The economic news coming out of the Western world continues to get worse by the day – while, at the same time, the rising Eurasian continental superpower develops and grows. It is a basic fact of life that economic power dictates monetary power, and on that basis alone, the BRICS+ organisation is the future.
This conclusion is inescapable when you look at the state of Western economies. The largest Western economies are WITHOUT EXCEPTION financialised to an absurd degree – meaning, they essentially generate income by making money from money. The size of the FIRE (Finance Insurance Real Estate) segment of the FUSA is at 20.2%, and the services sector accounts for 60-70% of total output of most G7 nations, with financial services making up a substantial part of that segment.
In other words, the West has allowed itself to become hollowed out – Germany is deindustrialising, as companies flee its high-tax, high-regulation, and now energy-poor environment for less stupid places.
In Eurasia, by sharp contrast, we see a situation of rapid growth and expansion. Those nations are learning to bypass and circumvent once-feared Western financial sanctions, led by Russia, which showed the world how to do it in 2022, and continues to do so today.
The inevitable next step is for the BRICS+ nations to setup their own alternative payments systems and backbone for financial transfers and transactions. This, however, is where things get tricky.
Prospects for Dedollarisation
The Russians are spearheading an effort to create a truly independent financial architecture, based on digital currencies and on their own experience with setting up the SPFS in their country. They have now completely outlawed the use of SWIFT for internal interbank transfers, and rely only on their own internally built mechanisms, which is extremely smart – and now, they are looking to roll it out globally:
The global economic alliance known as BRICS is reportedly considering the launch of a global payments system that could sidestep the banking industry standard SWIFT.
According to a new report from the Russian state-funded news organization TASS, the group’s finance ministers are evaluating the feasibility of a unified payments network, and will formally discuss its potential at the coming BRICS meeting next year.
Russian Finance Minister Anton Siluanov says the network would boost independent efforts to create payment messaging systems.
“We are trying to introduce our financial messaging system, the SPFS, our Chinese colleagues have their own system, other BRICS countries also either have their systems or are creating them.
This is why this issue is to be discussed by money authorities and financial agencies of BRICS member states.”
The news comes after BRICS – which stands for the nations of Brazil, Russia, India, China and South Africa – formally decided to add Saudi Arabia, Iran, Ethiopia, Egypt, Argentina and the UAE to the group.
When asked how Russia views the future potential of BRICS, Siluanov said the bloc is focused on “removing all ties from the West to the Southeast” in a growing trend that will “persist in the future.”
SWIFT is a core component of the global banking system, and is used by banks to securely send and receive money-related messages.
The organization, which is a cooperative that’s primarily owned by banks, banned several Russian banks at the behest of the European Union back in March of 2022.
In August of this year, South Africa’s finance minister Enoch Godongwana said a BRICS-based payments system would aim to strengthen trade in local currencies as opposed to the US dollar.
However, he said implementation would be difficult, and the system would not be designed to directly challenge SWIFT.
It is vitally important to understand that one cannot simply invent a financial transfer system out of thin air. This is actually REALLY FREAKIN’ HARD TO DO.
First, you have to get the technology right. An interbank messaging system must be secure, stable, and scalable enough to handle MILLIONS of transactions every day. Yet getting all three is actually very difficult – you inevitably end up having to make compromises in one area or another, unless you plan things out very, very well.
Then there is the question of usage. Such systems are, by their very nature, expensive to produce and operate. The use of SWIFT for international interbank transfers is costly indeed – the average wire fee is at least US$25, and can take between 4 and 30 days to clear. (I know this from personal experience – it is HUGELY painful to use.)
Quite apart from the scale of the problem, and the expense of it, there is the matter of widespread acceptance. It does no good for anyone to create a financial messaging system that tells a bank to deduct one account and credit another, if only a handful of banks use it.
It is worth doing a comparison of the various major global payment processing systems. As of 2021:
- The Russian SPFS system has dramatically scaled up operations over the past two years, and now accounts for about 440 institutions across 18 countries, and acts as a complete replacement for SWIFT in Russia;
- The Chinese CIPS system had 47 direct and 1,142 indirect participants, across 103 countries, handling about 3 million messages a year, and actually gets involved in moving and settling renminbi;
- The actual SWIFT system has over 11,500 member institutions across 200 countries, and generated at least 8.4 BILLION messages in 2019 alone, but does not get involved in actually moving and settling money;
This gives you some idea of the sheer scale of the problem facing BRICS nations that seek to move away from Western financial power. It is very, VERY hard.
This in turn means dedollarisation is going to take time – it will not happen overnight, contrary to what many doomsayers about the FUSA’s prospects keep saying. (I am one of those doomsayers, but I base my views on the fundamentals of the US’s long-term future, not on the latest hype about this or that issue.)
The Emerging BRICS Currency Stacks
That being said, de-dollarisation is well and truly underway, as countries switch to settling trade in their own national currencies and move away from the US dollar:
On the international front, the BRICS bloc made up of Brazil, Russia, India, China and South Africa alongside six other countries including Iran, Saudi Arabia, the UAE, Egypt, Argentina and Ethiopia are pushing the agenda to de-dollarizing their respective economies.
A number of these countries are witnessing a shortage of dollars and the consistent hike of the Fed Fund rates is causing a devaluation of their currencies against the greenback.
In line with this new plan, the United Arab Emirates (UAE) has commenced settling oil trades with India’s top
refiners in Rupees while Argentina has announced that it would start to pay for imports from China in Yuan instead of dollars.The BRICS have commenced slowly selling down their U.S Treasury Bonds and they have collectively sold off US$18.9bn in the last month in order to defend their currency against the U.S Dollars.
On the domestic front, the former CBN governor Mallam Sanusi Lamido at various times lamented the increasing use of the dollar for domestic transactions. Many big schools and hotels prefer to be paid in dollars rather than the naira and it is not unusual to see some wealthy Nigerians spray dollars at parties.
The country has made efforts previously to reduce its dependence on the U.S dollar with a bilateral currency swap between Nigeria and China valued at ¥16bn (circa US$2.5bn) which commenced in 2018 with a 2021 expiration plan but has been renewed for another three years. So far, the apex bank, Central Bank of Nigeria (CBN) has been reported to have auctioned off ¥7.04bn as of June 2022.
The swap deal has not been successful enough to reduce the demand for U.S. dollars even with China being the highest source of the country’s imports amounting to N1.27trn as of H1 2023.
The decline in US Treasuries as a source of global liquidity is not yet substantial enough to be of real concern – keep in mind, the secondary market (i.e., the market for resale of Treasury bills, notes, and bonds AFTER the initial auction, in the primary market) is the largest securities market in the entire WORLD.
When you consider that the total size of the global derivatives market is something on the order of US$600 TRILLION, and you consider how much of that is nothing but US Treasuries – it is something on the order of US$26T, of which about US$18.3T is issued debt – the loss of US$20B or so in overseas holdings of Treasuries is literally nothing more than a rounding error.
That does not change the fact that nations around the world are looking to diversify their holdings away from USTs. And this can, and should, worry the Western nations. It means the days of endless money-printing are rapidly winding down. They are not over, not yet, and will not be for some time, but there is good reason to believe it will happen over time.
The Plan to Usurp the Dollar
Right now, out of the major BRICS+ nations, Brazil and Russia seem to be most enthusiastic for a global settlement currency alternative to the USD. India, however, is not, and wants to stick to using the rupee in global transactions – the problem being, of course, the rupee is not nearly as freely convertible or as liquid as one would need, for it to be a truly global currency. (Well, that, and the fact that it is mostly useless outside of India.)
The Chinese seem to be pretty ambivalent about the idea of a global settlement currency – they seem to be generally content with using the yuan instead, because they fully control its issuance and value. The Chinese have strict currency controls, and their currency is NOT fully convertible. (Neither, for that matter, is the Brazilian real – long story, but basically, you cannot settle trades directly in BRL if you are buying or selling stuff from Brazil, outside of their country.)
Russia is probably going to move toward a non-convertible currency as well – they are busy implementing currency controls and capital restrictions to stabilise the value of the ruble itself, and return it back to the fundamentals that determine its value.
All of this is BEFORE we get to the fundamental problem of money.
To qualify as “money”, something must meet at least three basic criteria. Money must be:
- A unit of measure – that is to say, it must be easy to measure the value of a good or service in reasonably stable units;
- A store of value – that is to say, the value of the currency does not fluctuate wildly over time;
- A medium of exchange – that is to say, the money itself is universally acceptable as translation of the value of goods and services;
If you look closely at the BRICS+ currencies, not ONE of them meets all three criteria on an international stage. Certainly, they meet these criteria within the countries – but not globally.
The Chinese yuan is an excellent store of value, but that is because the Bank of China works very hard to keep the RMB pegged within a precise range against the USD. (President Trump was absolutely right when he accused China of manipulating their currency. They DO. And with good reason.) It is NOT a good unit of measure, and it is an even worse medium of exchange.
The Russian ruble is certainly a unit of measure and a medium of exchange. It is NOT a store of value – the fluctuations in the ruble over the past 2 years are enough to make all but the most strong-willed outright nauseated.
The Indian rupee, the Brazilian real, and the various other BRICS+ currencies are all either too volatile, too small in scale, too difficult to use, or some combination of all three, to be useful as a global settlement currency.
Yet, that does not change the core trend – toward a new currency, based on physical stuff, spearheaded by the Russians.
Consider: the Russians are already leading the way in the rollout of a blockchain-based Central Bank Digital Currency, a digital ruble, which can easily act as a medium for cross-border settlements. The ruble itself is the fundamental unit of exchange for Russia’s IMMENSE mineral and agricultural wealth – it is literally the hardest currency in the world, backed as it is by Russian oil, gas, wheat, fertiliser, iron, tin, coal, lumber, and God only knows what else.
Russia’s economy is also far larger, and far more powerful, than its nominal and even PPP GDP statistics would indicate. Its ability to churn out weapons is likely beyond that of any nation on Earth, except China’s – and that speaks to an extremely powerful logistics chain, and a depth of resources, that no other country has.
This means the future of a BRICS digital currency will rest on Russian efforts to monetise their physical assets, which will then be extended across nations and industries. The likely result will be a BRICS+ currency backed by physical gold, at least to some extent – and therefore highly convertible, fungible, and measurable.
When combined with a weighted basket of currencies, where the weights will likely depend on the relative economic power of the various BRICS+ states, we are looking at a global trade currency that will be very difficult for any one nation to manipulate. It will rest on the economic and manufacturing power of China, whose actual economy is the largest in the world; the resources of Russia, which is the world’s true commodities superpower; the population base and industry of India, which despite its shithole status is still an immensely powerful economy; and whatever the other nations bring to the table.
Make no mistake – the BRICS+ organisation really comes down to just plain old Russia-India-China. The others are useful and interesting – Iran, for example, has a powerful and complex economy, though it is severely underdeveloped. But, in terms of actual economic power, only three economies truly matter.
Conclusion – The Golden Path
The future looks bright for goldbugs, as far as I can tell. Already we can see central banks around the world buying up gold – which they always do in times of uncertainty and crisis, because gold brings stability and liquidity to the balance sheet of a central bank. And guess who are the world’s largest producers and consumers of gold?
Yep – the BRICS+ nations. China and Russia together are the first and second largest producers of gold, respectively (Russia ties with Australia), accounting for 620 metric tonnes out of about 3,100MT per year, or very roughly 20% of total global gold output.
And, while the top gold-holding nations are mostly European, Russia is 5th in the list with over 2,300MT of gold sitting in its vaults. That is worth some US$143.2B in value at more-or-less current prices.
When you add to that the immense value of Russia’s estimated US$27 TRILLION in immediately recoverable physical assets, in the form of oil, natural gas, coal, lumber, iron, tin, aluminium, rare-earth metals, fertilisers, and so on down the list… you realise pretty quickly that Russia is perhaps the one country on Earth that can seriously back up a hard convertible digital currency.
As Russia’s former adviser to the President, Prof. Sergey Glazyev, has stated openly, the basic financial mathematics and science behind a unified BRICS+ settlement currency has already been worked out. It is ready to go. The technical bits are all ready – the various nations involved simply have to flip the switch and enable the settlements.
Of course, this is CONSIDERABLY harder to do than it sounds – currencies work on network effects. That is to say, it does no good if, out of 100 people, only 2 use a currency to trade with each other – it is basically worthless to everyone else. But, when 20 people use it with each other, that is an entirely different story – there is a level of critical mass that a currency must achieve, to become viable on its own. Achieving that mass is the truly difficult part, and it is uncertain whether a future BRICS+ currency can actually achieve that.
I am optimistic. As Prof. Glazyev said:
I think it is inevitable, because the current monetary and financial situation in the world is irrational. The countries that will determine global economic development are interested in deep reforming of the international financial system. Today we can already say for sure that in the next 30-40 years the main weight in the growth of the world gross product will be played by the countries of South-East Asia. These are, first of all, China, India, ASEAN countries, whose currencies are practically not represented today in the world monetary and financial system as world reserve currencies.
The countries that will determine global economic development in the foreseeable future are clearly not interested in preserving the existing monetary and financial system, as there is an imbalance in the proportional ratio.
In trade within the Eurasian Economic Union, we have almost completely switched to national currencies. If we talk about trade with Russia, there is almost 100 per cent substitution of these currencies by the ruble. In trade with China, we have already halfway replaced Western currencies with national currencies – the ruble and the yuan. Across the entire spectrum of our partners, we see the dollar and the euro being rapidly ousted from international settlements.
Following Russia, we see the same trend in other BRICS countries. In particular, China is now actively expanding the use of the yuan in international trade, and in the area of China’s “One Belt, One Road Initiative”, the yuan is gradually becoming the dominant currency because China is the main investor. India has announced that it is switching to paying for imports in rupees. We are also aware of the statements of the presidents of Brazil and South Africa on the desirability of introducing a new global settlement currency. In other words, we are now at the first stage of this process.
The BRICS countries and many other countries of the world are moving to a wider use of national currencies in international settlements, because they are all convertible in current transactions and are no worse than the currencies of Western countries. But there is the problem that when you trade in a large number of currencies, you have high costs of arbitrage of these exchange rates. That is, economic entities need to simultaneously take into account the fluctuations of national currencies of different countries.
World prices are still linked to the dollar, so these calculations generate a lot of losses. In addition, we face high uncertainty in pricing, so at the next stage it is necessary to detach the prices of world exchange goods from the dollar and move to quoting world exchange goods in other units.
And what are these other units? This is where the idea of introducing a new world settlement currency arises, which would become a common denominator for the formation of world prices for exchange goods. We are working on this problem. We have a model of such a currency. It is based not only on a basket of national currencies of the member countries, but also on a basket of exchange commodities. The model shows that this currency will be very stable and much more attractive than the dollar, pound and euro.
Text copied from https://tvbrics.com/en/news/sergey-glazyev-speaks-about-the-potential-of-a-single-currency-of-the-brics-countries-for-internatio/
Bring it on. The world will benefit from increased competition in settlements and transactions. And we might actually end up with a world in which the US dollar has some real value behind it – wouldn’t that be a sight to see…
1 Comment
For the BRICS currency to take off, there will need to be simultaneous buy-in from these cultures: Russian, Chinese, Indian, Brazilan.
Persians, Egyptians, SefRicans, Venezualians will get on board the train when it starts moving, but those four big boys have to start pulling together at the same time.
For that to happen, the catastrophe of the USD will have to be so painful that they become willing to forego their own control of the national currency and trust their counterparts to play nice. How can there be a high trust level with low-trust nations?
So long as there is a USD, I don’t see how that is possible. Even in this recent monster-inflation run-up through the WuFlu scam, USD gained against international currencies. They want the inflation as much, maybe more than the FED is willing to push.
I’m sympathetic to the Austrian gold bugs but this BRICS conjures a false savior.
BTC to the moon, etc 😉