The BRICS family bonhomie: Don't believe the economic hot gas yet
In the ongoing BRICS parleys in Ufa, a city in southern Ural Mountains founded by Ivan the Terrible in the 16th century, the hot news is the formal launch of the New Development Bank (NDB) and Contingent Reserve Arrangement (CRA) launched by the heavyweights of the “reactionary” group to US politics.
Much of it is hot gas. The hegemony of US dollars is impossible to challenge in our lifetimes. Before I spread the course in front of your salivated presence, let me read out the essential menu which you have already swallowed.
NDB and CRA are intended to be counterweight to IMF and World Bank. The initial capital of NDB is US$50 billion, promised to expand to $350 billion in coming years. CRA is a $100 billion pool of reserve currencies. BRICS doesn’t want the world to rely on US dollar alone as a reserve currency since the US printed green paper has lesser collateral security. It also wants to be generous in financing infrastructure and sustainable development projects, a counterweight to World Bank whose capital and lending capacity are never increased by the West. The BRICS nations are to keep 55 per cent of voting powers in the NDB. No other nation can have more than 7 percent votes even though anyone can become partners and receive loans, barring United States and Japan.
Want to hear first good news or bad news? Let’s begin with the good. China and Russia indeed are developing a ruble-yuan swap, negotiated between the Russian Central Bank and the People’s Bank of China. They also are positioning themselves in resistance to US geopolitical hegemony and Obama’s avowed aim to “Pivot to Asia.” They realize that Islamic State (IS), al-Qaeda and other West-planted terrorist-rambos in due course would raid inside the borders of Russia, India and China. They are concerned on the bloodbath at their doors. Together, BRICS hold 40 percent of world's population and 20 percent of its economic output.
So far so good. But how can dollar be challenged?
Three of the BRICS states, Brazil, India and South Africa, and their currencies, real, rand and rupee, can’t operate without the IMF-World Bank shackles. All these three countries are extremely indebted. Their fundamental monetary policies are subservient to US-dominated financial institutions. Their macro-economic reform isn’t possible without IMF-World Bank or Wall Street approval. They can’t use their national currencies in context of BRICS. For it to happen, their central bank monetary policy has to be sovereign. Instead, in economic terms, India, Brazil and South Africa are US proxy states, servile to IMF-World Bank commands.
India is the largest buyer of US weapons system after Saudi Arabia. It is a partner with the US in aerospace technology. It has a new defense cooperation deal with the Pentagon. All of these transactions are done in US dollars.
Let’s look at Brazil. It’s economic and social sectors are largely dictated by JPMorgan Chase Bank, America and CitiGroup. The Bretton Woods institutions are firmly in control. Indeed, under former president Lula, Brazil’s Central Bank, the Banco do Brazil, was headed by a former CitiGroup executive.
South Africa, as per 2013 figures, had an external debt of $140 billion. It’s reserves of gold and forex holdings were at least three times less at $50 billion. It’s a pretty dangerous situation for the African country. Not that India or Brazil are much different. India has reserves of nearly $300 billion against the external debt of $427 billion; Brazil has $359 billion reserves against external debt of $482 billion. Together, India and Brazil are world’s most indebted developing countries along with Mexico.
The contributions of India, Brazil and South Africa towards the two BRICS’ financial instutions, NDB and CRA, thus can only be financed. In NDB, all the BRICS founding countries are to allocate “$50 billion startup capital that will be expanded to $100 billion.” In CRA, India ($18 billion), Brazil (18) and South Africa (5) are to pool together $41 billion of $100 billion pool. Since these three countries are heavily indebted and their reserves are noticeably low, their contributions can only be financed: in dollars. Their central banks reserves are kept afloat by borrowed money.
In order to make their contributions to NDB and CRA, these three countries, India, South Africa and Brazil could either (a) deplete their central bank reserves or (b) borrow money externally. In both cases, dollar would control them. They would have to submit to Western creditors.
Indeed, the $100 billion CRA fund is a mouth-watering prospect for Western speculators, institutions such as JPMorgan Chase, Deutsche Bank, HSBC, Goldman Sachs etc. They are specialists in short-sell trade on the Forex market. They would use CRA fund to increase the speculative attacks in the currency market. CRA, the irony is, could only be sustained by dollars.
For all you know, India, Brazil and South Africa must have taken prior approval for BRICS bank from the West-backed financial heavyweights and offered guarantees they wouldn’t depart from the IMF-World Bank agenda under the terms and agreement existing between them.
However, if intentions alone do make you happy, then raise a glass to the noble aims of BRICS nations against the savagery of United States.