BRIC Nations Looks To Challenge US Economic Power
August 22, 2014 | Tom Olago
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United States and western economic domination via the G7 is now said to be under threat from a rise of another economic conglomerate: the BRICS countries. This economic bloc comprises 5 countries typically not considered ‘first world’ and comparatively considered to be among developing nations: Brazil, Russia, India, China and South Africa. These countries are said to account for 42% of the global population and their GDP and trade volume each make up for about 20% of the world’s total.
A recent report by WantChinaTimes.com says that the rise of the BRICS group and its increasing clout, may well challenge the world order and lead to the end of US domination. The five countries set up the New Development Bank during a recent summit in Brazil, which offers an alternative to the US-led International Monetary Fund and the World Bank. The five countries participating in the economic cooperation forum are likely to deepen their cooperation in various fields, which may rival the dominance of the United States and G7 countries in the world. The United States has been dominant both due to its military might and the widespread use of the dollar, with the IMF and the World Bank playing an instrumental role in cementing the dollar’s role in the global economy.
The report infers that the Development Bank alternative addresses the reflection of the BRICS countries’ shifting roles, and further states that the BRICS countries will contribute equally to the US$50 billion fund, enjoy the same voting powers and provide loans to other developing nations as a means for expansion.
A similar WashingtonTimes.com report discussing the subject,lists several complaints and issues raised by BRICS in relation to IMF and World Bank policies and operations. These encapsulate the core motivations for forming BRICs and challenging the long-standing US domination:
1.Restrictions on world trade imposed by the Bretton Woods (NH) Agreement of 1944, which established a new international monetary system dominated by the United States.
2.Moral objections to U.S. perversion of its reserve currency status, namely that the U.S. has been printing money to fund its budget deficits for two generations.
3.The threats of default on U.S. obligations to foreign holders of U.S. bonds — which would cause a collapse of the dollar and a worldwide depression.
4.BRICS has also bridled at the lack of developing nations’ influence on international trade and currency valuations. For example, the top five members of the IMF (USA, Japan, Germany, France and the UK control nearly 40 percent (39.4 percent) of all the voting rights of the 188 member organization. China has 4 percent. Perhaps even more significant is the fact that all the standards for lending, reporting, national solvency and balance of trade are set and enforced according to the American philosophy of taxation, government spending and rule of law.
Within the BRICS set up, China is however poised to take on the role of the ‘defacto’ group leader. In an interview with Latin American media during the summit, Chinese president Xi Jinping promised that China will play the role of a responsible major nation to contribute to the economic development and stability of BRICS nations. Indications are that independent international views would also agree with the high likelihood of this outcome, extending beyond BRICS to the global economic stage. A recent survey of people in 44 countries by the Pew Research Center showed that close to 50% of those polled believe that China will eventually replace the United States as the world leader.
The WashingtonTimes.com concurs, stating: “China is the primary mover of BRICS. 70 percent of BRICS’ combined GDP comes from China and 41 percent of the eventual $100 billion capitalization of the Contingent Reserve Arrangement (CRA) will come from China. From its rhetoric, it is clear that this alliance is intended to eventually construct an alternate world financial system dominated by China to supersede or replace the Bretton Woods international monetary system and the U.S. dollar. China has been scheming to have its currency, the Renminbi Yuan (called the Yuan), declared a reserve currency.”
Additionally, based on independent research sources BRICS is said to represent over 25 percent of the world’s land, about 40 percent of the world’s population and about 17 percent of the world economy as well as 50 percent of the world’s growth in GDP over the past 10 years. BRICS’ combined 2014 GDP ($10,971.6 trillion) is nearly that of the US ($14,657.8 trillion) and the EU ($16,282.2 trillion) and is expected to surpass the combined US and EU GDP by 2020. Not good news for the US and EU from economic domination and policy control viewpoints. However, the US seems not be taking these challenges lying down, and is attempting to fight to retain its dominance and influence in the friendlier current IMF and World Bank set up over the longer term.
The Washington Times report explains that the BRICS flagship New Development Bank is not in itself a serious threat to the dollar. In years to come, however, it could evolve into a game-changer for the U.S. Meanwhile, the nearer term threat of this BRICS activity stems not from the BRICS countries directly but as a sign of the gathering anti-Bretton Woods sentiment, even among US allies.
Prominent in this arena is the outspoken IMF Managing Director Christine LaGarde, who apparently favors a new international monetary system based on the IMF’s Special Drawing Rights (SDR) to replace the dollar’s exclusive status as the world’s reserve currency. LaGarde’s idea is to add the Yuan to the “basket” and then treat any of these five currencies as legitimate reserve currencies for international transactions at the valuation determined by the IMF. This, of course, converts the dollar from “one of a kind” to “one of several” — with additional currencies to be added to the list as authorized by the IMF.
The Washington Times report concludes: “Needless to say, any hasty actions to replace or degrade the position of the dollar as the world’s reserve currency could be catastrophic for the USA. At the same time, the emergence of China and BRICS, with the overt support of many of the 188 countries of the IMF are clear signals that significant changes are inevitable and at hand. One must have confidence that the Americans will be successful in negotiating a soft landing for the dollar. Or the USA will be the next Greece.”
So how long will the US be able to maintain economic dominance over competitors, and keep the dollar as the global reserve currency of choice? That remains to be seen, but one unconventional, yet timeless and clearly overlooked source of advice for the US is not to be found in economics text books or forums, but in the God-inspired mind of the wisest man who ever lived:
Righteousness exalteth a nation: but sin is a reproach to any people (Proverbs 14:34).