Saturday, November 1, 2008
BRIC is the nickname for an economic alliance between Brazil, Russia, India and China. China and Russia are allies because both are communist nations (with a brand of capitalism, as well).
Brazil is China's main supplier of raw materials, and thus an important partner.
India and China are the two most populous nations on Earth, and set to become the 2 powerhouses of the 21st century.
If the BRIC alliance decides to dump the dollar - say at November's G-20 meeting - then the dollar's status as world reserve currency will be over.
Notwithstanding the current rising value of the dollar, there are numerous hints that the dollar will not remain the world's reserve currency for long:
- Iran is bartering oil for Thai rice, as a way to stay out of the dollar in its trades
- Russia's Putin is suggesting that Russia and China ditch the dollar and use their own currencies in trade deals
- Thailand's Deputy Prime Minister, Olarn Chaipravat, told Bloomberg News:
"The message of this initiative is for China to consider whether or not China would open up its banking system and allow the strongest currency in the world, which is the Chinese yuan, to be the rightful and anointed convertible currency of the world."
- The Wall Street Journal writes that China is being asked to play America's role of being at the center of the world financial system
- Many countries have already stopped using the dollar as their reserve currency or have dropped their currency's peg against the dollar
Throwing A BRIC Through the Window
Thailand, Argentina and other nations have some say in what happens. But it is the BRIC nations - along with America's biggest creditor, Japan - which will decide whether the dollar remains king.
Japan is likely to go along with whatever the U.S. wants. And Professor Chossudovsky persuasively argues that both Brazil and India are run by American allies who will try to protect the U.S. and the "Washington consensus".
On the other hand, China and Russia have already made noises about getting away from the dollar.
So will the BRIC countries and Japan demand a shift away from the dollar at the G-20 summit later this month?
My prediction is that at the G-20 this month, Japan, Brazil and India will drag their feet, and that China and Russia won't turn their bark into a bite.
However, I predict that America's economic meltdown will occur so quickly that the BRIC countries and Japan will force a change in the world reserve currency within the next year.