ZoneBitcoin EditorialInitially, the BRICs only designated four emerging countries. The small " S » final being that of the plural and not yet designating South Africa in this report. It was in 2010 that South Africa joined the group to finally form the acronym BRICS with a big “S”(for South Africa).
The acronym BRICS first appeared in 2001 from the pen of the British economist Jim O'Neill. This was in a report from investment bank Goldman Sachs titled “Building Better Global Economic BRICs". The report indicated that the economies of emerging countries would develop rapidly, and could act as a counterweight to the G6 (today, the G7).
Recently, at the last BRICS meeting, the idea of creating a new reserve currency was raised.
It seemed particularly interesting to us to open the question of the relevance of this new reserve currency in the face of global domination of the dollar. Even more, we will ask ourselves if bitcoin could not find there, a neutral ground for greater adoption?
In this article we will try to answer all these questions.
What is BRICS, who are its members and what is it for?
As already announced in the introduction to this article, the acronym BRIC was invented in 2001 by the chief economist of Goldman Sachs to designate the emerging economies of Brazil, Russia, theIndia and China.
The term was quickly used to designate countries with emerging economies (or developing economies depending on the terminology chosen). From its creation, the organization wanted to have more influence on global economic governance. In 2009, the first BRIC summit took place in the city of Yekaterinburg (Russia) in response to the financial crisis of subprime.
In 2010 South Africa joined the group to form the acronym “BRICS”. The organization is more of an economic partnership than a political alliance.
Today, these 5 countries bring together more than 3,22 billion of people. Which represents more 41,25% of the world population. China and India being the most populated countries on the planet. In two, they represent by far the largest part of this population. BRICS now runs linked financial institutions to help emerging countries.
BRICS have their own development bank
The organization created its own development bank like the ADB (African Development Bank) in Africa. There « New Development Bank (NBD) is based in Shanghai, the economic capital of China. It has capital of 100 billion dollars. The bank can also lend to other non-BRICS countries suffering from economic instability but its capital cannot fall below 55%. It also aims to finance major infrastructure works and development projects in countries that request them.
It is important to emphasize that BRICS also has a “Emergency Monetary Fund” of 100 billion dollars. Thus these two financial institutions, the NBD and the emergency fund, contribute to offering an alternative to the global financial institutions that are the IMF and World Bank.
Why do BRICS want a new international reserve currency?
To better understand where such an ambitious project could come from, it is important to recontextualize everything. Of course, the story is long, we will therefore try to come back to some notable elements. First, the post-World War II financial system (the Bretton Woods agreements), galloping inflation in recent years, the Covid-19 crisis and finally the recent sanctions against Russia following the Russo-Ukrainian conflict.
A brief historical reminder of the Bretton Woods agreements
Following the Second World War, the main objective of States was to establish a global monetary organization with a view to promoting the reconstruction and economic development of countries affected by the war. This is how it will be signed the Bretton Woods agreements from July 1 to July 22, 1944. They were signed after three weeks of debate between 730 delegates representing all 44 allied nations.
At the end of these meetings, three major decisions were taken: A fixed but adjustable exchange rate; convertibility of currencies, but controls on capital flows; new financial institutions: IMF and World Bank. And the other more important element was the institution of the American dollar as an international reserve currency.
NB: The absence of the Soviet Union during its meetings should be noted. This is the first hitch to the international character of the institutions designed at Bretton Woods. The USSR, one of the victors of the Second World War, had not signed these nor given its reasons. She had simply made it known that she did not consider her current membership to be appropriate.
But, despite major structural changes in the international monetary system over the past 60 years, the US dollar remains the dominant international reserve currency.
In 1971, US President Nixon decides to abandon dollar convertibility in gold and it is officially the end of the Bretton Woods agreements.
Lire: The day Nixon abandoned dollar convertibility
Free yourself from the American dollar and the IMF SDRs?
It was in Beijing, at the summit, that Russian President Vladimir Putin announced that the five BRICS member economies planned to issue a new global reserve currency. The question of the creation of the international reserve currency based on the basket of currencies of our countries is under study", Putin said at the time. We are ready to work openly with all exhibition partners" , he added.
The BRICS decision to issue a new global reserve currency is an attempt to accelerate the dedollarization of the world. At least that's what financial analysts think. Knowing also that Turkey, Egypt,Algeria and Saudi Arabia are considering joining the BRICS group.
To Chris turner, global head of markets at ING, this is a move aimed at remedying the perceived US hegemony of the IMF. According to him, this will allow BRICS to build their own sphere of influence and their own monetary unit in this sphere. Remember that already at the end of May 2022, a report from Global Times noted that BRICS members had been urged to end their dependence on the global dominance of the dollar.
At the same time, trade relations between Russia and the BRICS countries are intensifying. Recent statements by the Russian president at the BRICS summit have made Westerners say that BRICS members are no longer meeting just to “ a talk show ". Aside from South Africa, Russia has also increased its foreign aid and delivered weapons to sub-Saharan African countries in recent years. Additionally, Putin and other BRICS leaders have targeted US hegemony and exceptionalism in specific statements released by the media.
How could the new BRICS currency benefit Bitcoin?
To conclude, since the end of the Cold War, global security has never been as threatened as it is today. It is probably following all these geopolitical tensions, the economic positioning between China and the United States, the inflation of the American dollar (currency which has no longer been based on gold since 1971) that the BRICS want to create a new global reserve currency.
In this context, it is then possible that there will be a sort of new financial cold war with the currencies of the BRICS and that of the USA. However, for some people, a third way would be preferable. This could be that of gold or that of bitcoin. This is in fact the point made by economists who support Bitcoin like Saif Ammous for example.
Bitcoin appears for many emerging countries a way out and an alternative to dollars. Countries that also want to free themselves from dollars, like El Salvador, have opted for bitcoin to free themselves from dollars. Then, the Central African Republic legalized bitcoin while creating its own state digital currency (sangocoin). For some people, bitcoin could even become the first pan-African currency.
With the establishment of the new ISO standard 20022 and the great "reset" of the economy, the question of the legitimacy of money is reopened. This is to say that the question of money and the domination that it implies is today more relevant than ever...
Resources to go further:
- Article by Chris Turner: https://think.ing.com/opinions/brics-the-new-name-in-reserve-currencies/
- Article published by Cambridge University Press: https://www.cambridge.org/core/elements/can-brics-dedollarize-the-global-financial-system/0AEF98D2F232072409E9556620AE09B0
Note: No financial advice is given in this or any other article on zonebitcoin. This is information of which you are the sole judge and master. Be responsible with your investments and only invest as much as you are willing to lose.
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