A BRICS currency and de-dollarisation
A BRICS currency and de-dollarisation
Let us simplify the excellent analysis of BRICS currency and de-dollarisation by Jim Rickards.
I was very disappointed about the analysis of possible de-Dollarisation. The topic is complex, and most analysts take a simplistic “one size fits all” type of view. But then this week, Stephanie Pomboy talked with Jim Rickards on this very topic. This is a superb analysis and must watch if you track geopolitics or currency markets.
Note: Do not be fooled by their self-deprecating style and humility. Both Stephanie and Jim are excellent analysts with razor-sharp intelligence and are excellent at connecting the dots. Find them both on Twitter (now X; linked above), find their research, and follow their ideas. Steph appears on Maria Bartiromo’s show explaining things in plain English. Jim writes a book every year or two with excellent analysis.
The main ideas
Here are some of the important ideas they discussed:
BRICS currency is a well-thought-out possibility. They have built institutions equivalent to World Bank and IMF within the BRICS fold. They have built their exclusive submarine cable to keep US/EU institutions from snooping or interfering in their communications.
The BRICS currency would build upon the intra-BRICS trade settlement. BRICS system is also opening up to other countries, with more than 20-25 countries open to join this grouping.
Jim believes the BRICS currency system will, most likely, be based on the weight of gold. It will not be convertible into gold, but it will reference gold price to determine its value. This means the value of one unit of BRICS currency will equal certain ounces of gold. The variation in gold prices will vary the price of BRICS currency.
This system is similar to one proposed by John Maynard Keynes during post-WWII negotiations. Keynes proposed Bancor, a global reserve currency referencing gold.
Jim highlights that if the dollar has to lose its global currency status, it will be because of US actions and not anything BRICS or any other country can do. The dollar system has a lot going for it - deep bond markets, the rule of law (respect for contracts etc.) and institutional infrastructure all favour the US Dollar. The reckless actions of the US government are weakening this trust in the system. The BRICS currency is a response to the US messing up.
The BRICS currency will mostly be a digital currency.
Some Comments
The system, as Jim describes it, is actually a viable alternative to the global system dominated by World Bank-IMF-Swift institutional framework. This is a viable model for an alternate system to bypass the dollar-based system. It is still not challenging the dollar. Rather it is mitigating dollar-dependence risks.
BRICS countries do not have the minimum agreement required to run this system. To run a coordinated currency system, you need some basic understanding between countries. The European Union has got sort of a basic understanding amongst itself. However, still, there are issues when it comes to running a currency system with a unified monetary system but an independent fiscal system and separated bond markets. Yanis Varoufakis has looked at some of the flaws in his books and papers. This project will be extremely difficult to pull off.
One way to make the BRICS currency work is to multi-lateralise this system by involving all participants and building in gold price reference with auto-adjustments of local currencies. That is why Rickards believes the BRICS currency cannot work like the Euro. Rather it will work more like SDR. This two-level currency system is something I have been advocating since 2010.
Many believe that the US enjoys reserve currency privileges. That was true the till very recently. Now, in fact, the dollar’s reserve currency status is being used against the US, particularly by China and Asian Economies. It has pushed the US to weaponize the dollar. It is quite possible countries have pushed each other into untenable positions. In a way, a BRICS -like two-level currency system may prove to be a solution.
In Sum
The mainstream is just grasping the importance of this topic. Do keep an eye out for more on this.