BRICs hit by capital outflows [Soberlook]


Capital outflows from emerging markets, in particular the BRIC nations, are picking up steam. BRIC currencies, except for the Renminbi (which is tightly controlled by China) have corrected sharply. (The charts below show how much of each currency can be bought with one dollar – the larger the number the weaker the currency).

1. Brazil

WSJ: – …investors made net withdrawals of $2.4 billion dollars from Brazilian investments during the period May 1 through May 11, according to Brazilian Central Bank figures released Wednesday. The figures represented a significant speed up in withdrawal of capital from Brazil. During the entire calendar month of April, net withdrawals totaled only $939 million.

Brazil’s foreign trade accounts, on the other hand, brought in a significant net volume of dollars. Net trade inflows for the period May 1 through May 11 were $1.8 billion–but there was still a shortfall of $639 million.

USD-BRL (Brazil)

2. Russia

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BRICs Bank To Rival World Bank and IMF and Challenge Dollar Dominance [goldcore]

Outgoing President of the World Bank, Robert Zoellick, after just three days ago dismissing the idea of a BRICs created, new global multi lateral bank, has come around and endorsed a BRICs bank in an interview with the FT.

Zoellick had initially said that a BRICs bank and potential rival to the western and U.S. dominated IMF and World Bank, would be difficult to implement given competing BRIC interests.

He acknowledged that a BRICs bank was being created and said that the World Bank supported such a bank. He said that not having Russia and China as part of “the World Bank system” would be a “mistake of historic proportions”.

Leaders of the BRICS nations meeting in India appear to have made much progress in creating a new global bank as the emerging economies seek to convert their growing economic might into collective diplomatic influence.

The five countries now account for nearly 28% of the global economy, a figure that is expected to continue to grow.

On Thursday morning, President Hu Jintao of China, President Dmitry Medvedev of Russia , President Dilma Rousseff of Brazil, President Jacob Zuma of South Africa and Prime Minister Manmohan Singh of India shook hands at the start of the one day meeting in New Delhi.

BRICS leaders, from left, Brazil’s President Dilma Rousseff, Russian President Dmitry Medvedev, Indian Prime Minister Manmohan Singh, Chinese President Hu Jintao and South African President Jacob Zuma. Photo: AP

Top of the agenda was the creation of the grouping’s first institution, a so-called “BRICS Bank” that would fund development projects and infrastructure in developing nations.

The initiative would allow the countries to pool resources for infrastructure improvements, and could also be used in the longer term as a vehicle for lending during global financial crises such as the one in Europe, officials said.

Less noticed and commented upon is the aspirations of the BRIC nations to become less dependent on the global reserve currency, the dollar and to position their own currencies as internationally traded currencies.

The leaders of BRIC nations and other emerging market nations have adopted the idea of conducting trade between the five nations in their own currencies. Two agreements, signed among the development banks of Brazil, Russia, India, China and South Africa, say that local currency loans will be made available for trade between these countries.

The five fast growing nations participating in local currency trade will allow participants to diversify their foreign exchange reserves, hedging against the growing risk of a euro or dollar crisis.

The BRICS want to have easy convertibility of currency to make it easier to use the real, ruble, rupee, renminbi and rand amongst themselves without having to always use the US dollar. Higher intra-Brics trade, conducted in their own currencies would shield their economies from economic dislocations in the west.

In the long run, if global dependence and exposure to the dollar is to be reduced, then the BRICs currencies will have to trade amongst themselves, creating an intra Brics currency market. This could lead to a special reserve BRICs currency that could rival the IMF’s Special Drawing Rights (SDRs) and in time a regional currency could emerge. However, the EU’s experience of a single currency may make this less likely.

Left unsaid so far is the possibility that one of the BRICs or the BRICs in unison might peg the value of their respective currencies to the ultimate store of value and money – gold.

Having a gold standard enforces a form of fiscal self or national control and does not allow any one nation to have an exorbitant privilege in terms of monetary affairs that can be used in order to further selfish national or national corporate or banking interests.

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BRICS summit videos

The BRICS summit has wrapped up in India. Creating an alternative global lender and stepping away from the dollar as a reserve currency were among their main objectives.





BRICS summit to explore creation of bank [aljazeera]

Group of five rising powers to discuss creation of “South-South” development bank in mould of World Bank.

The five-member BRICS countries account for roughly 18 per cent of the world’s GDP [AFP]

The proposal of a development bank is high on the agenda at the summit of the five BRICS bloc nations – Brazil, Russia, India, China and South Africa – starting on Thursday in New Delhi.

The proposal for a “South-South” development bank in the mould of the World Bank is one of the main points to be discussed by the group of five rising powers at the fourth BRICS summit.

The initiative would allow the countries to pool resources for infrastructure improvements, and could also be used in the longer term as a vehicle for lending during global financial crises such as the one in Europe, officials said.

“What will be discussed (in New Delhi) is the possibility of setting up a BRICS development bank for infrastructure projects, development, not only in member countries but also in developing countries,” Maria Edileuza Fonteneles Reis, a senior Brazilian foreign ministry official, said.

Fernando Pimentel, the Brazilian industry and trade minister, told reporters in Brasilia last week, “the proposal to set up a BRICS bank, an international, investment bank of these five countries,” is the main item on the agenda.

He said that the countries would sign a deal at the summit to study the creation of the bank.

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Currency war update

Faber Exposes Unprecedented Perils of Our Currency Crisis

Posted by Brittany Stepniak – Tuesday, March 20th, 2012

According to Dr. Faber, there are some rather dire unintended consequences associated with the U.S. currency crisis.

Moreover, Marc Faber asserts that downward spiraling inflationary trends all across the globe maintain a direct correlation with the Federal Reserve’s money printing policies.

While we’re all aware of the danger of printing too much fiat money, Faber stresses that the world’s fiat currencies are in greater danger than any of us realize…

Here’s how Faber views inflation:

If you start to print, it has the biggest impact. Then you print more — it has a lesser impact, unless you increase the rate of money printing very significantly. And, the third money-printing has even less impact. And the problem is like the Fed: They printed money because they wanted to lift the housing market, but the housing market is the only asset that didn’t go up substantially.

In general, I think that the purchasing power of money has diminished very significantly over the last ten, twenty, thirty years, and will continue to do so. So being in cash and government bonds is not a protection against this depreciation in the value of money.

Additionally, Faber explains how the Fed can’t possibly forecast the economy with accuracy because they are “academics,” and have “never worked a single day in their lives.”

Essentially, they lack the experience to understand the big picture.

They aren’t businessmen balancing books; they don’t go shopping and spend time at the local pub; they don’t need to sell products or services to make a living for themselves… The are paid by the government and lack an insider’s understanding of the way the U.S. economy truly functions.

Perhaps this is why they print money and their naive idealism lets them believe it will bring wealth back into our nation.

Unfortunately, that’s simply not true. If it were, every country in the world would thrive in prosperity and live happily ever after.

There are no Utopian societies. Printing endless amounts of paper money won’t change that fact.

And the unintended consequences of firing up the printing presses time and again will lead to unprecedented hardships in America — and across the globe.

Again, Marc Faber tackles this issue stating:

We know one unintended consequence, and this is that the middle class and the lower classes of society, say 50% of the US, has rather been hurt by the increase in the quantity of money in the sense that commodity prices in particular food and energy have gone up very substantially. And, since below 50% of income recipients in the US spend a lot, a much larger portion of their income on food and energy than, say, the 10% richest people in America and highest income earners, they have been hurt by monetary policy. In addition, the lower income groups, if they have savings, traditionally they keep them in safe deposits and in cash because they don’t have much money to invest in the first place. So the increase in the value of the S&P hasn’t helped them, but it helped the 5% or 10% or 1% of the population that owns equities. So it’s created a wider wealth inequality, and that is a negative from a society point of view.

Amidst extreme currency devaluation, this crisis has the potential to lead to malinvestment which will, in turn, create asset bubbles that’ll explode in chaos when the bubbles burst.

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China yuan could be reserve currency with reform: IMF

BEIJING (Reuters) – China’s yuan could become a reserve currency in future if the country undertakes further economic reform, International Monetary Fund managing director, Christine Lagarde, said in a speech on Sunday.

The IMF chief, speaking to a gathering of leading Chinese policymakers and global business leaders, added that China needed a roadmap for a stronger, more flexible exchange rate system.

China operates a closed capital account system and its yuan currency is tightly controlled, although Beijing has said it wants to increase the international use of the yuan to settle cross border trade and has undertaken a series of reforms in recent years to that end.

(Reporting by Koh Gui Qing; Writing by Nick Edwards; Editing by Jonathan Thatcher)

Analysis: Turning point in the currency war

By Mike Dolan

LONDON | Wed Mar 21, 2012 3:01am EDT

(Reuters) – A counteroffensive of sorts may be underway this year in what has seemed like a one-sided “global currency war” as developing economies slow, western money-printing pauses and the heat comes out of pumped-up emerging marketcurrencies.

The three-year-old “war”, as Brazil dubs the devaluationist policies of developed nations seeking relief from home-grown credit crunches, may well just come full circle and burn itself out as a result.

But the reverse course of emerging currency depreciation carries its own significant risks, from skewing investment decisions to aggravating trade diplomacy.

What’s more, it’s Japan’s success this year in finally weakening its supercharged yen, by fresh rounds of money-printing from its central bank, which may prove pivotal by disturbing the delicate balance in Asia.

Some economists warn the yen’s more than 10 percent retreat since January is already forcing China’s hand on its own controversial policy of yuan capping in a way that could cause consternation in Washington in an election year.

Far from seeing a sharply rising yuan emerge from China’s policy of greater exchange rate flexibility – core U.S. and multilateral demands – the yuan has actually weakened this year as China’s economy and inflation rates slow, its trade account worsens and fears of a “hard landing” there persist.

Even though the tightly-controlled yuan has gained more than 10 percent against world currencies over the past five years, it’s one of the few major emerging market currencies to remain lower against the U.S. dollar so far in 2012. Bouncing back smartly from a dire 2011, Russia’s rouble, India’s rupee, Mexico’s peso and South Africa’s rand are all up 5-10 percent.


BRIC currencies since 2007:

Currency performance in 2012:

Chinese yuan vs Japan yen:

China trade in deficit:

Japan exports to China vs US:


China recorded its biggest trade deficit in more than a decade in February and signs of slowing economic activity are mounting in everything from real estate prices to ore demand to foreign direct investment. But if it allowed or engineered a lower yuan, then it’s unlikely the other emerging giants – never mind the west – could ignore that.

Long-term global markets bear and Societe Generale strategist Albert Edwards says it’s vitally important global investors put the possibility of a weaker Chinese yuan on their radars because consensus thinking is disregarding the risk.

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