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The Brazilian president sent a clear message to the rest of the world from China: stop using the US dollar and trade in your own currencies.
Brazil breaks free from the dollar
Luiz Inácio Lula da Silva defied the empire from his first state visit to China. The Brazilian wants an international currency alternative to the dollar.
“Every night, I wonder why all trade has to be done in dollars,” he said during an impassioned speech at the headquarters of the Shanghai New Development Bank, also known as the “BRICS Bank”.
“Who decided that the dollar would be the international currency after the disappearance of the gold standard? Why can’t we trade with our own currencies? »he added, arousing thunderous applause.
For Lula, the BRICS Bank, chaired by former Brazilian President Dilma Rousseff, should replace the International Monetary Fund and launch an alternative international currency.
The Brazilian president castigated the IMF by denouncing the conditions of loans granted to Argentina:
“No bank should asphyxiate the economies of countries as the IMF is currently doing with Argentina. Or as he did for a long time with Brazil and all the Third World countries. »
“Why couldn’t a bank like the BRICS have a currency to finance trade relations between Brazil and China, between Brazil and other countries? It’s hard because we’re not used to [à cette idée]. Everyone depends on one currency, the dollar. »
Lula’s call coincides with growing efforts by Sino-Russian tango to get rid of the greenback.
BRICS > G7
That Brazil and China decide to trade in their currencies is natural. Their annual trade reaches 172 billion dollars. What largely set up a direct exchange rate between the real and the yuan, without going through the dollar standard.
It is substantial progress for China’s largest commercial bank to do cross-border yuan business in the Brazilian market. »
It should be understood that the GDP of the BRICS exceeds that of the G7 (USA, Japan, France, UK, Italy, Germany, Canada) at purchasing power parity. That is 40% of the population and 31% of the GDP against 10% and 30% respectively for the G7.
Economists compare GDPs “at purchasing power parity” to avoid distorting reality. They apply an exchange rate that equalizes the cost of living. The reason being that a dollar converted into yuan makes it possible to buy many more things in Shanghai than in Washington.
On this account, the Middle Empire is already the world’s leading economic power. Even more worrying for the West, the BRICS are not alone!
More than 20 countries want to join the club since the latter has shown its ambition to create a new reserve currency. And not least.
Saudi Arabia, the United Arab Emirates and Iran are on the doorstep. Or 31% of oil reserves and 25% of gas reserves (50% with Russia). But also other heavyweights like Turkey, Indonesia or Mexico.
And let’s not forget the new Silk Roads. This pharaonic project connects 65 countries whose subsoils contain the major part of the known energy resources.
The extra dollar
The global slingshot is the consequence of the 2008 devaluation (Quantitative Easing, aka money printing). It is not for nothing that China has been accumulating yellow metal since then.
In 2014, China took a tougher stance by ceasing to accumulate foreign exchange reserves in dollars. Today, Beijing no longer holds even 5% of the American public debt.
The recent freezing of 300 billion dollars and euros belonging to the Russian central bank has broken the camel’s back. The world realizes that it is extremely risky to hold dollars.
Especially as it becomes very clear that the United States will not repay its debts. American politicians have more than once threatened Saudi Arabia and China to sit on their dollars…
See the shape of the US budget deficit below. Already nearly 700 billion deficit in a single quarter:
The nations are tired of this aid reversed for the benefit of Uncle Sam. The more they accumulate reserves in dollars, the more the United States can get into debt at their expense. This allows them to post a trade balance deficit without the dollar collapsing.
Such is the exorbitant privilege. Debt versus tangible commodities…
Hence the decision of the BRICS to trade in their own currencies. Next step: find a new store of value to store trade surpluses.
Bitcoin as an international reserve currency
It is rumored that the BRICS will announce their new reserve currency at their next summit which will take place this summer in South Africa.
The vagueness remains for the moment on its version. Will it be a basket of currencies similar to the IMF’s SDR? A commodity-backed currency? Or simply a return of the Gold Standard? Or a mix of all three?
Unfortunately, as with the Gold Standard, such a currency will rest on a trust that sooner or later will inevitably be broken by the Chinese Nixon…
Also, is a debt-backed currency desirable as a store of value? Which country will be interested in a basket of currencies of countries with inflation rates that can exceed 10% per year?
No, the next international currency will have to have an intrinsic value. It should also easily transfer. This technological breakthrough is called Bitcoin, the first digital unit that cannot be duplicated.
The United States will not accept a currency that would benefit other nations. Stateless bitcoin, with its uncensorable transactions, provides an elegant solution for trading on equal terms.
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Journalist reporting on the Bitcoin revolution. My papers deal with bitcoin through geopolitical, economic, and libertarian prisms.
DISCLAIMER
The comments and opinions expressed in this article are the sole responsibility of their author, and should not be considered as investment advice. Do your own research before making any investment decision.
