The successful BRIC summit at Yekatinerberg in Russia on 16 June came out with a a Joint Statement calling for concrete economic reforms. The four nations, representing four emerging economic powers demanded of the developing economies to have a “greater voice and representation in international financial institutions and the need for appointing their heads and senior leadership through an open, transparent and merit-based selection process.”

BRIC Origins

The acronym BRIC was coined in 2001 by an analyst of Goldman Sachs who argued that, by 2050, the combined economies of the BRIC nations would eclipse the current richest countries in the world. The investment bank would never have thought that BRIC would organize itself into an economic bloc with the acronym trying to represent much more than originally intended.

Though the economies of BRIC are based on differing markets such as Brazil and Russia with their natural resources; China’s manufacturing prowess and India’s rapidly growing service sector and domestic growth, the combined might of the BRIC countries currently have a 15-percent share of the world economy and 42-percent share of global currency reserves.

The summit echoed member countries Brazil, Russia, China and India demand for increased global economic reform and a “strong, stable, predictable and more diversified international monetary system”, which was a message against the global domination of the US dollar as the world’s standard reserve currency.

De-dollarization

De-dollarization threatens to force countries to return to the kind of dual exchange rates common between World Wars I and II: one exchange rate for commodity trade, another for capital movements and investments, at least from dollar-area economies.

Foreign military spending plunged the US balance of payments into deficit and drove the United States off gold in 1971, central banks were left without the traditional asset used to settle payments imbalances and they settled for the alternative by default; to invest their subsequent payments inflows in US Treasury bonds, as if these still were “as good as gold.”

Various Central banks now hold US$4 trillion of US treasury bonds in their international reserves. These loans have financed most of the US Government’s domestic budget deficits for over three decades now!

Sorrows of Empire

The de-dollarising penchant was in display recently when Brazil and Russia joined China in announcing that they would shift some US$70 billion (50 billion euros) of reserves into multicurrency bonds issued by the International Monetary Fund. Even without capital controls, the nations which met at Yekaterinburg had hinted at steps to avoid amassing dollars. Knowing that the spending power of US is what they themselves supply, these governments are attempting to hasten what Chalmers Johnson called in his book “the sorrows of empire”.

At the St. Petersburg International Economic Forum on 5 June, Mr. Medvedev lashed out at the “artificially maintained unipolar system that is based on one big centre of consumption, financed by a growing deficit and growing debts by one formerly strong reserve currency, and one dominant system of assessing assets and risks”.

The Russian President advocated China, Russia and India to “build an increasingly multipolar world order that implied curbing the subsidizing of United States’ encirclement of Eurasia and appropriating our exports, companies, stocks and real estate in exchange for paper money of questionable worth”.