A new Bretton Woods on August 22? The BRICS meeting could be the biggest currency upheaval since 1971.
BRICS alliance swells
Brazil, Russia, India, China and South Africa could unveil in Durban a new international reserve currency (or several) in order to do without the dollar. Dedollarization is accelerating.
The world is not prepared for this geopolitical and monetary shock wave which will result in more inflation in the West and particularly in the United States.
In addition, the BRICS will announce an enlargement. We will soon have to talk about the BRICS+. Eight nations have formally applied for membership. Algeria, Argentina, Bahrain, Egypt, Indonesia, Iran, Saudi Arabia and United Arab Emirates.
Seventeen others have expressed interest. Afghanistan, Bangladesh, Belarus, Kazakhstan, Mexico, Nicaragua, Nigeria, Pakistan, Senegal, Sudan, Syria, Thailand, Tunisia, Turkey, Uruguay, Venezuela and Zimbabwe.
Knowing that :
-Saudi Arabia, Iran and Russia have 30% of the oil reserves and 46% of the gas.
-Russia, China, Brazil and India represent 30% of the world’s land surface and 50% of the world’s wheat and rice production.
-China, India, Brazil and Russia have a combined population of 3.2 billion people, or 40% of the world’s population.
-China, India, Brazil, Russia and Saudi Arabia have a combined GDP of $29 trillion, or 28% of global GDP. Even more at purchasing power parity. Russia and China possess two of the three largest nuclear arsenals in the world.
BRICS currency
In every way – population, landmass, energy production, GDP, food production and nuclear weapons – the BRICS are ahead. The Middle Kingdom has also fallen behind technologically, although it remains a bit behind in terms of semiconductors. Russia, China, Iran and North Korea have hypersonic missiles, unlike the West.
By acting in concert, the BRICS constitute one of the poles of a multipolar world. If a new currency is announced in August, it will have every chance of being a success, at least within the countries mentioned.
The global desire to abandon the dollar as the international currency par excellence is not new. The difference today is that Russia went to war. And while Moscow holds Europe at bay, many realize that now is the time to emancipate.
Dubai now accepts the yuan as payment for its oil exports. Saudi Arabia and China have discussed similar agreements, and we bet that Riyadh will accept the yuan once it joins BRICS. China and Brazil recently agreed to trade in their own currencies. And again this week, we learn that Pakistan is buying Russian oil in yuan.
Very good, but trading in national currencies has its limits. It is rare for two countries to have equal trade. Typically, one has a trade deficit and the other a surplus. This is the case of Russia and India, which has been buying a lot of Russian oil since the start of the war in Ukraine. However, Russia already does not want any more rupees.
If the dollar is no longer an option, a substitute must be found that everyone will accept. Hence this very important BRICS+ summit this summer in South Africa from August 22 to 24.
What type of currency exactly?
Some countries are considering a gold-backed stablecoin, which will make bitcoiners smile…
Others argue for a currency pegged to a basket of commodities like oil, wheat, copper and other essentials that are at the heart of globalization.
Anyway, most likely this currency will not be accessible to anyone. There will be no BRICS+ banknotes for daily transactions.
It will be a centralized digital currency, likely held by the New Development Bank (the “BRICS bank”). And just like in 1971 with the dollar, you can be sure that sooner or later this currency will end up devaluing.
Moreover, according to the latest information provided by the BRICS working groups, this basket is encountering the same problems as those encountered by John Maynard Keynes during the Bretton Woods meetings in 1944.
The idea is not new. Keynes originally proposed a basket-of-commodities approach to a global currency he called Bancor. Except that the world raw materials included in a basket are not fungible (there are more than 70 qualities of oil…).
In the end, Keynes felt that a basket of commodities was unnecessary and that simply using gold was the easiest way to anchor a currency (gold standard).
It is therefore possible that the new BRICS+ currency will be linked to a weight of gold. And that this gold standard is doomed to the same fate as the previous one.
This solution benefits Russia and China, which are the two largest gold producers in the world. They “officially” rank sixth and seventh respectively out of the 100 nations with gold reserves.
And those who have no gold? What about Bitcoin?
A gold standard could raise teeth in countries that are not lucky enough to have gold mines. Conversely, Bitcoin can be mined by any country. All you need is electricity. This is a significant asset, in addition to traveling for free at the speed of light.
Not to mention the fact that it is possible to mine ever more gold. On the contrary, the issuance of bitcoins decreases by half every four years. As Michael Saylor said at the BTCPrague conference, “the half-life of gold is 35 years”. In other words, the stock of gold doubles every 35 years.
Conversely, more than 92% of the 21 million BTC have already been issued and very few countries have them. It would be a new start on equal terms with a currency accessible to all.
The scarcity of a reserve currency is crucial. It should be understood that countries can use the payment currency of their choice. It doesn’t have to be the dollar. In contrast, a reserve currency must be a stable currency.
Reserves are essentially the savings accounts of sovereign nations that have earned them through their trade surpluses. These balances are not held in the form of notes, but in the form of financial securities (equities of multinationals and mainly sovereign debt).
When we say that the dollar is the main reserve currency, it means that central banks hold US Treasury bonds which pay interest. According to the latest IMF figures, 60% of global reserves are currently denominated in dollars (~$6,471 billion, the lowest in 25 years).
Not so easy to replace the dollar
It is difficult to offer a reserve currency without it allowing investment in a large and open sovereign bond market. No country in the world comes close to the US Treasury market in terms of size, variety of maturities, liquidity, derivatives etc.
The BRICS+, in addition to offering a currency convertible into gold, will have to offer an alternative market yielding higher interest than those found in the United States. But does China want to open its markets to the rest of the world? Unlikely, but who knows…
Finally, it is also reasonable to think that interest rates will stay below inflation for a long time. As Michael Saylor says, “No one can stop inflation. I could put you in charge of the world you couldn’t stop inflation”.
For what ? Simply because we live on a finite planet. Two things seem increasingly certain in the absence of a technological breakthrough on energy:
1) Decline in productivity (and therefore profits) due to limits to growth (peak oil), which will weigh on the dividends of multinationals;
2) Interest rates close to 0% due to debt burden.
The time has come to temper hopes regarding the debt and the stock market. Everyone will soon be rushing to a store of absolute value, no matter that there is no “yield”.
The BRICS are unlikely to officially adopt bitcoin this summer. That said, it is rumored that the UAE is already buying Russian oil in bitcoin…
A multipolar world is a boon for bitcoin which will eventually step into the breach, like in El Salvador.
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Journalist reporting on the Bitcoin revolution. My papers deal with bitcoin through geopolitical, economic, and libertarian prisms.