BRICs hit by capital outflows [Soberlook]

From soberlook.com

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 Plan for the Future [24hgold.com]

by John Browne – Euro Pacific Capital

Last week, the leaders of Brazil, Russia, India, China, and South Africa met in New Delhi for their fourth annual “BRICS” summit. The meeting brought together five countries that together represent 43 percent of the world’s population and 18 percent of the world’s GDP. (More importantly, the group is currently attracting 53 percent of global financial capital.) When the gathering concluded on March 29, the coalition subtly issued its latest challenge to the increasingly desperate bankers and politicians of the West. They announced more definitive plans to establish a BRICS-focused development bank, to be solely funded by the BRICS countries themselves. Such an institution could allow this emerging bloc to pursue independent policies on the world stage, thereby challenging the global financial dominance of the World Bank and the International Monetary Fund (IMF), which for nearly 70 years have served as powerful monetary levers for Western interests.

If the BRICS countries continue to develop in the present trajectories, I believe that in five or ten years they will have the ability to fund their bank at levels that could challenge Western institutions (for why we think Indonesia should be included in the BRICS, see our latest global investor newsletter). If so, the duel between these international banks may be the arena where the world decides what sort of money it really prefers. The contenders will be the debased fiat money of the Anglo-American led debtor nations and a currency backed by the nations whose citizens are awash with savings and whose economies churn out needed goods.

The current monetary system can trace its genesis to the Bretton Woods conference that took place in the waning days of the Second World War. As a result of the massive wartime expenditure and destruction, Europe, Russia, and most of the world were near bankruptcy. In contrast, the United States had flooded the world with high quality consumer goods and had accumulated vast surpluses. Its currency, the dollar, was convertible to gold at the fixed rate of $35 an ounce. The U.S. dollar, then, was the clear choice for the international reserve standard. The pre-war Keynes-inspired Anglo-American tendencies were later imbedded in new international supra-governmental bodies such as the International Monetary Fund (IMF), the World Bank, and in the Security Council of the United Nations.

Sixty-eight years later, the Anglo-Americans have greatly increased the powers and size of central governments and central banks. Governments have accumulated unimaginably irresponsible levels of government debt and debased their currencies almost beyond recognition. This has discouraged savings and investment. But if the extraordinary government spending comes to an end, and the monetary spigots were to switch off, these economies would face severe recession, leaving vote-seeking politicians with few good options. On the other hand, those countries with robust industries, high levels of savings and investment, low levels of government debt, and more sensible economic policies, have accumulated vast reserves (this mirrors the rise of America in the late 19th Century).

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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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Brics’ move to unseat US dollar as trade currency

Thandeka Gqubule and Andile Ntingi

South Africa will this week take some initial steps to unseat the US dollar as the preferred worldwide currency for trade and investment in emerging economies.

Thus, the nation is expected to become party to endorsing the Chinese currency, the renminbi, as the currency of trade in emerging markets.

This means getting a renminbi-denominated bank account, in addition to a dollar account, could be an advantage for African businesses that seek to do business in the emerging markets.

The move is set to challenge the supremacy of the US dollar. This, experts say, is the latest salvo in the greatest worldwide currency war since the 1930s.

In the 30s, several nations competitively devalued their currencies to give their domestic economies an advantage over others.

And this led to a worldwide decline in overall trade volumes at the time.

The north will be pitted against the entire south in a historic competitive currency battle – whose terrain has moved to the Indian capital New Dehli – where the Brics (Brazil, Russia, India China and South Africa) nations will assemble next week.

China seeks to find new markets for its currency and to lobby to internationalise it throughout the Brics states.

For China this is not a new game. In 2009, senior Chinese banking officials issued a statement that the international monetary system was flawed owing to an unhealthy dependence on the US dollar and called for a “super-sovereign” international reserve currency.

Experts say Beijing’s first step is to internationalise its currency (by expanding its reach beyond China), liberalise it (to allow its value to be determined by the market instead of actively managing it as they currently do) and then make it a reserve currency for many nations in the developing world.

Africa’s largest bank, Standard Bank, says in a research document: “We expect at least $100 billion (about R768 billion) in Sino-African trade – more than the total bilateral trade between China and Africa in 2010 – to be settled in the renminbi by 2015.”

The bank anticipates that the use of the renminbi will lower transaction costs in Africa, thus lowering the barriers to doing business.

It also says that the Chinese will be more successful in transacting in renminbi in Africa than anywhere else because most currencies are weak and somewhat localised.

Not only will the US dollar be challenged, but also the entire international financial regime – led by the World Bank and the International Monetary Fund – which has been dominant since the end of World War II.

South Africa’s place in the emerging international financial regime is set to be enhanced.

Zou Lixing, vice-president of the Institute of Research of the China Development Bank, told the Brics preparatory meeting recently that “although the economic aggregate of South Africa is small relative to the Brics, South Africa provides a gate for the Brics to get access to the huge African market”.

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