The West has no God-given right to be in charge, just ask the BRICs

Discussion in 'Economy' started by ScreamingEagle, Apr 16, 2011.

  1. ScreamingEagle

    ScreamingEagle Gold Member

    Jul 5, 2004
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    16 Apr 2011

    On Friday, at its latest summit in Washington, the G20 group of nations issued a communiqué. I don't know why anyone bothered. The document was meaningless.

    This latest G20 gabfest was over-shadowed by a simultaneous gathering on the Chinese island of Hainan, attended by the leaders of Brazil, Russia, India and China – the so-called BRIC group.

    China is the world's second biggest economy. India, Russia and Brazil are all well inside the top 10. By 2016, the International Monetary Fund (IMF) predicts, the GDP of these four will total $21 trillion, out-stripping the US. Already, on a currency adjusted basis, the BRICs are bigger than the US and UK combined.

    It is almost an economic cliché to highlight the growing commercial prowess of these new economic upstarts. The truth is, though, that the West's political and financial elite is still a very long way from grasping the extent to which the global centre of economic gravity is now shifting – and the implications in terms of relative and absolute living standards.

    The BRICs account for 45pc of the world's population and around three-quarters of total currency reserves. They have few serious fiscal issues and all are net external creditors. The emerging markets in general, says the IMF, will grow by an annual average of 6.5pc over the next four years, while the big Western economies will expand by only 2pc. The BRICs, and their smaller cousins, are now the driving force of the global economy.

    Some say the BRIC group makes no sense. Russia and Brazil are big commodity exporters, for instance, while China and India are major importers of such goods. Yet all four nations share a common cause, being united in their determination to convert their new economic power into international political clout – a determination fuelled by their West's continued dominance of the IMF, the World Trade Organization and other global regulatory bodies.

    A key topic at the Hainan summit was the dollar's reserve currency status. The importance of the greenback's predominance in global trade cannot be over-stated. Being reserve currency allows the dollar to defy gravity even though the US keeps borrowing and expanding its money supply. So America is acutely sensitive to any signs such reserve status is slipping.

    As such, it is interesting the BRICs just signed an agreement to grant one another loans in their national currencies, not in dollars. The mighty Chinese Development Bank has now formally offered 10bn yuan loans to other BRIC members, expected to focus on large oil and gas projects.

    Russia and China are now trading oil in rubles, rather than dollars. A Sino-Russia oil pipeline recently opened, almost ignored by the Western media, which will eventually pump 1bn barrels a year from Siberia to the People's Republic. It will soon be joined by a gas pipeline, too. These developments undermine the dollar's role of global petro-currency, the bedrock of its reserve currency status. They are of huge geostrategic importance.

    The BRICs are all creditors to the US – with the Chinese, in particular, holding vast swathes of American Treasury bills. So they won't make any sudden moves in terms of dislodging the dollar as "top dog", as that would harm the value of their T-bill holdings. They are, though, pushing for the IMF to overhaul the role of Special Drawing Rights (SDR), the international unit of account comprising the dollar, euro, yen and sterling.

    Were the yuan and possibly the ruble to be included, the BRICs say, then the SDR could ultimately replace the dollar. That would be anathema to Washington, formally ending America's global hegemony and forcing it to address its massive overseas debts. It was a message the BRICs wanted to emphasize in Hainan, just in time for this weekend's Spring meetings of the World Bank and the IMF in Washington.

    The West has no God-given right to be in charge, just ask the BRICs - Telegraph

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