Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The End of the World History Stock Market Chart : Big Pattern = Big Move - 26th Jan 21
Stock Market Recent Sector Triggers Suggest Stocks May Enter Rally Phase - 26th Jan 21
3 Top-Performing Tech Stocks for 2021 - 26th Jan 21
5 Tips to Manage Your Debt - 26th Jan 21
Stock Market Intermediate Trend Intact - 25th Jan 21
Precious Metals Could Decline Before their Next Attempt to Rally - 25th Jan 21
Great Ways of Choosing Good CMMS Software for a Business - 25th Jan 21
The Dark Forces behind American Insurrectionists - 25th Jan 21
Economic Stimulus Doesn’t Always Stimulate – Pushing On A String - 25th Jan 21
Can Karcher K7 Pressure Washer Clean a Weed Infested Driveway? Extreme Power Test - 25th Jan 21
Lockdown Sea Shanty Craze - "Drunken Sailor" on the Pirate Falls Crazy Boat Ride - 25th Jan 21
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

A World Economy Made of BRICS?

Economics / Emerging Markets Aug 22, 2014 - 03:54 PM GMT

By: Submissions

Economics

Rodney Johnson writes: Brazil, Russia, India, China and South Africa (BRICS) recently announced the formation of a Contingent Reserve Arrangement (CRA), which will provide loans to member countries if their foreign exchange reserves run dangerously low.

This fund is supposed to show the world that the BRICS can survive without the International Monetary Fund (IMF) and its main patron, the U.S., and that countries are taking concrete steps to shake their reliance on the U.S. dollar.


Upon close inspection, it appears that the structure is in place, but it’s coupled with nothing more than an empty bank account and a lot of caveats. The CRA is a protective, yet flimsy wall made of paper maché instead of solid brick and mortar.

The treaty that brought the CRA to life calls for funding the new entity with $41 billion from China, $18 billion each from Russia, India, and Brazil, and $5 billion from South Africa, although no money will change hands anytime soon.

The accord also states that each country retains sole possession and control of their contribution until such time as there is a call for funding.

In essence, each country pledged money, but doesn’t have to put up any cash. This way the five members get political credit for nothing more than a signature.

And it gets better.

Members can request loans of up to 30% of their allotment whenever they want. The request requires approval from a simple majority of the members. However, a bigger loan requires a unanimous vote of the members as well as proof that the requesting country is already participating in an IMF program loan, and is in full compliance with the terms of that loan.

In addition, a requesting country can’t be delinquent on any multilateral or regional institution loan. So the powerful new CRA, which is supposed to be a challenger to the IMF, actually requires that a member requesting a sizeable loan has already groveled at the feet of the IMF and agreed to any terms that organization has imposed.

As for the workings of the CRA, a few procedural points can be managed by a simple vote of the members where a majority carries the day, but anything of note must be approved by a weighted vote of the members.

Given that China is 41% of the fund, the country is the big man on campus, and can almost single-handedly put down any change it doesn’t like. This sounds an awful lot like what exists today at the IMF.

The “get-out” clause includes a provision that stipulates that member countries can choose to refuse funding when they are facing hardship themselves. In other words, if the world markets lose faith in more than one of the BRICS countries at the same time, then every country must fend for itself.

Somehow, none of this instills a lot of confidence.

If countries aren’t putting up any cash, and can claim hardship so that they never have to, will the fund be able to perform its function in a crisis? No one will know until a crisis actually arrives. When it does, we’ll see if the mortar holds or the BRICS just fall apart.

There is a better way.

The BRICS could have copied the IMF, which got its original funding from the Exchange Stabilization Fund (ESF) of the U.S. The ESF, in turn, was funded by the U.S. Treasury when Roosevelt confiscated gold from U.S. citizens in 1933 and then promptly devalued the dollar.

This move resulted in a windfall profit that allowed the creation of the ESF, and has been used as something of an exchange slush fund by the U.S. for over 70 years. Since several, if not all, of the BRICS have nationalized assets, they should have enough funds floating around to kick in some real, albeit stolen, cash.

Until this fund gets on firmer footing, I don’t see it truly competing with the IMF, and certainly not leading to a reduced role for the U.S. dollar in international finance.

Rodney

http://thesovereigninvestor.com

Rodney works closely with Harry to study the purchasing power of people as they move through predictable stages of life, how that purchasing power drives our economy and how readers can use this information to invest successfully in the markets.  He’s a regular guest on several radio programs and is featured on television where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He too is a regular guest on Fox Business’s “America’s Nightly Scorecard.”

© 2014 Copyright  Rodney Johnson - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules