BRICS Currency? Oh, Ah, Well...
Friday, 9/01/2023 09:01
Expansion alone is bullish BRICS vs. the Dollar...
WHAT happened at the BRICS Summit in South Africa that concluded on Aug. 24?
asks Jim Rickards in The Daily Reckoning.
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.
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.
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 US 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 US 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.
But what about that new global currency I've said would be launched on 22 August?
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 US 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.
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,
writes Jim Rickards in The Daily Reckoning.
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 US Dollar.
They fear that their Dollar-denominated reserves may be frozen by the US, 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 petro-Dollar 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 US policymakers who seem ignorant both of history and current events.
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