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USD/INR: Consolidation Might Come to an Abrupt Conclusion

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

USD/INR: Consolidation Might Come to an Abrupt Conclusion

The USD/INR is trading near the 81.9750 ratio as of this writing and its price action since the 13th of July has produced a tight price range. On the 12th of July the USD/INR was trading around the 82.3000 region, this after being able to incrementally decline when a high of nearly 82.7900 was reached on the 6th of July.

Prior to the apex value of July, the USD/INR had traded in a rather consolidated mode from the middle of June until the first few days of July, essentially within a price realm the currency pair now lingers. Speculators must constantly fight the slightest of reversals if they are using too much leverage, but the USD/INR over the mid-term has produced interesting behavioral sentiment and this can be seen on technical charts.

While day traders may believe the current price ratios will hold and the potential interest rate hike from the U.S Federal Reserve has been digested into the USD/INR for this coming Wednesday, they might want to reconsider their thinking. No, the world is not coming to an end, Forex has dealt with U.S central bank decisions before and experienced traders understand the sudden potential of the USD/INR changing direction. The rather tight price range of the USD/INR could vanish in the coming days if the Federal Reserve begins to change their tone within the FOMC Statements.

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USD/INR One Month Chart as of 24th July 2023

U.S Federal Reserve is Likely to Raise the Federal Funds Rate but Perhaps Shouldn’t

The USD/INR may not get hit too hard when the U.S Federal Reserve delivers the anticipated 0.25% addition to the Federal Funds Rate. However, the FOMC Statement which talks about the Fed’s outlook might cause a change to what have been calm seas recently in the USD/INR. Recent U.S economic data has been rather troubling, but inflation does actually seem to be creeping lower. The Fed has been pretty adamant in their recent ‘whispering’ about raising interest rates in July, and the potential of raising again later this year.

Time for the U.S Federal Reserve to Start Sounding Dovish

Yet, recent data suggests the Fed should likely not even raise rates on the 26th of July and continue its pause. But having expressed plenty of verbiage on the subject, the Fed may not want to surprise financial institutions and may have to raise, even if they do not really have to this week. And here is where it gets interesting – the FOMC Statement may have to express this notion of becoming more dovish. Think of this potential hike to the Federal Funds Rate this week as the last dose of medicine for a patient who already feels better, the doctor (the Fed) is insisting that to make sure the ‘sick’ is cured another teaspoon consisting of an interest rate hike is necessary.

If the FOMC Statement sounds more dovish than expected the USD/INR might start to see selling ignite and a downturn generate. There are no guarantees and certainly the Fed’s actions this coming Wednesday are not known. Yet, if the Fed hints that it will not raise interest rates over the mid-term and wants to see if inflation continues to lower that it may consider the potential of no more hikes, the USD will start to get weaker across the board. In other words, this last dose of medicine from the Fed may give them the feeling to tell the patient (U.S economy) that they no longer need to visit the doctor’s office for a while.

Other central banks are watching too. Inflation in Europe and elsewhere remains high. The complications of weaker domestic currencies against the USD have hit many economies including India where inflation has been rather strong. If the Fed can now start to become less aggressive, the effect will be quick and start helping the USD/INR trade lower if healthy economic mechanics allow this to happen.

Support levels for the USD/INR near 81.8000 to 81.7500 should be watched, if these levels begin to see challenges and sustained prices remain nearby, the USD/INR may be signaling that another downturn is about to happen. If the U.S Fed delivers a cautious, but more optimistic FOMC Statement this coming Wednesday, the USD/INR may deliver a new cycle of selling.

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Week Ahead: Inflation will be the Crucial Word for Investors

by with No Comment AMT MarketsBehavioral SentimentFeatured Highlights

Week Ahead: Inflation will be the Crucial Word for Investors

Last week finished with another reminder that inflation cannot be easily scoffed at by investors who continue to believe higher prices will eventually slowdown. Average Hourly Earnings last Friday came in above the expectation and this was enough to rattle Wall Street again, which saw the major equity indices decline and bond yields incrementally rise. Inflation ‘talk’ will remain important this week because of coming U.S data.

Real Estate including REITS becoming a Topic of Discussion as Mortgages Rise

Market watchers should also pay attention to news regarding mortgages on residential homes, and listen for troubles from the commercial real estate market, as these sectors deal with rising interest rates in the U.S and U.K. Increased nervousness within these markets could have an affect on behavioral sentiment. Let’s remember the catalyst for the financial crisis of 2007 was the real estate sector.

Which brings us back to inflation and the growing acceptance among investors the U.S Federal Reserve may be ‘forced’ to hike the Federal Funds Rate on the 26th of July, if price data continues to come in ‘hot’. Some investors will likely be heard saying an increase of 0.25% has already been factored into marketplace, but the prospect of another hike in late 2023 could be problematic. Forex, gold and bonds dynamics will tell us a lot when this week concludes regarding outlooks.

BNB/USD Price Should be Monitored as Binance Trembles

An outside source of financial and speculative news is likely to come from cryptocurrency. If you are gambling on this asset class (or should we say commodity based on hot air) and like the adventure of wagering, please continue to pay attention to Binance which is showing signs of duress. If the Binance cryptocurrency exchange shows additional signs of pressure on its BNB (Binance Coin), trading waters within the world of crypto could trigger additional drowning victims. If you thought the Sam Bankman-Fried story made interesting news last year regarding fraud and other criminal activity, the FTX saga could prove to be only the tip of the iceberg.

Data Events Ahead to Watch

Monday, 10th of July, China CPI and PPI – the inflation data could prove important for investors who correlate economic statistics from China into their global forecasts. Traders within India should pay attention to these Chinese price reports, because global investors are starting to shift their assets into the Nifty 50 and other NSE equities because of risk and reward equations.

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GBP/USD One Month Chart as of 9th July 2023

Tuesday, 11th of July, U.K Claimant Count Change and Average Earnings Index – the numbers need to be watched by GBP/USD speculators. The results from the U.K will be intriguing because of employment results, but more importantly for inflation concerns and the knock-on effects. Bank of England Governor Andrew Bailey is speaking a few times this week, and this includes Wednesday the 12th of July, when he will talk about the Financial Stability Report. The GBP/USD has moved towards monthly highs recently.

Wednesday, 12th of July, New Zealand RBNZ Official Bank Rate – NZD/USD day traders will want to pay attention to the central bank’s Rate Statement. While no increase of interest rates is predicted, the Reserve Bank of New Zealand at a minimum will likely have to admit inflation remains a concern.

Wednesday, 12th of July, U.S Consumer Price Index – the inflation reports from the States will have all eyes on the outcomes of the monthly and annual comparisons, including the Core numbers. The results from these inflation statistics will certainly cause momentary volatility within Forex with the USD as the focal point.

Wednesday, 12th of July, Canada BoC Overnight Rate – the Bank of Canada is expected to hike its interest rate by 0.25% to the 5.00% mark. USD/CAD will react to the BoC Rate Statement based on its outlook.

Thursday, 13th of July, U.K Gross Domestic Product – the ‘growth’ numbers are not expected to be positive. A drop of minus -0.3% is the expectation. Talk of recessionary pressures in Great Britain will be heard. Unfortunately, the discussion about a struggling economy, mixed with stubborn higher prices for consumers and mortgage rates that are rising will not make for calm stomachs. U.K equity results via the FTSE 100 Index should be monitored.

Thursday, 13th of July, U.S PPI – the Producer Price Index figures will be the last cog within the important inflation data for the week. Stubborn prices for wholesale goods are a concern, because the costs to consumers becomes more expensive when there are higher price pressures.

Friday, 14th of July, U.S Consumer Sentiment via the University of Michigan – if the Consumer Sentiment readings from the UofM report improves, and the U.S inflation data which was released earlier this week has proven stubborn, this could become a source of pain for investors who may be forced to consider the Fed will not only raise the Federal Funds Rate late July, but later in 2023 also. Short-term traders should monitor this report accordingly.

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Revitalizing Cricket in the USA: Rise of Franchise Cricket

by with No Comment BusinessCricketFeatured Highlights

Revitalizing Cricket in the USA: Rise of Franchise Cricket

Cricket, with a rich historical presence in the United States, has struggled to gain a large following compared to other sports like baseball. However, recent efforts to promote the game have emerged, including the establishment of franchise-based cricket leagues. Here’s a brief history of cricket in the USA, the challenges it has faced, and the introduction of new leagues and cricket franchises as a catalyst for potential growth.

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AngryMetaTraders.com Cricket Coverage

Early Presence and Decline:

Cricket has a long history in the United States, dating back to the 18th century, with the first recorded match taking place in 1751 in New York. During the 19th century, the sport enjoyed significant popularity, attracting large crowds to matches. However, the rising prominence of baseball, another bat-and-ball sport, and the exclusion of the USA from the Imperial Cricket Conference in 1909 led to cricket’s diminishing relevance within the country.

Perseverance through Immigrant Communities:

Cricket has managed to endure in the USA primarily due to immigrant communities from cricket-playing nations such as India, Pakistan, and the Caribbean islands. The USA now has a national cricket team recognized by the International Cricket Council (ICC), largely composed of players from these immigrant communities.

Franchise Cricket – A New Approach:

In recent years, the concept of franchise cricket has gained traction in the United States as a means to stimulate interest in the sport. Franchise-based leagues have played a pivotal role in popularizing cricket globally, attracting international players, unearthing local talent, and delivering captivating cricketing action to fans. Indian Premier League (IPL) is one of the most lucrative cricket leagues globally. Similar leagues have become popular in other countries like Australia (BBL), Pakistan (PSL), England & Wales (The Hundred), Bangladesh (BPL), West Indies (CPL) and many more.

Using this model in the USA, two franchise cricket leagues have emerged: Minor League Cricket (MiLC) and Major League Cricket (MLC). The MiLC was launched in 2020 and focuses on regional talent development, providing local players and youth (via cricket academies) with a platform to compete at a higher level. However, MiLC’s impact beyond immigrant communities may be limited as the players are still largely composed of immigrants from cricket playing nations.

MLC’s Potential:

The inaugural year of Major League Cricket is set to begin the 13th of July 2023, featuring six franchise teams with international players competing in matches scheduled in Texas and North Carolina. There are some big names who have invested in the MLC, ranging from tech CEOs like Satya Nadella to Bollywood stars like Shahrukh Khan, and venture capitalists among others. These investors will eventually turn into franchise owners. Although the launch of MLC has garnered attention in the cricketing world, its long-term success depends on factors such as attracting sponsorship, generating advertising revenues, and establishing loyal fan bases.

Measuring Success and Building Cricket Culture:

While cricket faces stiff competition from popular sports like baseball, football, and basketball in the United States, the investors and stakeholders in MLC probably understand the challenges ahead. Success should not solely be measured by financial returns, but also by providing opportunities for American cricketers to shine on an international stage. As interest grows, the hope is that cricket will gradually find its way into elementary schools, recreation programs, and the wider U.S sporting landscape.

Growth of USA Cricket and Sustainability:

Cricket’s journey in the United States has been marked by historical significance, challenges, and recent endeavors to popularize the sport. The introduction of franchise cricket leagues like MiLC and MLC brings new opportunities for growth and development, both for players and the overall cricketing culture in the USA. While cricket may never rival the popularity of established American sports, the passion and efforts invested in franchise cricket aim to build a sustainable future for the game, in order to create a lasting impact on the playing fields of the United States.

If you want to read more about cricket, please go to this article by Ibrahim Mirza: https://www.angrymetatraders.com/post/cricket-destined-to-be-a-fountain-of-joy-money-in-india

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Broader Alliances: Sustaining Economic and Political Power

by with No Comment Featured HighlightsRisk AnalysisRisk Management

Broader Alliances: Sustaining Economic and Political Power

The following article is commentary and its views are solely those of the author.

If the United States decides to abandon its role as the premier global superpower and shall only be a Pacific and Atlantic power, withdrawing as defender of free seas, free trade and freedom in general, its democratic allies will have to start looking elsewhere for broader military alliances. This large group of nations would have to defend their interests against a revanchist China tied to Iran, Russia, North Korea and many of the Latin American countries – possibly including Brazil, and South Africa who have questionable politics and outlooks.

Eastern Mediterranean Alliance: A Strong Sea Power

Here is a speculative, yet reasonable look at the future of the free world. Let’s start with the Eastern Mediterranean where the two major powers are Israel and Turkey. One cannot deny that both these countries outclass all others regarding military might in the region. Israel’s air force is second to none and its navy is becoming a strategic necessity as it needs to defend its natural gas fields miles offshore. It now has six submarines that are capable of projecting power anywhere in the Mediterranean and even into the Indian Ocean and Persian Gulf. Turkey is currently a NATO member, but it is not clear that this will outlast the first half of the 21st century.

There is currently an informal alliance among Israel, Greece and Cyprus (both NATO countries) via joint military exercises and intelligence sharing. The Israeli navy and air force train regularly with Greece and its special forces train in the Cyprian mountains with its army. It would be in all three countries interests to formalize a treaty – if not of mutual defense, at least of mutual aid during times of war. All three of these countries are democracies and all three have mutual economic interests.

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A formalization of this alliance makes sense now and if there is a NATO collapse it turns into a necessity for Greece and Cyprus. Adding Egypt (although it would be the only non-democracy) to this group would only strengthen the alliance and keep Turkey at bay. A post-Erdogan Turkey that is comfortable with its Islamic character and its modern society could even join this grouping with Israel as a potential peacemaker between the historic Greek-Turkish rivalry.

This alliance without Turkey is a powerful force in the eastern Mediterranean, and this alliance with Turkey could neutralize a nuclear Iran. A Post-Hezbollah Lebanon which is in the interests of all of these alliance members (including Turkey and Egypt), could become a reality and another member.

A New Alignment: The United Border Nations

What about Eastern and Central Europe? Poland is rapidly becoming the major non-nuclear European military power. Within the next few years it will outshine Germany and the U.K and rival France. It is quite clear, nuclear weapons aside, Poland would probably defeat Russia in a number of weeks, if not days if a conflict were to ignite.

Whether the Russian-Ukrainian war ends in a Russian defeat or in some sort of face saving armistice, Russia will not lose its aggressive nature or nuclear capabilities and it will inevitably become aligned more closely with China and Iran because of its current political nature.

The important new alignment will be categorization of ‘countries bordering Russia’. A new alliance of Poland, Finland, Sweden, Norway and the Baltic states – Lithuania, Estonia and Latvia together would have the land, sea and air power necessary to deter and defeat, if necessary, any Russian imperialist expansion. Even with closer ties to China it would be difficult to imagine that, over the next 50 years, Russia would be a threat to this alliance. Adding Ukraine to this grouping would make a powerful force. Its joint population of over 100 million people, while not quite Russia’s 150 million – would be a formidable adversary, especially as the technological skills of these countries is first world and continuing to improve. Adding the other former Warsaw Pact countries like Czech, Slovakia, Romania, Moldova and Bulgaria can only increase its potency.

Unlike the Eastern Mediterranean alliance mentioned above, this would have to be based on a mutual defense treaty in order to properly deter any Russian-Chinese-Iranian attack. Linking up, informally with the ‘new’ Eastern Mediterranean Alliance would create a powerful grouping of free countries against any attempt by authoritarian adversaries. Adding an economic aspect to these border nations and an alliance with the Eastern Med group with free trade zones would create a strong challenge to any attempted Chinese hegemony.

Asian Border Nations Group: Potential Look Ahead at Potential

If we were to unite the Eastern Mediterranean and Border Alliances to an admittedly non-democratic Asian ‘stans nations, including Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan with a joint population of around 80 million, we are beginning to see the creation of a multi-cultural alliance that extends from the Arctic Ocean through Central Europe, Northern Africa and into Asia.

The Crucial Partner in Order to Balance Power: India

Which leads us to the Indian Ocean; a dominant India can help control the sea lanes from the Persian Gulf to the Bay of Bengal and down to Australia. An Indian-Australian alliance, along with Israel would create a democratic economic and military force that would keep China and Iran from dominating the region. This would require an Indian navy that is not only large, but effective also because it would hold a main responsibility for patrolling the seas from the Persian Gulf up to Australia strongholds.

As India also reaches its potential as a global manufacturing giant, it will be a force to be reckoned with. Including into this potent mix of nations, is the possibility of adding authoritarian countries like Saudi Arabia and the other Gulf states; along with Thailand, Myanmar, Malaysia and Indonesia who have strong ‘western’ economic interests and would create a formidable bulwark against China’s imperialist Belt and Road project.

Without the need to project naval power worldwide the Unites States could use it massive naval, air and ground forces to take better control of the Pacific Ocean along with Japan, South Korea and Australia.

If we add countries like the Philippines and Vietnam, then China would be deterred from further aggression. The only other region that would fall under American responsibility would be the Atlantic Ocean – the shipping lanes to Europe, West Africa and the Mediterranean. Along with the UK and France there would be no challenger to the control of the Atlantic. This could also lead to a revival of the old Monroe Doctrine and maybe free South America from the destructive influences of Iran, China and Russia.

The Global Economy and Free Trade Zones with a Stable USD as Reserve Currency

What does all this mean for the global economy? The free world along with its less than free allies who fear China, Russia and Iran could still maintain a U.S dollar based world. Free trade zones amongst and between the various alliances along with a revival of manufacturing led by a technology revolution using AI, quantum computing, renewable energy and space exploration could lead to a global resurgence of free countries that could stop the authoritarian appetites of Russia, China and Iran in its tracks. This can only happen with a stable reserve currency the ‘West’ can rely upon which is the USD.

Potentially a U.S freed from being the sole defender of freedom in the world, would help get America’s fiscal house in order and allow it to focus on being a dominant economic power. Is there a future for the ‘free world’ without a United States that projects power globally? Currently, a U.S withdrawal from global military assertion would certainly cause the end of freedom (economic and political) in the world for many nations. However, with the new alliances described above and a fiscally responsible United States, freedom could yet make a comeback.

Disclaimer: the views expressed in this article are solely those of the author, and not necessarily the opinions reflected by angrymetatraders.com or its associated parties.

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Cricket Destined to be a Fountain of Joy & Money in India

by with No Comment CricketCultureFeatured Highlights

Cricket Destined to be a Fountain of Joy & Money in India

Ask any person in India who is young or old, man or woman, city resident or village dweller and you will struggle to find someone who does not understand cricket. Why does the sport have a such a huge following in India? And more importantly, why is the “business of cricket” so lucrative? To put it simply, it was destiny. And to understand this you need to know 4 key events that lined the stars up and destined cricket in India for success.

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First the Victory: June 25th, 1983

The sport of cricket was a remnant from the British rule in India which lasted until 1947. Cricket was considered an upper-class pastime, and probably not expected to survive in an independent India which was mostly poor. Yet cricket managed to endure at first, thanks to private clubs which played the sport for the prestige the British attached to it; and secondly with an even bigger thanks to the famous day of June 25th 1983, when India won the Cricket World Cup against all odds by defeating the mighty West Indies team. The icing on the cake was that the finals were held in London. It was at this point that India put the world on notice, that Indians could and would compete at something their colonial rulers of the past adored. The sense of pride created in India was uninhibited, and the first batch of Indian cricket stars were born out of this event. Naturally the interest and following of the game increased.

Second the Economy: Cricket Rules and the Power of Advertising

In the 1990’s the Prime Minister of India, P.V. Narsimha Rao, opened the economy to allow foreign companies to facilitate their business enterprises in India. Lowering the barriers for entry meant a liberal economy, which brought the likes of Honda, Leyland, Suzuki, Sony, and other well-known corporations to come in and partner with local Indian firms. Foreign capital brought jobs and fresh market competition which meant that India waded out of economic lethargy. International media companies were allowed to broadcast news, shows and sports on prime time television. The business impetus helped kick start the growth of television ads, which would be instrumental in pushing cricket popularity to new heights. How? It so happens that the rules of cricket are structured perfectly well to allow TV broadcasters to show ads every 4-6 minutes. No other sport in India (or probably the world) can boast of this unique set of advertising advantages. This meant there was plenty of advertising revenues to be made, which the broadcasters of course loved. The television broadcasters and BCCI realized these powers quickly and turned the sport into the business of cricket. Wait, who is BCCI?

Third the BCCI: Power to Organize and Create Fame

The Board of Cricket Control in India (BCCI) is a private body that manages cricket activities in India. In the mid 1990’s as the economy opened, the BCCI sold the TV rights to broadcast Indian matches to Transworld International (TWI). This broke the monopoly of Doordarshan (a state backed broadcaster which did not pay fees to BCCI). After a bitter legal battle, the Supreme Court of India decided that matches were a commodity the BCCI owned, and broadcasters must pay the BCCI if they wanted to air the matches. From the late 1990s to 2000s the BCCI went from strength to strength and hosted several international cricket events, which were a commercial success leading to high profits for the BCCI itself and the International Cricket Council (ICC), a governing body of cricket. These circumstances turned the BCCI into a very profitable entity, and it helped that the BCCI was organized in a focused manner and run like a free business not harmed by government bureaucracy that other sports in India faced.

As the popularity of cricket and its talented players increased, so did the value of its teams and its players sponsorship deals. During the early 2000’s Indian cricket players began to be featured in adverts for shaving creams, sodas, motorcycles, shoes, credit cards and anything else they could pose with on camera. Indian cricketers were now household names and the business of cricket gained critical velocity regarding valuation. The BCCI had become very influential on the world stage and with their ample funds in the coffers, and ready for use the organization took the step to launch the Indian Premier League (IPL) in 2007.

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Fourth the IPL: The World of Cricket Takes Notice

The Indian Premier League is a high-intensity short-format (T20) cricket league, which is held annually and is contested by franchise teams. The league uses the shorter format of cricket to maximize viewer entertainment (including cheerleaders, fireworks and DJs) as opposed to showcasing traditional elements of the game like technique, proper form, and mental resilience.

The strength and stature of the BCCI is such that it negotiated with other international cricket boards to block out an exclusive window where fewer international cricket games happened during the IPL season. This meant that cricketers from all over the world (except Pakistan, for political reasons) were available to participate in the IPL. The Indian Premier League is huge.

Here are some important facts and monetary insights to consider:

· The Indian Premier League is the most influential cricket league in the world and attracts a huge audience because of the size and scope of its Indian fans.

· By the year 2014, the IPL was ranked sixth in average attendance via its games compared to all global sports.

· The Indian Premier League broadcast a game live on YouTube in 2010, becoming the first sports event to be officially shown live on the site.

· The IPL brand was valued at nearly 90,038 ‘crore’ (11 billion USD) already in 2022

· It was estimated in 2015 by the BCCI that the Indian Premier League had added 1,150 ‘crore’ (140 million USD) to the economy of India in Gross Domestic Product.

· The IPL achieved the status as a ‘decacorn’ valued at 10.9 billion USD in December of 2022.

· Thus producing a large statistical growth in USD compared to 2020, when the Indian Premier League had an accepted value of approximately 6.2 billion USD, this according to a report compiled by D & P Advisory, a consultant firm which inspected the IPL’s business.

· Recently the IPL championship final for 2023, became the most streamed live event ever on the internet with an estimated 3.2 ‘crore’ (32 million) viewers.

· The Indian Premier League sold its media rights early this year for the 2023–2027 seasons for a price of 6.4 billion USD to the Viacom18 and Star Sports companies.

· Creating a value for every match in the IPL of nearly 13.4 million USD, proving again the might of the gigantic Indian audience which appears to still be growing in stature.

With growing popularity and its ability to expand its audience, naturally corporations have lined up to advertise during the games. Celebrities have vied to own IPL teams and players have been traded at auctions for ridiculous amounts of money. The need for constant fresh talent has brought players from the small nooks and crannies of India to play alongside the international stars, allowing them to gain experience. This element of new players has added to the excitement of IPL for its viewers, while creating a framework to uncover new faces that could go on to play long-term for the Indian national team.

The synergy of the world’s best players along with the development of new talent from India and beyond is a win-win for the BCCI, and it continues to enjoy the growing fruits of success. No one knows when this high will end for cricket in India, but for the moment and foreseeable future expect cricket in India to generate revenues that other international cricket boards can only dream of, while the nation also contends as a top power in the sport globally.

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USD/INR: Elevated Range as Questions about Values Persists

by with No Comment AMT MarketsCentral BanksFeatured Highlights

USD/INR: Elevated Range as Questions about Values Persists

The USD/INR has traded the past week approximately between the 82.2200 and 82.7000 ratios. Plenty of discussion regarding what the Reserve Bank of India has been doing as they battle the strong USD has been whispered openly, and is being questioned from financial institutions and speculators. Day traders who have been trying to wager on the value of the Indian Rupee have likely found the waters difficult to swim. As of this writing the USD/INR is near 82.5200.

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USD/INR Three Month Chart as of 8th June 2023

Last Wednesday’s sudden rhetoric, from two U.S Federal Reserve officials caused mayhem briefly within the USD/INR. The currency pair got hit after India’s official trading hours closed, and essentially moved in overseas accounts based on the spoken words from the two Fed members stating the U.S central bank should not raise the Federal Funds Rate on the 14th of June. These sudden Forex moves hurt many USD/INR speculators. After this rhetoric from the two well-regarded FOMC members, like clockwork U.S economic data provided a counter punch last Friday with better than anticipated Non-Farm Employment Change numbers, this while inflation results also remained persistent.

Three Month View of the USD/INR offers Sentiment Insights and perhaps Clues

The past three months of trading in the USD/INR have produced a rather rocky price trend. A low of nearly 81.5200 was seen on the 14th of April, which turned into a high of approximately 82.9000 on the 19th of May. Intriguingly while many USD/INR speculators may be looking at the U.S Federal Reserve and casting blame, questioning the potential interventions by the Reserve Bank of India remains relevant. The Reserve Bank of India has actually been rather tranquil regarding its use of interest rate hikes; it has not raised the key lending rate aggressively in India like many of its major global counterparts. Why is this?

Is there a potential the Reserve Bank of India and the government has wanted the Indian Rupee to get weaker? Deflating the Indian Rupee’s value in order to potentially create an unseen tax is considered an old trick by economists. This because some believe inflation is a way to tax people without actually raising interest rates, the deflated value of a currency makes it easier for governments to sometimes repay debt, based on the notion the money they are now using is cheaper compared to when the Indian Rupee’s value was better.

Where is the USD/INR Going to Go Next?

I am no economist; my specialty tends to be risk analysis. There is an old joke, ‘why did god create economists? To make weathermen look good.’ The point is that economists often get their outlooks wrong, but we cannot blame only economists for getting their outlooks wrong, many of us do. The USD/INR has a tough few days ahead, it must deal with nervous market sentiment generated from a lack of clarity via the U.S Federal Reserve. Looking for correlations in the Forex market is proving difficult for the moment for all short-term speculators. Choppy trading in the USD/INR has been noticeable the past few days, this Monday’s upwards trend has turned into near-term consolidated day trading. Other major currency pairs are turning in rather turbulent results also without a firm technical stance.

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Gold Three Month Chart as of 8th of June 2023

After speaking with many associates in the financial sector the past week, it appears many people believe the Fed should stop raising interest rates for the time being. Some financial institutions seem to be leaning in this direction, but there are caution signs all over that warn about potential surprises from the U.S Federal Reserve.

Yesterday the Bank of Canada raised its Overnight Rate by another 0.25%, when most analysts believed they would pause. Another interesting sign is the current price of Gold near 1950.00. The recent lower price could indicate some financial houses believe the Federal Reserve may actually remain active regarding further interest rate hikes, this because the price of Gold has tended to rise when the perception existed the Federal Reserve is going to be dovish. Gold’s downward price action should raise suspicious eyebrows.

But then again, I am not an economist; I am merely a risk analyst. So my words to you are, be careful if you are wagering on the USD/INR before the U.S Federal Reserve’s pronouncements next Wednesday on the 14th of June.

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India’s Speculative Real Estate Bubble and Values: Part One

by with No Comment AMT MarketsAssetsFeatured Highlights

India’s Speculative Real Estate Bubble and Values: Part One

India’s Real Estate Sector is a Well Known Affair to its own Citizens and to Global Asset Management Companies

India’s major cities like Mumbai, the financial capital of India, Gurgaon, Delhi, Bengaluru and Hyderabad, the tech hub of the nation, serve as major attractions for local players and international corporate giants who want to participate in the real estate sector. While transparency still remains a challenge that needs to be addressed in Tier 2 and Tier 3 cities of India, underlying demand continues to expand throughout the nation. The Real Estate Regulatory Authority, passed a bill known as the RERA Act, by the serving government in March of 2016, to create transparency and fairness between buyers and sellers in the residential real estate market, however these measures do not always help circumstances as hoped.

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Well known companies like Blackstone which is based in New York, and Brookfield Asset Management of Toronto have vast operations in the commercial real estate sector of India. Their estimated investments are significant. Amounts spent are believed respectively to be nearly 50 billion USD by Blackstone, and the Brookfield figure is likely around 22 billion USD. The companies concentrate money for real estate, and infrastructure like telecommunications, roads and other spheres crucial to create value.

The reason why private equity giants allocate massive investments into India commercial real estate is due to the remarkable advantages of the locations available for property, and the capability to turn a profit. The land purchased and developed is usually situated close to burgeoning information technology companies. It is easily understood these IT companies have expansive needs to function properly which include plenty of area for employees to work. This is relevant in the north of India where Brookfield has invested in places like Mumbai and Gurgaon. Apart from the commercial demand for property, the employees who work in these type of companies also drive residential apartment sales in these cities.

The real estate market in Gurgaon has seen remarkable growth in the recent years where prices have experienced double digit appreciation. Readers need to understand that Gurgaon, is a city near India’s capital of New Delhi in northern

India. It’s known as a financial and technology hub. The rise of e-commerce players like Amazon and the Walmart owned Flipkart are important. Walmart spent around 16 USD billion to buy about 77% of Flipkart in 2018 and their vast operations also have sparked demand for huge amounts of property, including warehouses. This activity has certainly attracted the attention and desire of global players to invest in commercial real estate operations.

The residential real estate market has grown fast, and continues to achieve huge growth even after the coronavirus pandemic. An extremely rapid pace is fueled because low interest rates have appealed to new home buyers to initiate purchases of apartments and condominiums in metropolitan cities like Chennai, Mumbai, Hyderabad, and Bengaluru. Many affluent families in India from these major cities continue to own and rent residential homes in the areas, taking advantage of demand. According to a survey conducted by the global property consultancy firm Savills, now 70% of families in the metropolitan cities mentioned previously from the north and south of India have answered positively when asked if they would like to buy a second home in the next couple of years.

Residential real estate sales have been rising after the pandemic, especially for double bedroom apartments averaging 1200 square feet of housing, usually within a category that is priced in a range above 5,000,000 Rupees (around 60,000 USD). India’s benchmark mortgage rate is in the 8.7% to 9.7% range as of this writing, this is higher than it was one year ago. But Indian home buyers haven’t yet stepped back from buying, this because interest rates in India have not increased too much in percentage terms. The average time to pay a loan for residential mortgages ranges from 10 to 20 years in India. This allowable time frame makes it affordable for employees to pay via Monthly EMI, Equated Monthly Installments. The mortgages come with a floating rate meaning the buyers can reset their rates when the local interest rate falls. Yes, floating rates certainly do contain dangers if interest rates climb too high.

A Speculative Roulette Game: The Least Known and Unequal Affair

But there is another reality and a very different story in certain areas of India where data misses critical elements of the real estate business. Speculative participation in property is done by the most affluent who are the dominant buyers and sellers; speculative buying and selling is too expensive for most citizens. Real estate has frequently been used as a tool to hide wealth and avoid taxes by many within certain segments of India. The real estate speculative bubble creates vast distortions in the costs of rents, and affects employment opportunities for the masses. Government offices may sometimes turn a blind eye to these circumstances, because as long as cities and regions can collect money from the speculative frenzy there is little reason to turn off the revenue streams.

Frequently there is someone who is capable of bidding higher for lands in most of the Tier 2 and Tier 3 cities discussed, compared to those who actually need the property to live there and function properly. It is important to mention Tier 2 and Tier 3 cities and what is taking place in these areas, because these locations frequently lack substantial income generation opportunities for people and don’t have massive infrastructure or enough office space to employ people where wages have stagnated for many years. Take for example the Tamil Nadu, a state in southern India where I live, the average price of a double bedroom 1200 sq’ft residential apartment in the capital city of Chennai is around 6,000,000 Rupees (around $73,000 USD).

Readers need to note that the Indian ‘middle class’ prefers to have 2 bedroom 1200 sq’ft residential houses and apartments on average, thus builders construct houses and units based on land availability. Market prices for the property equals the costs of building materials and labor along with the speculative factors worked into the total value.

A look at the town of Madurai where the same apartment is available at a comparable price tag like Chennai is important to critique. Because wages in Madurai are a quarter, and sometimes less than half of what one could earn in Chennai, the disparities in the income distribution and the property prices in India become evident and need to be recognized.

In some rural towns where wages have not grown more than 5% per year,

India has seen real estate prices doubling every 4 years. For example, the rural town called Ponnamaravathy near to Madurai, which is my hometown, speculation in the real estate sector has seen frenzied pricing in an unprecedented manner for land and newly built houses. There is a great divergence between real per capita income versus the escalating real estate prices and rents in the interiors of India in towns such as Ponnamaravathy.

According to real estate analysts, most land parcels and their inventory of projects within metropolitan cities that are under construction has been bought by speculators. When units in new projects are sold to speculators, these generally change hands multiple times during the construction period, which generally lasts three to four years. Such heavy ‘churning’ means fast price increases. Also, the builders who market their own projects as investments raise list prices frequently to keep existing investors happy with notional gains, so they can point to the ‘attractiveness’ of potential speculation.

While it may not matter to some citizens in the larger cities, the problem of speculative influences do matter in the small towns where community wages have not grown properly. Inflation and speculative investments in these towns do not create sufficient job growth either. Surplus cash profits earned by many businesses, and foreign remittances, which were close to 108 billion USD in 2022, goes back into real estate speculation causing higher rents and forcing lower income households to struggle.

Rural Wages Haven’t Grown but Prices are Increasing for Homes

According to economists data, Average Nominal Wages in rural India is approximately 15,000 Rupees per month for men and 8,000 Rupees per month for women.There is an ample real estate supply in the rural market, but speculative demand has created steep pricing, typically initiated by large ‘investors’ willing to pay top money for any asset irrespective of its location, affordability or current market price based on the assumption values will continue to increase.

The difference between rural wages and costs for homes creates heavy disparities and inequalities for households living within the lower thresholds of society. For example, a double bedroom 1200 sq’ft residential apartment in Ponnamaravathy can be selling at a whopping 7,000,000 Rupees (approximately 85,365 USD). This is 20% more than what we have seen before on average in Chennai, and Madurai, a Tier 2 city, in Tamil Nadu state. The wages in the rural town of Ponnamaravathy are just 10% compared to what one could earn in Chennai annually, making the purchase of a residence priced at these higher values difficult for most residents and making many people renters for life.

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BRICS and a Potential New Currency Paradigm

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BRICS and a Potential New Currency Paradigm

The BRICS nations are causing alarm in some ‘Western’ financial circles as they seek to strengthen their trading alliance reflecting their ability to be large producers and consumers. BRICS has a common goal of creating better trade and financial conditions for each other, and as a potential byproduct to possibly create an alternative to USD dominance.

While political crisis and global security concerns have grown the past few years and are causing uncertainty and instability, the strength of the USD has also caused inflationary problems for many nations including BRICS members. Cash reserve shortages of USD have become problematic and have been fueled measurably by decisions from the U.S government, Federal Reserve system and U.S Treasury. This has ignited many emerging market nations to seek dialogue about potential BRICS membership.

Alliance intrigue and concerns also shadow BRICS members often, the February 2023 naval exercise held between Russia, China and South Africa within waters near Cape Town raised anger in the United States and the European Union. The fact that the joint military exercise was held during the first anniversary of the Russian invasion of Ukraine did not go unnoticed. While no signed military alliance exists between these nations, it should be noted that Russia, China and South Africa also held a naval exercise in November 2019 also within proximity to Cape Town, South Africa.

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USD/ZAR 1 Year Chart as of 28th April 2023

Formation and Agenda as Members Scoff at the ‘King Dollar.

The agenda of the BRICS nations often appears a desire to topple the dominance of the USD to those watching from outside, but is it realistic? Trading alliances are important certainly in order to create better economic stability. The BRICS potential effect on the USD is concerning, although not critically dangerous at this juncture the bloc needs to be monitored. In addition there are worries from some in the West that new military alliances could be formed, but historical and cultural differences within BRICS makes this rather questionable for the time being when contemplated in total.

BRIC was an acronym coined by then Goldman Sachs Chief Economist Jim O’Neill to identify potential opportunities for investors within emerging market nations. Members in this ‘bloc’ are countries that have begun to work in unison. About two months ago, Jim O’Neill reiterated the same refrain and alluded to the BRICS theme of suppressing USD strength and its reliance in global trade. BRIC (Brazil, Russia, India and China) was formed in 2009, and they added South Africa as a member in 2010 formally initiating BRICS. This coalition has met annually to discuss coordinated policies regarding trade, finance and investment opportunities. The next annual meeting will be held in August 2023 in South Africa. Vladimir Putin’s potential attendance at this year’s meeting is being monitored widely.

Plenty of discussions have already been articulated internationally about undermining USD dominance in global trade, but little effect has come to fruit in reality and the USD retains its moniker of ‘King Dollar’. However, countries being affected by the rise of inflation and the strength of the USD are becoming numerous and this has caused a diverse group of nations to seek conversations with BRICS leadership about being able to join the trading alliance. Iran, Algeria, Argentina, Mexico, Nigeria, Saudi Arabia, Indonesia, Pakistan, Egypt, Sudan, Syria, the United Arab Emirates, Bahrain, Turkey, Venezuela, Sri Lanka and Zimbabwe are some of the nations that have expressed interest in BRICS membership.

Impact of Sanctions on Russia and its Ability to Counter via BRICS

Russia has been waging a war with Ukraine for over a year and is currently under many Western sanctions. It’s been kicked out of the SWIFT banking system, which means it has limited opportunity to trade the RUB with Western countries. This in theory also limits the amount of USD that Russia can get its hands on.

Russia last year asked to be paid in Rubles (RUB) for gas and other energy purchases when dealing with E.U countries, trying to play a game of chess which largely failed. This while China too, tries to make the Yuan (CNY), a more significant currency in order to suppress USD dominance. China certainly has plenty of political and economic reasons to have the CNY emerge as a global power.

Russia has supposedly wanted to get out of Western currencies and especially the USD, this to punish the West, but will it work out and is it pragmatic? No. Russia’s attempts are high on rhetoric, but low on quantified changes thus far. The USD is far too dominant within the global banking system, and while incremental challenges to the USD have been tested, chipping away at USD strength remains difficult at best. The Kremlin has tried to inoculate itself from the pain caused to its trade balance because of sanctions, and create problems respectively for countries that oppose its invasion of Ukraine by cutting off gas supplies which were used for heating and to generate power for industrial purposes. Threatening to not allow grain to flow from Ukraine has also been a rather constant noise made by Russia.

Prices were capped on Russian energy via the G7 beginning in 2022 as a retaliatory move to limit revenues for Russia, and alternative gas agreements were sought by many European nations creating a loss of momentum for the Kremlin’s chess game. The Nord Stream pipeline was also damaged via sabotage. Russia used to supply Europe with 50% of its energy until sometime in 2021, it now provides less than 20% after Western sanctions. Russia has moved its eye towards other nations hungry for energy, ones that are not obligated to make transactions in USD, which brings BRICS into focus.

 
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USD/RUB 1 Year Chart as of 28th April 2023

Inflation and a Strong USD have Caused Harm Globally

Inflation has caused problems across the globe following the impact of the coronavirus epidemic. The Federal Reserve, BoE and ECB have raised rates to try and cool inflation in their respective economies. This has made the USD attractive against emerging market currencies and caused capital outflows. An economic nightmare has occurred in Sri Lanka which is suffering from staggering political and economic problems the past two years, and nations like Pakistan and Egypt have been hit hard too by inflation’s impact and debt. USD reserves dwindled in these nations and they found it difficult to service their USD denominated debt in 2022, and troubles persist in 2023. Import without any USD reserves is difficult and sometimes impossible.

Russia and China as Major Players in ‘Their’ Bipolar World with ‘Friends’

Global trade is still dominated by the “King Dollar”. Almost 88% of global trade happens with the USD. The USD accounted for more than 71% of currency reserves at central banks in 2000, but has now declined to slightly below 59%. Oil and gas exports are important for Russia as these revenues constitute nearly 45% of its Federal Budget and it’s already been in deficit since February 2023, because oil revenues have slumped by half. Russia has a growing dependence on BRICS and is actively trying to get other nations to join the trading coalition, this because it has few other places to turn, and there appears to be no end in sight regarding the war with Ukraine.

Trading with other nations and signing currency agreements which would not include USD transactions is a long term goal of Russia and China, this if monetary values via the other nations currencies can remain firm. And then there is a wished for and ‘feared’ long-term dream of creating an alternative ‘super’ currency to compete against the USD.

Even before the escalation of fighting in the Russia and Ukrainian War, Russia was strongly advocating an end to USD dominance in global trade via rhetoric, particularly during previous BRICS Summits. We need to understand the political implications and complexities within BRICS, when talk of a decoupling from USD dominance news flares up. The U.S certainly keeps an eye on BRICS and so do other Western nations. At this moment South Africa has a delegation in Washington, D.C regarding the questionable South African policy behavior, particularly in light of recent military exercises with Russia and China, to try and smooth its U.S relationship. South Africa membership in AGOA, the Africa Growth and Opportunity Act, which grants special trade benefits to the nation and other members is being questioned strongly by U.S politicians. Getting kicked out of AGOA would cost South Africa billions of dollars in aid.

China and Russia seemingly want to create a bipolar power sphere, one in which U.S dominance is not so easy. Chinese President Xi Jinping and Vladimir Putin have met several times recently and are certainly collaborating regarding trade and investments. The developing news regarding the potential of BRICS enlargement shows that China and Russia maybe preaching multi-polarities such as their involvement with South Africa, but may actually be working towards a bipolar constellation of forces in which they would lead a broad alliance of countries in countering the preponderance of Western economies and potentially military might.

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USD/CNY 1 Year Chart as of 28th April 2023

 

By allowing membership of BRICS to expand, U.S influence and the dominance of the USD would be lessened incrementally. A long game seems to be in play and if that is the case, the game of chess being played by Russia and China together against the West is complex and the U.S and its allies will need to be ready with a response if they want to protect the USD.

From the China point of view, the internationalization of the CNY is a positive. It has recently brokered a peace deal between Saudi Arabia and Iran, long-term arch rivals which surprised many in the West and seemingly caught the U.S unaware. China has also lent close to 1 trillion in USD value to Ghana, Pakistan, Nigeria and other smaller African countries. China is wielding power via trade and investment leverage into these respective nations strategically, pushing its global trade agenda even as Washington quietly threatens to punish China for backing Russia in the war with Ukraine.

Changing Role of China on the World Stage and BRICS

China’s role today is very different than in 2009 when BRIC was founded, this as the nation has become more secure regarding its stature globally. In the initial stages of BRICS there were talks about challenging USD dominance in global trade by member countries, but China vehemently avoided discussing this proposition openly to avoid conflict. The game has changed significantly regarding rhetoric, this as U.S – China relations have worsened as global trade, military security and corporate surveillance issues become more troubling. Political tensions with Taiwan as China rattles swords is a drama that nations are also watching attentively.

For China, the developing alliance with Russia has been a complex and sometimes slowly evolving plan historically, but one that has grown amidst tensions with Washington since the Trump presidency. The Russia and Ukraine war has accelerated the desire to break U.S led global dominance, and that means trying to break the USD internationally when it is possible. It is a long game and BRICS is part of this equation.

China and Russia view themselves at the vanguard in the struggle against Western global predominance, and they are eager to bring others on board. At the last summit of BRICS in June 2022, both Chinese President Xi Jinping and Russian President Vladimir Putin argued in favor of expanding into BRICS Plus. Beijing has become particularly interested with developing BRICS as a counterweight to the G7. While it has been difficult to establish a consensus on expansion among the current BRICS members, it appears to be a certainty that expansion is coming and the summit in South Africa this August will provide insights.

China is promoting the CNY in exchange for getting oil from Russia. The CNY is now ranked fifth regarding global transactions according to many banking sources. From the Kremlin’s point of view accumulating CNY reserves is good for Putin in the short-term; this creates more buying power for goods from countries that are friendly to Russia and China collectively and creates strategic momentum.

Yes, there are long-term historical complexities between Russia and China which will likely prove difficult politically to solve, but for the moment money is helping grease their wheels of diplomacy. Differences of opinion between Russia and China cannot be ruled out in these kinds of power games. Putin is an astute politician and liable to act in a surprising manner, this while trying to help Russia and its place among nations. Russia is certainly not keen on becoming a puppet state of China.

Trust is Almost a Four Letter Word for Some Economically and Politically

In his acclaimed book ‘Trust: The Social Virtues and the Creation of Prosperity’, the political economist Francis Fukuyama illustrates how degrees of trust in a society and indeed in a company can be decisive for prosperity and the ability to compete. In “low-trust” societies such as China, Russia and Italy, you cannot assume that everyone is willing to follow the rules. Members of these societies must frequently renegotiate ‘asserted’ rules, and often have to go to court to decide on matters. Ironically, one can see that this also applies to trading of the CNY.

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USD/INR 1 Year Chart as of 28th of April 2023

For instance, while China promotes the use of the CNY, countries like India are still using UAE Dirham (AED) for buying oil from Russia. BRICS still needs to sort out which currency they will use extensively for trade, this while many members try not to make enemies of other nations. South Africa exports are significantly more to the E.U, U.S and the U.K compared to Russia. Its share of exports to Russia are minuscule compared to the other three. Not only is South Africa risking free trade agreements with the U.S, E.U and U.K, but membership in key groups like AGOA as it tries to play on both sides of the fence politically is in jeopardy. Western observers are certainly watching South Africa and they will watch any other nation that joins BRICS. How long will the ANC led government of South Africa will be allowed to flirt with Russia and China militarily before it is stopped?

India has a Large Role in BRICS and is Growing in Stature

India is a vital member of BRICS, but also an important member of the QUAD alliance, the Quadrilateral Security Dialogue. Japan, Australia, the U.S and India are members and confer over trade and security. India is the largest democracy in Asia – and the world – and a Western advocate in South East Asia, even as China plays a dominant role in geopolitics. While BRICS wishes may be good for conducting bilateral trade among members, it is not necessarily good for global trade and political understandings. Complications from long-term political and historical disagreements between India and China cannot be discounted either.

Is the Indian Rupee (INR) or CNY more relevant for international trade? Use of the INR and the CNY needs coordination with other countries many times. Australia is a good example regarding the ability to trade INR internationally. If Australia and India agree to make their payments for exports and imports in their respective nation’s currencies, trade can be conducted rather well, but then Australia would have to find another nation for its ‘extra’ INR, because it would likely suffer due to trade imbalances. It would be important for another country outside of India to agree to take INR from Australia for other trades. Potentially some Gulf countries could be open to these types of INR transactions. A bigger group of BRICS nations would help India certainly.

Saudi Arabia has recently agreed to sell oil for CNY, but shoring up CNY in their coffers has long-term implications. This as Saudi Arabia wrangles politically with the U.S occasionally. Saudi Arabia has demonstrated a desire to take on a seemingly more neutral tone and perhaps wants to limit its exposure to the strength of the USD, particularly if the U.S tries to make a weapon of the USD via political policy. Thus, India as the most populated nation in the world and a growing economic sphere of importance, has to make careful considerations moving forward as it positions its economic stature for complexities that will develop. India and Saudi Arabia may have visions of becoming great ‘neutral’ economic powers moving into the next one hundred years.

The Indian Government has made economic deals with Egypt, Sri Lanka and Malaysia for bilateral INR trade, but still no pure INR trades of significance have materialized according to official banking data. There are multiple headwinds for BRICS nations to overcome USD dominance in international finance. Whenever exchanges of INR or CNY to other currencies for trade settlement are needed, they need to first change the base currency to USD to buy RUB or AED. Few exporting countries will accumulate CNY without a total need. Holders of these currencies would likely dump the INR and CNY for USD via Forex.

China Economic Transparency is Lacking and the Future of India in BRICS

China doesn’t make it easy for foreigners to own assets in their nation. The China government does not want massive trade deficits and free capital flows are restricted with force. Who would invest in China and risk having their money being stuck in the nation without guarantees? China continues to ramp up its oversight and aggressive tactics of supervision of foreign owned companies that have operations in the nation.

Now and into the foreseeable future, the Chinese government will control transactions of CNY with an iron fist. The United States will likely remain the predominant place for trade because of its huge economy, and as a nation that allows many other countries and foreign citizens to own and invest their assets within it boundaries. There is still something to be said for transparency. Any new nation or coalition trying to challenge U.S government debt instruments are likely to fail. The U.S continues to be a place where nations can hold ‘safe assets’ with a guaranteed return of interest for the long-term. No country equals the asset size and security of U.S Treasury Bonds. On that basis alone, there will be a no challenge to the USD in the near future.

Liquidity remains an issue for capital flows and convertibility within BRICS. A lot of hard work via transparent trade agreements will have to be signed to get these issues resolved. Plenty of questions exist regarding China’s economic data and its reliability because of a lack of oversight from ‘recognized’ outside agencies which are often forbidden.

India is still having border issues with China and these problems remain unresolved. India’s role of leadership in G20 is hard to ignore despite its alliance with BRICS. The Indian government has advised traders not to speculate in CNY. This shows that strained relationships between China and India remain and a lack of trust regarding clarity continues. In the U.S, New Delhi is considered an important partner, one that can be trusted regarding the growing rivalry between the U.S and China. Prime Minister Narendra Modi, said last year, “this is not an era for wars”, and this shows India wants stability and wants to play a global role in diplomacy.

There is a definite strategy for BRICS to grow with the nations of the Middle East and others. Using their currencies for mutual trade arrangements could eventually work out, but it will take a long time for this to change the dynamics of USD dependence and dominance.

However, we shouldn’t forget that almost 40% of the world’s population lives in Asia. Yet, even if oil producing nations will trade in a BRICS backed currency basket, which has been dreamed about for a long time, China’s leader Xi didn’t highlight this goal while in Moscow or in Saudi Arabia during recent summits. China is certainly playing a long game, but it also shows they remain cautious and vulnerable to the strength of the USD globally. If Xi wanted to cause the greatest pain to the United States, he would liberalize his financial sector and make the CNY a true competitor to the USD with complete economic transparency, but that would take him in the direction of free markets and levels of openness that are likely the opposite of China’s domestic ambitions. A strong due diligence of the Chinese economy, is something Chinese leadership likely wants to avoid for the foreseeable future.

BRICS: A Multi-Polar World and Avoiding Confrontation

Many developing countries will want to avoid a confrontation consisting of China and Russia on one side, and Western powers on the other side. India has overtaken China regarding population numbers, and will likely become the world’s third largest economy before the end of this decade. India will become a strong voice in favor of a multi-polar world. Arguably, ideas of a more multi-polar world are being worked towards in pragmatic ways, but the BRICS coalition will not develop their own asset backed common currency unless they can resolve issues regarding trade and monetary agreements with transparency. It is a matter of trust.