >>> Biggest Monetary Shock in 50 Years
By James Rickards
September 30, 2024
https://dailyreckoning.com/biggest-monetary-shock-in-50-years/
Biggest Monetary Shock in 50 Years
I’d like to start today’s issue by extending my thoughts and prayers to those impacted by Hurricane Helene, which has devastated significant portions of the southeast with massive flooding.
The death toll is over 100 and may increase significantly. Let’s all hope the affected areas will recover.
Moving on, with so much attention focused on the U.S. presidential election, the war in Ukraine and the war in Gaza, which is spreading to Lebanon, it’s easy to lose sight of other geopolitical developments that may be even more significant in the long run.
One of these developments is the rise of the new BRICS currency and its potential role in the global monetary system.
I’ve been warning readers about the collapse of the dollar for years and I was one of the first people to alert you to the rise of BRICS.
It’s a monetary shock about to hit the global financial system, and something I consider the most significant development in international finance in over half a century.
The annual leaders’ summit of BRICS nations is being held in Kazan, Russia from Oct. 22–24, and will include announcements moving the BRICS currency plans forward in material ways.
The Power of BRICS
The original BRICs membership from 2009 consisted of Brazil, Russia, India and China. South Africa was added in 2010 when the group’s name was changed to BRICS.
That group expanded significantly at the 2023 leaders’ summit in South Africa when Egypt, Ethiopia, Iran and the United Arab Emirates (UAE) were added. (Argentina and Saudi Arabia were also permitted to enter but Argentina withdrew its application, and Saudi Arabia deferred its membership saying it was still considering the matter.)
BRICS has been active over the years in institutionalizing its initiatives. In 2014, the BRICS created the New Development Bank (NDB), which functions along the lines of the World Bank to promote infrastructure development in emerging economies.
The NDB was capitalized with over $100 billion from its members and currently has 53 projects underway with commitments of over $15 billion to those projects.
Beyond the nine current members, there is a waiting list of over 20 aspiring members including economic powers such as Nigeria, Venezuela, Indonesia, Malaysia, Turkey, Thailand and Vietnam.
The BRICS are part of an emerging Global South that is challenging the Collective West for world economic and geopolitical dominance.
The BRICS Currency Defined
The subject of a BRICS currency is confusing to most observers and is a fraught topic even for many experts. We’ll call the potential currency a BRIC for convenience, although no formal name has been announced.
The BRICS currency is very far along in establishing itself as a viable payment currency. The prerequisites are: agreed-upon value (which can be fixed to another currency, floating or pegged to a weight of gold), secure payments channels (basically high-speed, encrypted digital pipes for authenticated message traffic), digital ledgers and an agreed issuer (the NDB based in Shanghai may be suitable for this purpose, but another institution could be created).
The single most important element is a sufficiently large membership in the BRICS currency union such that a recipient of BRICS payments can use them for purchases in many jurisdictions for many goods and services.
This last point is where most alternative currency payment arrangements fall down. Russia can sell oil to China for CNY (which they are currently doing), but they are constrained in terms of where they can spend the CNY (basically limited to Chinese manufactured goods and semiconductors).
The same issue arises when Russia sells oil to India (for rupees) or weapons to Iran (for rials). The seller is limited in terms of what they can buy with the trading partner’s currency.
This constraint goes away in a currency union with 15 or 20 members or more. If Russia earns BRICs from China, they can buy Embraer aircrafts from Brazil or semiconductors from Malaysia.
For that matter, the use of a payment currency in a multi-member currency union is not limited to members. With access to the payment channels, non-members can nevertheless agree to receive the BRICS currency in payment, confident in their ability to spend it among the other BRICS members who are trading partners.
The proof of this is the eurozone, which is currently a 20-member currency union with a single central bank and worldwide acceptance of the euro.
New Developments to Watch
There are several interesting developments taking place. The first is that the U.S. is squandering its rule-of-law advantage with sanctions on Russia, the freezing of the assets of the Central Bank of Russia and efforts to actually steal those assets and convert them into a $50 billion loan to Ukraine using structured finance.
Given this rogue behavior by the U.S., countries are becoming more cautious about large U.S. Treasury note reserves. This may account in part for the recent rally in the price of gold.
The second is that the BRICS summit in Kazan, Russia in late October will announce significant progress in building out secure payment channels and will admit new members, which will drive the group closer to the critical mass needed to launch a currency union.
None of this happens overnight. It’s helpful to recall that the euro took almost 10 years to launch from the Maastricht Treaty in 1992 to the actual creation of the euro in 2000.
I worked closely with Alberto Giovannini in the late 1990s. He was one of the leading economists and scholars who helped create the euro. I was quite familiar with the technical hurdles to creating a new currency, especially the determination of the exchange rates at which Deutsche marks, lira, francs and other member currencies would be converted to euros.
A Linkage to Gold
It will take years to develop a BRICs-denominated bond market, although the process could be accelerated if BRICS members offered bonds directly to their own citizens as retail investors.
There is a short path to making the BRICs a viable reserve currency — gold. Members of the BRICS currency union could use surplus BRICs to buy gold bullion to hold in their reserves.
Russia, China and South Africa are all major gold producers and China has an extensive network of refineries so there should be ample gold available for purchase. When needed for purchases or settlements, the gold could be easily sold for BRICS currency. The common thread in these and other solutions is that they obviate U.S. dollar transactions.
It will still take a few years to add members, build out the infrastructure and firm up some valuation issues. Still, this currency is coming.
Even as a payment currency, the BRICS unit could be used in a material percentage of global trade giving the dollar a run for its money. The BRICS unit does not mark the end of the dollar as a widely accepted currency.
Still, in conjunction with the badly misguided weaponization of the dollar, it could mark the beginning of the end.
Slowly, then suddenly, said Hemingway about how men go bankrupt. The same could apply to the dollar.
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>>> Turkey's 'balancing act' with BRICS may stoke NATO fears, but the West needn't be too worried, analysts say
Business Insider
by Rebecca Rommen
https://www.msn.com/en-us/news/world/turkey-s-balancing-act-with-brics-may-stoke-nato-fears-but-the-west-needn-t-be-too-worried-analysts-say/ar-AA1qBXAC?ocid=BingHp01&cvid=92911539566d4f97bdef8bdcb3b2987a&ei=25
A spokesperson for Turkey's ruling party said that a process was "underway" for Turkey to join BRICS.
The current BRICS bloc of emerging-market nations includes countries such as Russia, China, and Iran.
Turkey would be the first NATO country to join the group.
Earlier this month, a spokesperson for Turkey's ruling AK Party said that a process was "underway" for Turkey to join the BRICS group of emerging-market nations.
"Our president has stated at various times that we want to be a member (of BRICS)... Our request on this issue is clear. This process is underway in this framework, but there is no concrete development on this," Omer Celik told reporters in Ankara, the Turkish capital, per Reuters.
The BRICS group, named after members Brazil, Russia, India, China, and South Africa, was formed to challenge the political and economic power of developed Western nations.
Since its first informal meetings in 2006, when it was known as just BRIC, the bloc has grown to include Ethiopia, Iran, Egypt, and the United Arab Emirates. Saudi Arabia was also invited to join, but a Saudi official said in January it had yet to do so.
Should Turkey now join the bloc, it would become its first NATO member and EU candidate, potentially complicating ties with the West and raising questions over Turkey's commitment to the military alliance.
Turkey's relationship with NATO has already come under strain due to the country's continued ties with Russia in the wake of the latter's invasion of Ukraine, as well as its efforts to seek improved relations with China.
Such moves seem to reflect Turkish President Tayyip Erdogan's desire to establish the country's independence through shifting foreign policy. He now appears to be seeking to maintain what experts have dubbed a "balancing act" between its relations with the West, Russia, and China.
"Turkey is seeking alternatives. It does not want to leave its NATO membership. It does not want to shed its European aspirations. But it wants to diversify its set of alliances, hedge its bets, so to speak," Asli Aydintasbas, a visiting fellow in the Center on the United States and Europe at the Brookings Institution, told France 24. "It no longer sees its NATO membership to be the sole identity, its sole foreign policy orientation."
Aydintasbas said that Erdogan saw successful strategy as having "a foot in different camps," adding that he wanted to "be able to play off the West against Russia, the West against China."
"I think that he has come to skillfully play this geopolitical act," she said, but noted that he had sometimes pushed his "geopolitical balancing" too far.
One particular flash point came when Turkey acquired the Russian S-400 air-defense system in 2019, instead of NATO-made equivalents.
In 2020, the US said it had repeatedly made it clear to Turkey that the purchase of the S-400 system "would endanger the security of U.S. military technology and personnel and provide substantial funds to Russia's defense sector, as well as Russian access to the Turkish armed forces and defense industry."
Turkey's decision to push ahead with the deal eventually led to it being kicked out of the US's F-35 program, as well as a number of US sanctions.
Nevertheless, Bulent Aliriza, a senior associate of the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies (CSIS), told BI that he did not think that BRICS was "going to compete with NATO and with Turkey's other Western links."
"But it is a statement of, I would say, unhappiness with some aspects of their relationship with the West," he said. "Even if Turkey does join BRICS, I do not believe it is going to lead to a fundamental redefinition of Turkey's relationship with the West."
Yusuf Can, the Coordinator for the Middle East Program at the Wilson Center, has also argued that Turkey's "strategic diversification should not alarm NATO allies," saying that they "could benefit from a partner" in such circles.
"Understanding and collaborating with Turkey's perspective can enhance US and NATO relations with Turkey, irrespective of potential administrative changes in Ankara," Can wrote in an article for the Wilson Center.
Can noted that an improved US-Turkey partnership could also help secure crucial strategic regions, such as the Black Sea — which has been at the center of the Russia-Ukraine war.
"Economically, strengthened US-Turkey relations can benefit the EU by fostering investments in new trade routes," Can added.
Aliriza agreed that the West could find a way to benefit from the situation.
Speaking about Turkey's potential BRICS membership, Aliriza told BI: "It doesn't necessarily have to become a problem for the West, but it can, in fact, benefit the West if Turkey and its Western partners can have an open and honest dialogue about how to move forward."
"It still remains a member of the Council of Europe. Most of its trade is still with the West. And in terms of investment, although there's been a lot of speculation that there might be Chinese investment in Turkey, most of the foreign investment in Turkey, either FDI or short-term funds coming in seeking profit from high interest rates, has come from the West," he said.
For its part, the US has remained relatively quiet following the news that Turkey's BRICS ambitions may be inching forward, which Aydintasbas said was likely a savvy move aimed at avoiding a public dispute.
"Washington is keeping quiet," she told France 24. "It does not want a public, high-profile spat with Turkey, and it knows that President Erdogan is unpredictable."
The BRICS group is set to hold a summit in Kazan, Russia, from October 22 to 24.
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>>> Sino-French satellite launched into orbit, China's CCTV says
by Reuters
6-22-24
https://www.msn.com/en-us/news/world/sino-french-satellite-launched-into-orbit-china-s-cctv-says/ar-BB1oHazN?OCID=ansmsnnews11
SHANGHAI/BEIJING (Reuters) - A satellite developed by China and France, the most powerful yet for studying the farthest explosion of stars, was launched into orbit on Saturday, Chinese state broadcaster CCTV reported.
The satellite to study phenomena including gamma-ray bursts was lifted into orbit by a Chinese carrier rocket launched from the Xichang Satellite Launch Center in the southwestern province of Sichuan, CCTV said.
The launch of the Space Variable Objects Monitor will play an important role in astronomical discoveries, the broadcaster said, citing the China National Space Administration.
It is the first astronomy satellite developed by China and France, although they developed the China-France Oceanography Satellite, launched in 2018, China Daily reported in April.
China's advances in space and lunar exploration are rapidly outpacing those of the United States, attracting partners from European and Asian countries as a result.
China's Chang'e-6 lunar probe this month carried to the far side of the moon payloads from the European Space Agency, as well as from Pakistani, French and Italian research institutes.
China is working with countries including Brazil, Egypt and Thailand to develop and launch satellites.
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Rickards - >>> Dollar Takes a “Pounding”
BY JAMES RICKARDS
JUNE 24, 2024
https://dailyreckoning.com/dollar-takes-a-pounding/
Dollar Takes a “Pounding”
You’ve probably heard that the U.S. economy is heavily “financialized.” What does that really mean? What is financialization?
It’s a big topic and not very well defined. It can refer to the dominance of financial activity over traditional business activity in goods and services. It can refer to market bubbles. It can refer to the use of financial instruments in non-traditional arenas such as warfare or political witch hunts.
In fact, it refers to all the above and more. Investors need to understand financialization in order not to be blindsided by market activity that defies fundamental analysis.
We can begin our review of financialization with a look at the role of the U.S. dollar in global transactions.
This is not a technical article detailing the plumbing of the financial system. But in considering the role of currencies in global finance, it’s important to distinguish between reserves (basically a nation’s savings account) and payments (transactions, trade, etc.).
The Dollar Still Dominates
The denomination of global reserves today is approximately:
58% U.S. dollars and 20% euros
The remaining 22% is divided among yen (6%), sterling (5%), Canadian dollars or CAD (2.5%)
And other currencies are each less than 2% (AUD, CNY, CHF).
In payments (measured in SWIFT message traffic), the U.S. dollar is about 59% of payments, with the euro at 13%, yen at 6%, sterling at 5% and yuan and CAD at about 3% each. All other currencies are less than 3% each.
The relatively larger role of the dollar in payments is due to higher oil prices and oil being denominated in dollars. SWIFT message traffic is almost exclusively interbank payments among large banks. There are many bilateral payments (for example, Russian payments to India in local currencies) that do not go via SWIFT.
There is no immediate threat to the role of the U.S. dollar in either reserves or payments.I recently debunked the fake news that Saudi Arabia has just ended the petrodollar deal that’s been in place since 1974.
Instead there’s a slow, steady erosion in the role of the dollar that could accelerate in the future. A good case study is the decline of sterling. In 1914, it was the dominant reserve and trade currency. By 1944, it had largely been displaced by the U.S. dollar as a result of Bretton Woods.
Slow Death
Today, sterling is barely a footnote in global reserves and payments. Still, that decline took 30 years (1914–1944) and continued for another 80 years (1944–2024). Major currencies don’t simply disappear overnight, but they are subject to these types of declines and gradual displacement by alternatives.
Contrary to what you hear from a lot of fringe analysts, the Russian ruble and Chinese yuan will not displace the U.S. dollar. Neither currency is widely accepted outside its home country. Those currencies have limited uses and lack large liquid bond markets, and their source countries lack a rule of law. Notions of a “gold-backed yuan” are nonsense. China simply doesn’t have enough gold.
A BRICS currency is a more likely alternative to the dollar for global payments. It won’t be issued for several more years. The BRICS are currently expanding their membership and will expand it further at their summit in Kazan, Russia in October.
That’s critical because a larger membership increases the trading zone where the currency can be used. Non-BRICS members can also agree to accept the new BRICS currency if they wish.
If you receive the BRICS currency in trade, it’s more useful if you can spend it or invest it in 20 or 30 other countries rather than just one trading partner as is the case with rubles, yuan and rupees.
This process of expanding the currency zone with new members will take a few more years, but the infrastructure is being put in place now. The development of the euro (which took eight years from the 1992 Maastricht Treaty to launch in 2000) is a good model for this.
The Great Leap to Reserve Status
While a BRICS currency will be used in trade in a few years, it will take longer to develop as a reserve currency. That requires the creation of a large, liquid bond market, which takes a legal code, issuers, dealers, settlement channels, hedging tools and much more. That process can take 10 years or longer.
What we should expect is not a sudden collapse of the U.S. dollar and the U.S. Treasury market in payments and reserves, but rather a slow, steady diminution in the role of the dollar similar to what happened with sterling after World War I.
In the short run, the main alternative to the U.S. dollar in reserve positions is not another currency, but gold. Central banks have been net purchasers of gold since 2010, reversing their status as net sellers that had prevailed since 1970.
These net purchases of gold are reflected in increases in gold as a percentage of total reserves. Gold now represents over 70% of U.S. reserves, 25% of Russian reserves and 8% of Chinese reserves.
Curiously, gold isn’t even reported in the IMF’s official reserve asset reports, despite the fact that the IMF itself owns over 1,000 metric tonnes of gold. Gold has the added attraction of being a physical, non-digital asset that cannot be frozen or seized by the United States.
The Weaponized Dollar
The most conspicuous example of financialization is the use of financial sanctions in warfare. This might better be called the weaponization of the dollar. U.S. sanctions against Russia have failed badly (as I predicted in 2022) to the point that the Russian economy is now outperforming the U.S. economy by every important metric. The U.S. hasn’t learned its lesson and is moving to more dangerous methods.
The U.S. froze Russian assets (about $300 billion in U.S. Treasury securities) at the start of the war in Ukraine. Now the U.S. is moving to steal those assets. This plan was recently unveiled on June 13 at the G7 summit in Apulia, Italy.
Russia will retaliate by seizing over $300 billion of Western assets still in Russia. Since the Russian assets are mostly in custody at Euroclear (about $200 billion), Russia can sue Euroclear for wrongful conversion in Russia-friendly jurisdictions where Euroclear has offices including Dubai and Hong Kong.
Euroclear has about $40 trillion in assets under custody. With a court judgment in hand, Russia could proceed to freeze and seize Euroclear assets on a global basis. This could throw the global financial system into complete chaos.
Financialization in its many forms is no longer a sideshow. It has become the main event in many arenas. Investors need to follow developments closely in order not to get caught in the political and military crossfire.
You need to take cover.
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>>> Russia’s Richest Woman Gets Putin’s Nod to Build Payments System
Bloomberg News
Jun 21, 2024
https://finance.yahoo.com/news/russia-richest-woman-gets-putin-101057770.html
(Bloomberg) -- Tatyana Bakalchuk made billions selling everything from brooms to bridal gowns on her online marketplace. Now Russia’s richest woman is making a surprise pivot: to helping insulate the economy from sanctions by building an alternative to the global payment system major Russian banks were excluded from.
Bakalchuk’s Wildberries — Russia’s answer to Amazon — is starting a venture with Russ Group, the nation’s biggest outdoor advertiser, to build a digital market to help small and medium-sized businesses promote and export their products, the company said this week. They also plan to create a payments platform that may offer a substitute for the dominant cross-border network, known as Swift, according to two people close to the Kremlin who declined to be identified.
The effort has been personally approved by President Vladimir Putin, who chose Maxim Oreshkin, deputy head of the Kremlin’s administration, to supervise it, the people said, asking not to be identified. There are no guarantees that the payment system will be successful, one of them said. Putin spokesman Dmitry Peskov said by text message that the president has ordered officials to consider Wildberries’ and Russ’s digital platform project, but that there aren’t any details yet.
Swift is the main messaging network through which international payments are initiated. Created in the 1970s, it links some 11,000 institutions across more than 200 countries and territories. The US and European Union sanctioned Russia’s key lenders after the Ukraine invasion, cutting them off from Swift and forcing Russia to use other payment options for imports and exports.
Wildberries declined to comment on its plan for a payments system.
Bakalchuk — who isn’t viewed as close to the Russian president — spoke at his flagship economic forum in St. Petersburg earlier this month and said she believed that private business in Russia has a future and is developing, although state support is required.
“Bakalchuk understands very well that the crisis is the time of opportunities,” said Alexandra Prokopenko, a fellow at Carnegie Russia Eurasia Center. “She’s seeking to expand the business to protect it, to become too big to fail and more visible to the Kremlin.”
Her own wealth has grown in the wake of the Ukraine invasion, swelling by around 40% to $8.1 billion, according to the Bloomberg Billionaires Index, as fiscal stimulus boosted consumer spending.
The value of products sold on Wildberries rose 50% to 2.5 trillion rubles ($28 billion) last year, with a growing ratio of domestic goods. In emailed comments, Wildberries’ press office credited the popularity of online shopping as well as the development of its platform, including its expanding infrastructure and discounting.
Western Exodus
The exodus of western retailers like Ikea, H&M and Levi’s also helped. While Russian producers stepped in, Wildberries and its rival Ozon also helped shoppers access US and European brands that had officially left. Moscow introduced legislation permitting products to be imported into Russia without the trademark holder’s agreement, enabling Wildberries and Ozon to sell nearly everything they could before the war.
“I often have no idea if a brand has left Russia or not,” said Elena, 35, an interior designer based in the Moscow region who asked that her last name not be used to protect her identity. “If I need something, I simply search for it on Wildberries and buy it.”
She can still find Ikea items on Wildberries, even though the company abandoned the market and its plants in 2022. Even her 79-year-old grandmother uses the service, she said.
The war has helped bolster consumer spending, as well. The Russian government’s annual budget outlays, including military and social, rose by a third last year compared with 2021, while mobilization, the flight of many Russians abroad and a drop in foreign workers have created a massive labor shortage.
That has spurred growth in wages at a pace last seen before the 2008 financial crisis, and increased consumers’ capacity to shop, said Sofya Donets, an economist at T-Investments. “This brought entire groups of people into a higher category of wealth and consumption.”
Online shopping has extended its Covid-era expansion, growing 45% last year to 8.3 trillion rubles, according to INFOLine research. Controlling more than half of the market, Wildberries and Ozon have been the winners.
“Wildberries was one of the pioneers of the Russian e-commerce market,” said Marat Ibragimov, an analyst at Gazprombank, adding that its strength was in offering good terms for suppliers and a wide range of products at low prices for customers.
Bakalchuk started the company in 2004 as a place for people on a limited budget with little time for shopping. She ordered clothes in bulk from a German mail-order catalog, scanned the pictures, and posted them on her website. She delivered products herself rather than using the postal service, which was unreliable.
Sanctioned by Ukraine
Unlike billionaires who made their fortunes in the chaotic privatizations of the nineties or flourished in the early 2000s under Putin, Bakalchuk has never had a one-on-one meeting with the Russian president, and hasn’t been sanctioned by Washington or Brussels.
She was sanctioned by Ukraine, however, before the Kremlin’s 2022 invasion, because Wildberries sold an array of Russian nationalist-themed products, such as military uniforms and t-shirts praising Putin. That forced her to wind down the Ukrainian business.
Bakalchuk’s project with Russ Group aims to widen her outreach to Russia-friendly neighbors and countries of the so-called Global South, including China and India, according to the statement from Wildberries. It may help boost Russian GDP by 1.5% a year, RBC media reported, citing unidentified people familiar with the plan.
Still, creating a payments system may increase Bakalchuk’s risk of coming under US or European sanctions as Ukraine’s western allies have targeted other Russian financial services, including the Mir payment system and the central bank’s Swift-equivalent, called SPFS.
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Rickards - >>> Did the Saudis Just Kill the Dollar?
BY JAMES RICKARDS
JUNE 17, 2024
https://dailyreckoning.com/did-the-saudis-just-kill-the-dollar/
Did the Saudis Just Kill the Dollar?
There’s been a lot of talk over the past several days that Saudi Arabia is ending the petrodollar deal it’s had with the U.S. for 50 years. This story has been highly exaggerated. Today I want to address the misinformation you’re seeing right now, and show you what really happened.
News services of dubious accuracy reported that Saudi Arabia had ended the petrodollar deal on June 9, after 50 years. This report was quickly followed by claims that oil would now be priced in everything from Chinese yuan to Indian rupees, Russian rubles and other currencies without strong claims to being reserve currencies.
The implication of these stories was that the U.S. dollar’s long reign as the leading global reserve currency was over. New reserve currencies would come to the fore, most prominently the BRICS planned currency.
The crypto crowd wasn’t far behind shouting that the demise of the dollar proved that cryptocurrencies were the way of the future. The internet was on fire with these and other histrionic claims.
Don’t Buy It
In fact, almost everything you just read is nonsense. There have been some very important developments in international finance and monetary policy in recent days but they’re far more nuanced and ultimately more important than stories grabbing the headlines.
As the saying goes, it’s complicated. Let’s deconstruct what’s actually going on.
The petrodollar deal was concluded in June 1974 under the Nixon administration. It was a tense time following the 1973 Yom Kippur War and the Saudi oil embargo of exports to the U.S.
I played a role in the run-up to the deal when I went to the White House to meet with Helmut Sonnenfeldt, Henry Kissinger’s most trusted aide. We discussed a plan to invade Saudi Arabia in case the Saudis didn’t agree to what the Nixon administration had put on the table.
The deal had four main parts.
The Petrodollar Deal
Saudi Arabia would price oil in U.S. dollars. Saudi Arabia would take the dollars it earned through oil sales and invest them in U.S. Treasury securities or in large bank CDs. The Treasury and the banks would lend those dollars to developing economies that would purchase equipment and agricultural products from the U.S. Finally, the U.S. offered Saudi Arabia military protections against the Soviets and regional rivals. The security agreements and the financial agreements were put into writing but have never been revealed.
The petrodollar deal was a win-win for the participants and the world. The U.S. found a reliable prop for the dollar’s reserve currency status (since other countries would need dollars to buy their own oil) and Saudi Arabia enhanced its national security.
Recycling the Saudi dollars to developing country buyers was a boost to world trade and commodity prices and helped pull the world out of the severe 1974 recession. At the Saudi’s request, the U.S. kept a veil of secrecy over the exact amount of Treasuries owned by Saudi Arabia; their holdings were lumped in with other OPEC members from the region and were not reported separately.
Did the Saudis just end the petrodollar deal as reported? Not exactly.
Less Than Meets the Eye
The deal was never a formal treaty ratified by the Senate, which would rise to the level of law. It was a non-binding executive agreement; not much more than a written handshake. It contained annual renewal provisions and could be terminated at any time by either party.
The Saudis held up their end by pricing oil in dollars and buying U.S. Treasuries. The U.S. held up its end by sending troops and repelling Iraq’s invasion of Kuwait in Operations Desert Shield and Desert Storm in 1990–91. The agreement suited both sides and so it continued.
The agreement never had an explicit “expiration date” so reports that the deal has expired are overstated. The Saudis have notified the U.S. that they’re not extending the deal, but that decision has to be put in the context of other U.S.-Saudi discussions.
The U.S. and Saudi Arabia are currently in negotiations on a new financial and security arrangement that would supersede the old petrodollar deal. The new agreement will provide that Saudi Arabia will recognize Israel as part of the broader Abraham Accords initiated during the Trump administration.
The U.S. will continue to offer security protections to the Saudis, but those will be expanded to include uranium enrichment technology. Ostensibly this technology would be used to fuel nuclear reactors but might later be used to build nuclear weapons. Saudi Arabia wants this technology because it feels threatened by Iran’s own uranium enrichment capability.
Not Much Is Different
On the financial side, Saudi Arabia would continue to price oil in dollars but could agree to be paid in other currencies, primarily euros, as is the case today. The Saudis would continue to purchase Treasury securities alongside its holdings of gold.
In short, not much would change from the current petrodollar deal except for the enhanced security guarantees.
The reason Saudi Arabia allowed the existing deal to lapse was to gain leverage in the new negotiations and because the old deal would be replaced by the new deal in all events.
The new deal will not be completed for six months, perhaps longer. It’ll be handed off from the Biden administration to the new Trump administration in January 2025 if Trump wins the election, which I believe he will.
The reason for the delay is that Saudi Arabia cannot recognize Israel until the Gaza War is over. That’ll take a few more months at least. There’s an irony there because the Trump administration created the Abraham Accords and may be the one to complete the process by including Saudi Arabia under that umbrella.
That’s a summary of what’s going on. Here’s what’s not going on…
Not a Dollar Death Blow
Oil will not be priced in rupees, rubles, yuan or other emerging-market currencies except in very small quantities. About 20% of oil purchases today are in euros and that can be expected to continue.
The new arrangement between Saudi Arabia and the U.S. doesn’t mark the end of the dollar as the world’s leading reserve currency. It doesn’t imply the collapse of the global market in U.S. Treasury securities, which a lot of people have been claiming in recent days.
The oil and dollar markets will be business as usual. Ties between the Saudis and the U.S. will be even closer because of the nuclear enrichment aspect of the new deal.
None of which is to say that there have not been important developments in international financial and monetary markets away from the Saudi situation. There have.
In particular, there were major policy initiatives announced at the St. Petersburg International Economic Forum (SPIEF) hosted by Vladimir Putin from June 5–8.
Incremental Steps
Russia announced they were working with other BRICS+ members to develop a global payments system completely independent of existing Western systems including SWIFT, Fedwire and other clearinghouses.
That’s critical because payments through Western systems are subject to seizure and interdiction, whereas payments through an independent system should be safe from Western interference.
Putin also met with Dilma Rousseff, former president of Brazil and current president of the New Development Bank, which is a de facto central bank and development lender to the BRICS+ and associated members.
That meeting was to discuss the roll-out of the new BRICS currency. It will be called the Unit and its value will be based on a weight of gold (40%) and a basket of BRICS+ currencies (60%).
The key to implementation of the BRICS currency plan is an expansion of the membership. A bilateral currency arrangement between two weak emerging markets will never be successful because there’s not much for the seller of goods to buy once it receives the currency.
But a currency union with 20 members or more using the Unit can be successful because the seller of goods can “go shopping” in many other markets and is likely to find goods or services that meet its needs. The success of the euro with 20 members and worldwide acceptance is the model for this.
The Unit won’t be launched for another year or longer although some formal announcements may come at the BRICS leaders’ summit in Kazan, Russia, this October. It’ll still take a few years to add members, build out the infrastructure and firm up some valuation issues. Still, this currency is coming.
Not a Reserve Currency
Importantly, the BRICS Unit will initially be a payment currency, not a reserve currency. Payment currency arrangements are fairly straightforward. Reserve currency status is far more difficult because it requires a large, liquid bond market; good rule of law; and an infrastructure of dealers, hedging tools, repurchase agreements, auctions and settlement procedures.
That can take 10 years or longer to put in place with rule of law perhaps being the most difficult element.
Even as a payment currency, the BRICS Unit could be used in a material percentage of global trade, giving the dollar a run for its money. The BRICS Unit doesn’t mark the end of the dollar as a widely accepted currency.
Still, in conjunction with the badly misguided weaponization of the dollar by Joe Biden and Janet Yellen it could mark the beginning of the end.
The latest Saudi action won’t destroy the dollar. The Biden administration seems determined to accomplish that all by itself.
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>>> BRICS Making Good Progress On Their Golden Path
Forbes
by Nathan Lewis
Jan 24, 2024
https://www.forbes.com/sites/nathanlewis/2024/01/24/brics-making-good-progress-on-their-golden-path/?sh=65db623c549b
After tossing around a few bad ideas, the BRICS countries have settled on using gold as the basis for international exchange, a role previously taken by dollars and euros. This does not mean today’s floating fiat ruble, real, or rand is going anywhere soon. Rather, just as the US dollar was used alongside those domestic currencies in the past, today and in the future gold will be more commonly used.
There would not be very much trade in actual gold coins — just as there is not much trade in actual dollar bills. Indeed, gold doesn’t work very well for this hand-to-hand exchange at all, since even small coins tend to be of very high denomination, worth $200 or more. Rather, it means that people around the world will increasingly use various vehicles — such as bank accounts, bonds, loans and cryptocurrencies — denominated in gold, just as they use the very same set of tools today, but denominated in dollars.
Already, some BRICS members — including Russia and newcomer Iran — have been basically banned from the dollar system. They literally cannot hold a “dollar.” They have no dollar “wallet.” For example, they cannot have a bank account, with a bank in the Federal Reserve clearing system. Other countries, including China, are eager to set up alternative systems, because they suspect that what happened to Russia and Iran could be done to them too. More countries, seeing where this is going, are making sure they have a seat at the table, for business opportunities alone. This could include former US allies such as Saudi Arabia, which joined the BRICS in January.
The most fundamental international role that the USD (or EUR) takes today is as a “currency of currencies” in foreign exchange. For example, let’s say that someone in Peru wants to buy some wool from New Zealand. There is no “bilateral exchange” between the currencies of Peru and New Zealand. Rather, there is a market between Peruvian soles and USD; and USD and New Zealand dollars. The same thing is seen on cryptocurrency exchanges, where there is no direct market between DogecoinDOGE 0.0% and Shiba Inu. Rather, there is a DOGE/USD (or USDTUSDT 0.0%, or maybe BitcoinBTC 0.0%) market, and a SHIBSHIB 0.0%/USD market. On the stock market, it might be MSFT and NVDA. Obviously, if you are unable to hold and make payments in this intermediary currency, in this case the USD, then you can’t exchange your PEN and NZD; or DOGE and SHIB.
There have been some steps toward “bilateral exchanges,” for example between Russian rubles and the Indian rupee. However, with 25 currencies, you end up with (N)(N-1)/2 = 300 bilateral exchange markets. Basically, it is currency barter. Also, most markets would have very little liquidity. Someone wanting to exchange PEN and NZD would have to wait for someone else to who wants to exchange NZD and PEN; and in the same size. Not going to work.
Already, major Russian banks including Sberbank have taken steps to provide such a universal currency, based on gold. A Sberbank launched a cryptocurrency stablecoin based on gold in December 2022. A more promising development, to my mind, has been the introduction of “gold checking accounts” in Russia. You can send digital grams of gold to various accounts — accomplishing what GoldMoney set out to do in 2001. The advantage here is that banks already have all the necessary infrastructure for checking accounts; adding a gold denomination is a minor extra step.
The next step would be to set up a foreign exchange market — that is, bids, asks, and some way to transact — using these gold checking accounts as the central unit, the role the USD usually takes today. Instead of RUB/USD and USD/INR, you would have RUB/BGD (”BRICS Gold”), and BGD/INR, probably hosted by an institution like Sberbank, here taking the role that Coinbase performs for cryptos. It seems, however, that Russians, Indians and so forth are not very good at financial engineering. They are awesomely good at aerospace and defense engineering, but this seems to leave them stumbling and bewildered. But, it’s not really that hard. If Sam Bankman-Fried can do it, one of those ace Chinese, Indian or Russian engineers can manage to set up a simple currency exchange market.
This basic plumbing of payments serves as a foundation for more interesting developments. Around the world, major companies, and even governments, finance in USD and EUR. They issue USD and EUR bonds, for the simple reason that there are a lot of people that want to buy USD bonds, but not RUB bonds, or BRL bonds — even in Russia and Brazil. Major Russian companies like Gazprom and Mobile Telesystems issued billions of dollars of USD and EUR bonds. In 2Q23 alone, $615 billion of USD bonds, and 443 billion of EUR bonds, were issued by international issuers worldwide. Plus, bank loans in USD and EUR. If companies like these are unable to issue USD or EUR bonds in the future, how will they finance themselves?
The obvious solution is gold bonds. In 2023, the government of India began experimenting with gold-based government bonds. These would probably be very popular with investors worldwide. From the start of the Floating Fiat era in 1971, to the present, a gold bond paying 4% would have outperformed all stock and bond markets worldwide. That outperformance would probably only get larger going forward.
A gold bond of this sort might be administered in Indian Rupee. Basically, a bond for “100 kilograms” would be purchased for the INR equivalent of 100 kilograms of gold at the time of issue. Interest and principal would be paid in INR equivalents to gold at that time. Brazil issues such “dollar-linked bonds” today. But, it would be better just to use gold itself as the payments basis. Payments related to the bonds would be made using something like the “checking accounts in gold” described earlier.
I would guess that not until long after a system of the “international use of gold” has been established, for example including gold-bond-based financing in large size, would we see movements toward getting rid of today’s floating fiat domestic currencies. Once a company, or government, is liable to pay bonds in gold, it makes sense to also denominate revenue in gold, or there could be a disastrous liabilities mismatch. Then, we might see a broad movement to organize all BRICS currencies on gold, much as the United States organized at Bretton Woods in 1944.
A lot of progress has been made down this path since the beginning of 2022. But, it has been clumsy, halting and hesitant. These things are not really that hard; and the benefits are great. There doesn’t seem to be much “financial engineering” talent in China or Russia. But, if they took some of those exemplary aerospace or electronics engineers, and applied them to the task, I think they would figure it out pretty quickly
Nathan Lewis
Fellow of the Wealth and Poverty program at the Discovery Institute.
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>>> India is drawing lessons from Ukraine to counter China's military might
Business Insider
by Michael Peck
4-29-24
https://www.msn.com/en-us/news/world/india-is-drawing-lessons-from-ukraine-to-counter-china-s-military-might/ar-AA1nSzBK?ocid=ansmsnnews11&cvid=d374c3387ce34639982d44801979bd95&ei=3
India is trying to modernize its military of 1.5 million people with lessons from Ukraine.
Until recent years, Russia supplied India with many weapons such as tanks and jets.
India is upgrading its artillery and switching to 155mm howitzers, the NATO standard.
As India boosts defense spending amid tensions with China and Pakistan, it is closely studying the Ukraine conflict for clues to the future of warfare and how to thwart its neighbors.
Some lessons that Indian experts have already drawn: India needs lots of artillery, drones and cyberwarfare capabilities.
Comparing Ukraine to India is tricky. Ukraine faces one major enemy — Russia — while India must contend with its old enemy Pakistan to the west, and an increasingly powerful China on its northwest frontier. The Russo-Ukraine war is mostly being fought over an Eastern European landscape of plains and forest, with a moderately good road network suitable for mechanized warfare. India must prepare for combat in a variety of terrain and climate conditions, including desert, jungle and some of the tallest mountains on Earth.
India is also trying to modernize and standardize equipment for its armed forces, which comprise about 1.5 million personnel armed with a potpourri of equipment from several nations, as well as indigenous Indian gear. Until recent years, Russia supplied many weapons such as tanks and jets, but India is increasingly acquiring arms from Western nations, including American howitzers, French jet fighters, and Israeli drones.
The Indian Army's artillery, for example, includes more than 3,000 weapons and multiple rocket launchers, including Russian, American, Swedish and South Korean designs. Indian observers believe Ukraine shows the importance of having plentiful and modern artillery. Artillery has arguably become the decisive combat arm in that war, with Russian firing 10,000 shells per day and advancing, while a munitions shortage has limited Ukraine to around 2,000 shells per day. This deluge of firepower has forced both armies to dig in, and turned the conflict into trench warfare.
"Looking at the demonstration of artillery fire in the ongoing Russia-Ukraine war, two lessons are available to the Indian Army," wrote Amrita Jash, an assistant professor at the Manipal Academy of Higher Education, in a report for the Observer Research Foundation, an Indian think tank. "First, that firepower can be a 'battle-winning factor,' and second, that the time between acquiring the target to shooting has drastically reduced: where it once took five to 10 minutes, it now takes only a minute or two."
Indeed, India already planning to modernize its artillery arsenal, including switching to 155-mm howitzers — the standard NATO caliber — and developing longer-range shells and rockets.
The air war over Ukraine has proven to be a surprise, especially given Russian superiority in numbers of aircraft and technology. Anti-aircraft missiles have deterred the air forces of both sides from venturing into enemy airspace, with Russian aircraft limited to firing stand-off missiles at Ukrainian cities rather than providing air support for its ground troops. Drones have become the stars and workhorses of the air war, with both sides deploying — and losing — drones in the hundreds of thousands.
There are lessons here for Indian airpower, according to Arjun Subramaniam, a retired Indian Air Force air vice marshal who helped write the ORF report. India must prepare for "gaining control of the air in limited time and space conditions in a short, high-intensity limited conflict as well as in a longer, protracted conflict." The Air Force must also ensure that its plans are synchronized with ground and naval forces. India should also continue to focus on suppressing enemy air defenses, "particularly against an adversary that is more interested in denying rather than controlling the airspace."
Not surprisingly, Subramaniam wants the Indian military to increase drone development and production. But he is also concerned about the possibility of a mass drone attack on India. "Of greater importance is the need to rapidly develop counter-drone capabilities that would be essential in responding to large-scale surprise attacks and retain effective second-strike capabilities," he wrote.
Cyberwarfare has also emerged in Ukraine as a crucial tool in everything from hacking into military computers and critical infrastructure to purveying propaganda and deepfakes in global media. ORF researcher Shimona Mohan noted "the increasing role of largely civilian organizations like big tech in conflict situations and the deepening interplay of civil-military partnerships around dual-use technologies like AI."
Mohan recommends that India invest in cyberwarfare, as other nations are doing. "However, if this is not feasible for socio-political or economic reasons, it should be a priority for countries to ensure that their strategic geopolitical allies are formidable tech powers—for instance in this war, Ukraine received much support from its more tech-savvy partners like the US and private tech companies."
Michael Peck is a defense writer whose work has appeared in Forbes, Defense News, Foreign Policy magazine, and other publications. He holds an MA in political science from Rutgers Univ. Follow him on Twitter and LinkedIn.
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BRICS members -
https://en.wikipedia.org/wiki/BRICS
Brazil
Russia
India
China
South Africa
Newest members (Jan 2024) -
Egypt
Ethiopia
Iran
United Arab Emirates
Countries that have applied for BRICS membership -
Algeria
Bahrain
Bangladesh
Belarus
Bolivia
Cuba
Kazakhstan
Kuwait
Pakistan
Palestine
Senegal
Thailan
Venezuela
Vietnam
Nigeria
Countries considering applying for BRICS membership -
Afghanistan
Angola
Comoros
DR Congo
Gabon
Guinea-Bissau
Libya
Myanmar
Nicaragua
South Sudan
Sudan
Syria
Tunisia
Turkey
Somalia
Uganda
Zimbabwe
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>>> How Xi Jinping is challenging dollar dominance with landmark Saudi deal
The Telegraph
by Melissa Lawford
December 24, 2023
https://finance.yahoo.com/news/xi-jinping-challenging-dollar-dominance-120000057.html
When Xi Jinping visited Riyadh, Saudi officials rolled out not a red but a purple carpet.
The Chinese president’s plane was escorted by Saudi jets spurting green and white smoke to symbolise the colours on the Gulf nation’s flag. Celebratory cannons were fired. A royal guard on Arabian horses escorted President Xi to the Royal Palace.
The warm reception during the visit last December was symbolic of deepening ties between China and Saudi Arabia. Long one of the US’s closest allies in the Middle East, Beijing is trying to woo the Kingdom towards the East – and Saudi leader Mohammed bin Salman appears open.
President Xi has ambitions to challenge the global dominance of the dollar. One way to do that would be to start trading oil and gas in renminbi.
Saudi Arabia, the world’s largest crude oil exporter, has traded oil entirely in dollars since 1974. But talks about pricing sales to China, Saudi’s largest trading partner, in renminbi have been accelerating. In November, China made a breakthrough.
China and Saudi Arabia signed an agreement to set up a currency swap line worth 50bn yuan (£5.5bn). The landmark deal means Saudi Arabia has free access to a supply of Chinese currency at a set exchange rate, and vice versa for Beijing and the Saudi riyal.
Swap lines in themselves are uncontroversial. China has one with the UK, and the deal with Saudi Arabia is small in scale, worth only a fraction of Saudi Arabia’s total trade with China. But the deal is a significant turning point.
If China’s oil and gas trade operates in renminbi, it will be outside the Western financial system and effectively unsanctionable.
Establishing the framework of a swap deal also allows it to be scaled up relatively easily. While 50bn yuan is small, the total size may well grow.
“It’s mostly a signal that Saudi is willing to use renminbi,” says Alicia Garci´a-Herrero, chief economist for Asia Pacific at French investment bank Natixis and a senior fellow at European think tank Bruegel.
Saudi Arabia is under pressure to accept the renminbi because Russia, China’s largest oil trading partner, already does.
The idea of China seriously challenging the dollar’s dominance has been dismissed by many economists as far-fetched. The dollar is still in a different league globally because such a large share of public and private debt worldwide is held in dollars.
The US currency is used in nearly half of all payments worldwide, while the renminbi is used in less than 4pc, according to Swift data. The dollar is freely convertible, the renminbi is not and China has restrictions on capital flows.
But the number of transactions involving the renminbi is rising at breakneck speed. In the last three years, global use of the Chinese currency in trade finance has tripled. In September, it overtook the euro as the second-most used currency in global trade. Data from the People’s Bank of China shows that, globally, central banks’ use of Chinese swap lines has roughly quadrupled since 2020.
“It is making exponential gains in the share of trade finance,” says Phyllis Papadavid, senior research advisor at Asia House. “It is making gains in its use as a reserve currency. The overall share is still quite low, but the trajectory is very rapid.”
In several decades’ time, it is feasible that the renminbi could challenge the dollar, says Julia Gurol-Haller, lecturer at the Chair for International Relations at Freiburg University.
“I think in the very, very long run this could be something that manifests.”
In the more immediate future, China may be able to protect its energy security as tension with the US intensifies.
“It takes the dollar out of the loop,” says Christopher Vassallo, a researcher at the Asia Society Policy Institute’s Center for China Analysis. “If China wants to pay Saudi Arabia for a certain amount of oil imports, they can use their currency.”
This has become a mounting concern for Beijing since the onset of the war in Ukraine.
“Beijing watched Washington impose sanctions on Russia’s dollar reserves that simply made the dollar not useful for Russia,” Vassallo says.
President Xi is more vulnerable to financial sanctions than Vladimir Putin because China’s economy is much more dependent on imports and exports. Boosting renminbi trade with allies helps to insulate China from any US intervention.
“In the short-term, it’s about the security of energy needs,” says Gurol-Haller.
The lynchpin of this strategy is the Middle East – and Saudi Arabia knows it.
“I was in Riyadh when the war broke out in Ukraine and you could immediately see this new self-consciousness rising, this sense that this is our moment,” says Gurol-Haller. “Countries in the region realised they can leverage relations with other big players in a different way.”
Before the war, Saudi Arabia operated a hedging strategy of keeping both the US and China in balance, says Gurol-Haller. “Since February 2022, we have seen quite a pivotal shift towards China as an economic partner.”
China is the number-one destination for Saudi exports by value and the Kingdom is China’s second-largest oil supplier, after Russia.
In addition to oil, the two nations have deepened their ties in the tech and science sectors, and Saudi Arabia is turning towards China for security.
In March, China brokered a reconciliation deal between Saudi Arabia and Iran, leaving the US on the sidelines.
“That shows that China is no longer viewed by regional players as just an economic partner but also as a rising political or security force,” says Gurol-Haller. “That is a paradigm shift.”
In the same month, Saudi Arabia agreed to join the Shanghai Cooperation Organisation, a security union that includes China and India. This summer, Saudi Arabia was invited to join the Brics alliance of Brazil, Russia, India, China and South Africa.
Brics members have been discussing how to make a common currency that can be used in emerging markets.
Gurol-Haller says: “It is discussed so much among this growing, non-Western or anti-US, bloc. It is the finance side to a larger geopolitical phenomenon, which is to reduce dependency from the United States in terms of security and the economy, and then also in terms of currency.”
The next step for China and Saudi Arabia could be potential stock exchange partnerships. In February, Hong Kong chief executive John Lee travelled to Saudi Arabia in a bid to encourage the national oil giant, Saudi Aramco, to pursue a secondary listing in Hong Kong.
“The overall momentum of this building of an anti-Western bloc will create geopolitical implications for the US,” says Gurol-Haller. “In the Middle East, we already see a diminishing role of the US. That is exactly the phenomenon that such swap lines make stronger.”
While dollar dominance persists for now, the Beijing-Riyadh alliance shows its primacy will not continue unchallenged.
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Rickards - >>> Another Bank Bites the Dust!
BY JAMES RICKARDS
NOVEMBER 6, 2023
Another Bank Bites the Dust!
Citizens Bank was a small bank in Iowa with about $66 million in assets. Its loan portfolio consisted largely of commercial and industrial loans.
Well, this past Friday the Federal Deposit Insurance Corporation (FDIC) announced that Citizens Bank had failed due to significant hidden loan losses totaling about $15 million.
Because Citizens Bank was not a member of FDIC, the bank’s losses will be the responsibility of the state of Iowa.
This is the sixth notable bank failure this year. As you might recall, the first five were Silicon Valley Bank (back in March), Silvergate Bank (a bridge from the crypto world), Signature Bank (another crypto conduit to the regular banking world), First Republic Bank and the giant Credit Suisse.
I warned in March that the failure of Silicon Valley Bank would be just the start. Now we’ve had five additional bank failures.
And this latest failure won’t be the last.
Veterans of such crises (and I include myself in that category) know that once the dominoes start falling, they keep falling until some government intervention of a particularly draconian kind is imposed.
We’ve seen some significant regulatory actions from the Federal Reserve, the FDIC, the U.S. Treasury and the Swiss National Bank, but the fixes have been temporary and followed quickly by new failures.
The FDIC abandoned its $250,000 deposit insurance limit and effectively guaranteed all the depositors in Silicon Valley Bank and Signature Bank, a guarantee of over $200 billion in deposits. This has impacted the FDIC insurance fund and required higher insurance premiums from solvent banks, the cost of which is ultimately borne by consumers (you).
The Federal Reserve went further and offered to lend money at par for any government securities tendered as collateral by member banks even if the collateral was worth only 80% or 90% of par. These collateralized loans are financed with newly printed money, which might exceed $1 trillion.
These actions have thrown the U.S. banking system and bank depositors into utter confusion. Are all bank deposits now insured or just the ones Janet Yellen decides are “systemically important”? What’s the basis for that decision? What about the fact that unrealized losses on U.S. bank portfolios of government securities now exceed $700 billion?
If those losses are realized to provide cash to fleeing depositors, it could wipe out much of the capital of the banking system.
Unrealized losses on securities held by FDIC-insured banks exceed $620 billion. That’s the amount of bank capital that would be wiped out if the banks were forced to sell those securities to meet demands from depositors who wanted their money back.
That would cause additional bank failures and continue the panic that began in March indefinitely.
We’re not out of the woods, and the confusion will continue.
What’s important to bear in mind is that crises of this type are not over in days or weeks.
A slow-motion rolling panic that takes a year or longer is more typical.
The 1998 crisis reached the acute stage on Sept. 28, 1998, just before the rescue of LTCM. We were hours away from the sequential shutdown of every stock and bond exchange in the world.
But that crisis began in June 1997 with the devaluation of the Thai baht and massive capital flight from Asia and then Russia. It took 15 months to go from a serious crisis to an existential threat.
Likewise, the 2008 crisis reached the acute stage on Sept. 15, 2008, with the bankruptcy filing of Lehman Bros. But that crisis began in the spring of 2007 when HSBC surprised markets with an announcement that mortgage losses had exceeded expectations.
It then continued through the summer of 2007 with the failures of two Bear Steans high-yield mortgage funds, and the closure of a Société Générale money market fund. The panic then caused the failures of Bear Stearns (March 2008), Fannie Mae and Freddie Mac (June 2008) and other institutions before reaching Lehman Bros.
For that matter, the panic continued after Lehman to include AIG, General Electric, the commercial paper market and General Motors before finally subsiding on March 9, 2009. Starting with the HSBC announcement, the subprime mortgage panic and domino effects lasted 24 months from March 2007 to March 2009.
Averaging our two examples (1998, 2008) the average duration of these financial crises is about 20 months. Since this crisis began in March (eight months ago), it could have a long way to run.
In other words, crises can unfold for a long time before they’re finally squashed by massive regulatory intervention.
Get ready for more bank failures.
I’ve written a lot about what I call Biden Bucks. That’s my term for the central bank digital currency (CBDC) the government is currently preparing.
What does the ongoing banking crisis have to do with Biden Bucks? Well, plenty, as it turns out.
Read on to see why…
Bank Runs, Biden Bucks and Money Jail
By Jim Rickards
Whether an account is in CBDC or a regular checking account doesn’t make that much difference. Bank runs today are no different than in the 1930s from a behavioral perspective.
It’s all about lost confidence, fear, not wanting to be the last person out of a burning building, rumors, word of mouth and a host of psychological factors that are part of human nature.
That part hasn’t changed since at least the 14th century with the failure of the Bardi and Peruzzi banks around 1345. What has changed is technology. Marshall McLuhan said in the 1960s that in the global village, everyone knows everything at the same time. He was right. That means when a bank run begins, there’s an immediate reaction.
The difference with the 1930s is that you don’t line up around the corner and wait for the chance to demand cash from the teller. You take out your iPhone, make a few taps and, whether it’s Venmo or a wire transfer, the money is on its way out the door.
Whether you’re a retail depositor with $1,000 or a maven with $8 billion, everyone was online moving money all at once. In that sense, CBDCs don’t matter much. Whether it’s CBDC, Venmo, wire transfer or cash from an ATM, everyone is cashing out at the same time via digital channels. But there is one huge impact of CBDCs that is entirely new and sets them apart from what’s described above…
CBDCs are programmable and controlled by the government.
This means when a run develops, the government can stop the run just by freezing CBDC account transfers. They can even claw back earlier transfers. Since the government controls the CBDC ledger, they can see where the early withdrawals went and simply reinstate them on the account of the failing bank and debit them from the accounts of the transferees. The government can do this with a few keystrokes because they see everything.
This means that once Biden Bucks is implemented, you’re locked into a system controlled by the government. You’re in a money jail.
There’s no point even starting a bank run because the government can track your movements and put the money back where it started. It’s one of many ways that Biden Bucks gives the government total control of your money and can monitor your thoughts and movements.
Cash is likely to be eliminated sooner rather than later in order to pave the way for the dominance of central bank digital currencies. A U.S. dollar CBDC is coming soon. Cash will have to be eliminated to force individuals into the CBDC world. For better or worse, the only way citizens will be able to avoid the mandatory use of CBDCs will be to use gold, silver or cryptocurrencies.
I put comparisons of gold (and silver) and Bitcoin in the same category as comparing fish and bicycles. You can do it, but what’s the point? Gold is money and Bitcoin is a hallucinogen;(or more precisely an acoustic hypnotic spell).
The idea that the U.S. Treasury, Fed and other mainstream monetary institutions are hostile to crypto is absolutely correct. For 10 years they have taken the view that they don’t like it but don’t know what to do about it. Now they know.
The solution is to kill it.
Of course, Bitcoin and other cryptos have their own ecosystem of exchanges, derivatives, custodians, payment channels, tickers, etc., etc. But so what? Cryptos are like chips in a casino.
You can make money or lose money gambling with the chips. But if you walk outside with chips in your pocket, they’re worthless.
You can change tables at the casino but you can’t leave the casino. Chips only have value inside. If you want to spend money outside, you have to visit the cashier first to cash in your chips. The cashier is the portal from the crypto world to the real world of money.
That’s why the FDIC took over Signature Bank on Sunday, March 12, when they shut down Silicon Valley Bank. Signature Bank was no worse off than a lot of other banks. If it had survived until Monday, March 13, it would have been rescued by the Federal Reserve’s Bank Term Funding Program (BTFP) along with the entire U.S. banking system. Why did Signature Bank get whacked under those circumstances?
Signature Bank got whacked because it was offering a portal to the crypto world called Signet. Once the FDIC announced a blanket deposit guarantee and the Fed offered an unlimited ability to swap bonds for cash at par, Signature would have been fine like any other bank.
Yellen used a panicked weekend to wipe out the Signet portal. As Rahm Emanuel said, never let a crisis go to waste. This is one example of how crypto is getting strangled globally. CBDCs are being set up to replace cryptos as a digital currency.
As for gold, you can manipulate the price for short periods of time by dumping gold, painting the tape, acting in concert, etc. But those techniques are not sustainable (unless you want to sell all your gold, in which case you end up with no gold and the market still goes its way).
The London Gold Pool price rigging agreement collapsed in 1968. British Chancellor of the Exchequer Gordon Brown sold almost half of the U.K.’s gold in 1999 at a near 50-year low, a notorious effort at price manipulation known as Brown’s Bottom.
Both are good examples of how manipulation always fails in the end. The government could try a replay of FDR’s gold confiscation from 1933, but it won’t work this time because there’s no trust in the government’s promises.
There are many reasons for this. No one trusts the government today, whereas in 1933 there was a belief that FDR knew what he was doing and was trying to end the Great Depression. COVID is a good example of how people were lied to about vaccines, masks, etc.
The rule today is “Don’t get fooled again.’ No one will surrender their gold except perhaps the people still wearing masks. But they probably don’t have any gold to begin with.
The other reason gold confiscation won’t work is that gold is not fixed in price as it was in 1933. Very few saw the dollar devaluation from $20/oz to $35/oz of gold coming that FDR orchestrated in 1933.
That gold price increase (really a dollar devaluation) wasn’t announced until months after the confiscation. It was the ultimate in insider trading organized by FDR. Informed citizens won’t fall for that a second time.
In a non-pegged market as we have today, the crisis will come first and gold will go to $5,000 or $10,000 per ounce or higher before the government gets around to an attempted confiscation. By that point the damage is done and gold owners have their winnings.
How should everyday Americans evaluate the crisis choice between gold and cryptos as alternatives to the dollar? Ask the following questions:
Can crypto get whacked by governments? Yes. Can gold be manipulated in the long-run? No.
Those questions and answers really answer the bigger question of how to survive the collapse of the dollar.
Gold works. Crypto doesn’t. ‘Nuff said.
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>>> Leaders from emerging economies are visiting China for the 'Belt and Road' forum
Associated Press
10-15-23
https://www.msn.com/en-us/money/companies/leaders-from-emerging-economies-are-visiting-china-for-the-belt-and-road-forum/ar-AA1igDcm?OCID=ansmsnnews11
BEIJING (AP) — Leaders of emerging market countries are arriving in Beijing for a meeting organized by the Chinese government that will mark the 10th anniversary of its Belt and Road Initiative.
More than a dozen leaders from Africa, Asia and the Mideast were flying into Beijing on Monday, following the arrivals of Chilean President Gabriel Boric and Hungarian Prime Minister Viktor Orbán on Sunday. Others are coming on Tuesday.
Under the Belt and Road Initiative, a signature policy of President Xi Jinping, Chinese companies have built ports, roads, railways, power plants and other infrastructure around the world in a bid to boost trade and economic growth.
But the massive Chinese development loans that funded the projects have also burdened some poorer countries with heavy debts.
A flurry of diplomacy is expected on the sidelines of the third Belt and Road Forum, whose main events are on Wednesday. Orbán met with Xi and Premier Li Qiang, Hungary's state news agency MTI said. The forums also were held in 2017 and 2019.
Kenyan President William Ruto will be seeking additional loans for stalled road projects despite the country's already high public debt, and an easing of the repayment of a Chinese loan for a railway project that has not proven commercially viable.
Russian President Vladimir Putin is expected to attend the forum, as are representatives of the Taliban government in Afghanistan.
Putin downplayed the idea that China, through its Belt and Road projects in Central Asia, is competing for influence in a region that Russia has long considered its backyard.
"Our own ideas on the development of the Eurasian Economic Union, for example, on the construction of a Greater Eurasia, fully coincide with the Chinese ideas proposed within the framework of the Belt and Road Initiative,” he told Chinese state broadcaster CCTV, according to a transcript posted on the Kremlin website.
The leaders who arrived on Monday included Ethiopian Prime Minister Abiy Ahmed, Sri Lankan President Ranil Wickremesinghe, Republic of Congo President Denis Sassou Nguesso, Papua New Guinean Prime Minister James Marape and Cambodian Prime Minister Hun Manet.
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Rickards - >>> The Dream Is Dead
BY JAMES RICKARDS
SEPTEMBER 6, 2023
https://dailyreckoning.com/the-dream-is-dead/
The Dream Is Dead
The global desire to move away from the dollar as a medium of exchange for international trade in goods and services has gone from a discussion point to a novelty to a looming reality in a remarkably short period of time.
It’s impossible to check headlines without seeing a new story about major trading partners planning to substitute their local currencies (or in the BRICS case, a newly formed currency) for the U.S. dollar in payment channels supporting world trade.
This plan has recently been re-emphasized as the BRICS have agreed formally to admit six new members to the group, including Saudi Arabia.
The importance of the new members is obvious. By adding Saudi Arabia, the BRICS now have two of the three largest oil producers in the world (Russia and Saudi Arabia; the third member of the trio is the United States) inside their tent.
The inclusion of UAE and Iran alongside Saudi Arabia and Russia makes the BRICS a de facto OPEC+ when it comes to dictating oil output and prices.
The BRICS will now include the second, fifth-, 10th-, 11th-, 18th- and 23rd-largest economies in the world, along with five others. The total GDP of the expanded BRICS membership is approximately 30% of global GDP measured on a nominal basis and over 50% of global GDP when measured based on purchasing power parity.
Many Americans are inclined to lament declines in the dollar’s global role. But should they?
The dollar’s global role has always been a double-edged sword for the United States. A strong dollar makes exports more expensive. And even though it does allow the threat of sanctions to be part of foreign policy, that hasn’t worked out that well for the U.S. under Joe Biden.
You see, in addition to sanctioning oligarchs, banning U.S. investment in Russia, kicking Russia out of the SWIFT international messaging system and freezing and stealing assets, Biden’s sanctions went so far as to freeze and hold the U.S. dollar reserves of the Central Bank of Russia.
I wrote at the time that not only would this move fail to hurt Russia. But it would also boomerang and do extreme damage to the United States. I’m truly sad to say I was right.
When other countries saw the U.S. grab the assets of a major central bank, they asked themselves the obvious question: “What if the U.S. doesn’t like MY policies or actions in international affairs?” “Will Biden then seize my central bank assets too?”
Many countries — including China, India and Brazil decided the answer might be, “Yes.” and they immediately started selling off their holdings of U.S. Treasury debt and began to pay for imports in their own currencies.
But Biden’s blunder created an even more significant threat and the status of the dollar as the world’s global reserve currency is now in question.
So the greatest threat to the dollar comes not from abroad but from the U.S. Treasury.
Specifically, by seizing the assets of the Central Bank of Russia, the U.S. has weaponized the dollar in a way that undermines the rule of law in the United States and causes other countries to seek alternatives.
What if no other currency can easily replace the reserve currency role of the dollar? Is there any alternative at all?
Yes, gold is ready and waiting in the wings. That’s the real danger to the U.S. Treasury market — that sovereign nations turn to gold to escape the dollar.
That trend has also begun. Yet it cannot go very far without exponential increases in the dollar price of gold. Such gains should not be thought of as gold “going up.” They are best understood as the dollar going down. The implications of that are highly inflationary as we saw in the late 1970s.
We will see the results of de-dollarization efforts in the months ahead. For now, get your gold while you still can.
Below, I show you how the BRICS summit is just one more sign that the globalist dream is dead. Read on.
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Rickards - >>> The Globalist Dream Is Dead
By Jim Rickards
https://dailyreckoning.com/the-dream-is-dead/
What exactly happened at the BRICS Summit in South Africa that concluded on Aug. 24? The answer is a lot happened with momentous consequences for the international monetary system and geopolitics more broadly. Yet the most important details were not widely reported and instead were buried beneath the standard headlines. Here’s the story:
I’ve reviewed the 26-page formal communique emerging from the BRICS Summit. It’s fine for reference purposes, but it’s mostly filled with diplomatic phrases and good intentions. It discusses “mutual respect and understanding, sovereign equality, solidarity, democracy, openness, inclusiveness, strengthened collaboration and consensus.”
That’s just diplomatic boilerplate that you can find in almost any communique from any multilateral meeting. There are some important announcements buried in the 26 pages, but I can get more information from the media and my private sources. The formal document can safely be laid to one side while we dig behind the scenes for the real news.
The News Is Huge
To review, the BRICS (Brazil, Russia, India, China and South Africa) have agreed formally to admit six new members to the group. These countries are Saudi Arabia, Iran, UAE, Ethiopia, Argentina and Egypt. These countries will become BRICS members effective Jan. 1, 2024. This is the first change in the membership since South Africa was admitted to the original BRICs in 2010.
Now that the dam has burst on new members, it’s reasonable to expect that many more on the 20-plus-country waiting list will be admitted in the years ahead, including economically powerful players like Turkey.
There was a lot of back and forth among the members regarding these admissions. China pushed hard for the inclusion of Saudi Arabia since the kingdom is the largest supplier of oil to China. Russia also supported Saudi Arabia.
India was initially opposed, but then agreed in return for China’s support to admit Iran, which is a close ally of India. South Africa lobbied for another sub-Saharan African member, which accounts for the inclusion of Ethiopia.
Brazil wanted to make sure South America was not slighted and pushed for Argentina, which is a major trading partner of Brazil. Egypt seemed an obvious choice, both because of the importance of the Suez Canal and because of Egypt’s historic close ties to Russia going back to the 1950s.
UAE is an important financial center (a key consideration as the de-dollarization effort moves forward) and fits nicely with the oil production portfolio of Saudi Arabia, Iran and Russia. In the end, everyone gained something and a consensus was reached.
The Planned Dominance of BRICS+
By adding Saudi Arabia, the BRICS now have two of the three largest oil producers in the world (Russia and Saudi Arabia; the third member of the trio is the United States) inside their tent. The inclusion of UAE and Iran alongside Saudi Arabia and Russia makes the BRICS a de facto OPEC+ when it comes to dictating oil output and prices.
The combined population of the BRICS+ is 3.6 billion, or 45% of the total population of the earth. The expanded BRICS also dominate a long list of natural resource outputs including grains, soybeans, rare earths, uranium, titanium, aluminum, and gold. The BRICS+ possess two of the three largest nuclear weapons arsenals on earth (Russia and China; the U.S. is the other member of the three).
The power of BRICS+ goes far beyond simple measures of output and population. When you look at a map of the world, you’ll see that the BRICS now control the Persian Gulf and the Straits of Hormuz (Saudi Arabia, UAE and Iran), the Suez Canal (Egypt), the Straits of Magellan (Argentina) and a large portion of the Eurasian landmass (Russia, China, and Iran).
This effort has a long way to go and the U.S. Navy still rules the seas. Transportation links from Shanghai to Rotterdam are still in the works. But the BRICS+ vision with respect to both land and sea global dominance strategies is breathtaking.
In short, whether measured by population, weapons, economic output, energy, natural resources or sheer landmass, the BRICS+ are now in a position to challenge the G7 and other developed economies for a global voice in geopolitics, economics and the global order.
This challenge will become more tangible as the BRICS add even more members in future. The battle lines between the Collective West and the Global South have now been drawn. It’s a multipolar world of a kind last seen in 1991 at the end of the Cold War. The globalist dream is dead.
What About That New Global Currency?
What about plans for a new global BRICS currency to be used first as a trading currency among members and then later as a reserve currency?
The BRICS XV Summit declaration is almost completely silent on this point. There are some positive references to the respective roles of the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA) but these are both existing entities and do not mark new initiatives.
But the fact that a new global currency was not mentioned does not mean it was not discussed privately. It simply means that no consensus was reached.
China still harbors dreams of making the yuan a global trade currency and creating a kind of “petroyuan.” India is still pushing for wider acceptance of their rupee in bilateral trade. South Africa is not a significant global player in this debate. Only Russia and Brazil seem committed to creating a true alternative to the dollar for global trade and reserves.
These issues will have to be resolved.
Importantly, the size of a currency union is the key to its success. The euro is a perfect example. There are currently 20 countries that use the euro as their home currency. The euro also ranks as a global reserve currency (with about a 26% share of reserve assets denominated in euros) because it is freely convertible into U.S. dollars and other reserve currencies such as Swiss francs, sterling and Japanese yen.
This is why the expansion of BRICS membership is integral to the vision of a new global currency. Designing and launching a new currency means little without a large group of trading partners ready to adopt it and use it in day-to-day trading.
The addition of new BRICS members is an important move in the direction of creating that large group and therefore an essential step on the road to a new global currency to rival if not displace the dollar.
The process has begun.
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Rickards - >>> BRICS Seize World’s Commanding Heights
BY JAMES RICKARDS
AUGUST 28, 2023
https://dailyreckoning.com/brics-seize-worlds-commanding-heights/
BRICS Seize World’s Commanding Heights
The BRICS Leader’s Summit ended on August 24 with a momentous decision to expand the membership of BRICS for the first time since 2010.
Saudi Arabia, the United Arab Emirates, Egypt, Argentina, Ethiopia, and Iran were all admitted to membership effective January 1, 2024. Both Brazil and India have some reservations about this move.
But in the end, Russia and China used their muscle to push through the new members despite objections. The BRICS are now BRICS+ with eleven full members and on their way to greater political power and a new currency union.
This is a momentous development, though its effects will take time to fully manifest themselves.
As a result of this expanded membership, the new BRICS currency will emerge in the year ahead.
This is because all current and prospective BRICS members and the entire Global South (including members of the Shanghai Cooperation Organization and the Eurasian Economic Union) are suffering from the weaponization of the U.S. dollar.
They fear that their dollar-denominated reserves may be frozen by the U.S., as recently happened to Russia.
Their solution is to start a new currency union big enough to offer a diverse range of goods and services (and eventually bonds) that bypasses the dollar.
It won’t happen overnight and the new currency will face challenges, but the process is getting underway.
The implications of expanded BRICS membership actually go far beyond the currency union.
With the additions of Saudi Arabia, Iran and UAE, the BRICS have now effectively surrounded the Persian Gulf. With the addition of Egypt and Saudi Arabia, they now effectively control the Red Sea and the Suez Canal.
Meanwhile, the addition of Argentina gives BRICS control of the Straits of Magellan for transit from the Atlantic to the Pacific Oceans (good luck in the Drake Passage; I’ve been there. It’s a daunting body of water).
BRICS are moving closer to the dual visions of Halford Mackinder, the geopolitical theorist whose notion of the World Island and Heartland were both based in Asia — and to Alfred Mahan, the naval strategist whose theory of sea power emphasized control of critical straits and other sea chokepoints.
The BRICS are consolidating physical control of both the land and sea pivots of history.
Expanded BRICS membership also marks the beginning of the end of the petrodollar era. Membership of Saudi Arabia in the BRICS is a large step in that direction. This is why the admission of new members and the launch of a new currency cannot be viewed in isolation.
They are two parts of a common project. The expanded membership is precisely what makes the new currency more feasible.
This is all happening under the noses of U.S. policymakers who seem ignorant both of history and current events.
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Latest from Rickards - >>> BRIC by BRIC
BY JAMES RICKARDS
AUGUST 22, 2023
https://dailyreckoning.com/bric-by-bric/
BRIC by BRIC
It’s finally here…
Today, Aug. 22, is a date I’ve been warning readers about for months.
It’s the date when a great monetary shock is set to hit the global financial system.
That’s because the BRICS nations are now meeting in South Africa, where they’ll take steps to create a new gold-backed currency as a dollar alternative.
The meeting wraps up on the 24th.
By understanding what is about to hit the global monetary system, you can better prepare to protect and even grow your wealth.
A big part of that strategy centers on my proprietary IMPACT system that I created specifically to profit from the ongoing currency wars.
Information is key, so let’s get into some common questions readers have about this crucial development.
QUESTION: Will this announcement from BRICS have a crucial impact on American citizens and international citizens on the home front in a negative way? How can we prepare?
ANSWER: The short answer is yes. If what I’m predicting takes place, Saudi Arabia will be accepted into the BRICS alliance (Brazil, Russia, India, China, South Africa). This in itself is a major power grab by the BRICS challenging the G7 countries. But if Saudi Arabia chooses to break the petrodollar agreement with America and sell its oil in currencies other than dollars…
It will be a MASSIVE blow to America and could be what leads to the dollar losing its reign as the global reserve currency of the world, weakening America’s power even more.
QUESTION: Jim, how sure are you of this event happening over the next few days? 50%? Or 90%?
ANSWER: I am 99.99% sure. This meeting is by far the most important BRICS meeting since the founding of the organization in 2006. Now I don’t know for certain if Saudi Arabia will be accepted into the BRICS or not; only the leaders of the BRICS nation know that.
But if the Saudis are accepted, I believe it will trigger a currency war unlike anything we’ve ever seen… creating a massive profit opportunity in the currency markets. My proprietary IMPACT system has already identified THREE currency trades I believe are set to be the BIGGEST WINNERS of this new currency war.
QUESTION: If the U.S. loses the distinction of having the dollar as the global currency, who will take its place? And what will happen to the dollar?
ANSWER: There is currently no alternative to the dollar in terms of its reserve currency status because of the absence of a sovereign bond market of sufficient size and operational capacity. That role will be very difficult to dislodge, perhaps taking 10 to 20 years to establish the necessary infrastructure and gain the trust of market participants.
If no other currency can easily replace the reserve currency role of the dollar, is there any alternative at all? Yes, gold is ready and waiting in the wings. That’s the real danger to the U.S. Treasury market — that sovereign nations turn to gold to escape the dollar. The impediment to another currency as a reserve currency is the absence of a bond market where reserves are actually invested.
With gold, there’s no need for a bond market to absorb reserves because you have the physical gold as the resulting asset. If this came to fruition, the dollar would become another regional currency, such as pesos are to Mexico or the pound is to the U.K.
QUESTION: Do you expect stock markets to be impacted in the U.S. as a reaction to the BRICS summit announcements during the summit on Aug. 22–24?
ANSWER: The market as a whole will not significantly be impacted since this is a gradual rollout of the new BRICS currency. All of the pieces are now in place. Since the BRICS+ currency will be gold-linked, and since participants in the scheme will continue to buy gold in order to maintain the needed backing support for the new currency, the price of gold will remain strong and steadily grow. This will be good for gold stocks as gold will effectively hitch a ride on the BRICS+ currency train and be part of the future of international finance.
QUESTION: Do you believe the Saudis will price their oil in the new BRICS currency in the future?
ANSWER: I do believe this is part of the bigger plan the Saudis have for joining the BRICS. First and foremost, joining the BRICS allows the Saudis to get away from being dependent on the U.S. This will allow them to sell their oil in other currencies (helping cause a worldwide currency war around the globe).
In the end, I believe the plan for the BRICS is to be able to trade amongst themselves with their own currency, but I believe we are still a ways away from that. In the near term, we can use this new currency war to profit from currency trading.
QUESTION: Should we take most of our money out of the stock market and put more in gold? What will the price of gold be at the end of 2023?
ANSWER: As I have often said, the key to a financially sound portfolio is diversification. That’s why I always recommend just a 10% allocation to physical gold. I would stay light in equities and put 30% in cash until the volatility of the markets subsides after the BRICS announcement. The eventual collapse of the dollar really means higher inflation and a much higher dollar price for gold. That means other commodity prices will rise in lockstep.
A commodity boom favors BRICS and emerging markets generally (as it did in the late 1970s and early 1980s). When gold goes from $2,000 to $10,000, that is better understood as an 80% devaluation of the dollar. That’s a collapse of confidence, but you’ll miss it if you’re looking at euros or yen.
Those currencies will be collapsing at the same time creating a unique opportunity to profit from their falls. After a gold-linked currency is announced, gold will rise in price, and I expect a new floor of $2,000 per ounce by the end of the year and then a sharp rise from there.
QUESTION: How much money do I need to get started?
ANSWER: I believe a $5–10K trading portfolio is a great place to start, but the truth of the matter is you can get into these currency trades with as little as a few hundred dollars. That’s because IMPACT trades have built-in leverage. This means you get the exact right amount of leverage in each trade.
And consider this: IMPACT trades also have built-in protection. This means you can’t lose more than you put in. So while there’s always the possibility a trade could turn against you, your risk is always known and strictly limited by design.
QUESTION: If your BRICS hypothesis happens, how do I protect my wealth?
ANSWER: Over time, the dynamic is the BRICS are going to be anchored to gold and the U.S. is going to be anchored to nothing, and the dollar price of gold is going to go up, which is the dollar valuation, resulting in a highly inflationary environment. So it’s not too soon to think about inflation hedges.
As mentioned above, gold and silver are excellent safe-haven investments to have with higher inflation. Other investments to preserve wealth include cash, land, energy, agriculture and U.S. Treasury notes. Investments to stay away from are stocks, corporate bonds and commercial real estate.
QUESTION: What sectors will be negatively impacted, and which sector opportunities will come from this change?
ANSWER: First and foremost, trading currencies will be far and away the most exciting opportunity over the coming weeks as the BRICS begin to make their moves. I also see the gold mining sector benefiting from the BRICS changes, as any rise in the price of gold benefits the miner’s bottom line.
The energy sector will benefit as the new changes allow broader trade in oil and gas between BRICS countries. Oil and natural gas aren’t going anywhere. We’re going to need them for the foreseeable future, and those stocks have been beaten down. I also like real estate, agriculture and particularly defense with more aggression by U.S. adversaries as de-dollarization illustrates.
In terms of sectors that’ll suffer, the technology sector could suffer by not only being in a major bubble, but the BRICS nations trading technology among themselves with the U.S. on the outside could spell trouble for many tech stocks. You’ve got huge bubble dynamics. It doesn’t mean it’s over tomorrow. It doesn’t mean you run right out today and short the Nasdaq. That might be a good way to lose money. But as these changes kick in, the tech sector could be the one that suffers the most.
I hope I’ve answered some of your most pressing questions.
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Rickards - >>> The Earthquake Starts Tomorrow
BY JAMES RICKARDS
AUGUST 21, 2023
https://dailyreckoning.com/the-earthquake-starts-tomorrow/
The Earthquake Starts Tomorrow
The BRICS Leaders’ Summit is scheduled to begin tomorrow, Aug. 22 in South Africa, which will run through the 24th.
As I’ve been warning, this meeting is the most significant development in international finance in the last 50 years.
It has the potential to displace the U.S. dollar as the leading payment currency and reserve currency from a standing start in just a few years.
This latest monetary change will be delivered by the BRICS, and the world is unprepared for this geopolitical shock to the global financial system. Of course, BRICS is an acronym for Brazil, Russia, India, China and South Africa.
Among the leaders attending the summit are President Xi Jinping of China, President Lula da Silva of Brazil and Prime Minister Modi of India. President Vladimir Putin of Russia cannot attend in person because there’s an outstanding warrant for his arrest on war crimes charges issued by the corrupt International Criminal Court (ICC) in The Hague.
South Africa is a member of the ICC and might have been required to arrest Putin on arrival. The in-person delegate for Russia will be Sergey Lavrov, Russia’s foreign minister.
Shrouded in Mystery
Even at this late date, the official agenda is shrouded in mystery. That’s not unusual considering that the members themselves, especially Russia and China, are accustomed to decision-making behind closed doors.
It’s also not an unusual feature where top leaders are involved. Negotiations tend to go down to the wire; indeed, key decisions will not even be made until the leaders actually get together in one room.
That said, we do know the top two issues that have been discussed by the leaders behind the scenes (often through so-called Sherpas, who are seasoned diplomats working in private to advance the agendas of their respective leaders and to obtain feedback from the other leaders about where points of agreement might actually lie).
What We Know
The first big issue involves new membership. The BRICS may be a five-member group, but over 67 countries have been invited to attend. Among those 67 countries, more than 20 have expressed interest in joining the BRICS, and seven have formally applied for membership.
If any new members are admitted, first on this list will be Saudi Arabia. As of now, both Russia and China favor Saudi Arabia for membership. China is the largest purchaser of Saudi Arabian oil, so a formal alliance including both countries makes sense, especially as they and others move forward on a common currency other than the U.S. dollar. (More about that in a second).
Also, Russia and Saudi Arabia are two of the three largest oil producers in the world (the other being the U.S.), so including both countries in the same group creates a forum that may be more powerful than OPEC when it comes to setting oil prices.
Brazil has been the BRICS member most opposed to admitting new members. That might be understandable in terms of not diluting Brazil’s power within the group. But Russia and China may simply force Brazil’s hand on the issue of Saudi Arabian membership.
We’ll see what happens. As of now, Saudi Arabian admission is a likely result at the summit, but it’s not a sure thing.
Here’s the Important Part
The other major issue is the launch of a new multilateral BRICS currency that might be used to settle trade balances in the short run and then evolve into a reserve currency over a longer period of time.
We know a lot about the potential shape of this new currency based on statements made over the past six months by BRICS leaders themselves as well as their foreign ministers or finance ministers.
Russia is one of the original BRICS and has the largest gold hoard of any BRICS member. The new BRICS currency to be announced is likely to be gold-linked. This will position Russia to be one of the leading backers of the new currency and the de facto BRICS banker to the world.
The BRICS currency will not involve the yuan, ruble, rupee or other national currency of the members. Those currencies will continue to exist for domestic consumption and contracts, but they will gradually be replaced by the new BRICS currency for international settlements.
How It’ll Work
The value of each unit of BRICS currency will not be tied to another currency or basket. Instead, it will be tied either to a basket of commodities (oil, gold, copper, wheat, iron ore, etc.) or simply to gold.
The commodity basket idea is unwieldy (as John Maynard Keynes discovered when he explored a similar approach in 1944), so a non-currency valuation metric is likely to end up with gold (as Keynes also discovered).
However, this may be a two-step process as Brazil and South Africa both place some weight on the role as top commodity producers.
The other key element in the launch of the currency is the expansion of the BRICS membership beyond the current five. This is important not only for the geopolitical reasons noted above but because the larger the membership in a currency union, the more valuable the currency becomes.
The success of the euro is a good example; that currency union has expanded to 19 active members with several more on the waiting list.
When you receive a multilateral currency such as the new BRICS unit in payment for your own goods and services, it’s valuable to be able to spend it in 10 or 20 countries instead of just three or four.
This new currency would be issued by a multilateral central bank controlled by the BRICS members, possibly the New Development Bank created by the BRICS in 2014.
What We Don’t Know
While the outline of the new currency is clear, it’s not clear how much actual progress will be made at this meeting. Russia and China are clearly on board. Brazil is strongly in favor also because of its dislike for the United States and desire to get away from the U.S. dollar.
The reluctant member on this issue is India. This may be due to the fact that Russia has been selling oil to India for rupees and it suits India to be able to print its own currency to buy oil. That’s a privilege that heretofore has been reserved exclusively to the United States.
India’s mini exorbitant privilege may be ending as soon as it began. Russia has put India on notice that it will soon refuse to accept rupees for further oil shipments. This means India will either have to come up with dollars (or gold) or perhaps sign on to the new BRICS currency.
These are issues that will be hashed out behind closed doors over the next few days. It’s unclear what the outcome will be. My expectation is that some announcement will be made about progress toward the new BRICS currency, but it’s premature to announce the currency itself.
Such an announcement is no less momentous to investors than the actual issue of the currency.
The Fact That It’s Happening at All Is Important
Multilateral organizations with disparate views often take a piecemeal approach to agreements of this kind. What’s important is not that everything be done at once, but that something be done at all.
That sets the wheels in motion for the biggest change in the international monetary system since 1971.
We may get some leaks or comments over the next few days, but perhaps not. If there are any, I’ll alert my readers.
Other than any other leaks, the next big news development on the BRICS summit will be the Leaders’ Final Communiqué that will be issued late Thursday. These communiqués are typically 10 pages or so, listing all the matters agreed upon and the next steps.
This formidable grouping of not just the BRICS, but a united Global South is challenging the Western rules-based order and the U.S. dollar.
It will be a busy and critical week. Stay tuned.
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According to this Reuters article, it sounds like the BRICS currency won't be on the agenda for the meeting. If true, that would be a welcome reprieve, albeit probably temporary. On the BRICS expansion side, they say that Brazil and India would prefer a slower timeline, compared to China and Russia who want a more rapid expansion. We know over 20 countries have already formally applied for BRICS membership (including Saudi Arabia), and dozens more have expressed interest. Anyway, if the timeline for all these changes is fairly slow, the financial markets might just yawn (for now) and concern themselves with other factors this Fall (Fed policy, inflation, economy, banking and commercial real estate problems, etc.)
>>> BRICS leaders meet in South Africa as bloc weighs expansion <<<
Excerpt -Boosting the use of member states' local currencies is also on the agenda. South African summit organisers, however, say there will be no discussions of a BRICS currency, an idea floated by Brazil earlier this year as an alternative to dollar-dependence.
Excerpt - Over 40 countries have expressed interest in joining BRICS, say South African officials. Of them, nearly two dozen have formally asked to be admitted.
https://www.msn.com/en-us/news/world/brics-leaders-meet-in-south-africa-as-bloc-weighs-expansion/ar-AA1fBBVF?OCID=ansmsnnews11
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>>> Here are the countries that have shown interest in joining BRICS (as of May). Even France's Macron is asking to be invited to the Aug BRICS summit meeting -
https://watcher.guru/news/brics-full-list-of-countries-that-want-to-join-alliance
Formally applied -
Algeria
Argentina
Bahrain
Egypt
Indonesia
Iran
Saudi Arabia
United Arab Emirates
Expressed interest -
Afghanistan,
Bangladesh
Belarus
Kazakhstan
Mexico
Nicaragua
Nigeria
Pakistan
Senegal
Sudan
Syria
Thailand
Tunisia
Turkey
Uruguay
Venezuela, and
Zimbabwe.
Among all the nations, Algeria, Argentina, Bahrain, Egypt, Indonesia, Iran, Saudi Arabia, and the United Arab Emirates have formally applied to join the BRICS alliance. The other nations have only expressed their interest in joining the BRICS bloc.
https://en.wikipedia.org/wiki/BRICS
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>>> Why does Saudi Arabia want to join BRICS
Modern Diplomacy
June 18, 2023
https://moderndiplomacy.eu/2023/06/18/why-does-saudi-arabia-want-to-join-brics/
Saudi Arabia has become a dialogue partner in the SCO. She also intends to join the BRICS, which will bring certain advantages to Riyadh, the online ‘Maaal’ newspaper reported. According to the author of the article, BRICS intends to put an end to Western hegemony, which is precisely in the interests of the Arab monarchy.
The Cabinet of Ministers of Saudi Arabia approved a Memorandum on granting the Kingdom the status of a dialogue partner in the Shanghai Cooperation Organization (SCO), founded in Beijing in 2001 to oppose Western institutions. It consists of nine permanent members: China, Russia, India, Pakistan, Iran, Kazakhstan, Tajikistan, Kyrgyzstan and Uzbekistan. Egypt and Qatar have the status of observers or dialogue partners.
The decision to join Saudi Arabia to the SCO came less than three weeks after Riyadh and Tehran agreed to resume diplomatic relations mediated by China. The Shanghai Cooperation Organization seeks to secure a privileged place for itself in the new world order.
Saudi Arabia occupies a high position in the Islamic and Arab world. Saudi Arabia is the largest player in the global energy markets – 19% of the world’s oil reserves; 12% of world production; more than 20% of oil exports on world markets. Proved oil reserves are approximately 267 billion barrels, and production is more than five million barrels per day, both domestically and abroad.
The volume of gold and foreign exchange reserves, according to statistics from the Central Bank of Saudi Arabia, amounted to $693 billion at the end of 2022. Therefore, it is an important player in the global financial and investment markets. Every international organization seeks to get the Kingdom as an ally, as this ultimately has a positive effect on their strength and global influence.
The entry of Saudi Arabia into the BRICS will benefit the participating countries and strengthen the position of the organization on the world stage. The Kingdom will not be left out either. It will benefit from the markets, opportunities and resources of the BRICS countries. This organization includes the main developing economies of the world (about 41% of the world’s population). BRICS is a huge market that can absorb the exports of any economy, not to mention huge investment opportunities. In 2022, the total nominal GDP of the BRICS countries was $24.2 trillion (25% of total world output). China alone accounts for almost 70% of the total output of the BRICS group.
China and India, members of the BRICS, are the main markets for oil imports from the Gulf countries, as well as the main trading partners for Saudi Arabia and the Gulf countries. Joining the BRICS will strengthen economic cooperation between the Kingdom and the participating countries, and will contribute to the growth of the Saudi economy in the future.
Despite the obvious advantages, Riyadh’s accession to the BRICS may lead to an aggravation of relations with the West, especially with America. Therefore, he must carefully weigh all the pros and cons before making a final decision, and also take into account the following factors.
The United States is the fifth largest trading partner of Saudi Arabia with a trade volume of 151.4 billion rials. Washington considers the Kingdom to be its strategic ally in the Persian Gulf region. He is Riyadh’s largest arms exporter and largest foreign investor. US investment in Saudi Arabia is $800 billion, while China is only $100 billion.
The accession of Saudi Arabia to the BRICS will accelerate the economic diversification and development of the country and reduce its dependence on Western blocs. On the other hand, there are potential risks and challenges, the most important of which is the intensification of geopolitical competition between the West and the East, led by the BRICS, which will have a negative impact on the Kingdom, which has long been part of the Western camp.
In 2022, the global trade volume of the G7 countries amounted to $6.3 trillion (28.1% of total world exports), while imports amounted to $7.6 trillion (33.5% of total world imports). The volume of world exports of the BRICS group amounted to $4.6 trillion (20.7% of total world exports), and imports – $3.9 trillion (17% of total world imports).
Saudi Arabia wants to increase the share of non-oil exports to 50%. Thus, the possible accession of Riyadh to the BRICS will help increase Saudi energy exports in exchange for opening the Kingdom’s markets to Chinese imports and reducing dependence on imports from Western countries.
The escalation of the conflict in Ukraine into a global confrontation involving the West, on the one hand, and China, on the other. Inevitably, there will be a division of countries into eastern and western camps. No one can remain neutral. BRICS will become a kind of Eastern ‘umbrella’ that will not leave small states to be torn to pieces by Western powers.
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>>> The BRICs Go For Gold
Forbes
by Nathan Lewis
Jul 16, 2023
https://www.forbes.com/sites/nathanlewis/2023/07/16/the-brics-go-for-gold/?sh=5b386765eb35;
After months of debate about various currency and commodity baskets, a Russia- and China-led consortium has apparently settled on using gold as the basis of a planned new international currency system separate from the US dollar and euro. As recently reported by state-funded Russia Today, an upcoming meeting of leaders from Brazil, Russia, India and China in August may include the formal introduction of the new initiative.
This would be similar to the Bretton Woods meeting in 1944, where, after the floating currency chaos of the Great Depression, a new gold-based international currency architecture was laid out. The centerpiece was the US dollar, which in turn would be linked to gold at $35/oz., its gold parity since 1933. This laid the foundation for two decades of peace, prosperity, and fixed exchange rates, which sadly came to an end when the US dollar was floated from its golden anchor in 1971.
Since then, various governments have attempted to move back toward an international arrangement based on gold. In 2019, Malaysia's prime minister Mahathir Mohammad proposed a Pan-Asian currency based on gold. "At the moment we have to depend upon the U.S. dollar but the U.S. dollar is also not stable. So the currency that we propose should be based on gold because gold is much more stable," Mahathir described. This too mirrored the Bretton Woods debates, where John Maynard Keynes' "bancor" proposal, which amounted to a global floating fiat currency, was abandoned in favor of the gold-based U.S. dollar at the heart of the system.
In 2009, Libya's Muammar Gaddafi proposed a Pan-African currency, the gold dinar, echoing the gold dinar coins of the Arab Caliphates that once ruled North Africa. But, unrest in Libya in 2011 put an end to such ambitions.
Also in 2009, the head of China's central bank, Zhou Xiaochuan, wrote: "An international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules … [Its] adjustments should be disconnected from economic conditions and sovereign interests of any single country. The acceptance of credit-based national currencies, as is the case in the current system, is a rare special case in history."
Although Xiaochuan did not say how these goals might be achieved, we can assume it would be done exactly the same way that Mao Zedong ended hyperinflation in China in 1950: By fixing the yuan to gold.
In Moscow, leading intellectual Sergey Glazyev recently proposed a "Gold Ruble 3.0," referencing the gold-based rubles of both the Czarist era, and then the Soviet Union. Russian media reported that Russia and Iran are in talks to establish a gold-based cryptocurrency for international trade.
All of this rumbling may have come to nothing, if not for the outbreak of hostilities in Ukraine. This was immediately followed by the isolation of Russia from the entirety of the Western financial system, including US and EU banks, and the SWIFT system for international bank payments. The Russian government was ready to make interest and principal payments on its euro-based bonds, but it literally could not do so. To add both insult and injury, roughly $600 billion of foreign reserves, held in custody in the US and EU, were "frozen," and likely to be confiscated.
This was a wake-up-call to all governments worldwide that held dollar or euro foreign reserves, or used the SWIFT banking system. The time had come to set up alternative arrangements.
This would also require a degree of independence from the International Monetary Fund. Although the IMF was set up at Bretton Woods in 1944 explicitly to reinforce the system built around the golden dollar, by 1978 that mission had become obsolete. In a 1978 revision to its Articles, the IMF allowed governments to link their currencies' value to anything "other than gold" (Article IV, Sec. 2a). The IMF itself would follow "the objective of avoiding the management of the price, or the establishment of a fixed price, in the gold market." (Article V, Sec. 12a) In other words, the IMF banned the gold standard among all member countries. The effect was to maintain the floating fiat dollar's primacy in international affairs.
Today, a "gold standard" proposal comes with a cloud of fallacious ideas, having to do with the "balance of payments" and other odd notions. It is best understood as simply a means to stabilize currency value. Today, many countries' currencies are linked to the euro, including Bulgaria, which uses a euro currency board. A gold standard system is the same basic idea, but using gold instead of a floating fiat euro. All of today's electronic payment systems would remain the same.
This was the principle that all of the Western World (and actually the Eastern World as well) followed for the past 600 years since the Renaissance. It worked very well. Gold was indeed tolerably stable in value, in the short and long term — stable enough that countries that stuck to it suffered no ill consequences as a result. They may have suffered for other reasons: Mao's Great Leap Forward (1958-1962) resulted in mass starvation, even though the yuan remained linked to gold. But, gold never failed to serve its role as a reliably stable standard of value.
"The only adequate guarantee for the uniform and stable value of a paper currency is its convertibility into specie [gold or silver] — the least fluctuating and only universal currency," said President James Madison, the primary author of the US Constitution. Today, much of the world wants a basis for their currencies that is stable in value, and also "universal" — that is, something everyone can agree on. Just as at Bretton Woods in 1944, there is only one thing that meets this need, and we all know what it is.
(--> GOLD baby !! But what happens to the value of my Treasuries, gulp)
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>>> BRICS countries likely to induct five new members in August summit
Saudi Arabia's entry almost certain; Indonesia, UAE, Egypt also in the fray
Business Standard
June 29, 2023
https://www.business-standard.com/economy/news/brics-countries-likely-to-add-five-new-members-during-august-summit-123062900836_1.html
The BRICS nations may agree to induct around five new members into the grouping during its August leadership summit, to be hosted by South Africa, culminating a long-pending expansion plan. Out of the 25 countries that are keen to join the grouping, while Saudi Arabia’s entry is almost certain, other frontrunners include Indonesia, the UAE, Egypt, and Argentina, a senior government official said on condition of anonymity...
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>>> How long will the dollar last as the world’s default currency? The BRICS nations are gathering in South Africa this August with it on the agenda
Fortune
BY MIHAELA PAPA
June 25, 2023
https://fortune.com/2023/06/25/dollar-reserve-currency-brics-brazil-russia-india-china-south-africa/
Could a new currency be set to challenge the dominance of the dollar? Perhaps, but that may not be the point.
In August 2023, South Africa will host the leaders of Brazil, Russia, India, China and South Africa – a group of nations known by the acronym BRICS. Among the items on the agenda is the creation of a new joint BRICS currency.
As a scholar who has studied the BRICS countries for over a decade, I can certainly see why talk of a BRICS currency is, well, gaining currency. The BRICS summit comes as countries across the world are confronting a changing geopolitical landscape that is challenging the traditional dominance of the West. And while the BRICS countries have been seeking to reduce their reliance on the dollar for over a decade, Western sanctions on Russia after its invasion of Ukraine have accelerated the process.
Meanwhile, rising interest rates and the recent debt-ceiling crisis in the U.S. have raised concerns among other countries about their dollar-denominated debt and the demise of the dollar should the world’s leading economy ever default.
That all said, a new BRICS currency faces major hurdles before becoming a reality. But what currency discussions do show is that the BRICS countries are seeking to discover and develop new ideas about how to shake up international affairs and effectively coordinate policies around these ideas.
De-dollarization momentum?
With 88% of international transactions conducted in U.S. dollars, and the dollar accounting for 58% of global foreign exchange reserves, the dollar’s global dominance is indisputable. Yet de-dollarization – or reducing an economy’s reliance on the U.S. dollar for international trade and finance – has been accelerating following the Russian invasion of Ukraine.
The BRICS countries have been pursuing a wide range of initiatives to decrease their dependence on the dollar. Over the past year, Russia, China and Brazil have turned to greater use of non-dollar currencies in their cross-border transactions. Iraq, Saudi Arabia and the United Arab Emirates are actively exploring dollar alternatives. And central banks have sought to shift more of their currency reserves away from the dollar and into gold.
All the BRICS nations have been critical of the dollar’s dominance for different reasons. Russian officials have been championing de-dollarization to ease the pain from sanctions. Because of sanctions, Russian banks have been unable to use SWIFT, the global messaging system that enables bank transactions. And the West froze Russia’s US$330 billion in reserves last year.
Meanwhile, the 2022 election in Brazil reinstated Luiz Inácio Lula da Silva as president. Lula is a longtime proponent of BRICS who previously sought to reduce Brazil’s dependence on and vulnerability to the dollar. He has reenergized the group’s commitment to de-dollarization and spoken about creating a new Euro-like currency.
The Chinese government has also clearly laid out its concerns with the dollar’s dominance, labeling it “the main source of instability and uncertainty in the world economy.” Beijing directly blamed the Fed’s interest rate hike for causing turmoil in the international financial market and substantial depreciation of other currencies. Together with other BRICS countries, China has also criticized the use of sanctions as a geopolitical weapon.
The appeal of de-dollarization and a possible BRICS currency would be to mitigate such problems. Experts in the U.S. are deeply divided on its prospects. U.S. Treasury Secretary Janet Yellen believes the dollar will remain dominant as most countries have no alternative. Yet a former White House economist sees a way that a BRICS currency could end dollar dominance.
Currency ambitions
Although talk of a BRICS currency has gained momentum, there is limited information on various models under consideration.
The most ambitious path would be something akin to the Euro, the single-currency adopted by 11 member states of the European Union in 1999. But negotiating a single currency would be difficult given the economic power asymmetries and complex political dynamics within BRICS. And for a new currency to work, BRICS would need to agree to an exchange rate mechanism, have efficient payment systems and a well-regulated, stable and liquid financial market. To achieve a global currency status, BRICS would need a strong track record of joint currency management to convince others that the new currency is reliable.
A BRICS version of the Euro is unlikely for now; none of the countries involved show any desire to discontinue its local currency. Rather, the goal appears to be to create an efficient integrated payment system for cross-border transactions as the first step and then introduce a new currency.
Building blocks for this already exist. In 2010, the BRICS Interbank Cooperation Mechanism was launched to facilitate cross-border payments between BRICS banks in local currencies. BRICS nations have been developing “BRICS pay” – a payment system for transactions among the BRICS without having to convert local currency into dollars. And there has been talk of a BRICS cryptocurrency and of strategically aligning the development of Central Bank Digital Currencies to promote currency interoperability and economic integration. Since many countries expressed an interest in joining BRICS, the group is likely to scale its de-dollarization agenda.
From BRICS vision to reality
To be sure, some of the group’s most ambitious past initiatives to set up major BRICS projects to parallel non-Western infrastructures have failed. Big ideas like developing a BRICS credit rating agency and creating a BRICS undersea cable never materialized.
And de-dollarization efforts have been struggling both at the multilateral and bilateral level. In 2014, when the BRICS countries launched the New Development Bank, its founding agreement outlined that its operations may provide financing in the local currency of the country in which the operation takes place. Yet, in 2023, the bank remains heavily dependent on the dollar for its survival. Local currency financing represents around 22% of the bank’s portfolio, although its new president hopes to increase that to 30% by 2026.
Similar challenges exist in bilateral de-dollarization pursuits. Russia and India have sought to develop a mechanism for trading in local currencies, which would enable Indian importers to pay for Russia’s cheap oil and coal in rupees. However, talks were suspended after Moscow cooled on the idea of rupee accumulation.
Despite the barriers to de-dollarization, the BRICS group’s determination to act should not be dismissed – the group has been known for defying expectations in the past.
Despite many differences among the five countries, the bloc managed to develop joint policies and survive major crises such as the 2020-21 China-India border clashes and the war in Ukraine. BRICS has deepened its cooperation, invested in new financial institutions and has been continuously broadening the range of policy issues it addresses.
It now has a huge network of interlinked mechanisms that connect governmental officials, businesses, academics, think tanks and other stakeholders across countries. Even if there is no movement on the joint currency front, there are multiple issues on which BRICS finance ministers as well as central bankers regularly coordinate – and the potential for developing new financial collaborations is particularly strong.
No doubt, talk of a new BRICS currency in itself is an important indicator of the desire of many nations to diversify away from the dollar. But I believe focusing on the BRICS currency risks missing the forest for the trees. A new global economic order will not emerge out of a new BRICS currency or de-dollarization happening overnight. But it can potentially emerge out of BRICS’ commitment to coordinating their policies and innovating – something this currency initiative represents.
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>>> BRICS’s plan to float a common currency & India’s reaction to it
Times of India
July 8, 2023
by Dr. Prashant Prabhakar Deshpande
https://timesofindia.indiatimes.com/blogs/truth-lies-and-politics/bricss-plan-to-float-a-common-currency-indias-reaction-to-it/
The BRICS alliance with Brazil, Russia, India, China & South Africa is planning to float a new currency to settle international trade payments to challenge the global reserve status of the US dollar. The bloc of the five nations is likely to jointly decide on floating a new BRICS currency during its next summit in August, 2023 to be held at Johannesburg in South Africa. Although all other countries constituting BRICS, including Brazil, Russia, China, and South Africa seem to be on the side of issuance of a common BRICS currency, India seems to be the only country that has not shown interest in the plans to launch a new currency.
India’s Stand
India’s External Affairs Minister, S. Jaishankar in a press conference held on Monday, 3rd July, 2023 said that India has no plans for a BRICS currency. He declared a month before the summit that India might back out from creating the new currency. Instead, India is focused on strengthening its national currency, the Rupee, and making Rupee stronger will be the top priority of the Indian government, Jaishankar had stated.
Justification for this stand
India is the only country in the bloc that is doing well in terms of GDP on its merit. As such, the country needs no support from BRICS and can survive without the new BRICS currency, it is claimed.
India also has good relations with the U.S. and Europe with trade and military deals worth billions of dollars. Country does not want to risk its trade with Western powers, believing in the yet-to-be-released BRICS currency.
Efforts to expand the bloc
The bloc which earlier included Brazil, Russia, India, and China has not expanded since the inclusion of South Africa in it in 2010. The increasing relevance of the global south has become an important development during the current year as the BRICS has embarked on expanding the bloc. Reportedly a host of Middle Eastern and African nations have expressed interest in joining the bloc. It is obvious, with the vast national resources held by China and Russia, nations who want to join, see the benefit of joining the BRICS Alliance, which ultimately aims to challenge the US dominance.
India, however, is likely to press for deciding well-defined criteria for the proposed addition of new members to the BRICS grouping of emerging nations, instead of extending membership solely on the basis of recommendations by present members. If BRICS nations decide on taking in new members, India therefore would want formulation of well-established criteria for qualification.
Changing Scenario since BRICS appeared on the International Stage
The US which enjoyed the global superpower status post-World War II is today being challenged by BRICS. Efforts in this direction seem to be afoot as the BRICS embarks on expanding the bloc with a goal to dominate world trade by 2050.
The bloc took a massive step with the establishment of the New Development Bank in 2014, set up with $50 billion in seed money. The New Development Bank floated assumes significance as it provides competition to the International Monetary Fund (IMF), an organization known for conducting operations based on political interest of the developed west. However, over the years BRICS is developing into much more than an economic bloc & trying to establish itself as representing a voice of the global south.
Reportedly, China remains the main force driving the BRICS expansion process with the intention of dethroning the U.S. dollar. The Chinese government is pushing nations around the world to join the bloc and accept the soon-to-be-released currency with the intention of dethroning the U.S. dollar from its global reserve status. Russia and China are also said to be fast-tracking a payment technology that could make trading with the yet-to-be-released BRICS currency easier.
Suspected Agenda of China
Reports suggest that China is using BRICS as a weapon in its quest to dethrone the U.S. dollar as the global reserve currency. The Chinese government is said to be eyeing for the U.S. dollar collapse with BRICS is believed to be the stepping stone to turn the idea into a reality. However, the other three countries India, Brazil, and South Africa seem to be skeptical about the prospects of China dominating the world. They fear that Xi Jinping could impose his vision of the global order, when the new currency appears on the international stage.
India particularly is skeptical about the intentions of China for the following reasons:
India is wary of China’s power & her prowling nature, and hence wants to remain alert of the possibility of China, a communist & authoritarian country using BRICS for her self-interest.
India feels theBRICS alliance is becoming China-centric making the communist nation the recipient of international trade deals.
India feels, Xi Jinping ledChina is trying to become a global economic and military superpower and BRICS could be the stepping stone to achieve her goal.
China is pressurising several countries to settle trade using Chinese Yuanto outdo every other member of BRICS to enable China to follow her plan of action & impose Xi Jinping’s vision of the global order, once the new currency reigns on the international stage.
China and India have been at odds for more than a decade now despite being together as members in BRICS. It is noteworthy that India previously banned Chinese goods from entering the country and placed a ban on Chinese apps, including TikTok, a short-form video hosting service and Shein, the Chinese online fast fashion retailer.
India is therefore rightfully worried that Beijing is using the platform of BRICS for imposing President Xi Jinping’s vision on the countries of the world by dethroning the US dollar & becoming a global economic & military superpower.
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>>> BRICS Draws Membership Bids From 19 Nations Before Summit
Algeria, Egypt, Indonesia have asked to join the group
Foreign ministers from the five BRICS members meet in June
Bloomberg
April 25, 2023
Nineteen countries expressed an interest in joining the BRICS group of nations as it prepares to hold an annual summit in South Africa.
The emerging-markets bloc of Brazil, Russia, India, China and South Africa will meet in Cape Town on June 2-3 to discuss its enlargement, Anil Sooklal, South Africa’s ambassador to the group, said in an interview in the city on Monday.
“What will be discussed is the expansion of BRICS and the modalities of how this will happen,” he said. “Thirteen countries have formally asked to join and another six have asked informally. We are getting applications to join every day.”
China initiated the conversation about expansion when it was BRICS chair last year, as the world’s second-biggest economy tries to build diplomatic clout to counter the dominance of developed countries in the United Nations. The proposed enlargement triggered concern among other members that their influence will be diluted, especially if Beijing’s close allies are admitted. China’s gross domestic product is more than twice the size of all four other BRICS members combined.
The foreign ministers from the five member states have all confirmed they’ll attend the discussions in June, Sooklal said. In addition to its membership, they will also discuss “hot spots” including Sudan, where a cease-fire appeared to take hold on Tuesday after 10 days of conflict.
Since its formation as the BRIC in 2006, the group has only added one new member — South Africa in 2010.
Saudi Arabia and Iran are among the countries who’ve formally asked to join, Sooklal said in February. Other countries that have expressed interest in joining include Argentina, the United Arab Emirates, Algeria, Egypt, Bahrain and Indonesia, along with two nations from East Africa and one from West Africa — which he didn’t identify.
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>>> How long will the dollar last as the world’s default currency? The BRICS nations are gathering in South Africa this August with it on the agenda
Fortune
BY MIHAELA PAPA AND THE CONVERSATION
June 25, 2023
https://fortune.com/2023/06/25/dollar-reserve-currency-brics-brazil-russia-india-china-south-africa/
Could a new currency be set to challenge the dominance of the dollar? Perhaps, but that may not be the point.
In August 2023, South Africa will host the leaders of Brazil, Russia, India, China and South Africa – a group of nations known by the acronym BRICS. Among the items on the agenda is the creation of a new joint BRICS currency.
As a scholar who has studied the BRICS countries for over a decade, I can certainly see why talk of a BRICS currency is, well, gaining currency. The BRICS summit comes as countries across the world are confronting a changing geopolitical landscape that is challenging the traditional dominance of the West. And while the BRICS countries have been seeking to reduce their reliance on the dollar for over a decade, Western sanctions on Russia after its invasion of Ukraine have accelerated the process.
Meanwhile, rising interest rates and the recent debt-ceiling crisis in the U.S. have raised concerns among other countries about their dollar-denominated debt and the demise of the dollar should the world’s leading economy ever default.
That all said, a new BRICS currency faces major hurdles before becoming a reality. But what currency discussions do show is that the BRICS countries are seeking to discover and develop new ideas about how to shake up international affairs and effectively coordinate policies around these ideas.
De-dollarization momentum?
With 88% of international transactions conducted in U.S. dollars, and the dollar accounting for 58% of global foreign exchange reserves, the dollar’s global dominance is indisputable. Yet de-dollarization – or reducing an economy’s reliance on the U.S. dollar for international trade and finance – has been accelerating following the Russian invasion of Ukraine.
The BRICS countries have been pursuing a wide range of initiatives to decrease their dependence on the dollar. Over the past year, Russia, China and Brazil have turned to greater use of non-dollar currencies in their cross-border transactions. Iraq, Saudi Arabia and the United Arab Emirates are actively exploring dollar alternatives. And central banks have sought to shift more of their currency reserves away from the dollar and into gold.
All the BRICS nations have been critical of the dollar’s dominance for different reasons. Russian officials have been championing de-dollarization to ease the pain from sanctions. Because of sanctions, Russian banks have been unable to use SWIFT, the global messaging system that enables bank transactions. And the West froze Russia’s US$330 billion in reserves last year.
Meanwhile, the 2022 election in Brazil reinstated Luiz Inácio Lula da Silva as president. Lula is a longtime proponent of BRICS who previously sought to reduce Brazil’s dependence on and vulnerability to the dollar. He has reenergized the group’s commitment to de-dollarization and spoken about creating a new Euro-like currency.
The Chinese government has also clearly laid out its concerns with the dollar’s dominance, labeling it “the main source of instability and uncertainty in the world economy.” Beijing directly blamed the Fed’s interest rate hike for causing turmoil in the international financial market and substantial depreciation of other currencies. Together with other BRICS countries, China has also criticized the use of sanctions as a geopolitical weapon.
The appeal of de-dollarization and a possible BRICS currency would be to mitigate such problems. Experts in the U.S. are deeply divided on its prospects. U.S. Treasury Secretary Janet Yellen believes the dollar will remain dominant as most countries have no alternative. Yet a former White House economist sees a way that a BRICS currency could end dollar dominance.
Currency ambitions
Although talk of a BRICS currency has gained momentum, there is limited information on various models under consideration.
The most ambitious path would be something akin to the Euro, the single-currency adopted by 11 member states of the European Union in 1999. But negotiating a single currency would be difficult given the economic power asymmetries and complex political dynamics within BRICS. And for a new currency to work, BRICS would need to agree to an exchange rate mechanism, have efficient payment systems and a well-regulated, stable and liquid financial market. To achieve a global currency status, BRICS would need a strong track record of joint currency management to convince others that the new currency is reliable.
A BRICS version of the Euro is unlikely for now; none of the countries involved show any desire to discontinue its local currency. Rather, the goal appears to be to create an efficient integrated payment system for cross-border transactions as the first step and then introduce a new currency.
Building blocks for this already exist. In 2010, the BRICS Interbank Cooperation Mechanism was launched to facilitate cross-border payments between BRICS banks in local currencies. BRICS nations have been developing “BRICS pay” – a payment system for transactions among the BRICS without having to convert local currency into dollars. And there has been talk of a BRICS cryptocurrency and of strategically aligning the development of Central Bank Digital Currencies to promote currency interoperability and economic integration. Since many countries expressed an interest in joining BRICS, the group is likely to scale its de-dollarization agenda.
From BRICS vision to reality
To be sure, some of the group’s most ambitious past initiatives to set up major BRICS projects to parallel non-Western infrastructures have failed. Big ideas like developing a BRICS credit rating agency and creating a BRICS undersea cable never materialized.
And de-dollarization efforts have been struggling both at the multilateral and bilateral level. In 2014, when the BRICS countries launched the New Development Bank, its founding agreement outlined that its operations may provide financing in the local currency of the country in which the operation takes place. Yet, in 2023, the bank remains heavily dependent on the dollar for its survival. Local currency financing represents around 22% of the bank’s portfolio, although its new president hopes to increase that to 30% by 2026.
Similar challenges exist in bilateral de-dollarization pursuits. Russia and India have sought to develop a mechanism for trading in local currencies, which would enable Indian importers to pay for Russia’s cheap oil and coal in rupees. However, talks were suspended after Moscow cooled on the idea of rupee accumulation.
Despite the barriers to de-dollarization, the BRICS group’s determination to act should not be dismissed – the group has been known for defying expectations in the past.
Despite many differences among the five countries, the bloc managed to develop joint policies and survive major crises such as the 2020-21 China-India border clashes and the war in Ukraine. BRICS has deepened its cooperation, invested in new financial institutions and has been continuously broadening the range of policy issues it addresses.
It now has a huge network of interlinked mechanisms that connect governmental officials, businesses, academics, think tanks and other stakeholders across countries. Even if there is no movement on the joint currency front, there are multiple issues on which BRICS finance ministers as well as central bankers regularly coordinate – and the potential for developing new financial collaborations is particularly strong.
No doubt, talk of a new BRICS currency in itself is an important indicator of the desire of many nations to diversify away from the dollar. But I believe focusing on the BRICS currency risks missing the forest for the trees. A new global economic order will not emerge out of a new BRICS currency or de-dollarization happening overnight. But it can potentially emerge out of BRICS’ commitment to coordinating their policies and innovating – something this currency initiative represents.
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>>> The Great Dollar Paradox
BY JAMES RICKARDS
JUNE 12, 2023
https://dailyreckoning.com/the-great-dollar-paradox-2/
The Great Dollar Paradox
The de-dollarization story is everywhere.
You see it in publications from The New York Times to The Economist and in financial media including CNBC, Fox Business and Bloomberg.
The idea is that countries around the world are preparing to ditch the dollar. This takes many forms including efforts by China to pay for imported oil from Saudi Arabia and the UAE with yuan and a major bilateral agreement between China and Brazil that allows each country to pay for exports from the other using their local currencies.
Russia got in the act by agreeing to receive rupees for oil delivered to India and paying for imports from China with rubles. All these efforts will be converging and coming to a head in late August when the BRICS (Brazil, Russia, India, China, South Africa and other invited countries) meet to announce a new BRICS+ currency linked to gold.
With all of that going on, one might expect to find the dollar in freefall. Yet that’s not the case.
The dollar has been strong lately and I expect it to get stronger in the months ahead. What gives? How can the dollar be under global attack and yet be strong at the same time?
Strong Compared to What?
The answer is found in the way you measure value in any currency. Dollar strength or weakness is typically measured in major currency indexes, including DXY (used for futures trading and quoted in The Wall Street Journal) and the Bloomberg Dollar Index.
Other major indexes include those computed by the Federal Reserve (I use the Fed indexes in my own research and analysis). What all these indexes have in common is that they compare currencies with currencies, usually the major reserve currencies.
A typical dollar index will compare the dollar with a basket consisting of euros, sterling, yen, Swiss francs and perhaps one or two others. Because of the importance of the euro in world trade and reserves (second only to the dollar), these indexes tend to be just more complicated versions of the euro/dollar cross-rate.
The emerging markets’ currencies are typically left out of such indexes. Meanwhile, the bilateral currency deals described above do not include dollars. When you look at a bilateral currency deal involving yuan or rubles, the dollar is not included at all.
So it’s entirely possible to have a strong dollar (measured mainly against euros) and a growing de-dollarization trend involving yuan, rubles and rupees. The two trends are talking past each other.
The Golden Ruler
Is there some way to tell if the dollar is actually getting stronger or weaker without making reference to reserve currencies or EM currencies?
Yes. The answer is gold. Think of gold as a ruler that measures dollar strength or weakness.
Gold is not a currency, and the comparison is made by the weight of gold, not currency-to-currency. When the dollar price of gold is lower, the dollar is stronger, and vice versa.
But the new BRICS+ currency may throw a monkey wrench into this market by linking itself to gold. In that case, Russia and China will have a strong interest in higher gold prices because that means their BRICS+ currency will be worth more. And that may trigger the real decline of the dollar.
The BRICS+ gold-backed currency is actually the reflection of a greater trend that’s been going on for over a decade…
The Trend Is Gold’s Friend
The year 2010 marked a major inflection in central bank gold purchases and the overall level of gold reserves held by central banks and finance ministries on a global basis. Let’s back up a bit…
In 1950, the United States held about 20,000 metric tonnes of gold bullion. By 1970, the U.S. gold hoard had shrunk to 9,000 metric tonnes. That gold did not disappear; it was delivered to Germany, France, Italy, Japan and other trading partners to cover U.S. trade deficits under the old gold standard.
Beginning in 1970, gold held by central banks and finance ministries declined significantly. The U.S. sold 1,000 tonnes between 1970 and 1980 and encouraged the IMF to sell about 1,000 tonnes also in a failed effort to suppress the price of gold.
After 1980, the U.S. did not sell any more gold, but encouraged the U.K. to sell over 300 tonnes in 1999. Then Switzerland sold another 1,000 tonnes between 2000 and 2010. The IMF sold 400 tonnes in 2010 also. Canada sold 100% of its gold reserves, which were not that high to begin with.
All of these efforts to suppress gold prices ultimately failed. Gold hit a then-all-time high of $1,950 per ounce in 2011 (that record was surpassed in recent years at $2,060 per ounce in 2020).
Finally, in 2009 the central banks threw in the towel and became net buyers of gold bullion. That trend has been in place ever since.
The increases have been spectacular, resulting in a rise in total official gold holdings from about 32,000 tonnes in 2008 to 35,000 tonnes today. What’s different today is the composition of the gold holders.
BRICS+: The New Gold Bloc
The U.S. has not increased its holdings since the 1950s. Nor have other major gold holders such as France and Italy. Instead, the increases are in Russia, China, Vietnam, Mexico and many other emerging-market countries.
Many of those countries with the largest increases are members of the BRICS+ currency union that will soon announce a new gold-linked currency to challenge the role of the U.S. dollar in global payments and reserves.
Overall, the first quarter of 2023 was the strongest quarter on record for central bank gold purchases with central banks buying a combined total of 228 tonnes.
We actually have a new champion in the gold purchase arena, and it’s not Russia or China — it’s Singapore.
In just the first three months of 2023, Singapore purchased an amazing 68.7 tonnes of gold bullion, making Singapore the world’s-largest central bank gold buyer for the first quarter.
One can speculate about whether this gold buying is an aspect of de-dollarization, preparation for the new BRICS+ gold-backed currency or simple prudence in an uncertain world. But the trend is undeniable.
Central banks generally know more about what is going on behind the scenes in the global monetary system than anyone. If they’re hoarding gold, maybe you should too.
There’s still time to get on the BRICS+ bandwagon.
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>>> A BRICS Currency Could Shake the Dollar’s Dominance
De-dollarization’s moment might finally be here.
Foreign Policy (Carnegie Endowment for Intl Peace)
By Joseph W. Sullivan, a senior advisor at the Lindsey Group and a former special advisor and staff economist at the White House Council of Economic Advisers during the Trump administration.
APRIL 24, 2023
https://foreignpolicy.com/2023/04/24/brics-currency-end-dollar-dominance-united-states-russia-china/
Talk of de-dollarization is in the air. Last month, in New Delhi, Alexander Babakov, deputy chairman of Russia’s State Duma, said that Russia is now spearheading the development of a new currency. It is to be used for cross-border trade by the BRICS nations: Brazil, Russia, India, China, and South Africa. Weeks later, in Beijing, Brazil’s president, Luiz Inàcio Lula da Silva, chimed in. “Every night,” he said, he asks himself “why all countries have to base their trade on the dollar.”
These developments complicate the narrative that the dollar’s reign is stable because it is the one-eyed money in a land of blind individual competitors like the euro, yen, and yuan. As one economist put it, “Europe is a museum, Japan is a nursing home, and China is a jail.” He’s not wrong. But a BRICS-issued currency would be different. It’d be like a new union of up-and-coming discontents who, on the scale of GDP, now collectively outweigh not only the reigning hegemon, the United States, but the entire G-7 weight class put together.
Foreign governments wanting to liberate themselves from reliance on the U.S. dollar are anything but new. Murmurs in foreign capitals about a desire to dethrone the dollar have been making headlines since the 1960s. But the talk has yet to turn into results. By one measure, the dollar is now used in 84.3 percent of cross-border trade—compared to just 4.5 percent for the Chinese yuan. And the Kremlin’s habitual use of lies as an instrument of statecraft offers grounds for skepticism about anything Russia says. On a litany of practical questions, like how much the other BRICS nations are on board with Babakov’s proposal, for now, answers remain unclear.
Nevertheless, at least based on the economics, a BRICS-issued currency’s prospects for success are new. However early plans for it are, and however many practical questions remain unanswered, such a currency really could dislodge the U.S. dollar as the reserve currency of BRICS members. Unlike competitors proposed in the past, like a digital yuan, this hypothetical currency actually has the potential to usurp, or at least shake, the dollar’s place on the throne.
Let’s call the hypothetical currency the bric.
If the BRICS used only the bric for international trade, they would remove an impediment that now thwarts their efforts to escape dollar hegemony. Those efforts now often take the form of bilateral agreements to denominate trade in non-dollar currencies, like the yuan, now the main currency of trade between China and Russa. The impediment? Russia is unwilling to source the rest of its imports from China. So after bilateral transactions between the two countries, Russia tends to want to park the proceeds in dollar-denominated assets to buy the rest of its imports from the rest of the world, which still uses the dollar for trade.
If China and Russia each used only the bric for trade, however, Russia would not have any need to park the proceeds of bilateral trade in dollars. After all, Russia would be using brics, not dollars, to buy the rest of its imports. Enter, at last, de-dollarization.
Is it realistic to imagine the BRICS using only the bric for trade? Yes.
For starters, they could fund the entirety of their import bills by themselves. In 2022, as a whole, the BRICS ran a trade surplus, also known as a balance of payments surplus, of $387 billion – mostly thanks to China.
The BRICS would also be poised to achieve a level of self-sufficiency in international trade that has eluded the world’s other currency unions. Because a BRICS currency union—unlike any before it—would not be among countries united by shared territorial borders, its members would likely be able to produce a wider range of goods than any existing monetary union. An artifact of geographic diversity, that is an opening for a degree of self-sufficiency that has painfully eluded currency unions defined by geographic concentration, like the Eurozone, also home to a $476 billion trade deficit in 2022.
But the BRICS would not even need to trade only with each other. Because each member of the BRICS grouping is an economic heavyweight in its own region, countries around the world would likely be willing to do business in the bric. If Thailand felt compelled to use the bric to do business with China, Brazil’s importers could still purchase shrimp from Thai exporters, keeping Thailand’s shrimp on Brazil’s menus. Goods produced in one country can also circumvent trade restrictions between two countries by being exported to, and then re-exported from, a third country. That’s often a consequence of new trade restrictions, like tariffs. If the United States boycotted bilateral trade with China rather than trade in the bric, its children could continue to play with Chinese-made toys that became exports to countries like Vietnam and then exports to the United States.
It’s not just Putin who has re-embraced nuclear threats. The U.S. and China are also cracking open the door.
A preview of something like the absolute worst-case scenario that could befall consumers in BRICS countries if their governments adopted “bric or bust” terms of trade comes from today’s Russia. American and European governments have prioritized Russia’s economic isolation. Nevertheless, some U.S. and European goods continue to flow into Russia. The costs for consumers are real, but not catastrophic. As officials in BRICS countries grow increasingly emphatic about their desire to de-dollarize, with today’s Russia as an upper bound of how bad it could get, the risk-reward tradeoff of de-dollarization will look increasingly attractive.
To displace the dollar as a reserve currency among BRICS, the bric would also need safe assets to be parked in when not in use for trade. Is it realistic to imagine the bric finding these? Yes.
For starters, because the BRICS run a trade and balance of payments surplus, the bric would not necessarily need to attract any foreign money at all. BRICS governments could use some combination of carrots and sticks to get their own households and firms to buy bric assets with their savings and effectively coerce and subsidize the market into existence.
But assets denominated in the bric would actually have characteristics likely to make them unusually attractive to foreign investors. Among the major drawbacks of gold as an asset class for global investors is that, in spite of its risk-reducing value as a diversifier, it does not pay interest. Since the BRICS reportedly plan to back their new currency with gold and other metals with intrinsic value, like rare-earth metals, interest-paying assets denominated in the bric would resemble interest-paying gold. That’s an unusual characteristic. It is one that could make the assets denominated in the bric attractive to investors who want both the interest-bearing property of bonds and the diversifying properties of gold.
Sure, for bric bonds to simply function as an interest-bearing version of gold, they’d need to be perceived as having a relatively low risk of default. And the debt even of sovereign governments in the BRIC countries has non-trivial default risk. But these risks could be mitigated. Issuers of debt denominated in the bric could shorten debt maturities to lower the riskiness. Investors might trust a government in South Africa to pay you back “30 from now” when the unit of time is days but not when it is years. Prices could also simply compensate investors for that risk. If market participants demanded higher yields for buying bric assets, they could likely get them. That’s because BRICS governments would be willing to pay for the viability of the bric.
The bric, to be fair, would raise a litany of thorny practical concerns. Used primarily for international trade rather than domestic circulation within any one country, the bric would complicate the job of national central bankers in BRICS countries. Creating a supranational central bank like the European Central Bank to manage the bric would also take work. These are challenges—but not necessarily insurmountable ones.
The geopolitics among BRICS members is also thorny. But a BRICS currency would represent cooperation in a well-defined area where interests align. Countries like India and China may have security interests at odds with each other. But India and China do share an interest in de-dollarizing. And they can cooperate on shared interests while competing on others.
The bric would not so much snatch the crown off of the dollar’s head as shrink the size of the territory in its domain. Even if the BRICS de-dollarized, much of the world would still use dollars, and the global monetary order would become more multipolar than unipolar.
Many Americans are inclined to lament declines in the dollar’s global role. They should think before they lament. The dollar’s global role has always been a double-edged sword for the United States. Though it does allow Washington to add sanctions to its foreign-policy toolkit, by raising the price of the U.S. dollar, it raises the cost of American goods and services to the rest of the world, decreasing exports and costing the United States jobs. But the side that cuts into America at home has been sharpening, and the side that cuts America’s enemies abroad has been dulling.
Among those who understand that the dollar’s global role comes at the expense of jobs and export competitiveness at home, at least based on comments from 2014, is Jared Bernstein, now head of the White House Council of Economic Advisors. But these costs have only grown over time as the U.S. economy shrinks relative to the world’s. Meanwhile, among the traditional benefits of the dollar’s global role is America’s ability to use financial sanctions to try to advance its security interests. But Washington sees the security interests of the United States in the 21st century as increasingly defined by competition with state actors like China and Russia. If that is correct, and if the checkered track record of sanctions on Russia is any indication, sanctions will become an increasingly ineffective tool of U.S. security policy.
If the bric replaces the dollar as the reserve currency of the BRICS, the reactions will be varied and bizarre. Applause seems poised to come loudly from officials in BRICS countries with anti-imperialist dispositions, from certain Republicans in the U.S. Senate, and from U.S. President Joe Biden’s top economist. Boos seem poised to emanate from both former U.S. President Donald Trump and the U.S. national security community that he so often feuds with. Either way, the dollar’s reign isn’t likely to end overnight—but a bric would begin the slow erosion of its dominance.
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BRICS currency in August - >>> Rickards Drops Bombshell
BY JAMES RICKARDS
JUNE 6, 2023
https://dailyreckoning.com/rickards-drops-bombshell/
Rickards Drops Bombshell
On Aug. 22, about 2½ months from today, the most significant development in international finance since 1971 will be unveiled.
It involves the rollout of a major new currency that could weaken the role of the dollar in global payments and ultimately displace the U.S. dollar as the leading payment currency and reserve currency.
It could happen in just a few years.
The process by which this will happen is unprecedented, and the world is unprepared for this geopolitical shock wave.
This monetary shock will be delivered by a group called the BRICS.
The acronym BRICS stands for Brazil, Russia, India, China and South Africa.
This play for global reserve currency status by the BRICS will affect world trade, direct foreign investment and investor portfolios in dramatic and unforeseen ways.
The most important development in the BRICS system concerns the expansion of BRICS membership. This has led to the informal adoption of the name BRICS+ for the expanded organization.
There are currently eight nations that have formally applied for membership and 17 others that have expressed interest in joining. The eight formal applicants are: Algeria, Argentina, Bahrain, Egypt, Indonesia, Iran, Saudi Arabia and the United Arab Emirates.
The 17 countries that have expressed interest are: Afghanistan, Bangladesh, Belarus, Kazakhstan, Mexico, Nicaragua, Nigeria, Pakistan, Senegal, Sudan, Syria, Thailand, Tunisia, Turkey, Uruguay, Venezuela and Zimbabwe.
There’s more to this list than just increasing the headcount at future BRICS meetings.
If Saudi Arabia and Russia are both members, you have two of the three largest energy producers in the world under one tent (the U.S. is the other member of the energy Big Three).
If Russia, China, Brazil and India are all members, you have four of the seven largest countries in the world measured by landmass possessing 30% of the Earth’s dry surface and related natural resources.
Almost 50% of the world’s wheat and rice production as well as 15% of the world’s gold reserves are in the BRICS.
Meanwhile, China, India, Brazil and Russia are four of the nine highest-population countries on the planet with a combined population of 3.2 billion people or 40% of the Earth’s population.
China, India, Brazil, Russia and Saudi Arabia have a combined GDP of $29 trillion or 28% of nominal global GDP. If one uses purchasing power parity to measure GDP, then the BRICS share is over 54%. Russia and China have two of the three largest nuclear arsenals in the world (the other leader is the United States).
By every measure — population, landmass, energy output, GDP, food output and nuclear weapons — BRICS is not just another multilateral debating society. They are a substantial and credible alternative to Western hegemony.
BRICS acting together is one pole of a new multipolar or even bipolar world.
When the new currency launch is announced in August, the currency will not fall on an empty field. It will fall into a sophisticated network of capital and communications. This network will greatly enhance its chances of success.
The BRICS are also developing an optical fiber submarine telecommunications system that would connect its members. It is being developed under the name BRICS Cable. Part of the motivation for BRICS Cable is to foil spying by the U.S. National Security Agency on message traffic carried through existing cable networks.
What’s behind this quest to ditch the dollar? In no small part the answer is U.S. weaponization of the dollar through the use of sanctions.
On numerous occasions from 2007–2014, I warned U.S. officials from the Treasury, Pentagon and intelligence community that overuse or abuse of dollar sanctions would lead adversaries to abandon the dollar to avoid the impact of sanctions.
Such abandonment would lead to the diluted potency of sanctions, unforeseen costs imposed on the U.S. and eventually to the collapse of confidence in the dollar itself. These warnings were mostly ignored.
We have now reached the first and second stages of this forecast and are dangerously close to the third.
For years, the U.S. has used sanctions to punish nations like Iran. But the sanctions the U.S. and its allies imposed on Russia after it invaded Ukraine last year went far beyond previous sanctions regimes. They were unprecedented.
Many other nations began to conclude that they could be next if they run afoul of the U.S. on certain issues. And that fear has greatly accelerated the push to opt out of the dollar system entirely.
This desire is not limited to current targets such as Russia but is shared by potential targets including China, Iran, Turkey, Saudi Arabia, Argentina and many others.
The BRICS+ present a realistic effort to de-dollarize global payments and eventually global reserves.
For years, I’ve argued that the dollar would remain the world’s leading reserve currency for longer than most people think.
But below, I show you why a new BRICS+ currency could greatly accelerate the demise of the dollar as the world’s leading reserve currency.
How could it happen so much faster than I previously thought? Read on.
The Coming Shock to the Global Monetary System
By Jim Rickards
The global desire to move away from the dollar as a medium of exchange for international trade in goods and services is hardly new. The difference today is that it’s gone from a discussion point to a novelty to a looming reality in a remarkably short period of time.
Dubai and China have recently concluded an arrangement whereby Dubai will accept Chinese yuan in payment for oil exports from Dubai. In turn, Dubai can use the yuan to buy semiconductors or manufactured goods from China.
Saudi Arabia and China have been discussing similar oil-for-yuan arrangements but nothing definitive has yet been put in place. These discussions are made complicated by Saudi Arabia’s long-standing petrodollar deal with the U.S. Still, some progress along these lines is widely expected.
China and Brazil have recently reached a broad-based bilateral currency deal where each country accepts the currency of the other in trade. Meanwhile, there’s a growing strategic relationship between China and Russia as the two superpowers jointly confront the United States. In the trading relationship between the two nations, Russia can pay in rubles for Chinese manufactured goods and other exports while China pays in yuan for Russian energy, strategic metals and weapons systems.
Yet all these arrangements may soon be superseded by a new BRICS+ currency, which will be announced in Durban, South Africa, at the annual BRICS Leaders’ Summit Conference on Aug. 22–24.
The currency will be pegged to a basket of commodities for use in trade among members. Initially, the BRICS+ commodity basket would include oil, wheat, copper and other essential goods traded globally in specified quantities.
In all likelihood, the new BRICS+ currency would not be available in the form of paper notes for use in everyday transactions. It would be a digital currency on a permissioned ledger maintained by a new BRICS+ financial institution with encrypted message traffic to record payments due or owing by participating parties. (This is not a cryptocurrency because it is not decentralized, not maintained on a blockchain and not open to all parties without approval.)
The latest information from the BRICS working groups is that this basket valuation methodology is encountering the same problems that John Maynard Keynes encountered at the Bretton Woods meetings in 1944.
Keynes initially suggested a basket of commodities approach for a world currency he called the bancor. The difficulty is that global commodities included in any basket are not entirely fungible (there are over 70 grades of crude oil distinguished by viscosity and sulfur content among other attributes).
In the end, Keynes saw that a basket of commodities is not necessary and that a single commodity — gold — would better serve the purpose of anchoring a currency for reasons of convenience and uniformity.
Based on the impracticality of commodity baskets as uniform stores of value, it appears likely that the new BRICS+ currency will be linked to a weight of gold.
This plays to the strengths of BRICS members Russia and China, who are the two largest gold producers in the world and are ranked sixth and seventh respectively among the 100 nations with gold reserves.
These and related developments are frequently touted as the “end of the dollar as a reserve currency.” Such comments reveal a lack of understanding as to how the international monetary and currency systems actually work.
The key mistake in almost all such analyses is a failure to distinguish between the respective roles of a payment currency and a reserve currency. Payment currencies are used in trade for goods and services. Nations can trade in whatever payment currency they want — it doesn’t have to be dollars.
Reserve currencies (so-called) are different. They’re essentially the savings accounts of sovereign nations that have earned them through trade surpluses. These balances are not held in currency form but in the form of securities.
When analysts say the dollar is the leading reserve currency, what they actually mean is that countries hold their reserves in securities denominated in a specific currency. For 60% of global reserves, those holdings are U.S. Treasury securities denominated in dollars. The reserves are not actually in dollars; they’re in securities.
As a result, you cannot be a reserve currency without a large, well-developed sovereign bond market. No country in the world comes close to the U.S. Treasury market in terms of size, variety of maturities, liquidity, settlement, derivatives and other necessary features.
So the real impediment to another currency as a reserve currency is the absence of a bond market where reserves are actually invested. That’s why it’s so difficult to displace Treasuries as reserve assets even if you wanted. Again, no country in the world can come close to the U.S. in that regard.
But here’s where it gets interesting, and why the dollar could lose its leading reserve status much faster than previously thought.
That’s because the BRICS+ currency offers the opportunity to leapfrog the Treasury market and create a deep, liquid bond market that could challenge Treasuries on the world stage almost from thin air.
The key is to create a BRICS+ currency bond market in 20 or more countries at once, relying on retail investors in each country to buy the bonds.
The BRICS+ bonds would be offered through banks and postal offices and other retail outlets. They would be denominated in BRICS+ currency but investors could purchase them in local currency at market-based exchange rates.
Since the currency is gold backed it would offer an attractive store of value compared with inflation- or default-prone local instruments in countries like Brazil or Argentina. The Chinese in particular would find such investments attractive since they are largely banned from foreign markets and are overinvested in real estate and domestic stocks.
It will take time for such a market to appeal to institutional investors, but the sheer volume of retail investing in BRICS+-denominated instruments in India, China, Brazil and Russia and other countries at the same time could absorb surpluses generated through world trade in the BRICS+ currency.
In short, the way to create an instant reserve currency is to create an instant bond market using your own citizens as willing buyers.
The U.S. did something similar in 1917. From 1790–1917, the U.S. bond market was for professionals only. There was no retail market. That changed during World War I when Woodrow Wilson authorized Liberty Bonds to help finance the war.
There were bond rallies and Liberty Bond parades in every major city. It became a patriotic duty to buy Liberty Bonds. The effort worked, and it also transformed finance. It was the beginning of a world where everyday Americans began to buy stocks, bonds and securities as retail investors.
If the BRICS+ use a kind of Liberty Bond patriotic model, they may well be able to create international reserve assets denominated in the BRICS+ currency even in the absence of developed market support.
This entire turn of events — introduction of a new gold-backed currency, rapid adoption as a payment currency and gradual use as a reserve asset currency — will begin on Aug. 22, 2023, after years of development.
Except for direct participants, the world has mostly ignored this prospect. The result will be an upheaval of the international monetary system coming in a matter of weeks.
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>>> Here Are 7 Signs That Global De-Dollarization Has Just Shifted Into Overdrive
APR 04, 2023
by Michael Snyder
The Economic Collapse blog
https://www.zerohedge.com/geopolitical/here-are-7-signs-global-de-dollarization-has-just-shifted-overdrive
For decades, the U.S. dollar was the undisputed king of global currencies, but now dramatic changes are happening. China, Russia, India, Brazil, Saudi Arabia and other nations are making really big moves which will enable them to become much less dependent on the U.S. dollar in the years ahead. This is really bad news for us, because having the primary reserve currency of the world has enabled us to enjoy a massively inflated standard of living. Once we lose that status, our lifestyles will be much different than they are today. Unfortunately, most Americans don’t understand any of this. Even though our leaders have treated the stability of our currency with utter contempt in recent years, most Americans just assume that the dollar will always reign supreme. Meanwhile, much of the planet is preparing for a future in which the U.S. dollar will be far less important than it is right now.
The following are 7 signs that global de-dollarization has just shifted into overdrive…
#1 The BRICS nations account for over 40 percent of the total global population and close to one-fourth of global GDP. So the fact that they are working to develop a “new currency” should greatly concern all of us…
The Deputy Chairman of Russia’s State Duma, Alexander Babakov, said on 30 March that the BRICS bloc of emerging economies – Brazil, Russia, India, China, and South Africa – is working on developing a “new currency” that will be presented at the organization’s upcoming summit in Durban.
“The transition to settlements in national currencies is the first step. The next one is to provide the circulation of digital or any other form of a fundamentally new currency in the nearest future. I think that at the BRICS [leaders’ summit], the readiness to realize this project will be announced, such works are underway,” Babakov said on the sidelines of the Russian-Indian Strategic Partnership for Development and Growth Business Forum.
Babakov also stated that a single currency could likely emerge within BRICS, and this would be pegged not just to the value of gold but also to “other groups of products, rare-earth elements, or soil.”
#2 Two of the BRICS nations, China and Brazil, have just “reached a deal to trade in their own currencies”…
The Chinese renminbi is speeding up in expanding its global use, a trend that will help build a more resilient international monetary system, one that is less dependent on the US dollar and more conducive to trade growth, experts said on Thursday.
They commented after China and Brazil — two major emerging economies and BRICS members — reportedly reached a deal to trade in their own currencies, ditching the US dollar as an intermediary.
The deal will enable China and Brazil to conduct their massive trade and financial transactions directly, exchanging the RMB for reais and vice versa, instead of going through the dollar, Agence France-Presse reported on Wednesday, citing the Brazilian government.
#3 During a meeting last week in Indonesia, finance ministers from the ASEAN nations discussed ways “to reduce dependence on the US Dollar, Euro, Yen, and British Pound”…
An official meeting of all ASEAN Finance Ministers and Central Bank Governors kicked off on Tuesday (March 28) in Indonesia. Top of the agenda are discussions to reduce dependence on the US Dollar, Euro, Yen, and British Pound from financial transactions and move to settlements in local currencies.
The meeting discussed efforts to reduce dependence on major currencies through the Local Currency Transaction (LCT) scheme. This is an extension of the previous Local Currency Settlement (LCS) scheme that has already begun to be implemented between ASEAN members.
#4 In a move that has enormous implications for the “petrodollar”, Saudi Arabia just agreed to become a “dialogue partner in the Shanghai Cooperation Organization”…
The state-owned Saudi Press Agency said that, in a session presided by King Salman bin Abdulaziz, the Saudi cabinet on Tuesday approved a memorandum awarding Riyadh the status of dialogue partner in the Shanghai Cooperation Organization — a political, security and trade alliance that lists China, Russia, India, Pakistan and four other central Asian nations as full members.
The organization further tallies four observer states — including Iran — and nine dialogue partners, counting in Saudi Arabia, Qatar and Turkey. It is headquartered in Beijing and served by China’s Zhang Ming as secretary-general.
#5 The Chinese just completed their very first trade of liquefied natural gas that was settled in Chinese currency instead of U.S. dollars…
China has just completed its first trade of liquefied natural gas (LNG) settled in yuan, the Shanghai Petroleum and Natural Gas Exchange said on Tuesday.
Chinese state oil and gas giant CNOOC and TotalEnergies completed the first LNG trade on the exchange with settlement in the Chinese currency, the exchange said in a statement carried by Reuters.
The trade involved around 65,000 tons of LNG imported from the United Arab Emirates (UAE), the Shanghai Petroleum and Natural Gas Exchange added.
#6 The government of India is offering their currency as an “alternative” to the U.S. dollar in international trade…
India will offer its currency as an alternative for trade to countries that are facing a shortage of dollars in the wake of the sharpest tightening in monetary policy by the US Federal Reserve in decades.
Facilitating the rupee trade for countries facing currency risk will help “disaster proof” them, Commerce Secretary Sunil Barthwal said during an announcement on India’s foreign trade policy Friday in New Delhi.
#7 Saudi Arabia has actually agreed to accept Kenyan shillings as payment for oil shipments to Kenya instead of U.S. dollars…
Kenyan President William Ruto signed an agreement with Saudi Arabia to buy oil for Kenyan shillings instead of US dollars.
As the US currency exchange rate hit 145.5 shillings due to increased demand by importers, President Ruto accused oil cartels of stockpiling American dollars in response to the crisis, sparking fuel shortages throughout Kenya.
10 years ago, none of these things would have happened.
But now change is happening at a pace that is absolutely breathtaking.
At this point, John Carney is warning that a fracturing of global currency reserves is “inevitable”…
“[It’s] not only a serious threat, I think it is inevitable. We went through three stages, as you said, after World War II. The U.S. was the biggest economy in the world. In the 1970s, global banking became basically dollar central. With the fall of the Soviet Union, the entire world, more or less, came under the domination of the U.S dollar…”
“That is now drifting away. China and Russia are starting to build an alternative block of currency,” John Carney explained Sunday.
Sadly, I agree with him.
As U.S. relations with both Russia and China continue to go downhill, both of those nations will have a very strong incentive to push de-dollarization even further.
And that is really bad news for the United States, because our currency is the source of our economic power and it is the most important thing that we export.
This is a story of monumental importance, but unfortunately most Americans still believe that our leaders know exactly what they are doing and that they have everything fully under control.
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>>> BRICS’ reserve currency: An attempt to reduce the dollar’s dominance?
https://www.orfonline.org/expert-speak/brics-reserve-currency/
Whilst Russia and China are leading de-dollarisation initiatives due to their geopolitical rivalry with the US, India, Brazil, and South Africa have supported BRICS’ statements on altering the global financial system for their own interests.
In his recent address to the BRICS Business Forum, Russian President Vladimir Putin stated that the minilateral member states were working on developing a new global reserve currency. It is presumed that this global reserve currency, containing the national currencies of the BRICS member states, will be an alternative to the International Monetary Fund’s Special Drawing Right (SDR). At a time when Russia is facing unprecedented global sanctions in the wake of the Ukraine invasion, Putin’s announcement has underscored the importance of recognising the heterogeneous motives of the BRICS nations to not only facilitate intra-BRICS trade in local currencies, but also firewall their global financial interests.
Brazil
China is Brazil’s largest trade partner and it is beneficial for both countries to use local currencies for bilateral settlements. However, Brazil’s dependence on the dollar is quite evident because approximately 90 percent of Brazil’s export invoicing is denominated in dollars, even when the United States (US) receives only 17 percent of Brazil’s overall exports. This imbalance can prompt Brazilian policymakers to support forming a BRICS reserve currency. Former Brazilian President Lula Da Silva had expressed his anguish of dollar domination in Brazilian trade and encouraged the idea of using BRICS as a de-dollarisation coalition. He also stated that BRICS was not created as an instrument of defence, but as an instrument of attack.
Brazil’s dependence on the dollar is quite evident because approximately 90 percent of Brazil’s export invoicing is denominated in dollars, even when the United States (US) receives only 17 percent of Brazil’s overall exports.
However, Brazil’s stance on de-dollarisation has weakened significantly following its severe economic crisis in 2014, and the rise of the Bolsonaro administration. The Brazilian government under Bolsonaro has moved closer to the Western powers and has been inconsistent in supporting a BRICS reserve currency.
Brazil’s close economic relationship with China and its dependence on the US dollar indicates that Brazil will most likely not be at the forefront of BRICS de-dollarisation plans. However, it recognises that it stands to benefit from such initiatives as it simplifies trade relations with China and other large economies like India and Russia.
Russia
Given its geopolitical interests, Russia has always wanted to leverage BRICS to advance the idea of de-dollarisation. The near-elimination of Russia from the West-led dollar-dominated financial system after the Russia-Ukraine war in early 2022 has further strengthened the concept of an alternative financial system free from Western domination.
The Putin administration supported a de-dollarisation plan to reduce Russia’s dependence on the US dollar by limiting international settlements and conducting business using alternative currencies in late 2018. President Putin has repeatedly emphasised the need to further de-dollarise and protect Russia’s economic sovereignty.
Brazil’s close economic relationship with China and its dependence on the US dollar indicates that Brazil will most likely not be at the forefront of BRICS de-dollarisation plans.
Russia’s former Deputy Foreign Minister Sergei Ryabkov also highlighted the country’s apprehensions over dollar usage for banking and international settlements, stressing that it is vital to becoming less dependent on it. Additionally, he revealed that the BRICS members were ready to cooperate to promote international financial regulation reforms and overcome the excessive domination of a limited number of reserve currencies.
India
Antagonistic to Russia and China, the US considers India a valuable ally and strategic partner in the Indo-Pacific region. The Indian government considers Russia and China’s efforts to reduce dollar usage more ideological than practical and does not explicitly support the mobilisation of BRICS to challenge the dollar’s hegemony. Furthermore, the recent military standoffs between India and China further prevent India from supporting China’s plans to dethrone the dollar.
However, this does not fully encapsulate India’s stance on US dollar dominance. India has explored plans to reduce its dependence on the dollar in the past. For instance, in 2012, India’s Ministry of Commerce and Industry brought together a task force to analyse the idea of using the Indian Rupee in India’s bilateral trade, especially recommending the idea of utilising the rupee to trade with oil exporting countries. The Indian government also created a multi-agency task force with representatives from India’s economic policymaking agencies to compile a list of countries where India could trade in rupees.
Currency volatility and geopolitical events like US’ oil sanctions on Russia and Iran, and China’s plans to internationalise the renminbi have encouraged India to promote greater use of the rupee for international transactions. As one of the most dollarised countries in trade invoicing, the increase in global currency volatility also incentivises India to de-dollarise. However, this will be a challenge, as 86 percent of India’s imports rely on the US dollar invoicing, despite only 5 percent of India’s imports originate in the US. Similarly, 86 percent of India’s exports were invoiced in US dollars, while only 15 percent of India’s exports were to the US.
The Indian government considers Russia and China’s efforts to reduce dollar usage more ideological than practical and does not explicitly support the mobilisation of BRICS to challenge the dollar’s hegemony.
India is unlikely to play an explicit role in any BRICS plan to reduce the influence of the US dollar, however, it can help minimise dollar dependence by supporting initiatives that promote the use of local currencies in trade and finance.
China
China has persistently criticised the dollar hegemony, however, Chinese policymakers have failed to prepare a precise plan to destabilise its global reserve currency status. The souring of US-China relations has highlighted the strength of the US dollar and its ability to create roadblocks for Chinese trade and technology. Such roadblocks have encouraged China to depart from the US-dominated global system and potentially build a sphere of influence with BRICS nations. China is the world’s largest trading partner and is uniquely positioned to aid de-dollarisation regionally and internationally. China is also a big player in several Asian and African countries for development financing. Additionally, China has utilised the Belt and Road Initiative and offshore markets to internationalise the renminbi.
In the aftermath of the 2008 global financial crisis, former Governor of the People’s Bank of China (PBoC), Dr Zhou Xiaochuan, stated that the spill over effect highlighted the international monetary system’s inherent vulnerabilities and systemic risks. He called for the creation of an international reserve currency that is uncoupled from individual nations. Former Chinese President Hu Jiantao also stated that the international monetary system dominated by the dollar is a “product of the past.”
The souring of US-China relations has highlighted the strength of the US dollar and its ability to create roadblocks for Chinese trade and technology.
Similarly, Dai Xianglong, then Governor of the PBoC, critiqued the dollar-based financial system after the Asian financial crisis of 1997. He asserted the need for global reform by disaggregating the role of a few countries’ currencies as the international reserve currency, which is a source of instability in the international monetary system.
South Africa
South Africa has followed Russia and China’s de-dollarisation plans, but has neither directly promoted nor formulated any plans of its own. The relationship between the US and South Africa has improved enormously since US sanctions were lifted in 1991 following the end of apartheid. South Africa may not have a comprehensive de-dollarisation plan, but is mindful of international currency volatilities, especially of the US dollar.
During the 2011 BRICS summit, South African Trade and Industry Minister Rob Davies expressed concerns about exchange volatilities and dependence on unstable international currencies and highlighted the benefits of trading directly in the South African rand. Further, at the 2013 BRICS summit, he reiterated the need to develop protocols to settle trade in local currencies. He demonstrated that currency volatility in developing countries is directly influenced by global economic dynamics, making them price takers whose currency risk can be triggered by macroeconomic conditions beyond their control. The lack of autonomy among developing countries’ economic security is a cause for concern beyond BRICS nations. The transaction and financial risk arising from the US dollar’s hegemony has incentivised South Africa to go along with BRICS’ plans to promote the use of local currencies in trade. Recently, South Africa accepted the broader use of the Chinese renminbi and included it in its foreign exchange reserves to diversify currency risk.
The transaction and financial risk arising from the US dollar’s hegemony has incentivised South Africa to go along with BRICS’ plans to promote the use of local currencies in trade.
Conclusion
BRICS nations have displayed increased cooperation and intend to change the dollar-dominated financial system. Within BRICS, Russia and China are leading the de-dollarisation initiatives to safeguard their interests stemming from their geopolitical rivalry with the US, and considering the risk of future sanctions against them. India, Brazil, and South Africa have supported statements by BRICS on altering the global financial system and creating more opportunities to promote the use of local currencies for international trade. All BRICS members have taken steps to de-dollarise and improve their autonomy in the global financial system.
The fundamental reason for developing an SDR-like basket currency for BRICS nations is to address the US dollar hegemony and build their sphere of influence and unit of currency within that sphere. It is still unclear if all BRICS members want to transfer foreign reserves to develop this new sphere of influence. De-dollarisation, in one way or another, is a shared interest and priority for all BRICS nations to diversify and reduce the risk of exogenous shocks and currency shocks caused by the US dollar. However, while BRICS member states—collectively and individually—intend to safeguard their global financial interests by developing a reserve currency, over-dependence on the US dollar poses challenges that may make such an idea a distant reality.
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>>> Can BRICS De-dollarize the Global Financial System?
Published online by Cambridge University Press
24 February 2022
by Zongyuan Zoe Liu and Mihaela Papa
https://www.cambridge.org/core/elements/can-brics-dedollarize-the-global-financial-system/0AEF98D2F232072409E9556620AE09B0
Summary
Existing scholarship has not systematically examined BRICS (Brazil-Russia-India-China-South Africa) as a rising power de-dollarization coalition, despite the group developing multiple de-dollarization initiatives to reduce currency risk and bypass US sanctions. To fill this gap, this study develops a 'Pathways to De-dollarization' framework and applies it to analyze the institutional and market mechanisms that BRICS countries have created at the BRICS, sub-BRICS, and BRICS Plus levels. This framework identifies the leaders and followers of the BRICS de-dollarization coalition, assesses its robustness, and discerns how BRICS mobilizes other stakeholders. The authors employ process tracing, content analysis, semi-structured interviews, archival research, and statistical analysis of quantitative market data to analyze BRICS activities during 2009-2021. They find that BRICS' coalitional de-dollarization initiatives have established critical infrastructure for a prospective alternative nondollar global financial system. This title is also available as Open Access on Cambridge Core.
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>>> BRICS developing new global reserve currency – Putin
It will be based on a currency basket of the five-nation bloc, according to the Russian president
RT
June 22, 2022
https://www.rt.com/business/557627-brics-developing-global-reserve-currency/
President Vladimir Putin said on Wednesday that the BRICS countries – Brazil, Russia, India, China, and South Africa – are currently working on setting up a new global reserve currency.
“The issue of creating an international reserve currency based on a basket of currencies of our countries is being worked out,” he said at the BRICS business forum.
According to the Russian president, the member states are also developing reliable alternative mechanisms for international payments.
Earlier, the group said it was working on establishing a joint payment network to cut reliance on the Western financial system. The BRICS countries have been also boosting the use of local currencies in mutual trade.
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>>> Iran applies to join BRICS group of emerging countries
Reuters
https://www.reuters.com/world/middle-east/iran-applies-join-brics-group-emerging-countries-2022-06-27/
DUBAI, June 27 (Reuters) - Iran has submitted an application to become a member in the group of emerging economies known as the BRICS, an Iranian official said on Monday.
Iran's membership in the BRICS group, which includes Brazil, Russia, India, China and South Africa, "would result in added values for both sides," Iran's Foreign Ministry spokesperson said.
Russian Foreign Ministry spokeswoman Maria Zakharova said separately that Argentina had also applied to join the group. Argentinian officials could not be reached for immediate comment.
Argentina's President Alberto Fernandez, currently in Europe, has in recent days reiterated his desire for Argentina to join BRICS.
"While the White House was thinking about what else to turn off in the world, ban or spoil, Argentina and Iran applied to join the BRICS," Zakharova wrote on the Telegram messaging app.
Russia has long been pushing to forge closer ties with Asia, South America and the Middle East, but it has intensified its efforts recently to weather sanctions imposed by Europe, the United States and other countries over its invasion on Ukraine.
On Monday, the United States and other Western nations pledged unwavering support for Ukraine after 28 civilians were killed in several Russian attacks, including a missile strike on a crowded shopping centre.
Russia denies targeting civilians in what it calls is a "special military operation" to disarm Ukraine and protect it from fascists. Kyiv and its allies in the West say the war is an unprovoked act of aggression.
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>>> BRICS Bank To Move Away From US Dollar Loans
Aug 06, 2019
by Silk Road Briefing
https://www.silkroadbriefing.com/news/2019/08/06/brics-bank-move-away-us-dollar-loans/
The New Development Bank, commonly referred to as the “BRICS Bank” as it is co-owned equally by the 5 BRICS nations of Brazil, Russia, India, China and South Africa, is to scale back its use of the US dollar and concentrate instead of loans designated in national currencies, it has been reported in the Financial Times.
To date, the bank has approved more than US$9 billion in loans to its member countries since being founded in July 2014, and plans to double that to US$16 billion this year. The bank is seen as a challenger to established lenders such as the World Bank, Asian Development Bank and IMF. So far it has mainly relied on its dollar paid-in capital for funding, but in the future “50 per cent (of projects) should be local currency financed”, K.V. Kamath, the bank’s president, said in an interview. “We will raise dollars, we will raise euros, but at the same time there will be a significant reliance on local currencies. That would allow the bank to move away from loans denominated in dollars” Mr.Kamath stated.
RELATED NEWS
More Self Reliance than US Reliance Promoted as BRICS 2018 Summit also Calls for Expansion
The bank is headquartered in Shanghai, and issued a second RMB3 Trillion Chinese currency bond this year. It received a AA+ rating from Fitch and S&P Global in August 2018, and also plans to tap bond markets in the United States. The bank’s lending so far has mostly gone back to its founder countries, which have a collective credit rating of BBB-. This allows them to borrow at lower rates though the NDB.
There are downsides to moving away from the US dollar however, with the FT quoting an unnamed source as saying “The bank will not be able to move away from dollars entirely. There’s a constraint that you can’t disrupt the US dollar system. If you did [the US] would find a way to go after you.”
RELATED NEWS
BRICS Nations Contemplate Independent Credit Agency
BRICS New Development Bank on Course to Lend US$40 Billion in Green Infrastructure Projects
However, as we pointed out in the article China Manipulates Its Currency, Is Caught Out, So Gold Rises In Value. Who’s Been Buying Gold? China. Countries such as China and Russia are already caught up in spats with the United States and are developing alternative strategies to dealing with the US dollar, while bilateral trade between the 5 BRICS members is also increasingly being conducted in non-dollar mechanisms. Other, new tech solutions are also being found; a BRICS Cryptocurrency has been discussed, while all five nations are pushing ahead with a cloud based payment system, BRICS Pay a smartphone accessible app that will allow users in these countries access to a common system for retail payments and transactions between the member countries – using only the respective currencies and not the US dollar. These developments come after the BRICS 2018 summit called for “more self reliance” among the member states.
Whichever way the wind blows in these uncertain trade and economic times, it appears apparent that the US dollar is increasingly expected to be heading for unpredictable territory in the next year or so, with gold and several Asian currencies seen as a better hedge against this.
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>>> Brazil's Bolsonaro Blasts China Over COVID Origin, Links Pandemic To 'biological Warfare'
Brazil’s President Jair Bolsonaro on May 5 suggested that China could have developed the pathogen in a laboratory and disseminated it as “biological warfare.”
RepublicWorld.com
May 6, 2021
By Aanchal Nigam
https://www.republicworld.com/world-news/rest-of-the-world-news/brazils-bolsonaro-blasts-china-over-covid-origin-links-pandemic-to-biological-warfare.html
Brazil’s President Jair Bolsonaro on May 5 promoted conspiracy theory regarding the origin of the novel coronavirus, SARS-CoV-2 that causes COVID-19 and suggested that China could have developed the pathogen in a laboratory and disseminated it as a “biological warfare” for economic gain. According to The Brazilian Report, in an event on Wednesday, Bolsonaro posed doubts over the coronavirus origin and even questioned “are we not facing a new war?” Brazilian President’s remarks supported the preliminary conspiracy theories that budded in the early days of the COVID-19 pandemic prompting the World Health Organization (WHO) to send a team of experts to China and investigate the roots of the pathogen that has rocked the world for over a year.
"It's a new virus. Nobody knows whether it was born in a laboratory or because a human ate some animal they shouldn't have," said the far-right leader.
"But the military knows all about chemical, biological and radiological warfare. Could we be fighting a new war? I wonder. Which country's GDP has grown the most?"
While most of the world witnessed a steep decline in their economy owing to unprecedented and prolonged shutdowns of businesses, China declared a GDP increase of reportedly 2.3% in 2020 rising roughly $14.7 trillion, as per Wind Information data. At the current pace, China’s economy has the potential to surpass the United States as the world’s top economy in 2026 which is two years before than what was anticipated.
Bolsonaro, however, reportedly did not mention China but the reports of Asian country’s GDP growth amid the COVID-19 pandemic are not alien. Brazilian President and his inner circle have a history of irking China with their remarks that have sometimes aggravated the ties between Brazil and its biggest trading partner. Bolsonaro suggesting ‘germ warfare’ on Wednesday came just after in March, he replaced the foreign minister Ernesto Araujo who had denounced “Maoist China” and the nation’s plan for “world domination” with a career diplomat Carlos Franca. The move was broadly perceived as Brazil’s attempt to mend relations with China.
An Australian doctor who was part of the World Health Organization (WHO) team that visited China’s Wuhan, Dominic Dwyer wrote in a first-person account explaining why the origin of the novel coronavirus, SARS-CoV-2 is unlikely to be either the seafood market in the city or leaked from Wuhan lab. Defying major conspiracy theories claiming that the highly infectious virus was leaked from a lab researching pathogens, the Australian scientist explained why the leak from Wuhan lab is also “extremely unlikely” in a lengthy article.
He wrote that the team of international experts sent to Wuhan to investigate the origins of the novel coronavirus visited the lab in the centre of all theories, Wuhan Institute of Virology. After speaking to scientists working there, the experts found no evidence of coronavirus antibodies. The WHO team, as Dwyer explained, looked at the closest virus to SARS-CoV-2 that the researchers were working on in the lab, which is the virus RaTG13. However, all scientists had a genetic sequence for the virus and they had not been able to grow in culture.
Dwyer wrote, “We spoke to the scientists there. We heard that scientists’ blood samples, which are routinely taken and stored, were tested for signs they had been infected. No evidence of antibodies to the coronavirus was found. We looked at their biosecurity audits. No evidence.”
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>>> BRICS Summit 2021: Roundup & Analysis
Silk Road Briefing
Sep 15, 2021
By Chris Devonshire-Ellis
https://www.silkroadbriefing.com/news/2021/09/15/brics-summit-2021-roundup-analysis/
Brazil, Russia, India, China and South African Leaders meet in annual conference: new counter-terrorism and vaccine capabilities determined
The BRICS Summit is a conference on international relations in which the Heads of Government of the five member states, which include Brazil, India, Russia, China, and South Africa, participate. India hosted this year’s event – it will pass to China in 2022.
The theme of this years summit was BRICS @15: Intra-BRICS Cooperation For Continuity, Consolidation and Consensus
Brazil President Jair Bolsonaro, South African President Cyril Ramaphosa, Russian President Vladimir Putin, and Chinese President Xi Jinping headed this summit, which was headed by Prime Minister of India, Narendra Modi.
Modi discussed the many achievements of BRICS in the past one-and-a-half decades, which has transformed them into an influential voice for emerging economics the world over. He also added about the need to be more productive in the next 15 years. He went on to announce the adoption of the BRICS Counter-Terrorism Action Plan, which has concentrated on issues related to Afghanistan. Modi’s speech in full can be read here.
Russian President Vladimir Putin emphasized the crisis of Afghanistan as a threat to its neighbors and discussed the importance of the BRICS cooperation in dealing with it and related terrorism issues, stating the current global situation to be “quite turbulent”. “Afghanistan should not become a threat to its neighboring countries, a source of terrorism and drug trafficking.” Putin said. His speech in full can be read here.
Xi Jinping also recounted the achievements made by the BRICS summit in the last 15 years. The Chinese President said, “We have made solid progress in various areas of cooperation in the spirit of pragmatism, innovation and win-win cooperation. We have supported multilateralism and taken part in global governance in spirit of equity, justice and mutual assistance.” Xi’s speech is here.
President Ramaphosa meanwhile discussed Covid. He expressed South Africa’s support for the proposal made by India and South Africa at the WTO for the waiver of the TRIPS mechanism, (bypassing IP royalties) to ensure a more rapid expansion of Covid-19 vaccine production. Western nations wish to maintain the payments of royalties for Covid vaccines as part of the R&D cost and normal corporate profitability. Ramaphosa then went on to welcome the decision of the Health Ministers of BRICS nations to operationalize the vaccine development and research center. Ramaphosa’s speech is here.
Brazil’s President Bolsorano praised the India-China-Brazil partnership in their fight against the Covid-19 pandemic, especially in the areas of science, technology, energy, and health. He also called for reform of the World Trade Organization. His presence at the event would have been keenly watched by China bearing in mind he suggested China created Covid-19 to benefits its economy back in May. His BRICS speech can be read here.
BRICS Counter-Intelligence Initiative
The main two items of note in what was a fairly predictable set of speeches were the BRICS move to jointly establish a BRICS Counter-Intelligence Initiative. While China, India and Russia are members of the Shanghai Cooperation Organisation (SCO); already share intelligence and provide military assistance under the SCO counter-terrorism structure, Brazil and South Africa are not part of this. South African involvement especially adds an additional layer of counter-intelligence useful to the SCO as it will have access to African intelligence and especially the role of active groups such as Al-Queda and ISIL in Africa.
BRICS Vaccine Research and Development Centre
The BRICS nations also endorsed the concept of a BRICS Vaccine Research and Development Centre, also useful as future pandemics are equally as likely to develop from countries such as Brazil and Africa and will be looking to Chinese and Russian vaccine development capabilities along with India’s huge production abilities. This center can be expected to develop as a global early warning and reaction faculty.
Global Reform
At the end of the summit, the leaders adopted the “Declaration of New Delhi” and committed to being resolved by reinforcing and reforming the multilateral system, including at the United Nations and World Trade Organization, so that global governance is more receptive and effective. The New Delhi Declaration can be viewed here.
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>>> Twenty years on, value of BRICS forum largely symbolic
Though lacking strategic agenda, BRICS forum still affords nuanced read of tripartite relations between its Eurasian members
Taiwan News
By Liam Gibson, Tridivesh Singh Maini , Taiwan News, Contributing Writer
09-15-21
https://www.taiwannews.com.tw/en/news/4287642
TAIPEI (Taiwan News) — India’s recent chairing of the 13th BRICS Summit, virtually attended by leaders of Brazil, Russia, China and South Africa, gave us a chance to take stock of what the grouping of developing world economic heavyweights means in the 2020s.
Despite the hype surrounding BRICS having faded significantly over the past two decades since former Goldman Sachs chief economist Jim O’Neil coined the term in 2001, the diplomatic forum remains an important platform for taking the geopolitical temperature of its Eurasian members — India, China, and Russia.
Sino-Indian release
With a focus on development and economics, BRICS mechanisms can act as a release valve for pressure in the Sino-Indian relationship.
Sino-Indian strains have tightened as a result of a nine-month stand-off across the Line of Actual Control (LAC), which included a violent clash between soldiers from both countries in the Galwan Valley in Ladakh in which 20 Indian soldiers were killed.
As a result, India has shed its reticence vis-à-vis “the Quad” grouping and has joined with the U.S., Japan, and Australia in beefing up security cooperation in the Indo-Pacific. The first in-person summit of leaders from all countries will be held later this month and will be attended by Indian Prime Minister Narendra Modi who is visiting the U.S. to join the United Nations General Assembly around the same time.
Yet in the midst of tensions between India and China in December last year, the New Development Bank (NDB), the BRICS investment bank, approved five investment projects for India. After a thaw between New Delhi and Beijing in February this year, when both sides agreed to disengage from Ladakh, China extended its support for India hosting the 2021 BRICS Summit.
Clear the geopolitical air around Afghanistan
The timing of the summit was crucial, coming in the wake of the Taliban takeover of Afghanistan, and it was held just days after the announcement of the Taliban’s interim government.
The stakes are high for India, China, and Russia, each country having overlapping and somewhat conflicting interests in Afghanistan. Moscow and Beijing favor engaging the Taliban, which India has been cautious to do so far, though there have been some changes in approach in recent weeks.
On Tuesday (Aug. 31), the Indian envoy to Qatar, Deepak Mittal, met with Sher Mohammad Abbas Stanekzai, head of the Taliban's Political Office in Doha, who was sworn in as the country’s deputy foreign minister. This was the first meeting with the Taliban that India officially acknowledged.
While China has assured Afghanistan humanitarian assistance of approximately US$30 million, India too has expressed concern about the humanitarian crisis and the need for global assistance. Meanwhile, Russian President Vladimir Putin took the opportunity to criticize the withdrawal of U.S. troops and stressed Afghanistan should not pose a threat to its neighbors.
The summit also served as a point of respite from the current Afghanistan moment, as it gave the three powers a chance to focus on other issues. While the joint statement released at the end of the meeting pitched in favor of an “inclusive” Intra-Afghan dialogue and flagged the threat of using Afghan territory as a “terrorist sanctuary,” Chinese President Xi Jinping (???) was more guarded during his remarks and tried to highlight BRICS achievements in other areas rather than focusing on the beleaguered Central Asian country.
Tripartite nuance
The meeting provided three key takeaways on where India, China, and Russia stand in relation to each other as well as to the U.S.
Firstly, it signalled that while India is strengthening ties with the U.S., it still accords priority to Moscow when it comes to its immediate regional security.
Secondly, while BRICS provides India and China an avenue for cooperation amidst tensions, it also gives China a platform to project its economic and strategic importance globally.
Finally, while strains with Washington may have moved Moscow closer to Beijing, BRICS is important for Russia to assert its own relevance and show its foreign policy is not dictated by China.
Given the varying strategic priorities of India, China, and Russia and overlapping membership in other groupings, tangible security policy outcomes from BRICS summits remain unlikely for the foreseeable future.
However, with members accounting for 41% of the world’s population and 24% of global GDP, the group remains symbolically important. It is also an important vector for understanding the complex interrelatedness of India, China, and Russia in an age where the new geopolitical realities of Eurasia are rapidly transforming the global order.
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>>> The West is trying to create 'an adequate alternative' to China's New Silk Road
Yahoo Finance
by Akiko Fujita and Aarthi Swaminathan
June 17, 2021
https://finance.yahoo.com/news/west-infrastructure-china-new-silk-road-202628631.html
Group of Seven (G7) leaders announced a new initiative called Build Back Better World (B3W) this week to better compete with China when it comes to funding the world's infrastructure needs.
China’s Belt and Road Initiative (BRI), envisioned as the revival of an ancient trading route between Asia and Europe, has been plugging away since 2013. Through various infrastructure projects like ports and highways, the multi-trillion-dollar initiative is a key way that China is asserting itself on the world stage.
The West, led by the U.S., wants to counter China's colossal geopolitical project.
"There is a tremendous demand for infrastructure globally, as countries are moving from lower middle-income to middle-income countries," Kaush Arha, senior fellow at the Atlantic Council's Scowcroft Center for Strategy and Security, told Yahoo Finance. "There is a tremendous desire or hunger for an alternative to totalitarian state capitalist funding for infrastructure."
That demand hasn't been met, added Arha, and there hasn't been an "adequate alternative to meet the infrastructure aspirations" of these countries.
According to the White House's fact sheet, the B3W infrastructure initiative will be a "a values-driven, high-standard, and transparent infrastructure partnership led by major democracies to help narrow the $40+ trillion infrastructure need in the developing world."
Much like the existing U.S. approach to development finance thus far, B3W looks to mobilize private sector funds and encourage them to invest in overseas projects. (The BRI's funding comes from state-backed Chinese banks.)
The White House is expecting the B3W initiative to collectively mobilize "hundreds of billions of dollars of infrastructure investment for low- and middle-income countries in the coming years."
The competition to win over participating countries has already begun: A Indonesian Ministry of Maritime Affairs and Investment spokesperson told Reuters that that while the country welcomes the B3W, they also hoped "this time they put their money where their mouth is."
'Belt and Road has a 10-year head start'
Along with the U.S. European countries, Japan and Australia will likely be key players in the B3W.
"I think [Japan] has the most to gain, being in the region," said Josh Lipsky, Director of Atlantic Council's Geoeconomics Center. "I think they're going to want to invest in this heavily, and that would be a pretty significant statement."
Japan, already one of the largest investors in Southeast Asia and the Indo-Pacific region, is committing $10 billion for an initiative to help Association of Southeast Asian Nations (ASEAN) member countries cut green house gas emissions and move towards decarbonization. (lol)
Australia, a key Western ally in the region, recently scrapped its own BRI project with China and banned Chinese telcom companies Huawei and ZTE from building its 5G network in 2018.
Lipsky noted that playing catchup with China will be a tall task, given the sheer size of its investments and the scope of projects tied to BRI.
"Belt and Road has a 10-year head start, with projects all over the world including, by the way, in a G7 country, Italy," Lipsky said. "[B3W] was a good announcement, but a lot of questions remain about how much money is going into it. Who's funding it? What projects will be funded? And China is well on its way in terms of their infrastructure projects."
What happens to the BRI projects in Europe is an open question, particularly since EU solidarity is a crucial part to the West countering China's global infrastructure ambitions.
"The biggest entity that can move on this would be the EU," Arha said.
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>>> 13th BRICS summit
https://en.wikipedia.org/wiki/13th_BRICS_summit
Host country India India
Motto BRICS @ 15: Intra-BRICS Cooperation for Continuity, Consolidation and Consensus.[1]
Cities New Delhi
Participants
Brazil Brazil
Russia Russia
India India
China China
South Africa South Africa
Chair India Narendra Modi
Website brics2021.gov.in
Key points
Political and Security,
Economic and Financial,
Cultural and People to People.
The 2021 BRICS summit is the thirteenth annual BRICS summit, an international relations conference attended by the heads of state or heads of government of the five member states Brazil, Russia, India, China and South Africa. It will be the third time that India will be hosting the BRICS Summit after 2012 and 2016.[2][3]
India hosted the first meeting of BRICS finance and central bank deputies through video conference. The meeting was co-chaired by Michael Patra, Deputy Governor, Reserve Bank of India and Tarun Bajaj, Secretary Economic Affairs, Ministry of Finance, India.[4]
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>>> BRICS promise still awaits 20 years on
The idea was initially more about good global governance than greater growth. Sadly, there’s a lot of catching up to do as the group enters its third decade.
Financial Review
by Jim O'Neill
Feb 19, 2021
https://www.afr.com/policy/economy/brics-promise-still-awaits-20-years-on-20210219-p573yv
This November will mark the 20th anniversary of the BRIC acronym that I coined to capture the economic potential of Brazil, Russia, India and China. Many commentators will be revisiting the concept and assessing each country’s performance since 2001, so here are my own thoughts on the matter.
The BRICS brothers: from left, South Africa’s Cyril Ramaphosa, India’s Narendra Modi, China’s Xi Jinping, Russia’s Vladimir Putin and Brazil’s Jair Bolsonaro at a 2019 BRICS summit in Brasilia. AP
First, and contrary to repeated suggestions, the main point of my original November 2001 paper, The World Needs Better Economic BRICs, was neither to forecast endless growth for these economies, nor to promote some new marketing concept for investment funds. As anyone who read that paper will know, the central argument was that these economies’ probable growth in relative GDP would have important implications for global governance arrangements.
As 2001 was the third year since the introduction of the euro, I argued that large European countries – namely France, Germany, and Italy – should be represented collectively, rather than individually, at the G7, the International Monetary Fund, and other organisations, thereby making room for the world’s rising economic powers.
I then outlined four different scenarios of what the global economy might look like in 2010, three of which conjectured that the four BRIC countries’ share of global GDP would grow.
In the event, the 2000-10 decade turned out to be both absolutely and relatively better for each of the four than I had foreseen in any of my scenarios. But until the 2008 financial crisis, there was virtually no notable change of global governance structures. And while that upheaval did result in the creation of the G20 summits and some reforms within the IMF and the World Bank, it is troubling that an economic disaster was needed to effect even limited change.
Within a year of the initiation of G20 summits, the BRICS had added South Africa and formed their own geopolitical club. Yet while this development reinforced the original economic concept, it didn’t seem to accomplish much beyond that. Worse, there has been very little progress on the global governance front since then, even in the face of a deadly pandemic.
Returning to the BRIC economic story, between 2003 and 2011 my colleagues and I came up with various projections for how each economy would do between then and 2050. This work, too, led to a few misperceptions, one being that we were offering a concrete forecast.
In fact, the title of our 2003 paper, Dreaming with BRICs: The Path to 2050, made clear that we were imagining one possible, aspirational path, and we certainly didn’t predict persistently strong growth rates across the board. For the 2021-30 decade, we assumed a real (inflation-adjusted) GDP growth rate of less than 5 per cent a year for China, and suggested that only India would still be experiencing accelerating growth after 2020 (owing to its strong demographics).
It is still possible that the BRIC grouping could become as large as the G7 within the next generation.
We do not yet know the 2020 GDP numbers for major economies, but most countries’ real and nominal GDP will certainly be smaller than in 2019, and probably significantly so in the case of Brazil, India and Russia. The exception will be China, whose GDP will probably have increased by 5 per cent or more in nominal (US dollar-denominated) terms, further increasing its share of global GDP.
The pandemic comes on the tail of a decade (2011-20) that was nowhere near as fruitful as the first one. Brazil and Russia’s respective shares of global GDP are probably roughly back to their level in 2001. And while India has emerged as the world’s fifth-largest economy, it has suffered several rocky years.
China alone enjoyed remarkable success during this period. With a nominal GDP of more than US$15 trillion, its economy is about 15 times bigger than it was in 2001, triple the size of Germany and Japan, and five times the size of the UK and India. Already about three-quarters the size of the United States, its economy is on track to become the largest this decade in nominal terms, having already achieved this threshold in purchasing power parity terms.
Despite a disappointing decade for Brazil and Russia, it is still possible that the BRICS grouping could become as large as the G7 within the next generation. If international trade, investment, and financial flows between the BRICS countries and the rest of the world continue, this level of growth would be good for everyone.
But that is a big if. Much will depend on whether we can muster the political leadership to strengthen international governance and the openness to which Western democracies have long aspired. In terms of these political questions, the BRICS’ second decade has been tough. Relations between the West (the US and Europe) and China and Russia are as fraught as they have been in decades, though the recent conclusion of an EU-China investment agreement offers some good news.
One hopes that the arrival of US President Joe Biden’s administration and Britain’s chairing of the G7 will make up for lost time. There appears to be some momentum behind the idea of creating a larger Democratic Ten (D10) alliance comprising the G7 members and Australia, India, and South Korea.
From a Western perspective, this grouping would have obvious geopolitical and diplomatic advantages, and might help with the governance of cyberspace and technology; but it is unclear what purpose it would serve for the wider world.
Indeed, a D10 could raise more questions than it answers. Why not include other democracies that are already in the G20, such as Brazil, Indonesia, and Mexico? Why would South Korea want to be in a group that excludes China, its huge economic neighbour, but includes Japan, with which it is often in diplomatic spats? How relevant could the D10 possibly be in efforts to address climate change, global economic stability and equality, and issues such as the distribution of COVID-19 vaccines and antimicrobial resistance?
What the world really needs is what we called for back in 2001: genuinely representative global economic governance. Let us hope there is a renewed desire to take this path under the new US administration.
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>>> Have the BRICS hit a wall?
China is the world's second-largest economy and is fast catching up on the US amid a trade war, while Russia is, well, still Russia. So, as the BRICS meet up, we ask what is the point of this oddly divergent group.
DW
Nov 13, 2019
https://www.dw.com/en/have-the-brics-hit-a-wall/a-51182058
BRICs leaders
Cooperation among the five BRICS (Brazil, Russia, India, China, and South Africa) has set an example of a new type of international relations, Chinese State Councilor and Foreign Minister Wang Yi said recently.
The BRICS meet this week in Brasilia under the banner of "Economic Growth for an Innovative Future," with a focus on strengthening cooperation in science, technology and innovation, enhancing cooperation in the digital economy, more cooperation in the fight against transnational crime, money laundering and drug trafficking.
Wang went on to say that the BRICS had served as a stabilizer in international volatility and an example of a new type of international relations. "The BRICS should continue to promote multilateralism, take the lead in safeguarding the international system with the UN as its core and uphold the purposes and principles of the UN Charter."
Great hopes
The acronym BRIC (then excluding South Africa) was created by Goldman Sachs' analyst Jim O'Neill in 2001 for the emerging powers he believed would be, alongside the US, the five biggest economies of the world in the 21st century. Nobel Prize laureate Michael Spence soon after predicted the BRICS would replace the US and Europe as the key engines of the world economy. In a decade, Spence predicted, the BRICS' share of global GDP would exceed 50%.
Read more: Russia's comeback in Africa
Lacking access to the top jobs in international financial and development institutions, the BRICS set up the New Development Bank (NDB) in 2014 to finance infrastructure projects in the developing world. The institution was intended to rival the US- and Europe-dominated IMF and World Bank and were explicitly aimed to break the West's hold on finance and development. The bank had a total authorized capital of $100 billion (€91 billion) and was open to all members of the UN.
China's growth comes at a cost
Four years after starting operations, it had a $10.2 billion loan book and is one of the word's biggest multilateral development banks. Since then, the bank has lent over $5 billion in 21 projects. The BRICS at the same time created a Contingency Reserve Arrangement which would be accessed by BRICS members in need of funds.
Divergence
BRICS makes little sense today, S&P Global Ratings said in an emailed note in late October. It said the BRICS had lost relevance due to their diverging long-term economic trajectory. The economic performance of China and India over the past two decades contrasts with poor results in Brazil, Russia and South Africa, whose shares of global output have shrunk since 2000. India and China have exceeded the rating firm's growth predictions since the turn of the century. Russia and South Africa have failed to meet them since about 2005, Brazil since 2010.
"The diverging long-term economic trajectory of the five countries weakens the analytical value of viewing the BRICS as a coherent economic grouping," O'Neill wrote recenly. "I myself have occasionally joked that perhaps I should have called the acronym 'IC' based on the clear disappointment of the Brazilian and Russian economies in the current decade since 2011, where both have clearly significantly under-performed compared with what the 2050 scenario path laid out."
The five countries' economic models and policies are also divergent, as are their credit ratings. China's has gone up four rungs on the S&P ladder to A+, while the others have never got that high: Russia and India are five steps below and South Africa and Brazil seven and eight below respectively.
Facts and figures
South Africa was the last to enter the bloc and is the smallest of the countries with a population of about 50 million, compared to the 143 million of Russia, the 1.2 billion of India, the 1.34 billion in China and the estimated 210 million in Brazil.
BRICS together represent 42% of the global population, 23% of GDP, 30% of the territory and 18% of trade. Combined, they are bigger than the eurozone and unless China slows dramatically, the collective size of the BRICS countries will soon be as big as the US. Over the past decade, the combined BRICS' GDP has grown 179% and total trade of the member nations has risen 94%. From 2008 to 2017, the world's average growth rate was around 1%, but that of BRICS nations was about 8%.
What's it for?
"The significant question will be: How and to what extent will the BRICS take the next step in underwriting the rules of the game in an international order that is seeking leadership and direction?" Sanusha Naidu, senior researcher, University of South Africa, asked this year.
Read more: Why India pulled out of the RCEP free trade deal
The first official summit in 2009, held in Yekaterinburg, Russia, came up with a short declaration containing 15 commitments, according to the BRICS Research Group, based at the University of Toronto and the Russian Presidential Academy of National Economy and Public Administration. According to the BRICS Research Group's analysis, they show a surprisingly high rate of compliance: 77% on average, The Economist calculated. China keeps its word the most; South Africa the least, the weekly reported.
The BRICS have retained a certain credibility as "middle power," but in 2019, with Brazilian president Jair Bolsonaro's new rightwing agenda coming into focus, the situation appears fluid. His Finance Minister Paulo Guedes was named chair of NDB in April.
But one should also bear in mind that three of the five leaders head very authoritarian states, some of those most keen on an alternative to the global dominance of the US: Xi Jinping, Vladimir Putin, Jair Bolsonaro and Narendra Modi.
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>>> Italy joins China's New Silk Road project
BBC News
23 March 2019
https://www.bbc.com/news/world-europe-47679760
Italy has become the first developed economy to sign up to China's global investment programme which has raised concerns among Italy's Western allies.
A total of 29 deals amounting to €2.5bn ($2.8bn) were signed during Chinese President Xi Jinping's visit to Rome.
The project is seen as a new Silk Road which, just like the ancient trade route, aims to link China to Europe.
Italy's European Union allies and the United States have expressed concern at China's growing influence.
What is the Chinese project about?
The new Silk Road has another name - the Belt and Road Initiative (BRI) - and it involves a wave of Chinese funding for major infrastructure projects around the world, in a bid to speed Chinese goods to markets further afield. Critics see it as also representing a bold bid for geo-political and strategic influence.
China v the US: Not just a trade war
It has already funded trains, roads, and ports, with Chinese construction firms given lucrative contracts to connect ports and cities - funded by loans from Chinese banks.
The levels of debt owed by African and South Asian nations to China have raised concerns in the West and among citizens - but roads and railways have been built that would not exist otherwise:
- In Uganda, Chinese millions built a 50km (30 mile) road to the international airport
- In Tanzania, a small coastal town may become the continent's largest port
- In Europe too, Chinese firms managed to buy 51% of the port authority in Piraeus port near Athens in 2016, after years of economic crisis in Greece
What projects were signed in Rome?
On behalf of Italy, Deputy Prime Minister Luigi Di Maio, leader of the populist Five Star Movement, signed the umbrella deal (memorandum of intent) making Italy formally part of the Economic Silk Road and The Initiative for a Maritime Silk Road for the 21st Century.
Ministers then signed deals over energy, finance, and agricultural produce, followed by the heads of big Italian gas and energy, and engineering firms - which will be offered entry into the Chinese market.
China's Communications and Construction Company will be given access to the port of Trieste to enable links to central and eastern Europe. The Chinese will also be involved in developing the port of Genoa.
What's in it for Italy?
Italy is the first member of the G7 group of developed world economies to take money offered by China.
It is one of the world's top 10 largest economies - yet Rome finds itself in a curious situation.
The collapse of the Genoa bridge in August killed dozens of people and made Italy's crumbling infrastructure a major political issue for the first time in decades.
And Italy's economy is far from booming.
The country slipped into recession at the end of 2018, and its national debt levels are among the highest in the eurozone. Italy's populist government came to power in June 2018 with high-spending plans but had to peg them back after a stand-off with the EU.
Mr Di Maio told a news conference: "Italy has arrived first on the Silk Road and therefore other European countries at this moment have taken a stance on our trade decisions.
"They have taken a critical view and they have the right to this opinion."
"We do not want to override our European partners. We firmly remain in the Euro-Atlantic alliance and we remain allies of the United States in Nato," he added.
There is, however, dissent within the Italian government. Mr Di Maio's coalition partner, the other Deputy Prime Minister, Matteo Salvini, who heads the right-wing League, was conspicuously absent from all official ceremonies.
Mr Salvini has warned that he does not want to see foreign businesses "colonising" Italy.
"Before allowing someone to invest in the ports of Trieste or Genoa, I would think about it not once but a hundred times," Mr Salvini warned.
What's in it for China?
Italy's move is "largely symbolic", according to Peter Frankopan, professor of Global History at Oxford University and a writer on The Silk Roads.
But even Rome admitting the BRI is worth exploring "has a value for Beijing", he said.
"It adds gloss to the existing scheme and also shows that China has an important global role."
"The seemingly innocuous move comes at a sensitive time for Europe and the European Union, where there is suddenly a great deal of trepidation not only about China, but about working out how Europe or the EU should adapt and react to a changing world," Prof Frankopan told the BBC.
"But there is more at stake here too," he added. "If investment does not come from China to build ports, refineries, railway lines and so on, then where will it come from?"
Grappling with China's growing power
Explorer Marco Polo's travels along the Silk Road were immortalised in the "Book of Marvels"
The "made in Italy" label carries a reputation for quality worldwide, and is legally protected for products items processed "mainly" in Italy.
In recent years, Chinese factories based in Italy using Chinese labour have been challenging that mark of quality.
Better connections for cheap raw materials from China - and the return of finished products from Italy - could exaggerate that practice.
'Predatory' investment
The agreements signed in Rome come amid questions over whether Chinese firm Huawei should be permitted to build essential communications networks - after the United States expressed concern they could help Beijing spy on the West.
That was not part of the negotiations in Italy.
But a little over a week before the deal was due to be signed, the European Commission released a joint statement on "China's growing economic power and political influence" and the need to "review" relations.
As President Xi toured Rome, EU leaders in Brussels considered their approach for relations with China.
"Our aim is to focus on achieving a balanced relation, which ensures fair competition and equal market access," Donald Tusk, President of the European Council, said.
In March, US National Security Council spokesman Garrett Marquis pointed out that Italy was a major economy and did not need to "lend legitimacy to China's vanity infrastructure project".
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>>> China’s Built a Railroad to Nowhere in Kenya
Beijing is withholding the $4.9 billion needed to finish the project, once a flagship for Xi Jinping’s Belt and Road initiative.
Bloomberg
By David Herbling and Dandan Li
July 18, 2019
https://www.bloomberg.com/news/features/2019-07-19/china-s-belt-and-road-leaves-kenya-with-a-railroad-to-nowhere
Gleaming concrete sleepers run across a new railway bridge in Kenya, the latest stretch of a Chinese-built line from the coast all the way to Uganda.
Only, it doesn’t quite reach the border. Instead, the railroad ends abruptly by a sleepy village about 75 miles west of the Kenyan capital, Nairobi, the tracks laid but unused.
Construction of what was intended to be a flagship infrastructure project for Eastern Africa was halted earlier this year after China withheld some $4.9 billion in funding needed to allow the line’s completion. Beijing’s sudden financial reticence appeared to catch the governments of Kenya and Uganda off guard: Both may now be forced to reinstate a colonial-era line in a bid to patch the link and boost regional trade.
Kenya’s Railway to Nowhere
Construction of a Chinese-built line across East Africa has halted
The reason for China’s attack of cold feet may lie in the project’s high profile. Chinese state media repeatedly used the Mombasa-Nairobi Standard Gauge Railway (SGR) project as a showcase for President Xi Jinping’s Belt and Road Initiative. But with concerns rising globally that Belt and Road was loading poorer nations with unsustainable debt, Xi signaled in April that Beijing would exert more control over projects and tighten oversight.
That extra rigor is beginning to be felt worldwide. A planned light-railway system that was the most high profile belt and road project in Kazakhstan is on hold after the collapse of a local bank that handled Chinese funds. In Zimbabwe, a giant solar project hit a funding shortfall after the Export Import Bank of China backed out of providing financing due to the Zimbabwean government’s legacy debts, RWR Belt and Road Monitor reported this month. Kenya’s line may be next.
The Chinese “are adopting a more cautious approach to their debt exposure in Africa,” said Piers Dawson, a consultant at London-based investment consultancy Africa Matters Ltd. He cites “increased noise around its sustainability and potential default.”
China is now the single largest financier for infrastructure in Africa, funding one-in-five projects and constructing every third one, according to a Deloitte report. With infrastructure needs that the African Development Bank estimates at $130 billion to $170 billion yearly, governments are only too willing to take out Chinese loans to plug the funding gap.
The downside is that Kenya was one of three African countries identified in a March 2018 report by the Washington-based Center for Global Development as at risk of debt distress as a result of its Belt and Road participation. The others were Egypt and Ethiopia.
Belt And Road Initiative Bolsters China’s Africa Ties
“China has its own issues it’s dealing with, including perceptions that it is ‘trapping’ many of its Belt and Road partners by drowning them in debt,” said Jacques Nel, an economist at NKC African Economics. China’s government has “put the brakes on its external expansion plans, or has at least become more focused on the viability of projects due to its own corporate debt concerns,” he said.
The first half of the Kenya-Uganda railway, a 470-kilometer (290-mile) stretch between the port city of Mombasa and Nairobi, is operational but not yet making money. Beijing balked at funding the extension to Uganda amid concerns it may be a step too far beyond viability.
Kenya and landlocked Uganda had coordinated their plans for the new railway to reduce transport costs and the time it takes to move goods from the coast across each country and further into the eastern and central Africa hinterland. Yet with the realization that China may not release more funds, Kenyan President Uhuru Kenyatta has given the go ahead to link the line to a narrower-gauge railway that’s over 90 years old. Uganda, which had banked on Chinese funding too, has decided to refurbish the colonial-era line on its side of the border.
But that still means shouldering more debt at a time when the International Monetary Fund is urging spending restraint. China is already Kenya’s biggest external creditor, with some 22% of the country’s external debt as of December, according to Treasury data.
The situation doesn’t bode well for Kenyatta’s legacy, which he was building around the railroad as the nation’s single-biggest investment since Kenya attained self-rule over five decades ago. Knowing that alternative—and probably more expensive—debt could further widen Kenya’s deficit, Kenyatta is courting private investors to build the link between the new and old railroads. Uganda will meanwhile include the $205 million needed to rehabilitate its old tracks in the budget, but hasn’t said how it plans to raise the funds.
Back in 2013, when Kenyatta asked Beijing to fund the railway, a condition was that China supply the constructors. Export-Import Bank of China financed the $3.6 billion line to Nairobi, China Road and Bridge Corp. built it, and China Communications Construction Co. was picked as the operator. Revenue from the railway is supposed to repay the loan, but critics say the cost was too high and it won’t turn a profit for a long time.
ON HOLD - CHINESE INVESTMENT IN KENYA RAIL
They point to southern neighbor Tanzania, which in 2016 canceled $7.6 billion in Chinese funding for a 2,200-kilometer railway and contracted Yapi Merkezi Insaat Ve Sanayi of Turkey and Portugal’s Engenharie and Construcao Africa to build a shorter line at roughly half the cost per kilometer.
Beijing’s tighter scrutiny of Belt and Road projects comes as China shifts the program away from low-cost loans onto a more commercial basis involving its private sector. Clearer rules for state-owned enterprises and building overseas auditing and anti-corruption mechanisms were among other steps floated by officials at the time of the Belt and Road Forum in April.
China supports the Kenya railway project but requires a reasonable and sustainable financing plan, according to a person involved with the project. Because China now requires high-quality projects and a more thorough feasibility study, the process of approving loans has slowed in general, but it doesn’t mean the project is terminated, said the person, who asked not to be named as they are not authorized to speak publicly. Related parties in the Chinese government and banks are still deliberating financing options, the person said.
China’s Ambassador to Kenya, Wu Peng, was asked in May by local newspaper the Daily Nation about expectations President Kenyatta’s visit to China that month would secure funding for the missing section of the railway, to Kisumu by Lake Victoria.
“I really don’t know where those expectations came from,” Wu was cited as saying.
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>>> The BRICs were supposed to take over the global economy. What happened?
APR 14 2019
Tala Hadavi
https://www.cnbc.com/2019/04/11/what-happened-to-brazil-russia-india-and-china-as-the-brics.html
What happened to the BRICs?
The BRIC acronym was coined by Goldman Sachs chief economist Jim O’Neill in 2001. He predicted four emerging economies — Brazil, Russia, India and China — were on their way to reshape the world economy.
Opponents said the countries were too different culturally and socially to be grouped together and that ultimately, it was a Goldman Sachs marketing ploy.
Still, in the first decade, the countries met all expectations and beyond. Investment banks, think tanks and academia capitalized on the successes and everyone was talking about BRIC. In 2010, the group added South Africa, making its acronym BRICS.
The countries went from less than 20% of the world’s GPD in 2003 to about 30% 10 years later. China and India were growing exponentially, while rising commodity prices kept Brazil and Russia in good pace to meet O’Neill’s predictions.
But shortly after the financial crisis, external factors combined with serious internal turmoil proved too much for the group. While China and India are growing steadily today, Russia and Brazil have gone in the opposite direction.
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>>> BRICS back 'open world economy' that benefits all nations
BBC News
26 July 2018
https://www.bbc.com/news/business-44973352
The leaders of the Brics emerging economies have signed a declaration stressing the importance of an "open world economy", in which all countries benefit from globalisation.
Brazil, Russia, India, China and South Africa also backed an "open and inclusive" multilateral trading system under World Trade Organization rules.
But they said the multilateral trading system faced unprecedented challenges.
Their comments come amid mounting trade tensions sparked by US tariffs.
The leaders have been meeting at the 10th Brics summit in Johannesburg.
US and EU retreat from brink on trade
What is a trade war and why should I worry
Trade row may hurt global growth says G20
"We reaffirm the centrality of the rules-based, transparent, non-discriminatory, open and inclusive multilateral trading system, as embodied in the World Trade Organization, that promotes a predictable trade environment and the centrality of the WTO," the declaration signed by the five leaders said.
However, they added: "We recognise that the multilateral trading system is facing unprecedented challenges.
"We underscore the importance of an open world economy, enabling all countries and peoples to share the benefits of globalisation, which should be inclusive and support sustainable development and prosperity of all countries.
"We call on all WTO members to abide by WTO rules and honour their commitments in the multilateral trading system."
'Reject protectionism'
The Brics summit is the first since US President Donald Trump placed tariffs on billions of dollars' worth of goods from around the world, in particular China.
He has promised further levies on $200bn (£150bn) worth of Chinese products in September.
Mr Trump also wants to cut the trade deficit with China - a country he has accused of unfair trade practices since before he became president.
Mr Trump made a big point on the campaign trail about cutting the country's trade deficits.
He is convinced that they hurt US manufacturing, and has said repeatedly while campaigning and on Twitter that the US must do more to tackle them.
Speaking in Johannesburg on Thursday, Chinese President Xi Jinping said: "We must work together... to safeguard the rule-based multilateral trading regime, promote trade and investment, globalisation and facilitation, and reject protectionism outright."
On Wednesday, he said there would be no winner in a global trade war.
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Belt and Road Initiative -
One look at this map and it's easy to see why the US is worried -
>>> The Belt and Road Initiative (BRI) or the Silk Road Economic Belt and the 21st-century Maritime Silk Road is a development strategy proposed by the Chinese government which focuses on connectivity and cooperation between Eurasian countries, primarily the People's Republic of China (PRC), the land-based Silk Road Economic Belt (SREB) and the ocean-going Maritime Silk Road (MSR). <<<
https://en.wikipedia.org/wiki/Belt_and_Road_Initiative
>>> China's first home-built aircraft carrier begins sea trials as Beijing ramps up its maritime might
By Neil Connor
The Telegraph
May 13, 2018
https://www.telegraph.co.uk/news/2018/05/13/chinas-first-home-built-aircraft-carrier-began-sea-trials-beijing/
China's first home-built aircraft carrier began sea trials on Sunday, a major step for Beijing as it ramps up its military might.
The carrier will be the second to enter the Chinese navy, and comes as Beijing seeks to modernise its armed forces.
The ship, which is known only as "Type 001A", set out for the trials from the north-eastern port of Dalian, where it was built.
The trail was to "test the reliability and stability of the carrier's power system and other equipment," Xinhua news agency said
"Construction on the carrier has been carried out as planned since it was launched in April last year, and equipment debugging, outfitting and mooring tests have been completed to make it ready for the trial mission at sea," it added, citing sources.
Images posted by Chinese media online showed the huge carrier not far from its dock, apparently setting off for trials with smaller vessels.
China's military has been updated and modernised since Chinese president Xi Jinping assumed power five years ago.
The carrier, which is not expected to enter service until 2020, is the latest milestone in China's military development, and comes as Beijing is asserting itself in the strategic waters of the South China Sea, and against Taiwan.
Steve Tsang, director of the China Institute at the School of Oriental and African Studies (SOAS), said: "This is clearly a landmark development, particularly in demonstrating the ambition and intention of the Chinese Government under Xi Jinping.
"Aircraft carriers are for power projection and for domination, and this is just the first of several more indigenous carriers.
"The world should take notice of Xi’s determination ‘to make China great again’."
The country's first carrier, the Liaoning, was bought second-hand from Ukraine in 1998, refitted in China, and commissioned in 2012.
Both Chinese aircraft carriers have similar "ski jump" ramps, and closely resemble Soviet style vessels.
They will "not pose major challenges" to the "US domination of the sea lanes", Prof Tsang told The Telegraph.
The US's 11 vessels are nuclear powered and have far superior technology, including catapult systems for launching aircraft.
Prof Tsang added: "But for the rest of China’s neighbours, the new carrier based doctrine of the People's Liberation Army is frightening, as none of them can remotely match China’s new naval capabilities."
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>>> China Is One Signature Away From Dealing The Dollar A Death Blow
Authored by Brandon Smith via Birch Gold Group,
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=139500735
If you leave your sliding glass door open, you might let in a stray cat, raccoon, or bugs without knowing it.
Some intruders are worse than others. All can be annoying. But let in a thief, who robs your home... and it only takes that one time to change your life forever.
The U.S. has essentially left their “sliding glass door” open, and on March 26 China is set to become the intruder that may very well deal a death blow to the dollar.
China Prepares Death Blow to the Dollar
On March 26 China will finally launch a yuan-dominated oil futures contract. Over the last decade there have been a number of “false-starts,” but this time the contract has gotten approval from China’s State Council.
With that approval, the “petroyuan” will become real and China will set out to challenge the “petrodollar” for dominance. Adam Levinson, managing partner and chief investment officer at hedge fund manager Graticule Asset Management Asia (GAMA), already warned last year that China launching a yuan-denominated oil futures contract will shock those investors who have not been paying attention.
This could be a death blow for an already weakening U.S. dollar, and the rise of the yuan as the dominant world currency.
But this isn’t just some slow, news day “fad” that will fizzle in a few days.
A Warning for Investors Since 2015
Back in 2015, the first of a number of strikes against the petrodollar was dealt by China. Gazprom Neft, the third-largest oil producer in Russia, decided to move away from the dollar and towards the yuan and other Asian currencies.
Iran followed suit the same year, using the yuan with a host of other foreign currencies in trade, including Iranian oil.
During the same year China also developed its Silk Road, while the yuan was beginning to establish more dominance in the European markets.
But the U.S. petrodollar still had a fighting chance in 2015 because China’s oil imports were all over the place. Back then, Nick Cunningham of OilPrice.com wrote…
Despite accounting for much of the world’s growth in demand in the 21st Century, China’s oil imports have been all over the map in recent months. In April, China imported 7.4 million barrels per day, a record high and enough to make it the world’s largest oil importer. But a month later, imports plummeted to just 5.5 million barrels per day.
That problem has since gone away, signaling China’s rise to oil dominance…
The Slippery Slope to the Petroyuan Begins Here
The petrodollar is backed by Treasuries, so it can help fuel U.S. deficit spending. Take that away, and the U.S. is in trouble.
It looks like that time has come…
A death blow that began in 2015 hit again in 2017 when China became the world’s largest consumer of imported crude…
Now that China is the world’s leading consumer of oil, Beijing can exert some real leverage over Saudi Arabia to pay for crude in yuan. It’s suspected that this is what’s motivating Chinese officials to make a full-fledged effort to renegotiate their trade deal.
So fast-forward to now, and the final blow to the petrodollar could happen starting on March 26. We hinted at this possibility back in September 2017…
With major oil exporters finally having a viable way to circumvent the petrodollar system, the U.S. economy could soon encounter severely troubled waters.
First of all, the dollar’s value depends massively on its use as an oil trade vehicle. When that goes away, we will likely see a strong and steady decline in the dollar’s value.
Once the oil markets are upended, the yuan has an opportunity to become the dominant world currency overall. This will further weaken the dollar. <<<
>>> Trump, Davos and Free Trade
By James Rickards
February 2, 2018
https://dailyreckoning.com/trump-davos-free-trade/
Trump, Davos and Free Trade
After Trump announced the steep 30% U.S. tariffs on imports of solar panels and washing machines. the Chinese Commerce Ministry expressed “strong dissatisfaction” and said it “aggravates the global trade environment.”
Trump is not done with tariffs. In the days and weeks ahead, we can expect further announcements with regard to steel and aluminum imports to the U.S. Again, such imports come largely from China, but the tariffs will likely affect all exporters to the U.S.
Ironically these announcements came just as President Trump was preparing to go to Davos, Switzerland for the World Economic Forum.
The Davos elites vehemently oppose both trade and capital controls, preferring instead a globalist “one-world” approach. The only problem with the Davos elite theory is that it is empirically, historically and analytically wrong.
The theory of free trade is based on an idea called “comparative advantage.” This idea goes back to David Ricardo, an early 19th century British economist. Ricardo’s theory was that countries should not try to be self-sufficient in all manufacturing, mining and agriculture.
Instead countries should specialize in what they do best, and let others also specialize in what they do best. Then countries could simply trade the goods they make for the goods made by others. All sides would be better off because prices would be lower as a result of specialization in those goods where you have a natural advantage.
It’s a nice theory often summed up in the idea that Tom Brady should not mow his own lawn because it makes more sense to pay a landscaper while he practices football.
But, the theory is flawed. For one thing, comparative advantage is not static. It changes over time. Importantly comparative advantage can be created from thin air. Taiwan had no comparative advantage in semiconductors in the 1980s, but the government made a political decision to create the state-sponsored Taiwan Semiconductor Manufacturing Company.
Today Taiwan Semiconductor is the largest supplier of semiconductors in the world. The government nurtured Taiwan Semiconductor with tariffs and subsidies when it was most vulnerable to foreign competition. Today Taiwan Semiconductor is a publicly traded company that competes effectively around the world, but it would never have attained that status without government help in its early days.
If the theory of comparative advantage were true, Japan would still be exporting tuna fish instead of cars, computers, TVs, steel and much more.
The same can be said of the globalists’ view that capital should flow freely across borders. That might be advantageous in theory but market manipulation by central banks and rouge actors like Goldman Sachs and big hedge funds make it a treacherous proposition.
In the depths of the Asian financial crisis of 1997, Malaysian Prime Minister Mahathir closed Malaysia’s capital account to preserve hard currency and defend his exchange rate. Mahathir was excoriated at the time by the likes of George Soros. Soros went so far as to call Mahathir a “menace to his country.”
But scholars today agree that Mahathir made the right move. In recent years, even the IMF has said there are certain circumstances where capital controls are fully justified.
If open trade, and open capital flows are flawed ideas, why do the Davos elite support them?
The answer is that these theories, which have superficial appeal to everyday citizens, are the perfect smokescreen for the elites’ hidden agenda. That agenda is to diminish the power of the United States, and the U.S. dollar, in world affairs and to enhance the power of rising nations especially China.
If several hundred million Chinese can be pulled from poverty by leaving the U.S. market open while China subsidies its companies, imposes its own tariffs, steals intellectual property, and limits U.S. foreign direct investment, then that’s fine. If U.S. workers lose their jobs in the process, that’s fine too. The elites don’t care about the U.S.; they only care about their “one world” vision.
Trump is calling their bluff. When Trump says “America First” he means it. So does Trump’s top trade advisor Robert Lighthizer. Lighthizer is a veteran of the Reagan administration who forced the Japanese to move their auto plants to the U.S. in the 1980s by imposing steep tariffs on Japanese imported cars.
Thousands of high-paying U.S. manufacturing jobs were created as a result. Lighthizer plans to run the same playbook against the Chinese today.
Lighthizer is part of a hawkish “Trade Troika” consisting of himself, Secretary of Commerce Wilbur Ross, Jr. and White House trade advisor Peter Navarro. All three are urging President Trump to impose a set of tariffs on China involving not only washing machines and solar panels, but steel, aluminum, and theft of intellectual property.
Opposing the Trade Troika are trade doves including National Economic Advisor Gary Cohn, Chief of Staff John F. Kelly, Secretary of State Rex Tillerson and the CEOs of major global corporations such as Boeing, Apple and General Motors that all derive large profits from Chinese operations.
The hawks and doves fought each other to a standstill in 2017 because of wishful thinking about Chinese help on North Korea and the importance of a united front to pass the tax bill. With hopes for China now dispelled and the tax bill passed into law, the trade agenda is front and center.
This is not a “kick-the-can-down-the-road” situation. Trump is confronting hard deadlines on key decisions.
America has always prospered with high tariffs to protect its industries. From Alexander Hamilton’s plan for infant manufacturing to Henry Clay’s American Plan, the U.S. has always known how to protect its industries and create American jobs. Trump is returning to that tradition.
The problem is that this will not be a smooth ride. It will take years for U.S. solar panel manufacturers to get back on their feet. (One of the largest U.S. firms filed for bankruptcy protection last year, but it continues to operate in reorganization under court supervision.)
A full-scale trade war will hurt world growth even as it helps U.S. growth. Given the trillions in dollar-denominated debt in emerging markets, a full-scale foreign sovereign debt crisis could be in the making if those emerging markets countries cannot earn dollars from exports to pay their debts.
Trump did not impose these tariffs in 2017 because he needed Chinese help with the North Korean situation. But, China did not do all it could in North Korea, and there is good evidence that China is helping North Korea cheat on existing sanctions.
As if to rub salt in the wound, China reported today that its 2017 trade surplus with the U.S. was $275 billion, the highest ever.
Once China’s lack of cooperation on North Korea became clear, Trump saw no harm in confronting China on trade, something he’s been talking about since the summer of 2015 during the early days of his campaign.
The Chinese may choose to retaliate not so much with their own tariffs, but with other forms of financial warfare including its threats to persify its reserves away from U.S. Treasuries.
As China buys fewer U.S. Treasuries, the most likely substitute asset class is gold. This is one more reason to expect that the recent weak dollar and strong gold trends to continue for the remainder of this year and beyond.
Regards,
Jim Rickards
for The Daily Reckoning
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