The BRICS want to create their own currency and trade without the dollar. Thus they hope to have more freedom and power. But there are many obstacles and risks. Will they make it?
Can you imagine having your own currency and not depending on the dollar? Would you like to buy and sell with your friends without anyone interfering? Does it bother you that they tell you how you have to govern your country? Well, that’s what the BRICS want to do: Brazil, Russia, India, China and South Africa. These five countries are so big and powerful that they have come together to create their own currency and trade with each other without using the dollar. That way they can do whatever they want without being fined or criticized for not being democratic. But not everything is as easy as it seems. Can they agree among themselves? Won’t they have problems with other countries? Isn’t it an illusion that fades like a dream?
The issue will be discussed at the next Summit of BRICS Presidents to be held in South Africa in August. Brazilian President Luiz Inacio Lula da Silva has already been in favor of the idea, as has Russian Foreign Minister Sergei Lavrov. Argentina has also announced that it will allow Chinese companies to invest in the country in Chinese yuan.
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But not everything is as easy as it seems. To create a common currency, many political and economic requirements are needed that the BRICS do not meet.. For example, fiscal and monetary coordination is needed between countries, a convergence of their levels of inflation and public debt, and mutual trust between their governments and their central banks. None of that exists among the BRICS, which have more differences than similarities.
Let’s talk a little about China and Russia. China is the giant of the group, with almost 75 percent of the gross product of the BRICS. Its currency, the yuan, is the only one that has any chance of competing with the dollar in the future, but it is still a long way from being an internationally accepted and convertible currency.. China has tight control over its exchange rate and capital flows, limiting its use outside its borders.
China is one of the oldest civilizations in the world. For thousands of years, the Chinese have lived under the same emperor who united them as one big family. Their culture is marked by the thought of Confucius, Lao and Buddha. The Chinese have harnessed the water and rice from the Himalayas to feed a huge population that produces a lot. In fact, before the industrial revolution, Asia was half of the world’s economy. Then the West surpassed them with their machines and their ideas. But now, China is growing fast and will soon be the first economic power. Will it be the end of the West? Or will it be the return of Asia? Chinese-style authoritarianism for everyone?
In another aspect, there is Russia. What is Russia? During centuries, Russia was a backward country that suffered from the rule of the Mongols. Until Peter the Great appeared and said: “We are going to imitate Europe.” And he began to transform everything by force. But not everyone supported him. A century later, there was a communist revolution that overthrew the czars and founded the Soviet Union.
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Now, there are two Russias in constant conflict: a Russia that seeks its identity by looking to the West and another that closes in on itself, taking refuge in its Mongolian roots. After World War II, Russia clashed with the United States for control of the world. But in the end, the Soviet Union fell apart, and Russia was left very badly. Now it has a despotic president who wants to regain power. Putin wants to be the new Genghis Khan? Will he be positive or negative?
The BRICS say they want to create a new currency to reduce their dependence on the dollar and the euro. But, in my opinion, one should not get too excited. This is not a new idea, but an old dream that is repeated from time to time. And we already know how difficult it is to make dreams come true. You only have to see the problems that the European Union has had with the euro. The BRICS have many obstacles to achieving their common currency, such as political, economic and social differences between them. Besides, the BRICS have neither the will nor the ability to create a common currency in a reasonable time frame.
Creating a new currency is not as easy as it seems. It is not enough to give it a pretty name and design some colorful banknotes. You have to have a solid economy, stable politics and a good international reputation. Can we trust the Chinese and Russians with our money? I doubt it. The dollar is strong because it is built on trust in the US economy, its political system, and its global leadership. The BRICS can continue dreaming of their common currency, but I am afraid that in the meantime we Latin Americans will have to continue using the dollar to do business with the rest of the world.
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Would you like to have that new currency in your wallet? It is not the dollar or the euro, but something more exotic. A currency created by the BRICS. I love her? Thanks but no thanks. Too much political risk because they are authoritarian regimes.
Who would be the issuer of that coin? BRICS. They are truthful? The trustworthiness of a coin is the trustworthiness of its issuer. The important thing is that the issuer is capable and honest, that it has clear accounts, that it does not change the rules of the game all the time and that it does not run out of funds to back its currency.
Do the BRICS meet these conditions? I doubt it. And what happens if the issuer does not comply with these conditions? Well, your currency can lose value very quickly (inflation), or that nobody wants to accept it (illiquidity), or that you declare bankruptcy (default). AND then your savings can become a piece of paper. And that is not funny.
That new currency, perhaps, could be used to settle accounts between the BRICS governments. But that does not mean that it is a good idea for Latin Americans to start saving in that currency.. Could it compete with the dollar and the euro in that regard? Do you think it is a good idea? Would you trust a currency issued by these countries?
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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