Rusmedia – the infochannel of Euro-Rus

For a great Europe, from Gibraltar to Vladivostok !

BRIC group takes a shot at USD supremacy

Posted by Kris Roman on June 22, 2009

bric-brazil-russia-india-china-bgBrazil and fellow up-and-coming economies Russia, India and China discussed how they could exert greater sway over the global financial system at their first summit in the Russian city of Yekaterinburg last week, but they surprised observers with toned-down talk about reducing the world’s reliance on the U.S. dollar.

Frustration at the dominant but unstable dollar as the world’s reserve currency had united the so-called BRIC grouping — an acronym coined to describe these four key emerging markets — in the first place, and motivated them to find a common base on which to capitalize on their own growing economic influence.

Brazil, China and Russia have all said they will purchase notes from the International Monetary Fund to begin diversifying their reserves away from the greenback.

Days before the summit Brazilian President Luiz Inacio Lula da Silva said his country would lend $10 billion to the IMF, joining China and Russia with loans, to “(give) us the moral authority to keep pushing for the changes that are needed at the IMF.”

Lula has been outspoken in calling on developing nations to perform a greater role on the global stage by trading with each other, thereby reducing their reliance on the dollar.

Brazil’s fast-growing economy just last month boosted its trade ties with China. Brasilia forged a deal with Beijing that allows the Asian country to exploit massive new oil and gas finds off Brazil’s coast — the largest finds in the Western Hemisphere in three decades.

But on the subject of the world’s reserve currency, BRIC’s closing communique was not as forceful as expected.

“The emerging and developing economies must have greater voice and representation in international financial institutions,” it read. “There is a strong need for a stable, predictable and more diversified international monetary system.”

Separately, Russian President Dmitry Medvedev expressed his views on the supremacy of the greenback quite explicitly.

“There can be no successful global currency system if the financial instruments that are used are denominated in only one currency. Today this is the case, and that currency is the dollar,” he said.

Russia, like China, has been talking for a while of the need for a supranational currency, made up of a basket of currencies and gold. China had raised the idea ahead of the G20 summit in London last April.

But for now the BRIC countries spoke of reducing the power of the greenback — but not replacing it as the world’s reserve currency — by strengthening their financial ties with other emerging countries by trading in local currencies.

China, for one, would lose too much if the status quo were abruptly altered. It has enormous holdings of dollar-denominated assets and is heavily dependent on exports to the United States.

But many blame the fluctuations of the U.S. dollar as being partially responsible for today’s global economic crisis and say that having the world’s reserve currency permits Washington to continually run massive budget deficits without fearing economic collapse that other countries risk.

The BRIC nations account for about 20 percent of the world economy and hold some 40 percent of global currency reserves.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: