A BRICS Bretton Woods In Kazan?

The BRICS summit chaired by Russia is fast approaching. Here’s everything you need to know before this major geopolitical event.

16^th BRICS Summit

The finance ministers and central bank governors of the BRICS club gathered this week to prepare for the summit of heads of state which will take place from October 22 to 24 in Kazan, Russia.

The top financiers unveiled a report outlining the characteristics of the future international monetary and financial system. Unsurprisingly, the dollar took a hit:

“The prominent share of the US dollar in central bank reserves needs re-evaluation. It subjects the global economy to increasing strains as US interests are not always aligned with those of the rest of the world.”

The introduction immediately suggests that the peak of the current monetary system is behind us and recent crises have exposed the problems stemming“from an over-reliance on a single currency and a centralized financial infrastructure.”

Disconnected from the SWIFT network, Russia has taken advantage of its rotating BRICS presidency to promote an alternative. The problem is that many banks are reluctant to use the Russian SPFS equivalent for fear of losing their nostro account in dollars with US banks. The United States protects its monetary hegemony through this blackmail.

This blackmail takes many forms, including tariffs. Donald Trump threatens to raise them by 100% for countries that no longer want to keep their reserves in dollars.

Trump will impose 100% tariffs on countries abandoning US Dollar as reserve currency.

😆 Free market with American characteristics! pic.twitter.com/VVbrE77X5O

— S.L. Kanthan (@Kanthan2030) October 15, 2024

Unfortunately, keeping reserves in dollars proves extremely risky. The United States, the European Union, and other G7 countries have “frozen” resources equivalent to 300 billion euros belonging to Russia.

Any country that refuses to bow to Western imperialism can lose everything overnight. The thorny issue of foreign exchange reserves will be at the heart of the BRICS summit, next Tuesday and Wednesday.

Dollar, No

The militarization of the dollar is probably the biggest mistake the US government has ever made. Dedollarization will accelerate, even if the Indian heavyweight continues to appease both sides.

While New Delhi is firmly working behind the scenes to internationalize the rupee, Foreign Minister S. Jaishankar clarified this Tuesday that torpedoing the dollar is not among its plans.

Mr. Jaishankar noted that US policies often complicate trade with certain countries and that India is seeking “solutions” without intending to give up the dollar,“unlike other countries.”

“We have never actively targeted the dollar. This is not part of our economic or strategic policy, unlike other countries. We are naturally concerned that some of our trading partners lack dollars for their transactions. We must therefore decide whether we give up trading with them or find other solutions. There is no malicious intent towards the dollar,” stated Mr. Jaishankar in response to a question from the American think tank Carnegie Endowment for International Peace during a visit to Washington.

#WATCH: "Sometimes you make it difficult, you know, in the use of dollars."

Responding to a question on "De-dollarization," Indian EAM S. Jaishankar said India has never "actively targeted" the US dollar.

He clarified that some of India's trade partners do not have dollars to… pic.twitter.com/Bwkw8RuNq6

— Statecraft (@statecraftdaily) October 15, 2024

Despite this polite facade, the minister nonetheless warned that a multipolar world will eventually reflect in “the choice of currencies for international transactions.” This is already clearly observable in China where international exchanges are increasingly conducted in yuan rather than dollars.

Chinese dollar reserves have melted by 42% in less than a decade. While the Chinese central bank held over 1,300 billion dollars in US Treasury bonds ten years ago, it now holds only 770 billion.

Internationalization of BRICS Currencies

The BRICS are clearly intent on reducing their dependence on the US currency. The BRICS report is unequivocal and dismisses some persistent rumors along the way.

The main information is that the BRICS do not intend to create a new currency. There will be no stable coin backed by gold or other commodities, no basket of currencies, and certainly no crypto scam “Unit.”

However, Russia advocates for the creation of new international financial infrastructures that will favor transactions in national currencies. Iran is also at the forefront of this issue.

“We have reached very good agreements in the financial and monetary fields. We addressed the issue of payments in local currency. Agreements were made regarding payments and foreign exchange reserves. China, Iran, and Russia advocate for the use of national currencies and reducing the role of the dollar in international transactions,” stated the governor of the Iranian central bank.

JUST IN: BRICS says it has reached a "very good agreement" to settle international trade with national currencies. pic.twitter.com/UZEdho0AAP

— BRICS News (@BRICSinfo) October 14, 2024

The report highlights that the new version of the international monetary system must include technological guarantees to prevent any seizure of foreign exchange reserves. This closely resembles bitcoin, a stateless currency that also interests the Russians greatly. The CEO of the Russian exchange Kickex mentioned in an interview with Cointribune that Russia accounts for “17% of the hashrate.”

Unfortunately, the technological innovation highlighted was the CBDC… The paper even touches on the idea of markets built from asset-backed tokens without really expanding on the question.

But fundamentally, and the report does not hide it, transaction costs in CBDC or other tokens cannot be competitive without market depth (significant volumes). In other words, monetary hegemony is a fight to the death.

The Issue of Foreign Exchange Reserves

BRICS central banks support “a diversification of currencies and commodities (gold, platinum, etc.)” for foreign exchange reserves:

“There are numerous options. The range of asset classes extends from conventional currencies, debt, and gold to newer ones, all involving a trade-off in terms of transaction costs, liquidity, and security.

Countries choosing to avoid dominant currencies will gain certain advantages in terms of diversification but must face higher transaction costs as well as greater volatility.”

It remains to be seen which countries are ready to lose money to deprive Uncle Sam of his exorbitant privilege. A privilege that, incidentally, lies in the fact that the rest of the world holds the majority of its foreign exchange reserves in dollars (~$7,000 billion). This allows the United States to maintain an abyssal trade deficit without the dollar exchange rate collapsing.

No other country has this privilege, except perhaps the Eurozone. The single currency represents about 20% of global foreign exchange reserves (58% for the dollar).

The alternative that already ticks almost all the boxes is called bitcoin. The only black mark is its volatility. It is currently too significant for a nation to dare place its reserves there.

Bitcoin is, however, the only currency in the world existing in an absolutely finite quantity, which ultimately guarantees upward volatility.

Ironically, it is the United States (if Donald Trump is elected) that could first create a strategic bitcoin reserve… We will have a clearer view when the worm is in the apple…

Finally, note that 35 countries will be present at the BRICS summit. After Iran, the United Arab Emirates, Saudi Arabia, Egypt, and Ethiopia, nations continue to flock.