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Brics’ move to unseat US dollar as trade currency

Public Policy

South Africa will this week take some initial steps to unseat the US dollar as the preferred worldwide currency for trade and investment in emerging economies.

Thus, the nation is expected to become party to endorsing the Chinese currency, the renminbi, as the currency of trade in emerging markets.

This means getting a renminbi-denominated bank account, in addition to a dollar account, could be an advantage for African businesses that seek to do business in the emerging markets.

The move is set to challenge the supremacy of the US dollar. This, experts say, is the latest salvo in the greatest worldwide currency war since the 1930s.

In the 30s, several nations competitively devalued their currencies to give their domestic economies an advantage over others.

And this led to a worldwide decline in overall trade volumes at the time.

The north will be pitted against the entire south in a historic competitive currency battle – whose terrain has moved to the Indian capital New Dehli – where the Brics (Brazil, Russia, India China and South Africa) nations will assemble next week.

China seeks to find new markets for its currency and to lobby to internationalise it throughout the Brics states.

For China this is not a new game. In 2009, senior Chinese banking officials issued a statement that the international monetary system was flawed owing to an unhealthy dependence on the US dollar and called for a “super-sovereign” international reserve currency.

Experts say Beijing’s first step is to internationalise its currency (by expanding its reach beyond China), liberalise it (to allow its value to be determined by the market instead of actively managing it as they currently do) and then make it a reserve currency for many nations in the developing world.

Africa’s largest bank, Standard Bank, says in a research document: “We expect at least $100 billion (about R768 billion) in Sino-African trade – more than the total bilateral trade between China and Africa in 2010 – to be settled in the renminbi by 2015.”

The bank anticipates that the use of the renminbi will lower transaction costs in Africa, thus lowering the barriers to doing business.

It also says that the Chinese will be more successful in transacting in renminbi in Africa than anywhere else because most currencies are weak and somewhat localised.

Not only will the US dollar be challenged, but also the entire international financial regime – led by the World Bank and the International Monetary Fund – which has been dominant since the end of World War II.

South Africa’s place in the emerging international financial regime is set to be enhanced.

Zou Lixing, vice-president of the Institute of Research of the China Development Bank, told the Brics preparatory meeting recently that “although the economic aggregate of South Africa is small relative to the Brics, South Africa provides a gate for the Brics to get access to the huge African market”.

The five-member nations have collectively called for an end to the tacit agreement between the US and Europe that ensures that the head of the World Bank is an American citizen, and the International Monetary Fund head is European.

They have proposed that an emerging market candidate be fielded when the term of the current World Bank head, Robert Zoellick, expires in three months.

Fundacao Vargas, a member of the Brazilian delegation, said Brics could confront “existing governance structures”, and seek to strengthen the blocs’ influence in established institutions like the World Bank and the International Monetary Fund, while creating alternatives.

The demand for greater political say in international affairs dovetails with China’s expected rise as a financial superpower in the next eight years.

Vargas showed the preparatory meeting projections indicating that China’s economy will have eclipsed that of the US by 2020, hence the promotion of the renminbi as the preferred currency of the south.

The renminbi has traditionally traded at a deliberately lower exchange rate, which gave a huge boost to China’s domestic economic sectors and enabled its booming industrialisation and growth.

The US and other trading partners have long accused China of being a “currency manipulator”.

Last week, Brazil declared its commitment to keep its own currency – the real – low. Its finance minister, Guido Mantega, reiterated his November 2010 declaration that a global currency war has broken out.

He said: “We do not want to lose our manufacturing sector.

We will not sit back and watch while other countries devalue their currencies.”

Brazil and China cried foul last year when, through a slew of initiatives dubbed QE2 – Quantitative Easing Two – the US indirectly devalued its currency by pumping about $600 billion into its economy to protect the economy from sliding back into recession.

South African economists were in two minds about the moves to extend the influence of the renminbi.

Economist and academic Peter Draper told City Press recently that the decision to establish a Brics development bank and to enlarge the renminbi’s sphere “is political and related to the current political dynamics within the World Bank” and the established international financial system.

Tom Wheeler of the South African Institute of International Affairs said developments in New Delhi (India) were “giving substance to the previously (and) loosely arranged economic block”.

City Press

6 Comments on "Brics’ move to unseat US dollar as trade currency"

  1. DC on Tue, 27th Mar 2012 12:44 am 

    Well S.A. Used to have a valuable gold-based coin, before things all went to hell there. I wouldnt assign any value at all to w/e they replaced the rand with. S.A. is a basket-case now just as much as the US. But that aside, I wish them well. S.A is too far away to send drones to, so maybe they might get away with it, who knows. Still tho, I wonder why people think china will take over for the US. Dont people realize if amerika stops buying all those plastic salad shooters, China is going to be a rough spot themselves? Few places have the appetitie for poorly made toxic plastic crud as amerika does. Which is why China and the US get along so well. The US has not real consumer protection laws and the Chinese have no enviromental protection laws. It was a match made in US corporate heaven. Not sure how China expects to make it if its cash-cow goes totally under..

  2. BillT on Tue, 27th Mar 2012 1:41 am 

    DC, China is not as reliant on the US as before, or haven’t you noticed? As for countries that are now using or starting to use other currencies for trade, besides Brazil, Russia, India, China, and South Africa, there is Iran, Japan, and South Korea. These countries ALL trade with China and that trade is growing. China is investing in the Philippines so it is logical that they too will trade in renminbi. The days of the dollar are numbered.

  3. Kenjamkov on Tue, 27th Mar 2012 1:58 am 

    As for who is going to buy China’s crap, I would say the BRICS will happily buy China’s crap. Including China’s growing middle class.

    I wouldn’t worry about what China is going to do, I would worry about what is the West going to do.

  4. Ham on Tue, 27th Mar 2012 3:55 am 

    Uncle Sam your time is up. Lay down your guns;
    lay down your weapons and make haste, make your peace, for they are no good now. They are useless; turn all those manufactured items of military might into better use. It will give us an improved chance of survival.

  5. PETE on Tue, 27th Mar 2012 5:01 am 

    Again I agree with BillT, China grew up selling to America, but they have noticed the major changes that are taking place to “shut them out” and adjusting quickly, remember the BRICS were unknown ten years ago. But more important is what you should be doing to secure your future. I buy silver, 1 oz. maple leafs 99.99% pure, highest in the world. Now, I think, is the best time to buy, word is when FED BEN gave the last FOMC talk 225 million paper OZ. of silver hit the market. Also see “Silver Manipulation Caught in the Act” by chris Sheridon 03/23/2012. Gold and silver is being manipulated to stay low so the dollar buys as much as possible while the rich lend from the fed at .25% to buy everything they can that will be worth something later,including gold and silver. Silver I was told is the second most used commodity next to oil, and will be the poor mans gold. Half of the worlds production goes to industry and a good chunk of that has ended up in the dump and we have only recently been trying to recycle some. 15 to 1 ratio before the 1900’s ha thats a laugh now.

  6. Arthur on Tue, 27th Mar 2012 8:45 am 

    I think this is a good development, since I have no interest in becoming a part of the zionist inspired NWO, run from Washington, but instead prefer to live in a multipolar world order of 8-9 cultural/religious defined large geographical entities, as described by Samuel Huntington. A scheme which is more in line with the coming reality of resource depletion. And yes, the time of fiat money is coming to an end and will be replaced by previous metals, like gold, silver, platinum, etc. in international trade, or rather for what will be left of international trade.

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