BRICS Development Bank

[EXPERT]

Not bad. We have a say in at least one major institution. It's a start.

Yeah, agree. .

 

[Meriv90]

Re: Brics bank and what does india get out of it

Probably you need to revise your basics again.

Let me give you a simple question:

Which one has more value? (One 10 dollar bill) or (Ten 1 dollar bills)?

For those who still could not understand, Indian contribution of 10 billion American dollars is not less than Chinese contribution of 10 billion American dollars and certainly would not be any different if an alien from a different planet gives 10 billion American dollars at any given point of time. Just so you know, India holds around 300 billion dollars of forex reserves, more than enough to meet it's obligations in dollars. Let's talk when the currency to fund the BRICS bank change from dollars to SDR's/(new reserve currency)/commodities/gold etc.

If China can blackmail Brazil and Russia which have similar GDP's as India, what stops China from blackmailing India? (when the percentage of trade (import & export combined) with China stands at 10 - 16% for all the BRICS nations and all of them have no big difference in trade balance in favor of the respective countries against China).

Probably because when you are financing a fund you are not giving all the money instantly? you are giving guarantees of paying the money or you think the bank will have 50 billions of dollar doing nothing until you decide which project you are going to finance?

It cannot blackmail you because your exports aren't mainly commodities as the rest of the BRICS.

 

[badguy2000]

CHina alone can privide the 3rd world more fund more than IMF and world bank.

What China needs is not money,but a stunt that can attract more other countries join China-managed economy sphere.

BRIC bank, as well as IMF and World Bank, is just such a stunt.

,the current stunts like WB and IMF are controlled by EU and USA. so CHina has to set up another one,that is BRIC.

For time being,CHina just has BRic bank a a backup for world bank and a bargaining tool to blackmail EU and USA.

BY setting up BRIC bank, CHina is telling USA/EU

: "Hi, give me more shares of WB and IMF,otherwise I will disable WB and IMF by replacing them with BRIC bank"
C
if EU and USA can satisfy CHina and give CHina satisfactory shares of WB and IMF, CHina might has BRIC bank as "Backup" forever. Otherwise, China might try to replace WB and IMF with BRIC bank ,just USA managed to replace the league of Nation with UN.

 

[amoy]

I don't subscribe to @badguy 's "blackmailing" theory by means of a new bank "stunt" . It's not a kindergarten brawl. No matter how hard BRICS members try none will ever get a dominant share in WB or IMF in the decades to come。

Like an old Chinese saying goes to the effect " Be a cockscomb rather than a phoenix feather" , to build up a financial domain in parallel where u have a %% say towards a "new order" to your advantage instead of toiling for a bit-by-bit increase in the existing old bodies where those established power won't let go of their dominion easily, with which they can exert their will for maximal gains.

Also by creating such a mechanism each member in interwoven interests is exposed to a lot more multilateral opportunities within BRICS itself.

 

[ezsasa]

BRICS bank may not have any relevance in the next 3-4 years, but it has the potential to be a leverage tool with the west in the near future. No matter what we say china will be playing a major role on how the bank will behave in the future, Simply because of the assets they have created for themselves since 2008.

For example china's growth rate since 2008 is equal to america's growth rate in last 50 years. China has grown by 10 trillion USD since 2009 i.e 4.5 TRN to 14 TRN today, ideally when a country wants to grow it borrows money from various countries/banks. They couldn't have borrowed from any body simply because nobody had the money due to recession slump and you cannot make so much money thru exports alone. Then the question is where did they get the money from. They build cities like how our real estate developers build apartment complexes,its crazy.

The answer is simple they printed money to fund their growth. Countries avoid printing abundant money like this because it causes inflation and there by negative growth(basically it is bad for economy). F.Y.I world bank should be paid in gold to print your currency is a myth.

This makes the china situation unique because such a rapid growth has never happened in modern history. It is difficult to predict what will happen to china say 10 years from now. More so because nobody know what happens inside mainland china, only information that comes out is what they want us to know.

My fear is that china may use BRICS as one of the tools to create leverage over what ever countries possible and use the leverage at a later stage in time any future crisis it may have.

Having said all the above BRICS bank is good for india at this point in time, It will not only be a revenue source for india also it provides a platform for us to create future avenues of growth. And we all know we need lots of money right now.

 

[aerokan]

Re: Brics bank and what does india get out of it

Probably because when you are financing a fund you are not giving all the money instantly? you are giving guarantees of paying the money or you think the bank will have 50 billions of dollar doing nothing until you decide which project you are going to finance?

It cannot blackmail you because your exports aren't mainly commodities as the rest of the BRICS.

As I mentioned before India has more than 300 billion dollar reserves and a meager 10 - 20 billion dollar contribution is not going to making a dent in the economy. As I mentioned before, China is not in a position to coerce BRIS nations because they are not entirely dependent on China for their exports and it's not even 10% of their exports. If we go by that factor alone, US would have subdued all the BRICS nations already

 

[aerokan]

I don't subscribe to @badguy 's "blackmailing" theory by means of a new bank "stunt" . It's not a kindergarten brawl. No matter how hard BRICS members try none will ever get a dominant share in WB or IMF in the decades to come。

Like an old Chinese saying goes to the effect " Be a cockscomb rather than a phoenix feather" , to build up a financial domain in parallel where u have a %% say towards a "new order" to your advantage instead of toiling for a bit-by-bit increase in the existing old bodies where those established power won't let go of their dominion easily, with which they can exert their will for maximal gains.

Also by creating such a mechanism each member in interwoven interests is exposed to a lot more multilateral opportunities within BRICS itself.

The best way forward would be to increase the contributions to the bank and slowly move towards the basket of currencies replacing the dollar with the currencies of the BRICS nations. Otherwise there is no way BRICS can be positioned as an alternative to IMF. Also, whether US likes it or not, IMF restructuring will take place. You can only manipulate any institution only for so long when the power is waning. IMF already issued warnings to US twice already to release it's grip and move towards SDR's with proper shares for the emerging economies. It's only a matter of time, whether it's 2016 or 2018.

 

[Meriv90]

Re: Brics bank and what does india get out of it

As I mentioned before India has more than 300 billion dollar reserves and a meager 10 - 20 billion dollar contribution is not going to making a dent in the economy. As I mentioned before, China is not in a position to coerce BRIS nations because they are not entirely dependent on China for their exports and it's not even 10% of their exports. If we go by that factor alone, US would have subdued all the BRICS nations already

Correct i was wrong in the blackmail thing, but not on the rest

BRICS set up bank to counter Western hold on global finances | Reuters

First it isn't 10-20 billion, it is 10+40 billions that it 16% of your $ reserve, do you realise how big is 16% in financial markets?

Second there isn't only the bank, there is also the contingency currency pool.18 more billions brings the % to 23%

China, holder of the world's largest foreign exchange reserves, will contribute the bulk of the contingency currency pool, or $41 billion. Brazil, India and Russia will chip in $18 billion each and South Africa $5 billion.

Third, Reuters state the next sentence(without correcting it) in this article New BRICS bank good for China, others - China's central bank | Reuters confirming that votes aren't equals.

The bank will have its headquarters in Shanghai and will accord China with the largest voting right at 39.5 percent, compared with 18.1 percent each for Brazil, Russia and India, and 5.75 percent for South Africa, the Chinese central bank said.

 

[thakur_ritesh]

Couple of points I wish to make on this development.

Let us respect the fact that China will play the lead role here, irrespective of us liking it or not. They are an economy at a staggering 9T USD as compared to us at a mere 1.8T USD, and of the 100B USD pool for the bank funds, they are ready to foot in 41% of that, in contrast we are handing out a mere 18%. Be thankful we don't have a Congress government, else this bank would have not been a reality, which was all too happy to do USA's bidding in the region. As an Indian, one can only hope we get to see tremendous growth the next many years in India, and in this not a sight of the Congress government which has repeated itself to be economically directionless and has presented itself to be very weak government, a perfect recipe for our adversaries and competitors.

Technically, India, Russia and Brazil have been put on the same footing, ideally with strong growth we should get to a position where we should be able to alter the order of the stakes held.

The west is laughing it off as a joke in order that the grouping will collapse since there is no common cause between all these, and they have a very valid point. Will all these countries like to align to the larger designs of the Chinese, if not, then what will be the common objective. This is where the leadership of the grouping is important. We need to make sure that we be there right up in the leadership role, have our objectives aligned with those of the group, and all the more important that definite common grounds be established so that no way this becomes redundant.

Expect some definitive move forward on SCO, and soon enough.

Lastly, this is a tremendous push and the west is already hating this, and will do everything possible to scuttle it, beware, and forge ahead.

 

[badguy2000]

bric bank is designef to be a parall along WB,replacing WM someday necessoey.it makes WB work harder.

 

[aerokan]

Re: Brics bank and what does india get out of it

Correct i was wrong in the blackmail thing, but not on the rest

BRICS set up bank to counter Western hold on global finances | Reuters

First it isn't 10-20 billion, it is 10+40 billions that it 16% of your $ reserve, do you realise how big is 16% in financial markets?

Second there isn't only the bank, there is also the contingency currency pool.18 more billions brings the % to 23%



Third, Reuters state the next sentence(without correcting it) in this article New BRICS bank good for China, others - China's central bank | Reuters confirming that votes aren't equals.

What the new bank of BRICS is all about - The Washington Post

It is 100/5 for the bank and $18 billion for the reserve which totals to 20+18=38 billion dollars out of which some part is to be given over a period of seven years and some part upon request. It's not a big amount if you look at the time frame. Also, I gave you only the reserves which India has, not as part of GDP. And some amount is used swaps and as a currency reserve in the respective nations. Do the math and it turns out not as a big amount for India with 2 trillion dollar economy and growing.

And regarding the voting share, the BRICS bank was formed only after China gave up the majority percentage share and acceded to the equal share. That's the only article which says so. Let's wait and confirm which way it went. I am not believing the majority share for China article.

 

[amoy]

Initial Contributions + Contingency Currency Pool

Brazil and China, full steam ahead - inter-member opportunities
China, Brazil sign deal to purchase 60 aircraft from Brazilian Embraer company - Xinhua | English.news.cn
China, Brazil close plane, finance, infrastructure deals | Reuters

Trade between China and Brazil soared to $83.3 billion last year from $3.2 billion in 2002, with iron ore, soy and oil making up the bulk of Brazilian exports, making China the South American nation's biggest trade partner.

China's Eximbank extended a $5 billion credit line to Vale to buy ships and equipment from Chinese companies, but there was no mention of a solution to an impasse over China's refusal to allow giant, bulk iron ore carriers used by Vale SA to dock at Chinese ports.

In a sign of deepening financial ties between the two members of the BRICs bloc of emerging nations, the China Construction Bank formalized acquisition of 72 percent of Brazilian mid-size lender Banco Industrial e Comercial SA, a 1.62 billion real deal agreed in October.

Xi visited Brasilia after a BRICS summit that set up a new $100 billion development bank, to be based in Shanghai, that will fund infrastructure projects, providing developing nations with an alternative source of funding to Western-dominated multilateral financial institutions.

Embraer will sell 40 planes to its biggest client in Asia, China's Tianjin Airlines [TJAIR.UL], half of which will be the re-engineered model known as E-190 E2. The Industrial and Commercial Bank of China Ltd will buy 20 aircraft, under a 2012 agreement to provide leasing for Embraer planes.

The orders for Embraer's current E-190 help to fill a key gap in the planemaker's order book as it develops a next-generation replacement to enter service in 2018.

In 2010, the leasing arm of the Industrial and Commercial Bank of China offered up to $2.5 billion in financing for Embraer planes over five years. At the time, Embraer forecast Chinese demand for 430 commercial jets with up to 120 seats and 635 executive jets over the next decade.

Vale, the world's largest exporter of iron ore, ships the vast majority of its production to China. Vale was not immediately able to provide more details on how the credit line would be used.

Although China has promised to invest in Brazil for years and failed to deliver, the pace of deals is picking up with a focus on deficient infrastructure.

State Grid Corporation of China signed an agreement with Brazil's Eletrobras utility to build high-voltage transmission lines for the 11,233 megawatt Belo Monte hydroelectric dam under construction on the Xingu River in the lower Amazon. China Three Gorges Corporation also signed a partnership with Brazilian utilities to bid for building on a dam project on the Tapajos River.

 

[cobra commando]

Russia to Contribute $30Bln to BRICS Reserves Pool – Putin

YALTA, August 14 (RIA Novosti) - Russia is planning to contribute $ 30 billion to the BRICS reserve funding pool called Contingent Reserve Arrangement (CRA), Russian President Vladimir Putin said Thursday. "Russia plans to send $30 billion there," Putin said at a meeting with Russian lawmakers, adding that the move is "to increase macroeconomic stability in our countries." The CRA was signed during the sixth summit of the world's five largest emerging world economies in July. The arrangement is intended to provide a buffer in conditions of capital volatility, overcoming the lack of short-term liquidity and rapidly offsetting fiscal deficits triggered by economic turbulence. The BRICS emergency reserve pool will total $100 billion. Russia previously announced its contribution would be $18 billion.
Russia to Contribute $30Bln to BRICS Reserves Pool – Putin | Business | RIA Novosti

 

[sorcerer]

This can be easily resolved by having all the nations pick an equal amount to place in the bank.

BRICS Development Bank - A Commendable Alternative To The IMF

The Russian State Duma (parliament) has ratified the agreement on establishment of the BRICS bank, signed by the leaders of Brazil, Russia, India, China and South Africa in July last year.

The State Duma's parliament members hope that the New Development Bank — this is the name given to this financial institution — to start operations by the end of this year.

The New Development Bank is intended for the financing of infrastructure projects in the BRICS countries and developing countries. Experts point out that the new structure is an alternative to the IMF and the World Bank, which are controlled by the United States, which are gradually losing their influence. By the way, focus of the BRICS bank's activities will be directed at those projects that were deprived of aid by international funds.

This will be one of the largest international financial institutions, with a declared capital of 100 billion dollars — says Russian Deputy Finance Minister Sergei Storchak. The initial invested share capital of the New Development Bank will be 10 billion dollars and will be generated over a period of 7 years. The total capital will be distributed proportionally among the five founder members of the bank; contribution of each of them will be 2 billion dollars. Sergei Storchak considers the basic standard of equality of shares as principally essential.

This is a new institution — he points out — in which all countries will have equal shares and each an equal say in the voting process. And, accordingly, presents equal opportunities to shareholders and potential borrowers. In this equation — a major difference between the BRICS bank and other couple of dozen multilateral development banks, which exist in the world, is that the distribution of capital often occurs depending on the economic potential of its participants.

According to deputy head of the Russian Ministry of Finance, the Agreement on establishment of New Development Bank is open for accession to new members. The only condition is that these countries should be members of the UN. However, the new members will not have access to execution of some of its powers, which the BRICS countries are endowed with. In particular, key decisions in the bank will be taken by a majority vote of the founder-members. And only they will have the authority to delegate their representatives to the governing bodies of the bank.

The corporate governance system will be three-tiered: a Board of Governors, a Board of Directors and a President, who will be elected for a five year term in rotation. The Agreement stipulates that all officers and employees of the new Development Bank shall be immune from prosecution and immigration restrictions. Their wages will be exempt of taxes. Income and assets of the bank, as well as all deals concluded by the bank will be exempted from any kind of taxes. In addition, property and archives of the bank will not be liable to be searched or seized. The BRICS bank's headquarters will be located in Shanghai. This Chinese metropolis has undertaken to provide an office and all necessary equipment for its operations.

It is expected that the first meeting of the Board of Directors of the New Development Bank will take place in July as part of the planned BRICS summit. This year, members of the group leaders are expected to meet in Ufa — the capital of the Russian Republic of Bashkortostan.





Read more: http://hindi.sputniknews.com/world/20150224/1013564153.html#ixzz3SgSrrg6R
===

If the report is to be believed. seems like Equal participation it is ..

 

[amoy]

with other progress in parallel lately e.g. the establishment of AIB and plummeting commodity price this "new development" bank seems to have lost steam gradually. a few of BRICS members are commodity based economies.

meanwhile the AIB encompasses many prominent founding Asian members such as Saudi and Indonesia and S. Korea and Austalia also indicate readiness to join though being held back by US. besides there's an SCO bank in the air.

with several irons in the fire at the same time - China needs to revisit which of these budding financial institutions (possibly competing) shall take priority in line with the Silk Road initiative.

~ ~Happy Ram Year!~~ via tapatalk

 

[cobra commando]

Putin Signs Law on Ratification of BRICS New Development Bank Deal

MOSCOW (Sputnik) — Russian President Vladimir Putin has signed a law ratifying the deal establishing the BRICS New Development Bank (NDB), according to a document published on Russia's official website for legal information on Monday.
BRICS is a group comprising five countries with major emerging national economies — Brazil, Russia, India, China and South Africa. BRICS leaders agreed to create the NDB to prompt the development of financial cooperation between the five member countries in 2013 The NDB is expected to become one of the most important institutions of its kind in the world with a stated capital of $100 billion. The lower chamber of the Russian parliament, the State Duma, ratified the agreement on the NDB establishment on February 20. State Duma Speaker Sergei Naryshkin stated that the bank would fund major infrastructure and innovative projects all over the world.

Putin Signs Law on Ratification of BRICS New Development Bank Deal / Sputnik International

 

[sorcerer]

Dollar Imperialism in 2015: Warding off BRICS and Pushing the 3rd World into a Tailspin
"The dollar is our currency, but it's your problem." This is what US Treasury Secretary John Connally said to his counterparts in the Rome G-10 meeting in November, 1971, shortly after the Nixon administration ended the dollar's convertibility into gold and shifted the international monetary system into a global floating exchange rate regime. The world has been suffering from this "problem" ever since the US obtained the "exorbitant privilege" of issuing the world's reserve and trade currency under the Bretton Woods system after WWII.

The Fed effectively acts as the world's central bank, but sets monetary policy only in its own interest. Under the pressure and the orders of financial oligopolies, it fixes interest rates and prints money to suit itself, sending economies across the globe into tailspins. When the Fed wanted to halt the decade-long decline in the profit rate and to pull the US out of stagflation in the late 1970s, it raised its rates sharply – the Volcker shock of 1979-1981, when the federal funds effective rate jumped to more than 20% at the beginning of the 1980s – throwing many developing countries into freefall, default and debt servitude. As their debts were denominated in dollars and rates jumped, suddenly they were paying drastically heavier debt service burdens, which they could only cover by taking out more debt under the draconian conditions of the IMF. In 1997, the US interest rate hike of only a quarter of a point was one of the main reasons for the "Asian crisis," as hot money fled South-East Asia. Today in 2015, the end of QE, a strengthening dollar and an anticipated rise in US interest rates could wreak havoc in developing economies. Since 2009, trillions of dollars hot off the printing press or borrowed at near zero rates have been flooding into the global South and East. But today's monetary tightening is already leading to an exodus of hot money that is destabilizing these countries, with the effect of keeping the United States' rivals in the "emerging" world down.

Like the Volcker shock, these policies aren't enacted with the express goal of kicking the global South in the stomach, but this outcome is a necessary and predictable result of the domination of the global financial order by a sole country whose interest is to keep its hegemonic status. Other measures are taken precisely toward this end. This latest round of financial warfare has to be seen in the context of financial imperialism in general. Countries struggling for sovereignty are also being hit by sanctions, speculative currency attacks, commodity price manipulation, biased evaluations from US ratings agencies, massive fines on some banks for what the US has deemed inappropriate practices, and the prohibition of certain banks from participating in the international banking system. All of these weapons – like their lethal counterparts – are used toward weakening rivals (whether US allies in the global North or competitors in the global South and East) and maintaining dollar hegemony.

Not only does the dollar enable the US empire, but also protecting the dollar's status is a major reason for US imperial wars. American financial and military strength is based upon the fact that the dollar is the world's reserve and international trade currency, creating a global demand for dollars which allows the US to print as many greenbacks as it likes. It then pumps them into the overbloated finance capital system and uses them to fund its criminal wars. Global demand for dollars is so strong that the key to keeping the system from collapsing during the 2008 financial crisis was the US Fed agreement to allow the central banks of core countries and certain Southern countries to have "unlimited" access to dollars through its "swap lines." The dollar is vastly overvalued in relation to the real US economy, which consumes much more than it produces and makes up the difference with debt. The combined deficits of the federal budget and the current account come to around one trillion dollars per year. No other country could live so much above its means with impunity. Without this international demand for dollars, the dollar would "correct," and US hegemony would eventually, inevitably, come to an end.

Therefore the US pressures and attacks countries that attempt to free themselves from the dollar's yoke, not only because they're guilty of lese majesty, but in order to force the world to maintain the status of the dollar and thus preserve US domination. Russia, whose president has been outspoken about the unfair dollar system, has been hit by sanctions, currency attacks, artificially low oil prices (recently manipulated by the US with the complicity of Saudi Arabia), ratings agency downgrades, color revolution destabilisation attempts, and military threats. The BRICS in general, especially since the crisis of 2008, have been trying to break free from the dollar's dominance. In return China has become the target of the US military "pivot" to Asia, has been subjected to political destabilization in Hong Kong and the Western provinces, and has suffered the US attempt to isolate it economically from its neighbors through the Trans-Pacific Partnership.

In 2009, after the US exported its home-grown financial crisis throughout the globe, China and Russia proposed that the world wean itself from the dollar and replace it with a reserve currency that would not be controlled by a single country. They suggested that the IMF's Special Drawing Rights (SDRs) be used as the neutral world currency. The proposal was immediately shot down by the US. SDRs are in fact a unique outgrowth of the currency crisis of the late 1960s and early 1970s. The IMF, pushed by the Europeans, responded to the crisis by creating a fiat currency in 1969 to be used as the world's reserve currency, but the US didn't like the idea that SDRs should replace the dollar in that role and torpedoed it, and soon thereafter ditched the gold standard. SDRs now make up a tiny fraction of world reserves. The US has also shot down any proposed changes to the SDR system since then, with its de facto veto in the IMF: such rules can be changed with an 85% majority, but the US has a quota of 17%, which makes it the only country with a veto. The IMF itself, despite its strong ties to the US Treasury, has expressed criticisms of the current dollar-based monetary system and has promoted the SDR or a new world reserve currency as an alternative.

Although it has so far been unsuccessful, the idea of rebalancing the world monetary system is extremely threatening to the US, and goes a long way toward explaining recent US wars and warmongering, which may otherwise seem irrational. The line of NATO bases in Eastern Europe and the coup d'etat in Ukraine are attempts to split Europe from Russia, trying to keep a subordinated Europe in the US sphere, prevent a single Eurasian economic area, and isolate and destabilize Russia. The Transatlantic Trade and Investment Partnership has the same goal. Weakening Russia and China (and the BRICS in general) on a military, economic and political level, with a regime change in mind, is a fundamental part of the US strategy for maintaining dollar hegemony. The US therefore has surrounded them with bases and continues to try to destabilize them. The US presence in the Middle East serves not primarily to gain access to its oil and gas (the US has its own, especially since the fracking boom) or even to control access to them (the Chinese are already there), but first and foremost to protect the petrodollar, to ensure that the global fossil fuel markets continue to be denominated in dollars. Iran has been talking about wanting to de-dollarize its oil and gas trade for years – thus, it and the Shia crescent are in the US line of fire.

So beyond this proposal, the BRICS have been stepping up their efforts toward de-dollarization. The BRICS New Development Bank, formally created in July 2014, is intended as an alternative to the IMF and World Bank. Theoretically it could issue a currency at some point in the future, a rival to the dollar which could have disastrous effects on the US economy. The Asian Infrastructure Investment Bank was established in Beijing in October 2014 with 21 members, in order to invest in infrastructure in Asia without recourse to the World Bank or the Asian Development Bank which is controlled by US and Japanese interests. The BRICS have been increasing their trade with each other in their own currencies, rather than dollars. The yuan is being promoted as a regional currency for reserves and trade in Asia, and the Eurasian Economic Union (Russia, Belarus, Kazakhstan, Armenia and soon Kyrgyzstan) has plans for the creation of a common currency within 3-5 years, the altyn. Russia and China have signed massive energy deals and are cooperating militarily. They are also dumping US treasury bonds from their reserves, and buying massive amounts of gold. In November 2014, China announced a financial reform plan, including redeployment of its currency reserves: instead of recycling them into US Treasuries, they should go "to support the domestic economy and the development of an overseas market for Chinese high-end equipment and goods." In February 2015, Russia announced the creation of its alternative to the SWIFT system, in response to Western threats to disconnect it from SWIFT and to revelations that the NSA monitors SWIFT transactions. All these steps are being taken for the countries of the global South and East to be able say definitively to the US: "the dollar is your currency, and it's your problem."

But for the moment, the dollar is still their problem too. The Fed's policies are again creating a nasty mess for the developing world. For six years the Fed has flooded the world with dollars, giving $4.5 trillion of free money to banks and investors via QE, and promising to keep interest rates low. Dollars have been flowing into emerging markets: corporations and governments in these countries have borrowed dollars at a low rate, and global speculators borrowing cheap dollars have staked them in developing countries where they return a much higher yield (for example in dollar carry trades). Incidentally, it's astounding that so few of these new dollars have actually reached the US real economy, which is anemic, though they have certainly blown the US stock market into the stratosphere.

According to the Bank of International Settlements in early December, at mid-2014 non-bank borrowers outside the US owed $9 trillion of dollar denominated debt, a 50% increase since 2008. Of this $9 trillion, $5.7 trillion is in emerging markets, mainly in the form of corporate bonds and international bank loans to companies. This includes $1.1 trillion of dollar debt in China, more than double its amount at the end of 2012. Most of emerging market dollar debt is corporate and not sovereign, but states' reserves could be tapped if major bailouts are needed.

Investors and borrowers assumed that the Fed would maintain its easy money policy for a long time, allowing borrowers to roll over their bonds easily because borrowing in dollars has cost almost nothing. But the Fed started tapering out QE in early 2014, and ended it at the end of last October. Also last fall, it began talking seriously about raising rates sometime in 2015, after several years of heated discussions about whether to continue the zero interest rate policy. The end of easy money (and a perceived US recovery) means a rise in the dollar and a corresponding drop in many world currencies, which means higher debt service payments and probably fewer dollars available for the borrowers in emerging markets as they try to roll over their debts. As this instability sets in, increasingly risk-averse international investors and speculators are seeking dollars in order to cover their dollar bets in emerging markets (as they hedge, the dollar is seeing a short-covering rally), thus increasing dollar demand and sending it higher. On top of this, new euro and yen QE are further fuelling the strong dollar. A stronger dollar means that it's becoming suddenly much more expensive for companies and governments in the global South to service their dollar debts. If international speculators start dumping emerging market corporate bonds, these companies would be forced to acquire dollars to pay off their debts, thus accelerating the dollar's rise. If there is a wave of defaults, contagion could set in (since speculators are herd animals) and capital flight could take off. There is the risk for a sell-off in emerging market bonds, leading to conditions like in 1997. The multitrillion dollar carry trade may be on the verge of unwinding, meaning capital fleeing the periphery and rushing back to the US. Vast amounts of capital are already leaving some of these countries, and the secondary market for emerging bonds is beginning to dry up. A rise in US interest rates would only put oil on the fire.

The World Bank warned in January against a "disorderly unwinding of financial vulnerabilities." According to the Financial Times on February 6, there is a "swelling torrent of 'hot money' cascad[ing] out of China." Guan Tao, a senior Chinese official, said that $20 billion left China in December alone and that China's financial condition "looks more and more like the Asian financial crisis" of the 1990s, and that we can "sense the atmosphere of the Asian financial crisis is getting closer and closer to us." The anticipated rise of US interest rates this year, even by a quarter point as the Fed is hinting at, would exacerbate this trend and hit the BRICS and other developing countries with an even more violent blow, making their debt servicing even more expensive.

The dollar is rallying less because of any supposed US recovery than because of higher global demand for dollars due to investors' risk aversion, in the wake of the Fed pulling the plug on QE. Parenthetically, the US economy is definitely not recovering. According to Jim Clifton, chairman of Gallup, for the first time in 35 years, more businesses are closing than starting up. He also reports that the official unemployment rate of 5.6% is "misleading," and that only 44% of working-age Americans have a job at least 30 hours per week for an organization that provides a steady paycheck. Shadowstats puts real US unemployment at 23.2%. A survey done for the Fed says that 48% of Americans don't have savings enough to cover an emergency $400 expense. The Pew Research Center reports that Americans are 40% poorer than in 2007. And, completely unrelated, the dollar is indeed rallying: talk among US conservatives about a dollar crash and hyperinflation because of QE, and their comparisons with Weimar Germany, are entirely off: they haven't understood that Weimar Germany was not the hegemonic power controlling world monetary policy. It's not the quantity of dollars in circulation but its demand that establishes its "value." This demand is still extremely strong, related to the fact that the dollar's status as international currency is based on the only remaining way in which the US is superior to other countries, that is, its military hegemony – despite the weakness of its economy and monetary policy.

While a stronger dollar will not hurt the consumption-based US economy, the rising dollar and US monetary tightening are about to give the developing world a severe blow. Ambrose Evans Pritchard of the Telegraph wrote on December 17:

"The stronger the US boom, the worse it will be for those countries on the wrong side of the dollar. [...] The US Federal Reserve has pulled the trigger. Emerging markets must now brace for their ordeal by fire. They have collectively borrowed $5.7 trillion, a currency they cannot print and do not control. This hard-currency debt has tripled in a decade, split between $3.1 trillion in bank loans and $2.6 trillion in bonds. It is comparable in scale and ratio-terms to any of the biggest cross-border lending sprees of the past two centuries. Much of the debt was taken out at real interest rates of 1pc on the implicit assumption that the Fed would continue to flood the world with liquidity for years to come. The borrowers are 'short dollars', in trading parlance. They now face the margin call from Hell"¦. Stephen Jen, from SLJ Macro Partners said that 'Emerging market currencies could melt down. There have been way too many cumulative capital flows into these markets in the past decade. Nothing they can do will stop potential outflows, as long as the US economy recovers. Will this trend lead to a 1997-1998-like crisis? I am starting to think that this is extremely probable for 2015.'"

This is exactly in the interests of US financial imperialism: to economically undermine any rivals that question dollar hegemony. It is absolutely unacceptable that one country should arrogate to itself the right to set a wildly loose money policy for years and then tighten it at whim, giving the rest of the world a violent thrashing. It is unacceptable that any one country control the world's reserve currency. As the above quote says, because of the circumstances created by QE and the zero interest rate policy, today if the US economy does well, the global South suffers. It's a zero-sum equation. This is throwing burning obstacles in front of their process of de-dollarization, and making them suffer. On purpose? Again, it would be difficult to impute too much individual agency behind these effects, but they are predictable, necessary and not unprecedented consequences of the imperial monetary policy waged by the US for years. The question of agency in this case is moot: these policies serve the empire. They go along with and have similar effects to the more obvious forms of financial imperialism such as sanctions. The US should be held accountable for the disasters it sows, and the world should remove its imperial privileges, through the creation of a neutral world reserve currency.

The dollar index has gained around 18% since last July, when it started taking off and emerging currencies began to tumble. The Russian ruble, despite the sanctions enacted in the spring last year, didn't start plunging until July. The other BRICS currencies (apart from the floating-pegged yuan) as well as developing countries' currencies from Indonesia to Mexico to Algeria, also started dropping last summer, and began their freefall in November, just after the end of QE at the end of October. After years of US pressure to revalue the yuan higher, China may be forced to devalue it, which would spur further capital flight. The IMF and BIS have warned about the risk of massive defaults in emerging markets. This currency instability and capital flight comes on top of falling commodity prices and the threat of a US rate hike. Investors may be hoping to transfer the carry trade to euros, given the new euro QE, but the ECB can't supply dollars, which are what's in demand – in fact, euro QE will only strengthen the dollar more.

The Financial Times wrote on February 22:

"History suggests that severe accidents are more likely when the Fed is tightening, and the dollar is rising. ["¦] Whether it likes it or not, the Fed is the world's central banker, more than ever before. The dollar has become the unit of account in a foreign credit market that is half as large as US GDP. All of the major emerging markets are deeply embroiled, including China, Brazil and India. The market is plenty big enough to cause trouble in the US economy itself, should an accident occur. An accident certainly cannot be ruled out. ["¦] Even in retrospect, it is not easy to identify viable policy options for the emerging markets (EM), other than extremely cumbersome capital controls, that could have insulated the emerging economies from the Fed's unconventional easing. ["¦] Portfolio managers in the global bond market may dump EM debt very quickly as interest rates begin to rise, forcing some EM corporates to buy dollars to redeem maturing debt. This could push the dollar higher, tightening monetary conditions even more. And this would reduce capital investment in the EMs, raising the risk of recession and inducing bond managers to dump more EM credit into the market. The BIS is worried that the results could resemble the collapse of a traditional leverage bubble in the banking sector, even though the institutional components would be very different."

This situation creates obvious risks even for the core economies, which are not exactly stable. A strong dollar will hit US multinationals hard, which do much of their business abroad, and they may not tolerate it for long. Although all the US needs to do to make its BRICS rivals go into convulsions is to turn off the QE spigots (after flooding the world with dollars) and raise interest rates, a seemingly cheap solution, it may not end up being free of cost to the US in the end. According to Bloomberg on February 13, "the Fed's Open Market Committee in January added 'international developments' to a list of issues it takes into account to set policy, alongside domestic concerns such as inflation and the labor market. While the global environment is unlikely to stop the Fed from raising rates initially, the level of market turmoil may influence the pace and magnitude of subsequent moves, said Edwin Truman, a former head of the Fed's international-finance division." This sudden attention to the "rest of the world" should not be misinterpreted as real consideration or sympathy for its plight – as witnessed in the quote that it won't stop the Fed from raising rates. Rather, it probably signals fear of blowback. The predictable crisis sparked by the Fed's moves could have nasty repercussions on the US economy itself, if it precipitates a liquidity shock and global economic crisis. The world is much more interdependent and globalized than in 1979 or 1997, the economies of the "periphery" are now half the world economy, and the US economy is weakened and in uncharted territory, printing trillions of new dollars and still attempting to force the world to continue to submit to its domination. It's possible that we've entered an age when the US simply can't continue to export its crises with impunity.

With $5.7 trillion of dollar denominated debt, the BRICS still have a ways to go before liberating themselves fully from the dollar. If they enter into a full-fledged economic crisis (and Russia is already there), they could be forced to act more quickly toward creating a de-dollarized alternative financial sphere, in order to survive. This bipolar world, which seems likely, could at least offer some respite to those economies; however, if the world split into two rival spheres, it could lead to a new cold war – and possibly the risk of a new world war. A much preferable solution would certainly be the creation of a new global reserve currency – which would not replace national currencies but only take over the dollar's unfair hegemonic role – managed by an international institution, whether a reformed IMF (if that's possible) or another one which would be more "neutral" than such institutions are currently.

Liberating the world from the burden of the dollar, and from the hot and cold wars waged in its interest, will of course not relieve us from the world's true, insidious disease: capitalism. But it would allow some breathing room necessary for alternative experiences working toward the socialization of the economy, toward socialism, to survive and hopefully thrive.

Dollar Imperialism, 2015 Edition » CounterPunch: Tells the Facts, Names the Names

 

[pmaitra]

@sorcerer, a good news portal for BRICS: BRICS, Latest and Breaking News, Fresh insight on emerging global economies - thebricspost.com

@Dark Sorrow, @sob, @Sakal Gharelu Ustad, @Mad Indian, please read the article above.

 

[pmaitra]

Dollar Steadily Losing Ground in Currency Wars

Still No.1 but its clout is on the wane:

• Now makes up 61% of global reserves - down from 70% a decade ago
• IMF deputy director has called for de-dollarization in emerging markets...
• ...which many countries are infact attempting

Mark O Byrne (GoldCore) [SOURCE]

This article originally appeared at GoldCore.

Had a good run

Currency wars and the growing trend away from dollar dominance in international finance, particularly in emerging markets, was highlighted in an interesting CNBC article this morning entitled "Is the Dollar Losing its Clout Among EMs?"

It refers to the deliberate and stated policy of "de-dollarisation" around the world, the decline in the use of the dollar in international trade and as a reserve currency and the emergence of the new BRICS bank.

The article quotes best-selling author and Pentagon insider, Jim Rickards. Rickards says that the status of the dollar as a reserve currency is still solid despite its decline over the past decade and despite the rise of other currencies in international transactions.

"The dollar is declining as a trade currency, but it remains strong as a reserve currency. Right now, it's around 61 percent of global reserves, versus 70 percent over a decade ago," he said.

Meanwhile, figures from the BIS and SWIFT show that the yuan is now among the top ten traded currencies in the world. While this is significant it should be seen in the context that the dollar still being used in 80% of global trade.

Chinese ambitions in this area are clear, however. China is negotiating currency settlement deals in local yuan with many of its trading partners. Zero Hedge ran an article last week on a billboard advertisement in Bangkok from the Bank of China declaring the RMB to be "the world currency".

"And it's true," they added, "the renminbi's importance in global trade and as a reserve currency is increasing exponentially, with renminbi trading hubs popping up all over the world, from Singapore to London to Luxembourg to Frankfurt to Toronto."

Last month the Deputy Managing Director of the IMF, Japan's Naoyuki Shinohara, openly stated that emerging markets in Asia should begin the process of de-dollarisation "to mitigate against external shocks and constraining the central bank's ability as lender of last resort."

This is interesting as the IMF has historically been one of the main agents of dollar hegemony. We believe it demonstrates the level of risk now extant in the system that the IMF should be promoting a move away from the dollar, possibly towards Special Drawing Rights (SDRs).

China and Russia have negotiated currency arrangements excluding the dollar in recent years. Kazakhstan has also explicitly announced a process of de-dollarization, in an attempt to bolster the local currency, the Tenge.

Russia is in negotiations with India and Egypt to settle their trade in local currencies.

The BRICS development bank is now operational which will see countries who avail of it repaying loans probably in yuan, given that China provides over 40% of the funding. It will act as a rival to the IMF which may explain why the IMF is taking a more inclusive approach to currency reserves.

Currency wars are set to intensify and competitive currency devaluations accelerate. When that happens, gold will again become an important monetary and geo-political asset for central banks and a vital safe haven asset for investors and savers.

 

[Kumata]

reviving an old thread. if. it happens
..