Based on an interview with Tashreeq Truebody, Radio 786, South Africa
Questions
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Global economy and Brics
Peter Koenig
Let’s put the BRICS in perspective: The BRICS are of course Brazil, Russia, India, China and South Africa. Together they make up for almost 50% of the world population and close to one third of the world’s economic output, or GDP.
This alone would make them fully independent from the western economy, from the western, what I call, fraudulent dollar-based monetary system. And it will happen – it will happen sooner than the world believes. However, with the current political structure of the BRICS, the relative lack of political and economic coherence, safe for Russia and China, this for the moment is just theory.
If you allow me, let’s backtrack a bit in history, to where the term BRIC came from, and who coined it. At the beginning, South Africa was not yet member of the association. In 2001, shortly after the 9/11, in 2001, the chief economist of Goldman Sachs, Jim O’Neill, invented the term BRIC – as he was forecasting that these emerging economies, spread throughout the world, Brazil, Russia, India and China – would overtake the so-called western economy by 2041. The forecast was later revised several times, all the way to 2032 – and now, there is, I believe no formal forecast, but it could easily happen by 2025, or earlier, especially with the new Oil-for-yuan and gold exchange market soon to be opened in Shanghai. Many predict this to be the end of the petro-dollar, and the end of the dollar hegemony.
Then strangely and formidably the four BRIC countries realized their potential and took things in their own hands. That’s how dynamics work – often totally unpredictably. For sure, Goldman Sachs and their Chief economist had no clue that this would create the western monetary and economic system’s most daunting adversary.
The first BRIC summit was held in Russia in June 2009. That was the formal conference to create the BRICS.
By 2011, the five countries, Brazil, Russia, India and China – plus South Africa were the five fastest growing emerging markets, and in April 2013, South Africa was added to the BRIC group – to make it formally the BRICS.
This just as a little historic introduction – to show that the impetus for the BRIC(S) came actually form a most unlikely western source – Goldman Sachs.
In the meantime, the BRICS are struggling with another reality. For the BRICS to be an effective alternative to the western economy, or the western monetary system, they need a unified political vision, as well as a coherent and unified economic development approach, one that distances itself from the western dollar-euro based system. Unfortunately, today this is not so. But that doesn’t mean it will not happen. Personally, I believe it will. It may just take longer than the majority of the world may have liked.
Both Brazil and India are totally in the hands of Wall Street, the World Bank and the IMF. In the case of India, you will recall last fall’s deadly monetary fiasco, when PM Narendra Modi decided to cancel more than 80% of the countries circulating cash currency, and as an interim step to replace it with other bills and eventually digitalize the Indian economy.
It is not known how many poor Indians perished, those with no access to bank accounts, those who have no alternative means to pay for food. Uncountable small businesses failed – an important impact on the Indian economy. More, much more inhuman was the impact on the poor average Indians. But – Modi followed the dictate of the west, of Wall Street and the IMF – with a program to test digitalization in a large emerging economy, implemented by USAID. – How much trust does India under Modi as a BRICS member deserve?
And Brazil under neoliberal Temer, who is under accusation of corruption; he has literally handed his country’s economy to the sharks of Wall Street, the IMF and the WB. So, when Temer and Modi stood there holding hands with the other three BRICS members in Xiamen, China on 4th and 5th September – it looked to me like a club that was united only by name.
Yet, the theme of this 9th BRICS Conference was “BRICS: Stronger Partnership for a Brighter Future”. – I truly hope this objective will be achieved. And it very well may – over time. It is important to approach such an event in a positive and forward-looking spirit.
Perhaps it was along the same philosophy, that ahead of the September summit in Xiamen, President Putin said something crucial, but highly political and highly diplomatic: “It is important that our group’s activities are based on the principles of equality, respect for one another’s opinions and consensus. Within BRICS, nothing is ever forced on anyone. When the approaches of its members do not coincide, we work patiently and carefully to coordinate them. This open and trust-based atmosphere is conducive to the successful implementation of our tasks.”
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Understanding Industrialization / development and the Brics Bank.
PK
Let’s start with the BRICS development bank, now called New Development Bank (NDB). It emerged as an idea from the Durban BRICS summit in March 2013 and was formally created in 2014, and signed as a Treaty in July 2015.
Under the Agreement the BRICS Development Bank, as it was first called – now the NDB, they set up a “reserve currency pool” of US$ 100 billion. Each of the five-member countries was to allocate an equal share of the US$ 50 billion start-up capital, to be expanded later to the US$ 100 billion.
Contributions per country were, Brazil, $18 billion, Russia $18 billion, India $18 billion, China $41 billion and South Africa $5 billion. The problem is that the initial capital and the Contingency Reserve Arrangement (CRA) of US$ 100 billion was set up in US dollars.
How can they break loose from the western dollar-based monetary system, if their contribution is dollar based?
Also, South Africa and Brazil are heavily indebted – in US dollars. South Africa’s current debt is today above 50% (US$ 153 billion) of GDP which stands just below 300 billion.
To comply with their contribution to the dollar-denominated CRA, Brazil and SA may have to borrow from where? – Wall Street, or the IMF, as the CRA is a dollar reserve fund. This puts these countries even more into a dollar bondage, in the hands of the FED and the Bretton Woods Organizations – instead of freeing them from this predicament.
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As a parenthesis, South Africa’s interest on foreign debt of $153 billion was about US$ 5 billion (2016). Foreign debt is almost 52% of SA’s GDP of close to US$ 300 billion. The US$ 5 billion debt payments are higher than the country’s spending on tertiary education (about R60 billion / US$ 4.6 billion equivalent). This is also a good reason to detach from a debt-based monetary system – and, as originally was planned by the BRICS – migrate towards a BRICS own monetary and international payment system – similar to the one already introduced to the world by China – the Chinese International Payment System (CIPS).
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On Industrialization – the NDB will certainly help boost industrialization within each of the BRICS countries, but also among the BRICS countries – and even outside the BRICS nations, as trade will increase.
At present the NDB has approved seven investment projects in the BRICS countries, worth around $1.5 billion. This year, the NDB is to approve a second package of investment projects worth $2.5 to $3 billion in total.
Although it is not clear what precisely these projects entail, the original idea for the NDB was to support infrastructure and energy projects within the BRICS countries. There is a big need for infrastructure and independent energy production. Of course, infrastructure and energy development, means also industrialization and trade.
- Economic diversification
PK
A solid BRICS cooperation, as well as an own development bank, will most likely attract – and through the NDB leverage – new investments. This was one of the goals discussed during the Xiamen summit. The amount of which is difficult to predict, but Indian PM Modi has talked about an expected 40% increase over the next few years. But even if India or any BRICS country receives foreign investments, it will be difficult to discern which investments are directly related to the new BRICS strength, as so fervently expressed in Xiamen.
More important is the diversification of investments, as well as the related trade. There are currently several countries on a – what shall I call it – “wait list” – to become members of the BRICS. For example, South Korea and Mexico (both are OECD members), Indonesia, Turkey, Argentina, have been mentioned.
Trade between emerging and developing markets has already been increasing more rapidly than “globalized average trade” for which WTO imposes the rules. I could imagine that trade – and, thus, diversification – between BRICS countries, or better even, an enlarged BRICS block, could really boom. It would be a sort of ‘globalization’ with most trade barriers removed, of a peace-oriented economy, one that strives for the well-being of the people, rather than an elite – and of course, an economy that does not work for the war industry, as does the western dollar-based economy.
For that reason, it will be important that the BRICS detach themselves from the western dollar-based economy and eventually have their own currency. At the Xiamen summit, this was discussed in some ways.
The five members have agreed to “promote and develop BRICS Local Currency Bond Markets and jointly establish a BRICS Local Currency Bond Fund, as a means of contribution to the capital sustainability of financing in BRICS countries, boosting the development of BRICS domestic and regional bond markets.”
This comes pretty close to what the Euro was before it became Fiat money, i.e. it was the European Currency Unit (ECU) that then converted into the virtual Euro, before in January 2002, the Euro became paper and dollar like Fiat money.
By now we know that the US drove this European currency effort – establishing the euro as the foster child of the US dollar – totally unsustainable as a unitary currency of a group of countries that have no common political interests and goals, that have no common Constitution. Their only common denominator is NATO, their permanent drive for war. It was clear from the beginning that such a project will be doomed to fail.
Hopefully – and I trust, the BRICS will learn a lesson from this failed exercise, and only with a strong bond that includes political, economic and defense long-term goals, a common currency can flourish.
In Xiamen, the BRICS also established the Strategy for “BRICS Economic Partnership and initiatives related to its priority areas such as trade and investment, manufacturing and minerals processing, infrastructure connectivity, financial integration, science, technology and innovation, and Information and Communication Technology (ICT) cooperation, among others.” All this for sustainable, balanced and inclusive global growth.
This Strategy already is indicative for a different development and monetary approach than was the one that laid the cornerstone for the European Union.
- Trade between Brics and the dollar
PK
This will be interesting to see emerging. In the medium term, I see a full integration between the countries of the Shanghai Cooperation Organization (SCO) and the BRICS. Several countries are already today members of both associations; for example, Russia and China, recently also India joined the SCO. The SCO also comprises most of central Asia, the former Soviet Republics, and also new Iran and Pakistan. The SCO has already a common long-term objective, in economic development, political vision, as well as defense strategy.
During the recent Eastern Economic Forum (EEF) in Vladivostok, President Putin and President Xi announced cementing of the fusion between the Eurasian Economic Union (EUAU) and the new ‘Silk Road’, also called “One Belt One Road” (OBOR), or for short “OBI” – the One Belt Initiative.
Since OBI is largely driven by SCO, i.e. by China, this also means that the countries of the Eurasian Economic Union are part of SCO. Imagine, the economic power of the entire group SCO, EAEU and BRICS…. Western supremacy will be a thing of the past.
This means worldwide trading – but without the dollar hegemony, without an economic and monetary systems that allows Washington to impose “sanctions” – outrageous and illegal punishments on countries that refuse to follow their dictate. Its high time that this high crime stops. And that we reinstate international law – which today is completely ‘bought’ by Washington.
Today it is clear to most progressive and forward-looking economists that the future is the east; the west has practically committed suicide with its constant wars for greed and dominance and disrespect for the very peoples that foot the western empire’s war bills.
- Brics development bank vs. World Bank
PK
Yes, the original idea was – and I hope still is – that the BRICS New Development Bank will be able to compete with the WB and the IMF. In other words, by applying non-neoliberal economic policies and with loans that do not impose austerity – which, as we know, is devastating for economic development – but will promote peoples’ based development – aiming at a more just income and wealth distribution.
This is not yet the case.
As mentioned before, the problem is that the BRICS bank’s initial capital and the Contingency Reserve Arrangement (CRA) of US$ 100 billion was set up in US dollars.
Also, as said before, South Africa and Brazil are heavily indebted – in US dollars, an existing bondage that is difficult to break. But not impossible!
The same is true for the Chinese Asian Infrastructure and Investment Bank (AIIB), whose capital of currently also US$ 100 billion is also dollar denominated, and of which about US$ 18 billion is paid in.
It is very likely that the NDB and the AIIB will work together in the future – and jointly break the stranglehold of the WB and the IMF.
In order to do so, they both need to totally break loose from the dollar economy – which is about to happen, perhaps soon, with the enactment of the Chinese Petrol exchange in Shanghai, where trading will NOT be in US dollars but in gold-convertible Yuan.
A possible solution is an SCO-BRICS currency basket, similar to the IMFs Special Drawing Rights (SDR) basket which currently consist of 5 currencies – the US-dollar, British Pound, Euro, Yen and since October 2016 also the Chinese Yuan. This may start out as a virtual currency for external trade, while each country preserves her own monetary system.
It looks like a brighter future is ahead.
Peter Koenig is an economist and geopolitical analyst. He is also a former World Bank staff and worked extensively around the world in the fields of environment and water resources. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research, ICH, RT, Sputnik, PressTV, The 4th Media (China), TeleSUR, The Vineyard of The Saker Blog, and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance.
This is a very important subject that will determine the value or weakness of Fiat currencies in the hands of the one’s that manipulate their value . I completely agree with the author with regards to the conundrum of the strength of the US dollar as the reserve currency . How do you break from ‘it’ when the comparative valuation is being consistently benchmarked to the US dollar itself. What is the value of a Bitcoin ,what is the value of an onze of Gold ,well its always based on the US currency , therefore the trend should be on an alternative benchmark . So far the only reasonable alternative is the Shanghai oil and gold exchange ,but it is in its infancy as we speak , yet it doesn’t answer the question ‘yet’ of what the replacement value should or could be . The Chinese hold a lot of US dollars and I believe that ‘they’ are trying to depreciate the dollar , but at what loss in buying power . Is this the reason that the Chinese are dumping the dollar and simultaneously trying to by whatever they can while the price is still high .Either way the supplanting currency will have to backed with something , Gold perhaps but at what comparative value , that is the question.
Thank you Peter for this article.
I am glad you highlighted India under Modi rather negative role within BRICS – “How much trust does India under Modi as a BRICS member deserve?”
It was quite telling at the UN that all the BRICS bar India didn’t sign The US reform declaration. His visit to Israel also gave a hint to his allegiances and his games with China and Pakistan.
I think Iran will soon be brought into the BRICS – the Saudi’s are meddling via Tajikistan to stop Iran joining the SCO- somehow I don’t think China and Russia will allow this to happen and get Iran in. More countries will follow.
As you say the most significant thing to hapen will be the end of the use of the US dollar – which is speeding up.
Excellent interview. It gives us a valuable tour of the situation – thanks Saker and team for publishing this. Koenig in strong and very coherent flight.
There are two comments here so far as I write this – my respect to Stefan Ratkiewitz and Anonymous for great points. Stefan pinpoints the valuation of currency as the absolute crucial thing – where will values come to rest relative to each other? The whole world waits.
Anonymous when you mentioned Iran I could feel a palpable sense of sanity. This is exactly the nation that a troubled world needs in any multi-polar alliances, but especially the fiduciary ones at discussion here.
Peter Koenig – thanks for the overview. We have grounds to hope that it will be a non-sinister and relatively non-turbulent mixing of elements as the SCO-BRICS basket of currencies and the SDR basket negotiate price discovery over the next few short years. Within this process the US will step back and China will step forward, and hopefully none will stumble and fall. The baton will pass.
Crypto currencies and precious metals will combine into this sorting, and we may just end up with a stable trade currency that the world can agree on – and one not based on plunder to maintain its value.
In Koenig’s own words, “It looks like a brighter future is ahead.”
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And while we have a lot of criminal financial instruments such as derivatives – and anything devised by Goldman – to retire also from the stage, let the record show that these are all denominated in USD, and one has to think that new currencies would discount their price dramatically, if they even allow trading in them. The FED may have its work cut out to buy them all, but no tears will fall around the world.
// It is not known how many poor Indians perished, those with no access to bank accounts, those who have no alternative means to pay for food. Uncountable small businesses failed – an important impact on the Indian economy. More, much more inhuman was the impact on the poor average Indians.//
Lack of knowledge is dangerous.
Modi created the Jan-Dhan scheme where everyone was provided bank accounts. Then the subsidy for poor was was directly transferred to these accounts, bypassing the loopholes & siphoning of money / corruption in the system. When both these things stabilized, Modi went for the Demonetisation.
How was the Impact on ‘Poor Indians’ ?? They voted in large numbers for him in the polls.
It is quite ok to have suspicion on some country or some leaders. But don’t comment on things that you are not fully aware. And don’t go by what the English newspapers write in India. They are a part of an ecosystem that was nourished by erstwhile rulers. We call them champagne / scotch sipping Lutyens Delhi. They are unhappy as their ‘reach’ in the system has been curtailed.
Well done interview. PK provided some very informative analysis of the potential and the problems BRICS faces. Right now it appears that a lot rides on reducing the zionazi influence in India and Brazil.
You raised the point: “an economy that does not work for the war industry, as does the western dollar-based economy”. The cost of the US defence bill is USD 700 billion per year and this is just to maintain and grow the US military. Include all the bills for the various wars financed by the US and the whole US economy is configured as an austere war economy. It smells like a war economy, it looks like a war economy and it feels like a war economy. It is a war economy. Not only is the US economy being chained in to support the US military and its many wars and sub-wars, the US is forcing the entire world to finance its global blood-bath through its I.O.U. – the US dollar.
How will this movie end? We have seen a similar movie before that ended in the economic collapse of the USSR.
China has already prepared the non-Western world for this by establishing new financial architecture. This safety net is also opened for the non-US West. Also the US if she can overcome her hubris.
And when will the world move decisively to gold-backed currencies? It will be when the US economy collapse beginning with the crude oil and gas producers ditching the US dollar and pricing in other currencies. Venezuela already done so. But the US can save itself by engineering a regime change either through a colour revolution or by throwing off all pretense with a direct invasion.
But the tipping point will be when the Saudis and Qatar began to price their O&G in other currencies as well. This should create a snowballing effect resulting in countries which are holding trillions of USD as reserves selling it down for gold-backed or even oil-backed currencies.
In such a scenario, the US will be forced to peg its dollar as a fraction of the Yuan, in which case the US economy will implode to become a fraction of the Chinese economy.
How soon can this happen? It can happen faster than anyone can predict. Everything seems normal as in the eye of a storm when forces in disequilibrium are moving catastrophically towards a new equilibrium. The US cannot continue this way for much longer. Trump’s Hitlerian rant at the UN General Assembly had shocked the entire world and solidified the perception that the US cannot be allowed to lead and force the world to follow her leadership. It can happen tomorrow. It may already had happened because nobody now takes the US seriously. They are only afraid of her nuclear weapons and her proven audacity to use them. As a gut feel, I think it will happen before 2025. Probably earlier. And I think that China and Russia have already simulated and gamed out the collapse of the US with their super computers.
A leader leads only by the consent of those led. Otherwise a dictatorship will result. And I don’t think the world will accept a US dictatorship, now brazenly and banally proclaimed by Trump’s hate speech. The whole world, in revulsion, is ready and looking for ways to throw off the US yoke which is too burdensome and undignified.
Welcome to the multi-polar world!
Hi Simon this comment plus one other were sent to our spam by our ‘auto spam filter’. I saved this one but inadvertently deleted the other … you will need to repost the one i deleted. … herb
Noted. Thanks for saving one.
Dear Moderator,
I reposted and send in one more comment. Have both been automatically spammed and deleted?
Yes thats correct Simon…. your 2nd repost went to spam and as i went through about 50 spam messages your was there and unfortunately i deleted it for a 2nd time. The finger works faster than the brain. I am somewhat embarrassed by making the same error twice but that is what happened …. do you have some link in your message that the spam filter is picking up … its an AI program and both times your comment was selected and send into the spam queue …. my regrets herb
No link in my post. Maybe the neocons did not like my post and put something there for the AI to interpret as spam. After all I use Google Chrome. My second post was a tongue-in-cheek comment about how the price of gold would henceforth be determined in response to reader Stefan Ratkiewicz. My third post was a rebuttal of reader Chakra on the Indian economy and Modi’s economic and de-monetisation snafus.
OK Simon … i also pulled this one out of spam … i check ip address and its on 5 blacklists. If you have a vpn you could try jumping to another ip address.
Dear Mod,
The AI used to ‘spam’ my posts is unlikely to be a true AI program. It is likely just a simple filter program. If it is AI, it should be able to read the post and compare with the Saker’s moderation policy. It should not rely on somebody else “blacklist” or criteria/prejudice that is secretly black-marked onto the reader’s IP address.
I’m not sure how it works internally. Its called “Akismet Anti-Spam” plugin for wordpress. I do not know if it uses blacklists or not … only know that the ip address that you came in on was on 6 blacklists out of about 70 in total blacklists checked( http://whatismyipaddress.com/blacklist-check ) and i’m just making an ‘assumption’ that this was cause but do not know the criteria that akismet uses.
What’s the alternative that Brics could offer ? None. Capitalism is capitalism.
Brics countries currently do not offer an alternative system to neoliberal capitalism. They are not a new eastern bloc. These countries have integrated into NWO and are vital players of neoliberal globalisation.
Unless the alternative they offer is “capitalism with an Indian/chinese face ” , which is indeed laughable 😁.
A model based on sweat shops, tax and other concessions to multinational corporations, exploitation of the local workforce, and very low wages that support a quite miserable existence at best .
Of course, these countries of the brics group are quite large in terms of land size, resources and economy, demographics etc. and will gain more importance as the years go by.