Posts tagged: EUR

The Power of Commodity Prices and BRICS Influence

The West must engage and rethink associations and to make sure countries are not treated as lower tier. If nations like Mexico join the BRICS dynamic, and newly created cartels strengthen economic practices and policies of the organization, the prospects could eventually lead to the creation of a new fiat currency. For the moment BRICS has wisely pushed this goal to the side, but the idea of a unified currency is certainly being discussed openly. An increase of BRICS economic power derived from robust trade would tempt financial institutions to consider start buying bonds if offered as investments.

The West must ask what the dangers are if a needed commodity supply is controlled by a BRICS cartel that could suddenly initiate boycotts and trade limitations upon those BRICS does not agree. Food, energy, and mineral scarcity if controlled by nations not seen as allies of the West would be dangerous. Economic power within BRICS would certainly turn into geopolitical strength. The ability of developing nations to have a collective economic voice and create supply dynamics within commodities would ignite hazards for the West.

BRICS, U.S Government and USD Reserve Currency Status

While the West worries about domestic issues such as creating a politically correct happy tent for everyone, the larger powers within BRICS are engaged in the big picture which might be uglier but may carry more importance long-term. Because a lot of BRICS political power comes from more authoritarian stances, they are able to plan policy not only with five, but ten and twenty year outlooks. Western leadership needs to be willing to engage in a complex world and make sure nations that are not seen as natural bedfellows are treated with respect and brought under an economic umbrella that allows them to engage on equal terms.

The long-term future of the USD as a reserve currency is coming under increasing doubt, the trading of the currency in Forex is slowly and surely losing its footing via incremental percentage changes that point to deterioration. A void in solid leadership in the U.S and unrestrained spending are making the tasks harder for the Treasury and Federal Reserve to protect the strength of the USD. Fiscal deficits are one thing, 35.6 trillion USD of debt is another matter. How long can the U.S carnival sell tickets and expect people to be entertained in a magic act that prints money and backs it with increasingly vulnerable bonds? The U.S needs to change its fiscal policies efficiently.

There are ways of looking at this per different perspectives, but if BRICS does achieve its economic aim of creating more equitable trading coalitions, it could sustain alliances which the West may not be comfortable and actually be susceptible. The phrase that money talks and nonsense walks should be kept in mind regarding BRICS. The promise of fair trade among its members is important, but the ability to be unified politically and create economic transparency is important too. Many of the nations who are members of BRICS have not practiced solid economic policies and are still looked upon as suspicious fiscally.

Gold and a Decoupling of the USD

Importantly, we must begin to ask if financial institutions have figured a lot of what is mentioned above out and started to position themselves. Financial institutions and nations may be starting to look for a balance between the world’s reserve currency which is the USD, and the ambition stated by China’s Xi Jinping at the latest BRICS summit to create an alternative financial system.

If this alternative financial system includes BRICS as one of its foundations, and is based on organized cartels which use commodities as a backbone a new paradigm will be introduced. And if BRICS evolves and has the means to introduce a new currency along the lines of the EUR with a coalition of associated nations, the West will be faced with competitive questions. This new currency – let’s calls it the BRICS Unit (as reported by others), if it can trade calmly and with significant volume, and also offer innovation like a digital currency would change the balance of global power. The potential lose of status for the USD as the world’s reserve currency would weaken the U.S immeasurably. We have seen this show before via the GBP and the Britain.

A battle between a legacy reserve currency and an innovative upstart which wants to become a reserve currency could cause mayhem – potentially leading to a winner or all currencies losing confidence. Folks thinking ahead of the curve may already be putting money into gold because it is a historical store of value. Can the rise in gold seen the past year be quantified via not only a fear of inflation, speculation, and concerns about central banks, but also a reaction because of a looking glass into the future that does not trust the outlook of the USD? It is just a theory, but what if safe haven buying of gold signals a decoupling is taking place with the USD as its status weakens?

It should be added that the lack of a declared currency by BRICS as of yet, shows a level of political maturity and understanding of the current economic landscape. BRICS has shown the ability to take a long view and not act impulsively. A coalescing of commodity strength via gold, crude oil and other resources with organized cartels and solidified trading would give the BRICS Unit more credence upon its birth, but patience will be needed. And, like the EUR, the BRICS Unit could suffer from internal political strife, and particularly if the West wakes up and takes action to engage nations who are sitting on the economic fence and offers beneficial trading agreements.

The Western method of nonchalance that all will be well is naive. However, BRICS still face hurdles. Grievances could prevail in BRICS and cause it to falter and perish, some member nations which have had difficult relationships will need to put their distrust aside. An example of potential problems could come from Egypt and Ethiopia that have a long history with each other, both have massive populations and centuries of political intrigue when dealing with each other. However, BRICS represents the thinking of realpolitik vs. the winsome misguided aspirations of some Western nations with leaders who have their collective heads in the sand. The West needs to advocate collective interests, which includes freedom, solid enterprise agreements and large consumer markets. The West needs to focus on the competition emerging with BRICS. Pretending the danger doesn’t exist amounts to negligence and a potential lose of economic power the West cannot afford.

If you have not read Part 1, here is the link:

https://www.angrymetatraders.com/post/impolite-opinion-brics-long-term-plans-implications-part-1