Wed, 27 Apr 2011 05:00:00 +0400
During the last summit of BRICS (Brazil, Russia, India, China, and the Republic of South Africa) the countries with dynamically developing economies that comprise the fifth announced about their decision to refuse from mutual payments in US dollars. This means that the abovementioned countries will give credits to one another in their national currencies solely. The development banks of these countries have signed an agreement about a further gradual withdrawal from loans in American dollars.
Why have the countries of BRICS initiated such action?
1. Policy of low interest rates. The policy of low interest rates, held by the countries with advanced economy, considerably strikes at the interests of BRICS’s members.
2. Investments. Such policy encourages investors to direct their funds to developing markets.
3. Exchange rates. As a result of such actions, exchange rates of national currencies in such countries undergo fake inflation.
4. Countries’ export. Naturally, this results into non-competitive export of such countries.
5. Countries’ stability. Consequently, the countries of BRICS, striving to find a mechanism that shall regulate the exchange rates, desire the only thing – more stability for themselves.
What can a refusal from dollar give to the countries of BRICS?
The experts of Masterforex-V academy note that such a step, according to the participants of the agreement, is intended to strengthen the financial cooperation between them as well as to expand the international significance of national currencies of the countries that comprise BRICS:
• This reform is beneficial for the countries, striving to enter the markets of the countries of BRICS.
• Refusal from dollar shall strengthen national currencies and, consequently, the economics of the countries of BRICS.
• The dependence of national economies from the range of exchange rates of reserve currencies will decline.
• Credit operations in national currencies will allow development banks to considerably save on conversion of currencies.
• Transition to mutual payments in national currencies shall considerably stimulate foreign economic transactions.
• The post-crisis weakening of the United States frightens developing countries; therefore, they are not willing to depend on unreliable dollar. That is why, during the last summit of BRICS, recently held on Hainan Strait, the countries’ leaders have appealed to “the expanding of international reserve currency system in order to guarantee stability and certainty”. Moreover, this matter has already been appealed to by not infamous George Soros, who has lately been placing stake on China. «Market Leader» has recently written about the brave predictions of this odious multibillionaire.
Have any particular steps in this direction been made?
The realization of the first transactions in national currencies has been postponed for a non-determined period, but some two-sided agreements have already been signed. Therefore, Russian Development Bank has announced that it will take loans in Chinese yuans. It is likely to be more beneficial. The head of the Development Bank of the Russian Federation Vladimir Dmitriev announced that this year the country is planning to borrow about 500 million dollars from China in yuans.
Why does the majority of analytics have a skeptical attitude to the intention of the countries of BRICKS to refuse from the use of dollars? According to experts
1. It is in US dollars that all of the abovementioned countries have enormous resources denominated in. China solely obtains national obligations of the United States’ treasury for billions of dollars. All political elite of Russia, Brazil, the Republic of South Africa, and India obtain considerable deposits (including personal) in American currency. As long as the existing state of affairs remains, no country of BRICS can seriously desire the weakening of dollar or its crash particularly.
2. China’s role. In China, which apparently plays “the first violin” in the present alliance, all transactions with funds undergo a strict regulation. Transactions with yuan are also strongly limited. This will inevitably influence the volume of future mutual payments in national currencies.
3. At least, three out of five countries of BRICS – South Africa, Brazil, and India – suffer from the deficit of current transactions’ accounts, which means that the growth of their economies is directly dependent on foreign investments. Consequently, they will find it difficult to come to agreement on cross-rates with China and Russia.
4. Differences in politics. In fact, due to the existing considerable differences in politics in the sphere of exchange rates, the realization of the last agreement becomes almost impossible.
5. The currencies of the BRICS’s countries cannot determine their correlation by themselves, for there exists a strict system of currency managing in China.
6. Financial markets of Brazil, India, and Russia are not yet considered to be developed enough, whereas their currencies are not considered liquid enough. Moreover, they frequently undergo outer control. From this point of view South-African rend is an unquestionable leader among the national currency units of BRICS.
As stated before, the transition to mutual payments in national currencies has been postponed for a non-determined period. That is why, at present intentions exclusively can be taken into account. However, the intentions themselves speak volumes…
Questionnaire in traders’ forum: in your opinion, a declaration of BRICS concerning a refusal from dollar is:
• empty threats;
• real strategy;
• crafty political step.
You are free to discuss this article here: forum for traders and investors
According to several online sources specializing in the U.S. energy sector, the amount of businesses in the U.S. energy sector that went bankrupt in 2015 increased all the way up to 13%. The sources rely on the results of the resent research conducted by Fitch. Back in 2014, the similar figures used to be under 2%. On top of that, the experts are sure that by the end of 2016, the amount of bankruptcies among U.S. energy companies is going to reach 20%.
Some representatives of the international expert community remind us that the Fed is going to go back to discussing the possibility of another interest rate hike in the near future. This discussion is going to take place during the forthcoming FOMC meeting in June. They say that the markets are wrong when expecting the same interest rate for the 4th month in a row.
Not so long ago, a representative of the Saudi King’s was reported to have introduced a new development plan for Saudi Arabia until the year of 2030. It is named Vision 2030. The plan reveals the local authorities’ intention to introduced some fundamental changes to the country’s economy and financial system. They are aware of the serious dependence on crude oil exports, which is why they want to reduce this exposure to the international market of crude oil by making the local economy more diverse and less dependent on the local oil industry, especially amid still low oil prices and great uncertainty dominating today’s financial markets in general and the global oil market in particular.
The members of the Fed’s FOMC left the key interest rate unchanged at 0,25%-0,5% during the latest meeting last week. This is confirmed by the FOMC meeting minutes. To be more specific, the minutes read that the information received since the March meeting clearly indicates that the contemporary labor market is definitely improving and recovering despite the likelihood of another economic slowdown in the USA.
According to Andrey Gudkov, an observer for Deutsche Welle, the oil games played by Saudi Arabia may present danger to Russia and the USA. The be more specific, the observer says that the Saudis are playing dangerous oil games. They have been playing similar games in security and politics. Now they are playing those in macroeconomics. For instance, it was Saudi Arabia who intentionally disrupted the recent oil summit in Doha. On top of that, the Saudis announced their intention to sell tons of U.S. bonds to a stunning amount of $750 billion. Such unexpected steps may undermine financial markets worldwide and eventually affect a number of major and emerging economies, including Russia and the USA.
Low oil prices undermined the status of the Suez Canal. They say most ships find it cheaper to sail around Africa rather than sailing through the Suez Canal. Some market observers believe that the oil market crash resulted in multiple consequences. On top of billions of dollars of lost profits by the world's biggest oil exporters, sailing around Africa is no said to be cheaper than saving time by passing through the Suez Canal.