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
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