Let’s discuss the latest BRICS silliness starting with the definition of BRICS.
BRICS++ Economic Trading Block
The term BRIC stand for Brazil, Russia, India, and China, a group of countries that have little in common other than seeing an alternative to the US dollar for international trade.
The group added an “S” for South Africa and now the block is portrayed as BRICS++ as additional countries join the block.
In the past decade, we have seen numerous BRICS announcements on a trading currency that never happened, and also a gold-backed currency which never happened, and never will.
I will recap prior silliness below, but let’s take a peek at the latest nonsense first.
BRICS To Build ‘Credit Rating Agency’ to Counter US Dominance
Please consider BRICS To Build ‘Credit Rating Agency’ to Counter US Dominance
The US has an array of credit rating agencies that rate firms and countries on their financial health and repayment abilities. The top three US credit rating agencies include Moody’s, Standard and Poor’s (S&P), and the Fitch Group. The US credit rating agencies dominate the global market and can make or break a company’s prospects with their reports. However, BRICS now aims to put an end to the US credit rating agencies by creating their own ranking ability firm.
BRICS countries have been affected by the US credit rating agencies who have previously pointed out negatives ignoring their positives. The BRICS bloc plans to launch its own credit rating agencies to counter the US-dominated financial world order. The move will put the BRICS alliance in charge and decide the creditworthiness of a firm and not depend on the US.
The top US rating agencies are trash, but the notion a BRICS alliance can set the creditworthiness of a firm is ridiculous.
Who is going to pay attention to a BRICS rating assuming the block ever does rate debt?
No Demand for US Bonds?
For an even sillier post, please consider BRICS: No Demand For US Dollar Bonds.
The US dollar bonds are no longer attractive to BRICS countries and broader Asian markets as sales nosedived in January 2024. Countries around the world are shying away from the US dollar as its debt has climbed above $34 trillion. Holding the US dollar in reserves for BRICS and other Asian nations poses an equal threat, as a market downfall creates turmoil in their native economies. Asian countries are carrying the risk of US dollar debt default making the USD bond sales see the worst start this year since 2016.
The less demand for US dollar bonds indicates that developing countries are fearing the mounting $34 trillion debt. The US debt is spiraling out of control and rising at an alarming rate and countries who keep the USD in reserves are at the receiving end. Read here to know how many sectors in the US will be affected if BRICS ditches the dollar for trade.
Anyone who suggests the US will default on debt understands nothing about default. Countries that owe money in their own currency don’t default.
Second, the author knows little or nothing about demand or the implications of trade math.
The US runs trade deficits. As a result, foreign nations accumulate US debt. Their is automatic demand for US debt as a result of trade math.
BRICS Challenges U.S. With New Credit Rating Agency
Coinmarketcap chimes in with more silliness in its take BRICS Challenges U.S. With New Credit Rating Agency
Within the corridors of power in the BRICS nations, there’s a palpable sense of urgency to recalibrate the world order of financial assessments. Spearheaded by Russia’s Central Bank Governor, Elvira Nabiullina, the initiative is more than just a clapback at perceived injustices. It’s a strategic play to establish a “supranational” rating agency that promises to be faster, more pragmatic, and devoid of the alleged bias that currently clouds the judgment of the established agencies. Nabiullina’s vision is for a system that truly reflects the economic realities and potentials of all countries, not just those within the BRICS bloc but globally.
The groundwork for this ambitious venture is expected to be a key topic at the upcoming 16th BRICS summit, hosted by Russia. The agenda is brimming with transformative ideas, including the creation of an internet service that bypasses U.S. data channels, symbolizing a broader push for autonomy and resistance against Western hegemony in digital and financial spheres. This summit, beyond its conventional expectations, could mark a pivotal moment in the quest for a more balanced and inclusive global governance structure.
No Details Hype Headlines
- India Times, June 23, 2022: BRICS Working on New Global Reserve Currency
- Fox, Oct 29, 2022: Russia, China May be Preparing New Gold-Backed Currency
- Business Insider January 17, 2023: Russia and Iran are Working on a Gold-Backed Currency
- DC News, April 8, 2023: New World Currency? How BRICS Nations could impact U.S. Dollar
- Foreign Policy, April 24, 2023: A BRICS Currency Could Shake the Dollar’s Dominance
The above reports all have several things in common. They are all proposals, they are mostly to totally sensational hype, and not a one of them have any meaningful details.
There are literally hundreds of similar reports all speculating on the quick demise of the dollar.
Supposedly, It’s Official!
Groundwork of the Last Stupidity
There was not a gold-backed BRICS currency announced at the last meeting. Heck there is no BRICS currency of any kind.
The last conference was a total failure as will be this conference.
Yet, people buy into this BS, as if it means something.
Bigger Isn’t Better
According to CNN, thirty-four countries have submitted an expression of interest in joining the bloc of major emerging economies, South African Foreign Minister Naledi Pandor told reporters, without naming the nations.
So what?
That we have no names is an indication of the meaninglessness of the additions.
The hypesters total it all up as a percentage of global trade when China alone is nearly all of it.
What Would it Take for a BRIC-Based Currency to Succeed?
Let’s call the currency the “Brick”.
None of these articles ever address the key question I asked and answered on August 25, 2023: What Would it Take for a BRIC-Based Currency to Succeed?
- The Brick would need to float freely. The yuan doesn’t.
- The Brick have to be a genuine reserve currency to achieve widespread use.
- A functioning Brick-based bond market. This requirement is also for widespread use.
- A significant desire by individuals to trade in Bricks and accept Bricks rather than local currencies or the dollar.
- Willingness of China to stop export mercantilism.
- Trust over and above trust in other international currencies.
Export Mercantilism
The yuan failed to succeed as a global reserve currency because the yuan does not float, because China has no functioning international bond market, and because of simple trade math.
China runs trade surpluses with most of the world. China oil imports are a major exception. As a result, China mathematically accumulates US dollar reserves.
Unless and until China is willing to stop export mercantilism and the US trade deficit shrinks, someone must accumulate US dollar reserves or assets. Mathematically, dollar accumulation is unavoidable.
“Every night I ask myself why all countries have to base their trade on the dollar. Why can’t we do trade based on our own currencies? Who was it that decided that the dollar was the currency after the disappearance of the gold standard?”
Q: Who was it?
A: Individuals
That is the key point all the articles and Lulu miss.
Trade is Between Individuals, Not Nations
Fundamentally, trade is not between nations.
Aggregate reporting of trade deficits such as the persistent US deficit with China, makes it appear otherwise. But the deficit is really a result of a sum of individual transactions.
Why would a Brazilian wheat exporter want a BRICS currency when the exporter needs the Brazilian Real to pay workers or the US dollar to buy farm equipment.
Consider Saudi Arabia’s oil producer Aramco. What would Aramco do with any BRICS backed reserves it receives for oil?
Sanction Avoidance
A Brick (or something similar) has one use: sanction avoidance.
On July 20, 2023, my lesson of the day was If You Weaponize the Dollar and Confiscate Assets, Expect Retaliation
A Brick currency is not a requirement for sanction avoidance. Any central bank digital currency would suffice. But a Brick makes things much easier, especially in cases where a nation does not want to openly antagonize the US but would instead prefer to just look away.
If and when a Brick makes it easier to avoid sanctions, a small set individuals and companies sanctioned would use it, even if it the Brick is relatively illiquid.
Other than sanction avoidance, a BRICS currency serves no real purpose. Even it there was a purpose, requirements for widespread use are not in place.
The latest announcement on a new credit rating agency is just more silly BRICS hype, most likely to conjure up fresh talk having made zero progress on a currency.
The dollar is not money, it is a promise, a contract, US bonds are contracts
With enough Bricks, i can build a chimney, and maybe a house.
Gold is money.
I have 1 simple qx – can I borrow as member of TERORISTS STATES OF US
I have plenty income and lots assets
will new BRICS RATE ME and invest in me??
Here is the KEY to unraveling this mysterious question is this: WHEN, assuming it will happen, CAN IT HAPPEN? And, that is the problem: there is SO MUCH DOLLAR DENOMINATED DEBT, the world OVER (EURO DOLLAR SYSTEM) that even if the USA decided to hand over our dominance, it would take BEYOND our lifetimes. SO, when is the key. NO ONE KNOWS.
“Anyone who suggests the US will default on debt understands nothing about default. Countries that owe money in their own currency don’t default.”
Economic actors care about real outcomes. Debasement is already default. Noone was OK with getting back Weimar Marks by the wheelbarrow; regardless of what some illiterate wearing a wig may have deemed and held and found and decided about what the meaning of “is” and “default” was.
“The US runs trade deficits. As a result, foreign nations accumulate US debt. Their is automatic demand for US debt as a result of trade math. ”
There’s no natural law creating universal demand for allowing the US to run unsustainable trade deficits, consuming a lot without producing anything in return.
The horse which pulls the US trade deficit cart, is the institutions set up post WW2, which were all created under the assumption that the US was the indispensable nation, hence were built around US Dollars.
That worked OK enough, for as long as at least some Americans still did something productive on occasions. But now: Those institutions are woefully out of sync with economic reality. Hence, those who lose out as a result, are working to rejig, or replace, those institutions. Into/with something more representative of the current, “The US is now the new Argentina,” era. Can’t really blame them. Although, as you hint at, it’s not an easy task.
The dollar is strong because it can be converted to farmland.
Why did the US applied financial sanctions against Russia? Did Biden really expected to ruin Russia? What happened? Russia is going well, China got influence on Russia, Europe got weakened, 100000s of Ukrainians (and many Russians) died. Many countries think about how to minimize the influence of the US on them. Does China (or Germany) really needs the Dollar to exchange industrial goods against commodities and energy with Russia? Who benefitted?
“Does China (or Germany) really needs the Dollar to exchange industrial goods against commodities and energy with Russia?”
No.
The only thing anyone fundamentally “needs” dollars for anymore, is military kit and “services.” Hence why America is busy turning every corner of the globe into a bombed out ruin. Including the US itself.
Mish, you take this too lightly. Is it going to happen tomorrow? No. But, there is a trend which is growing. Biden weaponizing the international financial system and it has put countries on notice. As the US goes around the world starting wars, blowing up pipelines, seizing assets, and providing bombs to Israel to murder children, nations are watching. Russia has not been alienated by US attempts, it has gained status in the world community. Putin gets a heros welcome in Qatar and Sudia Arabia. Blinken gets ignored. To scoff at and pretend the new institutions being developed by the BRICS will not have an effects is to be delusional. The world is changing. Unfortunately the West took a wrong turn at Albuquerque. It went full libtard and began to lecture other nations on stupid degenerate crap. I’m rooting for a routing of the US in the Middle East. I hate to say this because I love my country. But I dipise our leaders and their penchant for military adventures means others must pay the cost for the evil bastards in DC.
“Trade is Between Individuals”
I don’t think this is always true. In the case of Russia and the West, exchanges between “individuals” from these two zones are prohibited, so these individuals exchange with others elsewhere. If these kinds of limitations spread, which I think they might, “Trade is Between Individuals, Not Nations reasoning” might be less and less true.
How much trade did the US Government conduct with (fill in any other country)? If Russian A is “sanctioned”, Russian A uses an intermediary (who is an individual). I’d love to hear an example of government-to-government trade.
Governments do not trade, but they increasingly direct and restrict the choices of trading partners of individuals who want to trade, which is not very different
you missing the point they are moving away from the west ,and they are taking a lot of countries with them and none of those countries will use the west service any more its not a joke noting to make joke we will see the results they are not looking for the west to usr it this is call decoupling
I am not missing anything. I provided detailed discussion of why it’s all bullshit other than individuals and a potential, small, sanction avoidance use.
I have been listening to BRICS BS for a decade.
Hells bells, China won’t even float the yuan.
a whole decade? you’ve demonstrated SUCH patience, Mish!
they’re constructing a parallel financial infrastructure, defying all existing (corrupt) power brokers… but not good or fast enough for Mish… LULZ.
Mish – sometimes your midwestern naivety/provincialism is more comedy than quaint. Grow up.
What got better here in past 15 years?
link to m.youtube.com
Certainly the US dollar is the forever problem of the world.
I’ am so glad we have the FED to create our currency into existance! We will never go broke!
Other nations could only hope for such economic superiority.
all we need to do is pray that they dont move away from the dollor 100 percent
because if they do it will be crazy
Will the economic superiorty still exist if the world no longer uses the $?
Yes because US production is high. The downside is with lower demand for US dollars the US couldn’t print dollars to pay international debt.
What does the US produce? Movies, Software, financial innovations and weapons.
It is because of the Trade Deficits and all that incoming value being BORROWED IN DOLLARS, dollar demand is endless. OTHER countries denominate their DEBT IN US DOLLARS. IT IS THE US DENOMINATED DEBT that keeps the dollar dominant. Listen to Brent Johnson and you will see.
(jest) Brick is tech jargon, used in embedded software and integrated circuit boards for a bug or mistake that causes the board to stop working. In other words to accomplish as much as a literal brick or paperweight would do. (/jest)
BRICs has been around a long time. The main barrier for them is dialect. Their conferences, everyone has ear pieces on but, even with that things get lost in translation so nothing ever gets finalized.
Since Biden went on the warpath however, they are trying harder to get it together but mainly because they are backed into a corner. It’s not a threat to the dollar but…give it another decade and change and I could see it. Even Powell admitted last year there could be two financial systems which is actually a good thing. Competition is always good. Likely a lot less couping by the CIA and less bombing folks. Put the FED on a diet, put welfare on a diet and maybe bring back a lot of critical manufacturing. All good things.
“Their conferences, everyone has ear pieces on but, even with that things get lost in translation so nothing ever gets finalized.”
As usual, the real work is done by sherpas. They don’t listen to what’s being said because the subjects are already known well in advance.
I would do the exact same thing in their shoes. US credit agencies are a joke and that is being kind.
I would also move away from USD trade as much as possible as they are doing
why?
They are not doing a damn thing.
What have they done other than nonsensical yapping?
are you sure
Yes, for detailed reasons stated.
I think you might be surprised by October.
I wont but if you expect anything but fluff announcements you will.
Not a damn thing.
Got it. Keep typing, Mish.