Brics: Good intentions
They make sense as reinforcement for the flagging momentum within the G20 for achieving these selfsame goals. The world does need a new financial architecture ; but the Brics by themselves are unlikely to to be able to drive that change. The agreement that the Brics will henceforth provide credit to each other in local currencies and collaborate in capital markets and other financial services is a small step in this direction.
Trade and commerce among the Brics has increased dramatically, with China as the main driver. But the demand for credit in local currencies within the group is small (Brazilian real loans, anyone?) and is unlikely to be cost-effective either given the dollar's pre-eminence. For India, such forums are useful to push for change at the global level, in fora such as the World Trade Organization and the G20.
Reserve currencies are not created by fiat; they emerge from historical forces of trade and investment. The dollar is the world's favourite currency because it is simply the most traded, circulated and accepted currency in the world. Brics or others hoping to supplant the dollar will have to develop large and deep markets, first within their own national economies and then across the world for bonds in those currencies.
Given the current trepidations about easing currency controls and freeing up exchange regimes within the Brics, it is wishful thinking to believe that any of the Brics currencies will topple the dollar as the world's favourite anytime soon. But Brics can reduce dependence on the dollar, by increasingly deploying their own forex reserves in one another's , or other developing, economies, rather than in US treasury bonds. The needed ability to create risk-mitigated investment opportunities is the real test.
's Sanya Declaration by the leaders of the Brics (Brazil, Russia, India, China and, the new entrant to the club, South Africa) flatters to deceive. The call to revamp the global monetary system and overhaul the governing structure of the international financial institutions to increase the voice and representation of emerging/developing economies is sound, even if not original.
Trade and commerce among the Brics has increased dramatically, with China as the main driver. But the demand for credit in local currencies within the group is small (Brazilian real loans, anyone?) and is unlikely to be cost-effective either given the dollar's pre-eminence. For India, such forums are useful to push for change at the global level, in fora such as the World Trade Organization and the G20.
Reserve currencies are not created by fiat; they emerge from historical forces of trade and investment. The dollar is the world's favourite currency because it is simply the most traded, circulated and accepted currency in the world. Brics or others hoping to supplant the dollar will have to develop large and deep markets, first within their own national economies and then across the world for bonds in those currencies.
Given the current trepidations about easing currency controls and freeing up exchange regimes within the Brics, it is wishful thinking to believe that any of the Brics currencies will topple the dollar as the world's favourite anytime soon. But Brics can reduce dependence on the dollar, by increasingly deploying their own forex reserves in one another's , or other developing, economies, rather than in US treasury bonds. The needed ability to create risk-mitigated investment opportunities is the real test.
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