BRICS seeking to drop the dollar

So BRICS have agreed to use local currencies rather than the US Dollar for issuing credits or grants to one another. This is a step towards trying to limit the use of the USD (and probably Sterling, Yen as lesser reserve currencies over time) for international transactions.

I wonder whether those involved are aware of the massive currency crisis for Brazil in 1999 (not so very long ago) whereby due to naive currency management the Real suffered a significant currency depreciation.

Or perhaps they should consider the 1998 Russian Rouble default and devaluation? (Yes, this is the one that sparked LTCM’s implosion.)

I would probably focus on wide-spread Chinese manipulation of currency (not to mention massive investment in US Treasury Securities, in Dollars, of course.) Or maybe the lesser-known 1991 Indian currency crisis?

So these are not great currencies to use as a standard for international settlements or trade or grants. Their history has been way more volatile than the US, and the naiveté and irresponsibility o those managing these currencies has been far greater than that of the US.

Finally, these currencies are poor matches for each other.  Oil and gas (Russia), industrial production (China), Technology and Services and Agriculture and also some mining (India), Technology and Agriculture (Brazil) have some overlap, but not sufficient to prevent wide divergence in economies and inflation and therefore exchange rates over time.  There is actually no point in even including South Africa’s economy in this mix given that we contribute.  (China, $10 Trillion, India $4 Trillion, Russia $2.2 Trillion, Brazil $2.2 Trillion and South Africa $0.5 Trillion.  In other words less than 3% of the total of BRICS.)

One good thing out of this is that BRICS does seem to be the new in-use acronym, suggesting the world is laughing as hard at the concept as I am.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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  1. I’ve often wondered how negative an impact on the US having the USD as the de facto global reserve currency has had.

    Think of the stonk loads of additional currency demand that exists independently of and over and above trade exchange requirements. A Dutch disease, of sorts.

    1. Except that they (the Fed) manage the supply, and ‘printing new dollars’ costs whatever it costs for a few banks to change a few bits on a few hard drives.

      I see only upside…?

      1. Not sure I follow. Only upside for whom? My point is that the USD for all its warts, is a better, more stable currency to use for trade between BRICS countries than any of the currencies participating in BRICS countries themselves.

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